At Heathrow, a New $7 Billion Terminal Actually Doesn't Seem Crazy

Last week, I had my first experience with Heathrow's Terminal 5. This monstrous new terminal was built at a cost of £4.3 billion, nearly $7 billion at today's rates. I've been quite vocal about the lack of cost control at airports, and this would certainly seem to be a prime example of what not to do. But in this case, the expense actually seems to justify the cost. There are some special circumstances here.

Spending $7 billion for a terminal seems downright absurd in the scheme of things when you consider that JetBlue's new home at JFK cost $800 million and Beijing's huge new terminal cost $2.8 billion, but the scale of this project was so massive and the benefit was so great that it actually makes some sense. Terminal 5 was built by airport operator BAA to be the home of nearly all British Airways operations at Heathrow, and the project has transformed Heathrow into a far more workable airport than it was in the past.

Before: An airline divided (by a runway)
Before Terminal 5, British Airways (BA) had its long haul and short haul operations split between two terminals that were nowhere near each. Neither terminal was considered very user friendly in the end, and BA passengers were miserable for several reasons.

For one, the long haul terminal was located on the south side of the airport. Heathrow is an incredibly crowded place and flights using the north runway had to cross the busy south runway just to get there. Taxi times were long and painful.

In addition, the aircraft parking areas were tight, so that meant a lot of waiting for airplanes to move before other airplanes could taxi. It's similar to some of the pain Delta has at JFK in New York. This combination led to an awful operation for British Airways year-in and year-out.

Lost bags, bused airline crews
As if that wasn't enough, the baggage handling process was a disaster. Bags were lost on a regular basis due to inadequate systems and long transfers between long haul and short haul airplanes. Customers became afraid to check their bags on British Airways at all.

Even little things were inconvenient. All British Airways crews, for example, reported to a location away from the terminal and BA bused them to their terminal for departure. It added unnecessary cost and wasted time.

The problem, however, was that Heathrow is one of the most congested airports in the world. Fixing BA's issues wasn't as easy as just finding an empty patch of land and dropping a new terminal on it. Instead, the terminal was built on a former sewage treatment plant and then meant a lot of money had to be spent before the real project even began. Combine that with the need to extend the London Underground as well as the Heathrow Express, and you have a massively expensive project for BAA to fund.

Bright lights, big city

It certainly didn't help that Terminal 5 needed its own entrance, thus duplicating some of the services available on the other side of the airport. This, of course, all had to be done under the loud and powerful voices of the environmental lobby. The fact that the terminal got built at all is a minor miracle.

So the £4.3 billion is a huge figure but it's as if an entirely new city was built. And the city is impressive. When the third concourse opens this year, nearly all British Airways flights will arrive at jet bridges, a welcome change from the remote gates used previously. The terminal is bright and airy with an impressive array of lounges for travelers.

When the airport was unable to handle a couple inches of snow and ice in December, Terminal 5 was able to handle the crowds. While other parts of the airport had makeshift tents set up to handle the overflow, Terminal 5 was OK.

When $7B is a bargain
Could some money have been saved by having a less ambitious architectural design? I would imagine so, yes. And that would have been a good idea. But there's still one more important figure to look at.

British Airways says it's easily paying for the large increase in cost through improved operation. BAA had to raise fees to operate at the airport in order to pay for the new terminal, but British Airways says that with its on time performance spiking by 30 points, taxi times going down dramatically, and mishandled bag rates plunging, the operational savings more than pay for the project.

It's hard for me to admit, but in this rare case, the £4.3 billion project seems to be worthwhile and ultimately quite manageable.

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