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Ferrovial

Ferrovial - Integrated annual report 2013 / Performance over the year

In the year ending 31 December 2013, the Group’s passenger traffic increased 3.3% to 84.9 million passengers, up from 82.2 million in 2012.

The performance was driven by Heathrow where traffic was up 3.4% to a record 72.3 million passengers. The average load factor was 76.4% (75.6% in 2012) and the average number of passengers per aeroplane grew from 197.4 in 2012 to 202.8.

The rate of traffic growth was boosted by the non-recurrence of the dip in demand at Heathrow experienced during the Olympic Games in 2012, estimated at around 720,000 passengers. Taking this into account, the underlying rate of growth for the year was in the region of 2.3%.

On a regional basis, Europe generated the most significant increase in Heathrow traffic throughout 2013, with 1.2 million additional passengers. This in part reflects the dampened demand in 2012 caused by the Olympics, which was more pronounced in short haul traffic. The underlying growth in the region reflects the integration of bmi routes into British Airways. Heathrow’s UK traffic grew by 5.9% to 5.0 million passengers (4.7 million in 2012) partly reflecting the launch of UK domestic services by Virgin Atlantic Little Red at the start of the summer.

Heathrow’s long haul traffic performed well in most regions. Asia Pacific traffic increased 5.3% to 10.3 million passengers (up from 9.8 million in 2012), as airlines launched new routes and frequencies including growth in China and India. Middle East traffic increased 4.4% to 5.9 million passengers (from 5.6 million in 2012) with larger aircraft and passenger growth from Emirates, Etihad and Saudi Airlines. The Americas benefitted from fuller planes, with the rate of growth in North American traffic increased through the year, leading to an overall rise in passengers of 2.4% and Latin American traffic increased 5.7% to 1.1 million passengers (1 million in 2012).

Across the Group’s three other airports of Glasgow, Aberdeen and Southampton, traffic increased 3.0% to 12.6 million passengers (12.2 million in 2012). Performance was particularly strong at the two Scottish airports, with Aberdeen’s traffic up 3.8% to 3.5 million passengers (3.4 million in 2012) and Glasgow’s traffic up 2.9% to 7.4 million passengers (7.2 million in 2012). Southampton airport experienced a more modest 1.7% increase in traffic to 1.7 million passengers (1.7 million in 2012).

The Group reported revenues from operations of £2,652m up 12.3% year-on-year. EBITDA rose by 17.9% in comparable terms to £1,441m. This strong performance reflects improved underlying traffic, increased aeronautical and retail income per passenger and continued cost control.

The Group has continued to implement its strategy to improve passengers’ experience and airlines’ operations through sustained substantial investment in modern airport facilities and improved service standards. This will ensure customers enjoy superior facilities relative to competitors, encouraging greater utilisation of the Group’s airports and supporting their long-term growth plan.

Improvements in service quality

The Group’s focus on transforming the experience of passengers travelling through its airports continued to receive significant endorsement from the travelling public in 2013.

In the 2013 Skytrax World Airport Awards, Heathrow Terminal 5 was named the World’s Best Airport Terminal for the second consecutive year and Heathrow was declared the World’s Best Airport Shopping. Heathrow was also named among Skytrax top 10 global airports for the first time.

In June, Heathrow was named Best Airport in the 2013 ACI Europe Awards. Underpinning these endorsements, in the independent Airport Service Quality survey, directed by Airports Council International (ACI), 75% of Heathrow passengers surveyed rated their experience as ‘Excellent’ or ‘Very Good’, beating the previous annual high of 73% in 2012.

Punctuality

In the year ending 31 December 2013, departure punctuality (the proportion of aircraft departing within 15 minutes of schedule) was 77% (78% in 2012).

Baggage

Heathrow’s baggage misconnect rate was 14.5 per 1,000 passengers as opposed to 15.0 in 2012.

Security queues

The waiting times in security queues continue to be a key priority for HAH, which is why we have been implementing various initiatives to improve on these figures. It is predicted that throughout 2014 more security guards will be hired and more security lanes will be installed.

