Airports

The annual financial information presented herein for the year ended 31 December 2023 is based on, and is consistent with, the audited consolidated financial statements of Heathrow (SP) Limited for the year ended 31 December 2023, published on February 21st, 2024.

Heathrow welcomed 79.2 million passengers in 2023, +28.6% vs 2022, representing a substantial increase in traffic, and the third highest year in Heathrow’s history, including a very strong Christmas period with Heathrow’s busiest ever December, and 97.9% of pre-pandemic levels.

Heathrow’s markets continued to demonstrate strong performance, with Heathrow transatlantic routes performing particularly well. New York (JFK) became the most popular destination serving over 3 million passengers. In total, Heathrow had 24 routes which served over a million passengers this year. Latin America, Africa and Asia Pacific also experienced a significant rebound in traffic figures, in particular the Asia Pacific region, considering that borders only fully reopened earlier in the year. Terminal 5 experienced its busiest year ever, with more than 33 million passengers. By the end of the year, we were connected to 207 destinations in 88 countries and territories, up from 189 and 84 respectively in 2022.

Inbound tourism experienced an increase during 2023, and the percentage of business travel also recovery slightly, rising from 26% in 2022 to 27% in 2023. This figure, while on the rise, remains below the pre-pandemic level of 32% in 2019.

Heathrow was named “Best Airport in Europe” and claimed the title of the world’s “most connected” hub and broke into the top five largest airports in the world.

In July 2023, Heathrow became the first airport in the world to launch an innovative Sustainability Linked Bond (‘SLB’).

New investments are underway across the airport to boost passenger experience and operational resilience. Heathrow is upgrading 146 security lanes as part of their GBP1bn investment in next generation security equipment and Heathrow has appointed a lead contractor to being replacing the T2 baggage system this year.

During 2023, Heathrow achieved an overall Airport Service Quality (ASQ) rating of 3.99 out of 5.00. This shows a slight improvement compared to 2022 despite a 28.6% increase in total passenger numbers. Overall, 74% of passengers surveyed between January and December rated their Overall Satisfaction with Heathrow as either ‘Excellent’ or ‘Very good’, marking a slight improvement compared to 2022 (2022: 73%), with the proportion of ‘Poor’ ratings remaining low at just 1%.

Revenues: +26.6% in 2023 to GBP 3,687 million.

• Aeronautical: +31.6% vs 2022, driven by passenger growth and the increase in aero charges. Aeronautical revenue per passenger increased by +2.5% to GBP 31.25 (2022: GBP 30.50), as per the holding price cap set by the CAA for 2023.
• Retail: +23.8% vs 2022, with all areas seeing strong growth driven by higher departing passengers. Retail revenue per passenger decreased by -3.8% to GBP 8.81 (2022: GBP 9.16), as passengers increased their usage of public transport post-pandemic and following the opening of the Elizabeth Line.
• Other revenues: +9.8% vs 2022 driven by increased passenger numbers contributing to Heathrow Express revenue growth and an increase in property revenue following renewals of terminal facility leases on improved terms, as well as new lets.

Adjusted operating costs (ex-depreciation & amortization and exceptional items): +18.7% to GBP 1,459 million (2022: GBP 1,229 million). Heathrow is spending more on employment costs in line with rebuilding capacity for higher passenger volumes. This includes costs associated with additional employees, overtime, recruitment and training. The rise in operational costs is mainly due to third-party resourcing, supporting operational resilience, and “Measure, Target, Incentive” rebates incurred. The increase in maintenance is largely driven by terminal cleaning and conservation of terminals, air side and baggage areas. Rates has seen a small decrease compared to 2022. Finally, utilities and other costs have been impacted by higher consumption and higher energy prices.

Adjusted EBITDA increased +32.3% to GBP2,228 million, vs GBP1,684 million in 2022 resulting in an adjusted EBITDA margin of 60.4% (2022: 57.8%).

HAH net debt: the average cost of Heathrow’s external debt at FGP Topco, HAH’s parent company, was 8.66% in December 2023 (9.81% in December 2022), including all the interest-rate, exchange-rate, accretion and inflation hedges in place.

Liquidity Position: Heathrow has sufficient liquidity to meet its base case cash flow needs for the going concern period. This includes forecast operational costs, capital investment, debt service costs, scheduled debt maturities and repayments. The Group had total liquidity available of GBP3.8bn,comprising GBP2.4bn of cash resources across the wider Heathrow Group, as well as a GBP1.4bn undrawn revolving credit facilities.

Regulatory Asset Base (RAB): the RAB reached GBP 19,804 million as of December 2023 (GBP 19,182 million in December 2022). Heathrow Finance’s gearing ratio was 84.9% (82.3% in December 2022) with a covenant of 92.5%.

Key regulatory developments: In March, the CAA published its final decision for the H7 price control period – after a process and period of consultation and decision making, which saw delays of around 18 months, lasting in total over six years.

Heathrow, British Airways, Virgin Atlantic and Delta submitted appeals, and in October, the CMA published its final determination on these appeals. Overall, the CMA considered that the CAA was not wrong in most of the aspects of its final decision which had been subject to appeal. However, the CMA considered that the CAA had erred on three specific elements:

• The CAA’s mechanistic implementation of the AK Factor, which was introduced by the CAA to claw back revenue which in its view was ‘over-recovered’ against the maximum allowable yield in 2020 and 2021.
• The CAA made an error in a relatively minor aspect of its cost of debt calculation.
• In the passenger forecast, the CAA was wrong in relation to the calculation of the shock factor.

