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Reinventing Heathrow

BAA chief executive, Colin Matthews, talks to Joe Bates about the challenges and opportunities facing the world’s busiest international airport.

When Colin Matthews accepted the job of chief executive of BAA in May 2008 he knew exactly what he was getting with London Heathrow – the world’s busiest international airport with ageing infrastructure that needed overhauling.

With 69.4 million passengers handled in 2011, 93% of which boarded or arrived on international flights, Heathrow is unmistakably the largest international hub on the planet.

Its lofty status generates more than €13 billion in revenue per annum and supports an estimated 220,000 jobs across Britain, making Heathrow a key economic generator for the UK.

But its ageing infrastructure and transfer traffic-hindering layout with terminals spread across three key areas of the 1,277 hectare airport site – it is easy to forget that Heathrow has been developed in a piecemeal way over the last 60 years – meant that up until recently, it had struggled to impress the world’s passengers.

In fact, it has had to rely on outdated facilities for much of the last 30 years whilst coping with significant growth and operating at somewhere close to 100% capacity, which inevitably means that any flight delay has a snowball effect.

Heathrow’s use of its old Terminal 2 up until 2009, a 54-year old facility built to handle 1.2 million passengers but squeezing eight million through annually in its final few years, possibly best summed up its predicament.

However, things began to change for the better in 2008 with the opening of Terminal 5, which quickly became a favourite with passengers and acted as a catalyst for an upturn in the airport’s customer service ratings.

Indeed, Matthews insists if T5 were an airport in its own right, it would top the popularity polls.

Customer service

If the opening of Terminal 5 worked wonders for Heathrow’s passenger ratings, so did the facelift of T4 and the recent refurbishments of both T1 and T3.

In fact, customer satisfaction levels at Heathrow have soared to such an extent over the last five years that Matthews claims that it has overtaken many of the airports it considers to be its closest rivals in ACI’s Airport Service Quality (ASQ) survey.

The situation represents a remarkable turnaround in fortunes for Heathrow, as by Matthews’ own admission, the airport was “bottom of the league table” of the five European hubs it considers its greatest competitors as recently as 2006.

Back then Heathrow was rated as one of the worst major airports in Europe with just 41% of passengers describing their experience at the airport as either ‘Excellent’ or ‘Very Good’ in the ACI survey.

Wind the clock forward six years, and Heathrow is rated ahead of all but one of its major rivals in Europe, with 70% of passengers at the airport now rating their experience as ‘Excellent’ or ‘Very Good’.

And the improved satisfaction levels have had an impact on passenger spending at Heathrow, with “happier and more relaxed” shoppers spending a record €2 billion (+8.8%) in 2011.

Matthews also points out that as well as improved passenger ratings, today Heathrow’s security queues are shorter, flights are more punctual, and baggage systems more reliable.

And he is absolutely certain that the 2014 opening of the first phase of Heathrow’s new €8.3 billion Terminal 2 will take customer service levels and operational efficiency at Heathrow to a whole new level.

So confident, in fact, that he states that the 20 million passenger per annum capacity Terminal 2 – which will effectively become the airport’s Star Alliance terminal – will play a crucial role in “transforming the passenger experience” at Heathrow.

“When we opened Terminal 5 a few years ago, it set a new standard for airport terminals worldwide and it is no coincidence that customer service levels at Heathrow have hit new heights ever since,” he says.

“Since then, we have restructured and refurbished Terminal 4 and spent millions making terminals 1 and 3 better. Terminal 2 is a massive step forward. It is also fundamental to our mission to make Heathrow, every single day, a little bit better for passengers.

“It will also mean that 70% of Heathrow’s passengers are using modern, efficient and comfortable new buildings and the remaining 30% newly refurbished terminals.

“However, as important a milestone as it is, it is not the end of the journey for us as, when we’ve opened T2, we have years and years of work to do before we can turn Heathrow into the kind of airport every passenger will love and the country can be proud of.”

Terminal 2

The €3 billion first phase of the facility is the key development of the ongoing upgrade of Heathrow and BAA’s biggest construction project since the 2008 opening of Terminal 5.