90.9% of passengers passed through central security within the five minutes period prescribed under the service quality rebate scheme (92.8% in 2012) compared with a 95% service standard.

Passenger surveys

During the six first months of 2013, Heathrow achieved a record score of 3.99 in the independent Airport Service Quality (ASQ) survey, directed by Airports Council International (ACI), the highest score it has ever received for overall passenger satisfaction. As a result, Heathrow has achieved a record overall performance of 3.97 in 2013, reflecting a notable improvement over last year (3.94 in 2012).

Other UK airports

The Group’s three other airports of Glasgow, Aberdeen and Southampton also had some notable improvements in service standards as well as significant independent endorsement of their service and quality standards. This progression reflects their focus on continuously improving the service they provide to airlines and passengers.

Glasgow and Aberdeen achieved their highest departure punctuality whilst Southampton achieved its highest average ASQ survey score for overall passenger satisfaction in 2013.

Enhancing Heathrow’s facilities

Heathrow’s investment programme in 2013 continued the transformation of the airport, with principal focus on the construction of the new Terminal 2. The terminal is to be named The Queen’s Terminal in honour of Her Majesty Queen Elizabeth II who opened the original terminal sixty years ago. It will be home to all 23 Star Alliance airlines operating at Heathrow as well as Aer Lingus, Germanwings and Virgin Atlantic Little Red.

The £2.5 billion investment in Terminal 2 comprises of a main terminal building and a satellite building, together with a multi-storey short-stay car park, as well as an energy centre that supports the Terminal 2 campus and the wider airport. 24 fully serviced and fuelled aircraft stands, including seven A380 compatible stands, have been constructed together with taxiways that surround the buildings. Services have been installed to the buildings and surrounding infrastructure. Remaining activities include commissioning lifts, escalators and fire alarms; completing non-passenger facing areas and modifications due to the change in airline occupancy driven by the end of bmi operations following its acquisition by British Airways.

The project moved on time from the construction phase to the operational readiness phase in November 2013. Extensive trials and familiarisation activities are underway, to ensure operational readiness of the facility and of the 24,000 people from 160 different organisations that will work at Terminal 2. Operations start on 4 June 2014 with United Airlines, followed by a phased move of airlines into the terminal over the following six months.

In addition, significant investment continues on Heathrow’s baggage infrastructure. The underground automated baggage system between Terminal 3 and Terminal 5 is now fully operational. Delivery of the Terminal 3 integrated baggage system remains on track to start operation in 2015. The integrated baggage system is housed in a separate building and will provide Terminal 3 with an integrated departing and transferring baggage system which is now being assembled inside the building.

Heathrow’s southern runway was resurfaced during 2013 with works carried out during night closures of the runway. The northern runway will be resurfaced in 2014.

Outside Heathrow, the Group’s most significant investment was the taxiway rehabilitation and terminal remodelling at Glasgow whilst Aberdeen also invested in redesigning its retail space in addition to the purchase of additional vehicles.

Financial information

HAH’s financial activity has been more limited than in previous years due to the use of funds from the sale of Stansted. In the final months of 2013, the focus of the Group’s financing activities has been to take advantage of attractive financing market conditions during 2013 to refinance existing debt, optimise the Group’s long-term cost of debt and extend its debt maturity profile.

The Group completed nearly £1.5 billion of new debt financings in the year which included two key transactions. The first was £505 million in new 7 and 9 year term loan facilities implemented at ADI Finance 2 Limited (‘ADIF2’) that were utilised, together with the Group’s resources, to refinance the £600 million loan facility previously held at ADI Finance 1 Limited (‘ADIF1’). The other major debt financing completed in 2013 was a £750 million 33 year Class A bond issue by Heathrow Funding Limited, which had the lowest coupon of any long dated sterling bond issue ever completed by the Group, at 4.625%.

