Jorge Gil: "The choice for the UK is between one hub or none"

The following is a transcript of Jorge Gil’s interview with Airport World. Ferrovial Airport’s CEO held this talk in June, 2014.

Today, Ferrovial holds a 25% stake in HAH and continues to be Heathrow’s main shareholder and long-term industrial partner. However, HAH’s airport portfolio is much changed from the one Ferrovial bought in 2006 as pressure from the UK’s Competition Commission has forced it to sell Gatwick for €1.8 billion (£1.5bn) in 2009, Edinburgh for €980 million (£807million) in 2012 and Stansted for €1.8 billion last year. It also voluntarily sold its majority stake in Naples International Airport, Budapest Airport, World Duty Free and its real estate business. The sales mean that HAH’s airport portfolio now comprises just Heathrow, Glasgow, Aberdeen and Southampton in the UK, which between them, handled nearly 85 million passengers last year.

HEATHROW

Without doubt, Heathrow is the prize asset of both Ferrovial Airports and HAH, the latter even stating in its 2013 year end accounts that it had become ¨the full focus of the business¨ since the sale of Stansted.And, it is easy to see why, as the UK’s only hub handled a record 72.3 million passengers (+3.4%) in 2013 and was the recipient of a number of awards in the process.

These included being named the ‘’Best Airport in Europe handling over 25mppa’’ by ACI Europe (won jointly with Amsterdam Schiphol) and Executive Travel magazine’s 2013 Leading Edge Award for ‘Best International Airport’, while Terminal 5 won SkyTrax’s ‘Best Airport Terminal’ award. And Gil, who describes 2013 as a ‘great year for Heathrow’’ is confident that more accolades will soon be coming its way following the much anticipated June 4 opening of its new €3 billion (£2.5bn) Terminal 2.

Also known as The Queen’s Terminal, Terminal 2 will become the new home of the 23 Star Alliance carriers serving Heathrow as well as Are Lingus, Virgin Little Red and Germanwings, ensuring that it handles around 20mppa. Gil insists that T2 -one of the largest privately funded infrastructure projects in the UK in recent years – has been designed from the outset with the needs of the individual passenger at its heart, and with sustainability as a guiding principle.

He supports the claim by revealing that T2 will produce 40% less CO2 emissions than the buildings that it has effectively replaced. It will also be the UK’s first airport terminal to be awarded a BREEAM rating for its sustainable building design.“It is an easy thing to say, but continuous improvement truly is at the core of Heathrow’s heart,” adds Gil. “Every member of the team is committed to making every journey better, every day, and all the time.”

ECONOMIC REGULATION

According to Gil, one of the biggest challenges faced by Heathrow in 2014 will be coming to terms with the impact new economic regulation will have on the gateway. He is, of course, talking about the Civil Aviation Authority’s decision that Heathrow can only increases its charges by less than the rate of inflation for the next five years.

It doesn’t sound that bad, but effectively the new ruling means that Heathrow’s per passenger airline charges will fall in real term from €25 in 2013/14 to €23 in 2018/19. Heathrow chief executive, Colin Matthews, has already blasted the regulation as “draconian”. And Gil agrees, claiming that the findings of the toughest price review the airport has ever faced were based on aggressive operational, commercial and passenger forecasts, requiring Heathrow to reduce its operational expenditure by more than €726 million (£600 million). and stretch commercial revenue targets by in excess of €121 million.

He notes that this makes it very difficult to achieve the already “very low return” approved by the CAA. “We will review our investment plan to see whether it is still financeable in light of the CAA’s settlement,” he warns. “It means that we will need to achieve a better level of efficiency, increase productivity and reduce costs while competing with other airport, in Europe, which like us, are offering better passenger service every day.”

UK CAPACITY CRUNCH

Talking about competition from major hubs around the world, Gil is pleased with the Airports Commision’s recent conclusion that Heathrow has been shortlisted as a viable option for expansion. So too has Gatwick, although he refuses to accept that it is the main competitor to Heathrow for extra capacity.

Indeed, Gil argues that there is room for growth at both airports, but claims that what the UK needs is extra hub capacity. “Heathrow and Gatwick are different,” he says. “Heathrow provides regular, direct flights to long-haul business destinations by connecting passengers from all over Europe. Gatwick serves mainly short-haul and holiday destinations.

“The choice is between one hub and none, not two or a split hub. We are working with all stakeholders to support the proposal to build a new runway at Heathrow. “It is of utmost importance if the UK wants to be part of the race to emerging markets. Long-haul connections from Heathrow have given the UK a competitive advantage for the last 50 years, and we want to ensure that we will be able to provide this critical access in the future.”

Gil believes that building a third runway at Heathrow would also support more inward investment that would consequently deliver more jobs, more trade and more economic benefits. “Continuing to have one of the world’s best- connected hub airport in the UK is vital to supporting the economic growth of the nation,” he adds.

“The Airport Commission’s final report, due out in 2015, will constitute a significant milestone in Heathrow’s history. We hope the right decision is made and we are given the opportunity to expand Heathrow.”

GLOBAL AIRPORT OPERATOR

Although only operating airports in the UK today, Ferrovial Airports hasn’t given up hope of rebuilding a global airport portfolio, as its recent participation in tenders for gateways in Brazil testify.

Indeed, Gil confirms that Ferrovial is actively looking for new investments opportunities. “We are committed to increasing our airport portfolio; our goal is to invest in airports where we are able to bring added value” explains Gil to Airport World. “Our wide range of expertise allows us to add value in the areas of construction, financing operations, boosting revenues and improve operational efficiency. This enables us to analyse both existing mature airports as well as as new or CAPEX intensive airports.”

When it comes to investment opportunities, Gil says that Ferrovial is a truly global company in its ambitions. Whilst we have a preference for Organisation for Economic Cooperation and Development (OECD) countries, we are also open to other markets,” he reveals. “As investors, we have a preference for being majority shareholders. Having said that, we are open to considering other alternatives, such as management contracts, if appropriately linked to our core business. This is a decision we take on a project-by-project basis.”

In response to the question what does Ferrovial bring to the table, Gil smiles, and says “everything. Thanks to our operational experience, proven financial capabilities and synergies with other divisions in our group, we provide a world-class service, implement operational innovation and attract more airlines and new routes, driving growth and improving the passenger experience.

When you put it like that, I don’t think it will be long before Ferrovial Airports adds to its list of gateways.