Heathrow's T5 Adds Passengers, Fails to Stop Delays (Update2)

March 27 (Bloomberg) -- London's Heathrow Airport opened its fifth passenger terminal today after almost two decades of planning amid criticism the 4.3 billion-pound ($8.6 billion) building will fail to ease congestion on the runways.

Terminal 5, which can handle 30 million people a year, is about 15 years too late, said Howard Wheeldon, an analyst at BGC Partners LP in London. British Airways Plc, whose passengers will use the additional space, says the U.K. government and Heathrow owner BAA Ltd. must build a third runway and a sixth terminal to keep up with demand and reduce delays.

``In an ideal world, we would be thinking 20 years ahead and planning a completely new airport,'' Wheeldon said. ``Terminal 5 is but one small part of what is required if the U.K. is ever to have an airport infrastructure capable of competing with the rest of the world on equal terms.''

The number of travelers at the airport, Europe's busiest, has more than doubled since 1986, when the last terminal opened. Heathrow is at 99 percent of flight capacity and has the continent's worst delay record, with 39 percent of planes running late last year, according to the Association of European Airlines. While Terminal 5 will add 112 shops and more than half a million square feet of space, it won't enable more flights.

Before today's opening, Heathrow handled 68 million passengers a year in buildings meant for 45 million. While Terminal 5 will expand capacity to 75 million people a year, the airport is forecast by BAA to surpass that number in 2013.

Open Skies

An ``open skies'' treaty that starts in three days will further spur competition for airport space. The European Union- U.S. accord ends the lock that British Airways, Virgin Atlantic Airways Ltd., American Airlines and United Airlines have had on flights to the U.S. from Heathrow under a 1977 agreement. Air France-KLM Group, Europe's largest carrier, and Delta Air Lines Inc. say they're planning trans-Atlantic routes from Heathrow.

Decades of underinvestment and long planning procedures are to blame for overcrowding, said a BAA spokeswoman who declined to be identified. The Terminal 5 public inquiry lasted almost four years, the longest for a construction project in British history.

``T5 was actually designed in the early 1990s and so is already out of date,'' Steve Ridgway, Virgin's chief executive officer, said in an e-mailed response to questions. ``What is needed at Heathrow is more runway capacity to enable quicker takeoffs and landings.''

Ferrovial Takeover

BAA, bought by Spanish builder Grupo Ferrovial SA in 2006 for $20 billion, is struggling to refinance at least 4.1 billion pounds of debt. Chief Executive Officer Stephen Nelson announced his resignation last month.

The company and carriers including London-based British Airways, Heathrow's biggest single user, Virgin and BMI are lobbying the government to approve another runway. It could be built by 2020 at the earliest and would increase flights to 720,000 a year from a current limit of 480,000, BAA says.

The U.K. government began a consultation on the proposal in November, amid opposition from neighbors and environmental groups. Heathrow is surrounded by suburbs and the flight path goes over west London areas including Chelsea and Kensington.

``The population density and the approach paths work against Heathrow,'' said John Strickland, director of aviation specialist JLS Consulting Ltd.

`Planning Error'

London mayoral candidate Boris Johnson has called Heathrow, which began as a military landing strip in 1943, a ``planning error.'' He advocates building an airport in the Thames Estuary, a sparsely populated area east of the capital. The U.K. government rejected building a new airport in southeast England in a 2003 policy paper.

``I don't think it's a realistic option in the next 20 or 30 years,'' Strickland said. ``It's nice theoretically to start on a clean sheet of paper and build a new airport, but the airlines would have to base a separate fleet there and you'd have to build the infrastructure.''

In the past four decades major cities including Paris, Milan and New York have moved airports further away from residential areas. In Hong Kong, the government spent $20 billion building one on an artificial island while, Dubai plans to spend $33 billion creating the world's biggest airport.

``BAA's inability in the 1980s and early 1990s to realize that runway capacity would run out has led to the current situation,'' said Robert Cullemore of London-based consultant Aviation Economics. ``Had they realized that such a crucial resource would be fully exploited, the government could have been made aware.''

Rival Hubs

The U.K.'s Civil Aviation Authority said in November there's evidence that transfer passengers are eschewing Heathrow for hubs including Amsterdam, Frankfurt and Paris. Frankfurt has three runways and is building another. Paris has four and Amsterdam five.

British Airways Chief Executive Officer Willie Walsh has blamed ``Heathrow hassle'' for dissuading travelers from using the carrier. The airport's operational difficulties are responsible for the airline having the worst record among European carriers for lost bags, it said last month. Space constraints also mean the number of cities served by Heathrow has shrunk to 180 from 227 in 1990, Walsh said in November.

`Calmer Experience'

``For our customers, T5 is going to make a huge difference,'' Walsh said today in a Bloomberg Television interview. ``It's a much calmer experience for our customers. The new terminal gives British Airways a great opportunity to offer the highest levels of service and put Heathrow back on the global travel map.''

The opening of Terminal 5 is the start of a wholesale transformation of Heathrow, with BAA planning to refurbish Terminals 1 and 4 and relocate 54 of the airport's 90 airlines to new premises. Terminal 2, which serves 8.6 million passengers annually, will be demolished later this year. Its replacement, Heathrow East, is scheduled to be completed by 2012 but won't add additional capacity, according to BAA.

``There is an issue of capacity, a very major issue there, but it's also about how the airport is managed,'' Louise Ellman, a lawmaker from the ruling Labour Party on the U.K. parliament's Transport Committee, said in a Bloomberg Television interview. ``We feel that that is partly to do with the monopoly position that BAA holds.''

BAA is being investigated by the U.K.'s antitrust regulator in a probe that may lead to a breakup of its London assets. BAA's three airports in the capital, Heathrow, Gatwick and Stansted, handle about 90 percent of passengers in southeast England.

``It all begs the question whether London will ever get a proper airport infrastructure,'' said BGC's Wheeldon. ``Without proper regulation, BAA and Ferrovial will always attempt to put shareholders' interests first.''

Today's opening was marred by flight cancellations as the baggage system broke down and the terminal encountered ``teething problems'' with car parking, employee security clearance and staff familiarization issues, British Airways said. Environmental and residential campaigners also staged a protest at the airport.

To contact the reporter on this story: Tracy Alloway in London at talloway@bloomberg.net

To contact the editor responsible for this story: Chris Jasper at cjasper@bloomberg.net