This financing activity has enabled the Group to increase the average life of its external debt from 9.5 years at 31 December 2012 to 10.6 years at 31 December 2013 with the amount of debt falling due within 3 years being £2.5 billion (including over £300 million related to the non-designated airports) compared to £2.2 billion at the end of 2012.

Regulation

Heathrow’s development for the next 5 years

The next regulatory period (Q6) for economic regulation of Heathrow begins on 1 April 2014. Following constructive engagement with airlines, Heathrow proposed a five-year business plan in January 2013, which sets out its operational and capital plan to continue the transformation of Heathrow, focusing on service delivery and improving the passenger experience, whilst delivering operating efficiencies. Following publication of the Business Plan, Heathrow has been engaged in the consultation process run by the CAA throughout 2013.

On 30 April 2013, the CAA published Initial Proposals for Q6 proposing price controls, a change to the maximum allowable yield per passenger of RPI minus 1.3% per year and a draft licence. In response to the Initial Proposals, Heathrow refreshed its plans which included increased efficiency savings of £427 million and updated passenger forecasts. The CAA published Final Proposals for Q6 on 3 October 2013 which proposed a change to the maximum allowable yield per passenger of RPI +0% per year and assumed a capital investment plan of £2.885 billion.

On 10 January 2014, the CAA gave notice of its proposed licence to Heathrow under the Civil Aviation Act 2012, under which the maximum allowable yield per passenger will be RPI minus 1.5% per year (RPI minus 1.2% per year on a five-year adjusted basis), with an assumed capital plan of £2.81 billion (£2.95 billion on a five-year adjusted basis). The main changes to the CAA’s previous proposal were an increase of 5.7 million passengers to the traffic forecast and a 25 basis point reduction in the assumed cost of capital. In addition, the duration of the next regulatory period has been amended to 4 years and 9 months, to align the regulatory year with Heathrow’s financial year.

On 13 February 2014, the CAA formally granted Heathrow’s licence to charge fees for the provision of airport services and this will take effect from 1 April 2014, when the previous regulatory settlement will end. Heathrow and other parties with a qualifying interest have until 28th March 2014 to seek permission to appeal the decision on the price controls.

Comission Davies 

At the end of 2012 the UK government established the Airports Commission, chaired by Sir Howard Davies. The Airports Commission was tasked with examining the requirement for additional airport capacity to maintain the UK’s position as Europe’s most important aviation hub. On 17 July 2013, Heathrow submitted three third runway options for the Airports Commission to consider. The options were located to the north west, south west or north of the existing airport.

On 17 December 2013, the Commission published its interim report on the steps needed to maintain the UK’s global hub status. The Commission stated that there is a clear case for at least one net additional runway in London and the South East by 2030 and shortlisted potential sites for further analysis and assessment: 1) a 3,500 metre runway proposed by Heathrow to the north west of the airport; 2) a separate proposal by Heathrow Hub Limited to lengthen Heathrow’s existing northern runway to 6,000 metres; and 3) a new runway at Gatwick Airport south of the existing runway. In addition, the Commission recommended short-term actions to improve the use of existing runway capacity in the next 5 years.

Heathrow’s north west third runway option would raise the capacity at Heathrow to 740,000 flights a year, from the current limit of 480,000. It would cater for 130 million passengers compared to 80 million today, allowing the UK to compete with international rivals and providing capacity for the foreseeable future and is designed to evolve to four runways if required.

The northwest runway option is to the west of the short third runway proposal under the 2003 Air Transport White Paper. With a north west third runway there will be 15% fewer people within Heathrow’s noise footprint in 2030 than today. This is due to its positioning further from London, quieter new generation aircraft and changes in operating procedures. The option maintains the principle of runway alternation to provide periods of respite from noise for all communities around Heathrow.

HAH welcomes the inclusion of Heathrow in the short-list and is reviewing the detail of the Commission’s report. Heathrow has begun working with local authorities, communities and other stakeholders to refine the runway option, including a first public consultation which started on 3 February. A refined proposal will be submitted to the Airports Commission in May 2014. The Airports Commission is due to report its final findings in summer 2015.