Around 35,000 people are expected to work on the project over its lifetime, with as many as 5,000 people on site when construction work was at its peak last year.

To minimise disruption to passengers, construction of Terminal 2 is taking place in two phases. The first phase will see the creation of the main terminal on the site of the old Terminal 2 and Queen’s Building.

It also involves the construction of a satellite terminal (T2B) with additional aircraft parking stands and passenger gates, and is due for completion in November 2013 in readiness for a summer 2014 opening.

Six months of testing of the facility’s key equipment and operational systems will follow to ensure that the opening day teething problems of T5 are not repeated.

The second €5.3 billion phase, likely to be completed in around 2019/2020, will extend the main Terminal 2 building 100 metres northwards onto part of the existing Terminal 1 site.

This phase, which would also include the construction of a second satellite building, T2C, would increase the capacity of Terminal 2 from 20 million passengers a year to 30mppa.

Environmental credentials

According to BAA’s capital director, Steven Morgan, T2 will be the “greenest and most ecologically-friendly facility ever built at Heathrow”, and as a result will produce 40% less carbon than the buildings it is replacing.

Large north-facing windows in the roof will flood the building with natural light, reducing the need for artificial lighting without generating uncomfortable levels of heat in the building.

More than 600sqm of solar panels on the roof will further reduce the dependency on traditional energy supplies.

Additionally, a new energy centre, partially fuelled by renewably sourced woodchips, will provide heating and cooling for the building.

All this means that when it opens in 2014, 20% of T2’s energy needs will be met from renewable sources and that this will potentially save around 13,000 tonnes of CO2 a year compared to the use of natural gas and grid electricity.

Talking at T2’s official ‘topping out’ ceremony on February 29, Matthews noted: “We are really excited about this strategic, key milestone in the transformation of Heathrow.

“I also want to point out that £2.5 billion [€3 billion] is a fantastic signal of confidence and long-term commitment in the airport by our shareholders. It matters hugely to Heathrow and the economy of the UK.

“We are now within touching distance of a future where Heathrow has some of the best passenger facilities in Europe.

“There’s a lot still to do, but the opening of Terminal 2 could move Heathrow into pole position among European hub airports and allow us to set our sights on elite airports such as Singapore, Hong Kong and Incheon in Seoul.”

Hub status

The addition of Terminal 2 isn’t just about raising the bar on customer service levels, of course, it is about ensuring that Heathrow has the facilities to maintain its status as a major hub and the world’s busiest international airport.

Matthews concedes that BAA has possibly got “decades of work ahead of it” before Heathrow can complete its master plan and boast one of the world’s most operationally efficient airports.

On the drawing board are plans for new terminals and satellite buildings – including the possible demolition and rebuilding of T3 – and a series of airfield improvements that make it quicker and easier for aircraft to taxi across the airport site.

And although Matthews may not privately have given up hope of Heathrow getting a third runway, he won’t say so publicly, preferring instead to keep the debate firmly focused on the need for Heathrow’s hub status to be considered part of the government’s future aviation policy.

“The UK needs to defend its position of having a hub like Heathrow before it’s too late, for the sake of Britain’s economy, and not that of BAA or any airline,” he warns.

BAA views its main competitors to be Paris CDG, Madrid-Barajas, Frankfurt and Amsterdam Schiphol, and Matthews can cite many examples of how capacity constraints at Heathrow are already hurting the UK, revealing that in 2011 alone it prevented airlines from launching new routes to emerging market destinations such as Manila, Jakarta and Shenzhen.

Indeed, BAA argues that 21 emerging market destinations now have daily flights from Continental European hubs but not Heathrow, and claims that this lack of connectivity is costing the UK economy €1.4 billion a year in lost trade.

Paris and Frankfurt, for example, already have 1,000 more flights each year to the three biggest Chinese cities than London, and almost double the number of flights from Heathrow. “Some Asian carriers cannot believe it when they’re told it’s not possible to fly here [Heathrow] because there’s no space, but that’s the reality today, and it can only get worse without a third runway,” says Matthews.

He claims that the need to talk about London’s “aviation connectivity” is the reason he welcomes a debate about the proposed Thames Estuary Airport, which has the backing of London Mayor, Boris Johnson.

