Lamentable for teachers, full of hope for passengers: airport wars have begun Business News

July is proving to be a busy month for Heathrow: Britain’s busiest airport has just opened another runway and is opening another terminal next week.

In a non-Covid world, either development would make headlines around the world. As it stands, the developments have been reported by The independent in a single story of 277 words.

These assets were nothing new: they were put on hold and are now reopening.

Two years ago, Heathrow was pushing hard for a third runway. But a year ago, the southern airstrip was closed for the summer. It was only this week that work on two tracks resumed.

Two of the four terminals remain closed; Terminal 3 is expected to reopen later this month. But Terminal 4 is currently used for direct arrivals from “red list” countries such as India, Qatar and the United Arab Emirates, and there are no plans to open it for normal operations. before next year.

In 2019, Heathrow’s five square mile West London parcel of land generated a pre-tax profit of £ 26 per second on average – or, if you prefer, more than £ 10 for each of the 81 million dollars. passengers who have been there.

Shortly after the onset of the coronavirus pandemic, however, traffic collapsed. In the first three months of 2021, just 1.7 million passengers have passed through – the same as in a busy week in 2019. In the first year of the crisis, Heathrow lost £ 76 per second.

Which, if you work in higher education, might interest you. The airport’s largest shareholder is Ferrovial, with 25 percent; other investment firms, based in the United States and Canada, hold 24 percent. A significant portion of the capital is held by the sovereign wealth funds of Qatar, Singapore and China (41% in total). But the remaining tenth belongs to the university pension scheme, which pays for the pension benefits of university staff.

Airports have long been considered safe bets for pension funds. History shows that the throughput of passengers (and freight) as well as spending on everything from parking to duty free generates a reliable increase in income and an increase in asset value. Heathrow, with its dominant position in the UK, was so attractive that the Civil Aviation Authority (CAA) controlled its fares rather than let the market go wild.

A 2019 PwC report listed the benefits of investing in an airport: “Airports often demonstrate a level of market power through high barriers to entry. This means that some airports can enjoy some pricing power over long periods of time.

“Assets can provide investors with consistent cash returns. As passenger volumes and airport profits increase, airport investors typically see strong capital appreciation on exit. “

At the time, the main threat to the health of UK airports was to be Brexit rather than a global pandemic. Even then, the report noted: “Traffic has withstood external economic shocks, typically returning to positive growth within 12 months of a shock event. “

Not this time. Due to the extreme travel restrictions imposed by the United Kingdom and the almost total closure of its transatlantic routes due to a travel ban in the United States, Heathrow has fallen from No. 1 in Europe to No. 17.

The number of passengers is ignominiously lower than that of Palma de Mallorca and the secondary airports of Istanbul, Moscow and Paris.

Terrible news for shareholders – but not necessarily for travelers. While Heathrow rightly seeks to recoup lost revenue, the CAA will keep a cover on passenger costs.

New entrants are settling in; carriers like jetBlue initially occupy excess slots while “use it or lose” rules are suspended, but have a good chance of carving out a permanent presence. Other airports, notably the besieged Gatwick, will aggressively seek to attract lost business.

In recent years, the main airports in London have been operating at almost full capacity. This is great for shareholders, because airports have high fixed costs and low marginal costs. When times are good, every additional plane movement and every passenger plane load costs the airport next to nothing but generates a lot of revenue.

When times are tough, however, the only way out is competition. Travelers to and from the UK have benefited from a fierce rivalry between airlines. It is now the turn of London airports: sad for the teachers, full of hope for the passengers.