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Heathrow Airport’s chief executive tells Nathalie Thomas why its planned hike in landing charges is justified and how delays to aviation policy threaten Britain’s future.
Let’s get one thing straight: Colin Matthews does not do personal questions. In fact, given the choice, the chief executive of Heathrow probably wouldn’t be doing this profile interview at all.
The engineer will talk for Britain about aviation capacity and investment plans at the airport but dare to tread beyond the professional and the shutters come down.
“Not to be unfriendly,” he says, with a smile, but that is as far as the small talk goes.
To characterise Matthews as stand-offish and unyielding would be unfair, however.
He has relaxed a great deal since 2008 when he took over as chief executive of what was then BAA and is now Heathrow Airport Holdings.
Press conferences are no longer exercises in getting blood from a stone. “It’s pretty uncomfortable in the first year when you get these questions and you really don’t know what the answer is,” he concedes. “That’s less true after five years than it was after five months.”
Perhaps his reticence in the early days had something to do with the fact that when he climbed into the control tower at BAA, Heathrow was frequently described as a “national disgrace”.
If he didn’t have one already, Matthews had to quickly develop a thick skin, as criticism about punctuality, lost baggage and poor customer service rained down. That hasn’t completely disappeared – he had to put his tin hat back on during last month’s snow, which led to disruption and delays.
Now the airports boss is engaged in a fight of a different kind – with Europe’s most powerful airlines.
Heathrow has been on the receiving end of a volley of criticism, after proposing to raise charges for airlines that use the airport by almost 6pc above the rate of inflation from next year.
The chorus of dissent from airlines including British Airways, Virgin Atlantic and Lufthansa threatens to grow louder tomorrow when Heathrow is expected to post healthy growth in full-year revenue. Carriers such as Scandinavia’s SAS argue it is “remarkable” that Heathrow is planning to hike charges by “such a magnitude”, at a time when many European airlines are slashing costs.
Under Heathrow’s plans, landing charges will jump from £19.33 per passenger this year to £27.30 by 2018.
Sitting in the Heathrow boardroom, which has a crow’s nest view over one of the airport’s two runways, Matthews looks ready for the battle. He’s fully armed with mathematical reasoning.
Asked how he’ll tackle further complaints about charges if airlines see Heathrow posting a sizeable jump in revenue, he fires back: “It’s the wrong way to look at it.”
Heathrow has justified its price increases by arguing that its shareholders, who are still led by the Spanish conglomerate Ferrovial, have invested money upfront to fund improvements to the airport.
Since 2003, £11bn has been ploughed into Europe’s busiest airport, on projects including Terminal 5 and a new Terminal 2, which will open next year. The group is proposing to invest a further £3bn between 2014 and 2019.
Shareholders reap the rewards of those investments retrospectively through higher revenues, Matthews argues. And so far, those shareholders have “scarcely” made a return on the billions they have ploughed into improving facilities at Europe’s busiest airport.
About 8m fewer passengers than forecast by the Civil Aviation Authority have passed through Heathrow’s doors over the past five years, which has resulted in lost revenue of £650m. “We haven’t yet started making a return to shareholders anything like in proportion to their investment,” says Matthews.
He acknowledges why the airlines have balked at another 6pc increase above inflation after already shouldering a jump of 7.5pc above the retail prices index (RPI) over the past five years – a formula that has pushed percentage rises into the double digits.
But he stands firm on the point that Heathrow can’t be diverted from its long-term course of repaying investors, just because airlines have hit some economic turbulence.
“I understand that airlines put huge pressure on every single line item of their costs, and an increase of double digits [in charges] is a big amount, but that’s what is required to invest in Heathrow. We simply have to earn the return in order to pay back, over a long period of time, investment that has been made,” he says.
The poor returns could explain why Ferrovial, which led a £10.3bn takeover of BAA in 2006, has been systematically selling down its stake in the group, which now presides over a dramatically reduced empire of four airports after being forced by the Competition Commission to sell off Gatwick, Edinburgh and, most recently, Stansted.
In October, Ferrovial struck a deal with the China Investment Corporation, which allowed the Spanish group to reduce its holding in Heathrow to 33.65pc. The move followed less than three months after Qatar’s sovereign wealth fund took a 20pc stake in the business.
From the outside, it would appear as though Ferrovial is taxiing towards the take-off runway. “You’re going to have to ask them,” says Matthews. “I’ve had absolutely no indication of that – quite the contrary.
“The other way I’d put it . . . is I think it’s pretty encouraging that well-known, big sources of equity, be it in China, be it in the Middle East, the Gulf, from around the world, are interested in investing in Heathrow.”
The influx of sovereign wealth is a vote of confidence for Heathrow at a time when its long-term fate is wrapped up in the outcome of the Government-appointed Davies Commission on aviation.
Matthews is conscious of not wanting to sound too “bombastic” when promoting Heathrow’s cause to the commission, led by Sir Howard Davies, the former Financial Services Authority chief.
While his adversaries such as Boris Johnson, the Mayor of London, have been loudly banging the drum about building an alternative hub airport elsewhere in the South East, Heathrow is following what can only be described as a “gently, gently” approach.
The first stage in Matthews’ chess game is to promote awareness of why it is important for Britain to have a hub airport, rather than a network of point-to-point airports, or even a dual hub, such as “Heathwick”, linking Heathrow with a rival via high-speed train.
Other groups, including the Institute of Directors and the Conservative Free Enterprise Group of MPs, have published reports arguing for Heathrow to be expanded into a four-runway “super hub”.
But, so far, Matthews has been coy about the full extent of his ambition for Heathrow, preferring, for now, to back the hub argument. He insists the group has not yet commissioned detailed studies into building a third, fourth or even fifth runway.
“Some of the options people talk about [for a new hub airport] will turn out not to be practical or realistic so they will fall away and I imagine it will come down to a small number of options and we are willing to see what comes out of that,” he says.
The Davies Commission, which reports in 2015, has been dismissed by a number of senior aviation figures, including Willie Walsh, the head of British Airways’ parent company.
Matthews believes it represents Britain’s “best shot” at finally resolving the that has been raging for decades – as long as the outcome receives cross-party support. But he insists his willingness to let the commissioners do their job shouldn’t be confused with a “relaxed” attitude to how the UK’s competitive edge in aviation is ebbing away.
“It sounds like I’m sort of relaxed,” he says.
“I’m not really because in the meantime Dubai and Istanbul are putting in big hub capacity.
“That will, over time, shift the flows of international traffic away from Europe, and the competitive pressure between Heathrow and other European hubs will increase.
“The question at some stage will be not so much ‘shall we have two [hubs in the UK]?’, but ‘how on earth are we going to be sure we have one at all?’. There are 27 member states in the EU, most of them do not have a hub. It is not a birthright that we have this connectivity.”