“There is not one simple obvious answer to London’s capacity problems, but let’s put them all on the table and talk about them now, not in a few years time, and let’s not spend 10 years debating it as the topic of another London airport has already been talked about for 40 years,” challenges Matthews.

“I see problems with a Thames Estuary in terms of cost and timings, but Heathrow has its challenges, too, as its hub status will ultimately be lost in about 15 years without a third runway.”

Business today

Matthews believes that Heathrow is in a “good place” today after a successful few years, citing ongoing investments of around €1 billion per annum, rising customer satisfaction levels and record traffic figures.

He states that 2011 was a “good year” for Heathrow, which recorded a healthy 5.5% increase in passengers, its highest ever ASQ scores – moving it above its major competitors – and an improved financial performance that drove a 17% rise in BAA’s full-year profits.

“Operating profits paid for 85% of the £900 million [€1 billion] we spent on capital investments at Heathrow last year, which by anyone’s calculations, was a strong financial performance.

“Our shareholders haven’t made any great returns yet, but I hope we will be in a position to begin to pay some modest dividends this year.”

Stansted and Edinburgh

Legal wrangling and bidding wars mean that BAA’s chief executive is unable to say much about the ongoing sale of Edinburgh Airport or the Competition Commission’s (CCs) ruling that it must sell Stansted.

As far as the sale of Edinburgh Airport goes, Matthews could only comment that he expected the sale to be “concluded” in or around the summer.

While he could add nothing more to BAA’s statement of February 29, stating that it had initiated appeal proceedings against the Competition Appeal Tribunal’s judgement of February 1, which found in favour of the CC’s decision of July 2011 that required BAA to sell Stansted Airport.

The statement concludes that BAA believes that “the judgement is flawed and is seeking to appeal the judgement.”

Motivation and incentives

With customer service so high on Heathrow’s agenda, it seems only fitting to end this article by finding out a little more about the motivation behind BAA’s new, more passenger focused business strategy.

“I cannot overstate the importance of good customer service, as for airlines to be successful here, passengers need to be happy to use Heathrow, both for direct flights and transfers,” comments Matthews.

“Where is the incentive for us to make Heathrow better? It’s the right thing to do for its own sake, ultimately we’ll be a more successful business, but fundamentally, it makes our arguments on difficult topics more credible if we are a run better.

“My ambition is simply to be able to say that every year Heathrow is getting better, because I think if you invest too much effort on trying to be top of the list, it can become counter productive.

“If passengers can see progress every time they return and see that the airport is running a little bit better, I think that they will come with us on our long journey.”

So how does he feel about Gatwick’s new owners loudly proclaiming it to be London’s most friendly and convenient airport and has its sale changed the dynamic of London’s airports?

“My business strategy from day one has been that Heathrow is a hub and the other UK airports, Gatwick included, are point-to-point gateways, and that hasn’t changed at all,” says Matthews.

“We are different airports and serve different marketplaces. Gatwick is fantastically located and the busiest single-runway airport in the world just as we are fantastically located and the busiest two-runway airport in the world, but that’s where the comparisons end, as we don’t compete for traffic.

“Put it another way. If you squeeze Heathrow and some business pops out, people in the street naturally assume that it will go to Gatwick, Stansted or Luton. But it doesn’t, it goes to Paris or Amsterdam, which is why the UK should be concerned about the possibility of Heathrow losing its hub status.

“Our job is to concentrate on making Heathrow better and not get distracted by what other airports claim. What I can say is that if Gatwick has a great service idea and we can learn from it, I am sure we will, as I am sure the reverse is true, because customer service is all about learning.

“We can learn a lot from the hotel industry about how to make passengers feel more welcome when they check-in, for example.

We can learn from retail stores about how to make the airport shopping experience better and we most definitely can learn from other airports.”

As if to prove the point, Matthews reveals that his customer service inspiration comes from his early days in the motor industry with Honda, and the Japanese manufacturer’s ‘continuous improvement’ philosophy for the development of its cars.

“It taught me that the best way to develop any business is the pursuit of improvement, because it’s a never ending journey,” he muses.

