Heathrow calls for testing to end quarantine as true extent of the crisis is revealed
Yesterday Heathrow gave an update on their current financial situation and passenger number while calling for an effective testing regime rather than quarantine. Many countries around the world have opted for testing and so far none have seen a huge surge in cases although it is definitely not a 100% effective measure. (but then neither is any quarantine that is not enforced at a government facility)
The passenger decline has pushed Heathrow to a loss unsurprisingly. Passenger numbers were down over 96% in Q2 as global aviation came to a virtual standstill. Heathrow anticipates a gradual recovery as countries reopen borders, but that 2020 passenger volumes will be more than 60% lower than 2019. Q2 revenue fell 85% to £119 million and turned to a loss of £93 million. The company recorded an adjusted loss before tax of £471 million in the first six months of 2020.
Cargo volumes are down over 30%, hit by the loss of passenger flights – Cargo at Heathrow usually travels in the hold of passenger planes. An increase in cargo-only flights has not offset the loss of passenger flights to long haul markets.
Heathrow took decisive action taken to protect jobs and cut costs and acted quickly to reduce the average cash burn by over 30%. They did this by cutting at least £300 million operating costs and cancelling or pausing over £650m of projects. The company has tried to protect as many jobs as possible and maintain pay at or above the London Living Wage.
Heathrow finances remain robust as cash reserves are sufficient until at least June 2021 with no revenue. However, Heathrow believes that the UK’s economic recovery depends on restarting aviation – the Government’s risk-based approach to allow quarantine-free flights from low and medium risk countries is welcomed by them, but only covers 30% of Heathrow’s markets. Establishing an alternative to quarantine for COVID-free passengers from other countries should be a priority for the Government according to Heathrow and I agree with them. Pre-flight testing for passengers from high-risk countries would allow long haul flying to resume, which is critical for the UK’s economic recovery. Personally I agree with pre-flight testing as it would stop most infected people traveling to the country and spreading it to other passengers potentially.
Heathrow CEO John Holland-Kaye 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.”
The full results
|At or for 6 months ended 30 June||2019||2020||Change (%)|
|(£m unless otherwise stated)|
|Cash generated from operations||907||294||(67.6)|
|Profit / (loss) before tax||7||(1,059)||—|
|Adjusted EBITDA(1) (4)||907||222||(75.5)|
|Adjusted profit / (loss) before tax(2) (4)||153||(471)||—|
|Heathrow (SP) Limited consolidated nominal net debt(3) (4)||12,412||12,860||3.6|
|Heathrow Finance plc consolidated net debt(3) (4)||14,361||14,932||4.0|
|Regulatory Asset Base(5)||16,598||16,516||(0.5)|
(1) Adjusted EBITDA is profit before interest, taxation, depreciation, amortisation, fair value adjustments on investment properties and exceptional items
(2) Adjusted profit before tax excludes fair value adjustments on investment properties and financial instruments and exceptional items
(3) Consolidated nominal net debt is short and long-term debt less cash and cash equivalents and term deposits, it includes index linked swap accretion and the hedging impact of cross currency interest rate swaps. It excludes pre-existing lease liabilities recognised upon transition to IFRS 16, accrued interest, bond issue costs and intra-group loans. 2019 figures are as at 31 December 2019
(4) A reconciliation of our Alternative Performance Measures (‘APMs’) can be found in note 14
(5) The Regulated Asset Base is a regulatory construct, based on predetermined principles not based on IFRS. It effectively represents the invested capital on which we are authorised to earn a cash return. 2019 figures are as at 31 December 2019
(6) Changes in passengers are calculated using unrounded passenger numbers