Last year, the airport generated retail sales of £339m/$44.3m in the six months ended 30 June 2019. Retail revenue, however, increased +11.1% to £9.72 (£8.75 in 2019) in the first half of 2020, while retail income per passenger is largely distorted due to reduced passenger numbers.
The significant drop in retail revenue during the first six months of 2020, was driven by reduced passenger numbers, which were down over -96% in the second quarter. This is because global aviation came to a virtual standstill due to the coronavirus (Covid-19) pandemic.
Heathrow is anticipating a gradual recovery in passenger traffic as countries re-open but expects 2020 passenger volumes to reach just 29.2 million, more than 60% lower than 2019. A return to pre Covid-19 traffic volumes is not anticipated until after 2022.
Total revenue dropped 51.3% in the six-month period this year to £712m. Revenue in the previous corresponding period last year amounted to £1.4bn. Revenue in the second quarter of 2020 fell -85% to £119m and adjusted EBITDA turned to a loss of £93m. The airport recorded an adjusted loss before tax of £471m in the first six months of 2020.
SUFFICIENT CASH RESERVES
Heathrow indicated it had sufficient cash reserves until at least June 2021 under the ‘extreme scenario’ of no revenue, or well into 2022 under its traffic forecast. This includes forecast operational costs and capital investment, debt service costs, debt maturities and repayments. The liquidity position takes into account £2.7bn in cash resources and undrawn dept and liquidity at Heathrow Finance plc, as of 30 June 2020.
The airport also agreed a waiver on financial covenants until the end of 2020 and maintained its Investment Grade credit rating status.
During the first six months of the year, Heathrow quickly reduced its average cash burn by over 30%. This was achieved by cutting at least £300m in operating costs and cancelling or pausing over £650m of capital projects. In doing so, it has tried to protect as many jobs as possible by maintaining pay at or above the London Living Wage.
“Many of our retail outlets closed in late March, leaving only essential retailers open. Stores begun to re-open in late June following government guidance meaning that we now have around 40% of outlets open across Terminals 2 and 5,” the airport commented.
On the retail front, the pandemic provided opportunities to transform the way the airport operated and to bring more ‘flexibility and dynamism’ into its operating model.
“As we move forward and build back better, we will embrace digitalisation through our retail proposition, security processes and contactless passenger experience. We will also look into the value proposition with our supply chain through closer supply partnerships,” Heathrow commented.
The deployment of Covid-secure technologies to protect passengers and colleagues has also been priority.
Meanwhile, Heathrow welcomed the government’s risk-based approach to allow quarantine-free flights from low and medium risk countries but emphasised that this only covers 30% of its markets.
“Establishing an alternative to quarantine for Covid-free passengers from other countries should be a priority for governments. Pre-flight testing for passengers from high-risk countries will allow long-haul flying to resume, which is critical for the UK’s economic recovery.”
John Holland-Kaye, CEO, Heathrow said: “Today’s results should serve as a clarion call for the government — the UK needs a passenger testing regime and fast. Without it, Britain is just playing a game of quarantine roulette.
“As many of our customers have experienced, it’s difficult to plan a holiday that way, let alone run a business. Testing offers a way to safely open up travel and trade to some of the UK’s biggest markets which currently remain closed. Our European competitors are racing ahead with passenger testing. If the UK doesn’t act soon, global Britain will be nothing more than a campaign slogan.”