The CMA has issued an order to the CAA for these three elements to be reconsidered in sufficient time for any amendments to be incorporated into the price cap from 2025. The CAA have committed to reviewing the three elements during H1 2024.

Earlier in the year, Heathrow provided a submission to the Department for Transport’s (DfT) independent review into the effectiveness and efficiency of the CAA – with the final publication delivered in July 2023. With the ongoing H7 process and subsequent CMA appeals taking place at that time, it did not allow for sufficient analysis into the delivery of the CAA’s economic regulatory functions. However, amongst its recommendations, the DfT set out that the CAA’s process for conducting economic regulation should be reviewed – considering the process, governance and ‘mechanics’ of its economic regulation activity.

Heathrow expects that the CAA will complete its lessons learned review in H1 2024 – before the commencement of any discussions on the next regulatory period. The CAA timelines for the next regulatory period – H8 are also uncertain and have not been communicated, although Heathrow expects to see an initial timetable set out in Spring 2024.

Alongside the DfT’s independent review into the CAA, there are several cross-government consultations and calls for evidence via the Department for Business and Trade (DBT) which are seeking to review and improve the UK’s economic regulation framework and to boost future infrastructure investment. Heathrow welcomes the review, analysis and collaboration in this area and supports further proposals and developments in 2024.

Expansion developments

Heathrow is currently conducting an internal review of the work carried out and the different circumstances found in the aviation industry, and this will enable Heathrow to progress with the appropriate recommendations and ways forward. The Government’s ANPS continues to provide policy support to Heathrow’s plans for a third runway and the related infrastructure required to support an expanded airport.

Outlook

The performance outlook for 2024 remains consistent with the forecasts published in Heathrow’s Investor Report on 15 December 2023 to welcome 81.4 million passengers in 2024, more than ever before. Heathrow will continue to monitor performance and provide a further update in our Q1 results in April.

Sale of Ferrovial stake

On November 28^th, 2023, Ferrovial announced that an agreement has been reached for the sale of its entire stake (c.25%) in FGP Topco, parent company of Heathrow Airport Holdings Ltd., for GBP2,368 million. The agreement has been reached with two different buyers, Ardian and The Public Investment Fund, who would acquire Ferrovial’s shareholding in c.15% and c.10% stakes respectively, through separate vehicles.

Some FGP Topco shareholders have exercised their tag-along rights in respect of shares representing 35% of the share capital of FGP Topco (Tagged Shares). The agreement for the sale and purchase of Ferrovial SE’s subsidiary’s shares in FGP Topco remains in force although it is a condition for the sale of the shares that the Tagged Shares are also sold. The parties are working towards satisfaction of such condition by exploring different options to satisfy the same.

Traffic: number of passengers reached 10.4 million 2023, +13.5% vs. 2022, showing a notable recovery after traffic had been impacted by Omicron in Q1 2022. AGS continues on its path to recovery following the COVID-19 pandemic (-23.4% vs 2019) with an increase in passenger volumes.

In September 2023, Southampton opened its extended runway that will help deliver improved connectivity and unlock opportunities for business and leisure travel to thrive in the area, while guaranteeing the airport’s viability for the future.

Revenues increased by +18.9% driven by the increase in passenger numbers couple with higher aero yield and higher retail activity.

EBITDA performed strongly, +42.0%, reaching GBP 67 million (GBP 47 million in 2022).

Cash amounted to GBP 65 million as at December 31, 2023 (GBP 52 million as at December 31, 2022).

AGS net debt stood at GBP 693 million as at December 31, 2023 (GBP 706 million as at December 31, 2022).

Refinancing process: GBP 757 million mature in June 2024. The company has already initiated the refinancing process that advances to be closed ahead of the debt maturity.

Traffic: the airport reached an all-time high of 5.2 million passengers in 2023 (4.5m in 2022), achieving a +15.5% increase vs 2022 as a result of the increase from both, domestic (+16.6%) and international (+15.0%) routes (mainly UK and Germany). International passenger traffic was up in 2023 due to a longer peak season and the addition of new destination countries. Traffic numbers stood above pre-pandemic levels, increasing by +6.8% vs. 2019.

Revenues reached EUR 71 million. Adjusted EBITDA stood at EUR 55 million. This relates to both, the seasonality of expenditure and the higher share of international passengers of the airport. Adjusted EBITDA post concession fee reached EUR 38 million in 2023 (EUR 28 million in 2019, shared with the transaction announcement).

Cash amounted to EUR 18 million as at December 31, 2023 (EUR 10 million as at December 31, 2022).

Dalaman net debt stood at EUR 96 million as at December 31, 2023 (EUR 103 million as at December 31, 2022).

As of December 31, 202, Ferrovial has contributed USD 294 million of equity to the NTO (New Terminal One). Ferrovial will contribute a total since the start of USD 1,142 million during the construction period.

The development of the project continues to progress in line with expectations. In 2023, the air train encapsulation works were completed and the former Terminal 2 building was demolished. The terminal is expected to be operational in 2026, with the concession contract ending in 2060.

In December 2023, the first debt refinancing took place with the issuance of green bonds for USD 2.0 billion.