Under Matthews’ leadership, BAA has a clear, long-term vision for the future of Heathrow. Now all it needs is for the UK government to get onboard with the third runway.

All about Terminal 2
Steven Morgan, BAA’s capital director refers to T2 as “a gigantic flat-pack project” due to the fact that much of its key infrastructure was built at factories around the UK and then brought to Heathrow for assembly on site.

The innovative approach was successfully adopted by BAA during the 2006 building of Heathrow’s air traffic control (ATC) tower, and is favoured by BAA because it minimises the impact of construction work on a working environment.

According to BAA’s commercial director, John Holland-Kaye, T2 will be much more on a human scale than Terminal 5 offering a “dramatic welcome” courtesy of its glazed courtyard and a “light, modern dynamic space” with wider walkways and shorter walking distances for passengers.

It is also being designed very much with the transfer passenger in mind, boasting a dedicated transfer lounge, while BAA hopes that a combination of automated, state-of-the-art IT systems will ensure quick and easy journeys through the facility.

Automated border control and a simple baggage handling system, for example, are meant to make it possible for arriving passengers to walk from their gate to waiting cars in just three minutes.

As part of BAA’s new customer service philosophy, all T2 staff will undergo special customer service training.

“Terminal 5 was the first phase in the redevelopment of Heathrow and, although I have been told not say this, I am confident that Terminal 2 will be even better,” says Holland-Kaye.

Bosses of Harrods, Hamleys and Hugo Boss attended the launch of the tender process for the retail concessions in T2 in early February.

The terminal will have around 54 shops spread across a 134,550sqft area and 12 F&B outlets, with the bulk of the contracts due to be awarded later this year.

According to BAA, the terminal will become a hub of multi-channel activity that will make the most of location-based marketing alongside mobile and social commerce.

BAA retail concessions director, Muriel Zingraff-Shariff, is urging retailers to think of airport shopping as a multi-channel shopping experience where consumers can use the airport as a collection point or have purchases delivered to their homes.

Design wise, extensive glazing means more natural light. As well as glazed walls, north-facing skylights in the roof will provide glare-free daylight without heat gain (which would have meant more air conditioning).

T2 will have a sophisticated lighting control system which keeps energy use down by switching lights off when parts of the building are not in use or when daylight is bright enough.

And, to prevent solar heat gain, its glazed facade incorporates solar control glass and angled louvers, while an overhanging roof shades the south-facing windows.

A central courtyard between the new multi-storey car park and T2, shaded by the terminal’s extended roof canopy and crossed by glass walkways at higher levels, will form T2’s ‘front door’.

In terms of business partners, Foster+Partners and Luis Vidal y Asociados designed T2, which is being built by HETCo, a joint venture between Ferrovial Agroman and Laing O’Rourke.

HETCo’s design team includes Merebrook Consulting Limited, part of the international Idom Group. Merebrook are responsible for the civil and structural design of the main T2 terminal building and associated perimeter building structures such as the fixed links and nodes.

The Merebrook Project Management team is also working with Laing O’Rourke to complete the construction of the link roads and tunnels between Terminals T2A, T2B and T2C due for completion in 2012, following the detailed design undertaken by Merebrook in 2010.

Balfour Beatty is building Terminal 2’s 522-metre long satellite building (T2B) working in close association with Mott MacDonald.

While Firstco, working with Mott MacDonald, has recently been awarded Phase 4 of the DMI (Design, Manage and Integrate) contract for the Terminal 2 campus following the successful completion of Phase 3. 

The technical assurance role for the production phase of the project reinforces Firstco’s relationship with BAA and Mott MacDonald on the UK’s biggest construction project.  

John Myers, head of consulting at Firstco, said: “Although Firstco has been involved in previous stages of the T2 development, it has never been taken for granted that we would be successful in our application for this and future phases.

“I have no doubt that our superb team of experts will continue to deliver the highest quality service and technical assurance in a very challenging environment.”

When the terminal opens in 2014 it will comprise of a main building (T2A) with 12 aircraft stands – two of which will be capable of handling the A380 – connected to a 16-gate satellite building (T2B) by underground walkway.

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