Business Studies Paper on Heathrow Strategic Growth; Queen’s Terminal

Abstract

Heathrow Airport for several years now, has been under construction most notably the reconstruction of terminal two or the Queen’s terminal as well as terminal 5 (T5). The reason for this expansion is based on business strategies adopted by the British Airport Authorities (BAA) to increase the airports economic power as well as make London one of the world’s biggest aviation hub. The changes in the aviation industry have seen other international airports across Europe gain incredible identification beyond Heathrow. The new terminal 2 project consisting of two buildings terminal 2A and 2B were set to increase luxury as well as reduce congestion at the airport. This paper takes a look at the terminal 2 project pointing out its weaknesses and strengths in a project management perspective.

 

 

Heathrow Strategic Growth; Queen’s Terminal

Introduction

Heathrow airport is the largest airport in the UK and has been in operations since 1946. The airport is the busiest international airport globally serving over 60 million passengers as well as 1.3 million tons of luggage or cargo annually (De, 2010, p.7). As the use of air transport is estimated to increase over the coming years, it is evident that the facilities initially placed at the airport may not sustain the heavy traffic consequently suggesting an improvement as well as new constructions are required.  Back in 2003, several BAA experts as well as other aviation technocrats in conjunction with the government set up improving the airport by redeveloping the old terminal 2, which at the time was the oldest building to a much more efficient and modern terminal 2, or the Queens terminal. The project was estimated to cost approximately 11 billion pounds, housing 26 airlines subsequently expecting to host 26 planes, 10 million more passengers by 2015 and an additional 7 million by 2019. This paper is a report on the terminal 2 project as used by Heathrow Airport management Ltd. as part of their strategic plan to make the UK a major aviation hub.

 

Heathrow Terminal 2 Profile 

The old terminal 2 covered an area of 534,470 sq ft that was designed to handle 1.2 million passengers annually. In reference to the growing changes in the aviation industry Heathrow had to rebuild the old terminal considering it could not handle new aircraft as well as the magnitude of traffic expected (Coogan, 2000, p.32). According to (De, 2010, p.7) the final years of operations on the old terminal 2 was evident considering that the facility saw an average of 4 million passengers annually between 1998 and 2002. Due to passenger recommendations, Heathrow was losing business to other international airports and there was an immediate need to change these trends.

Figure 1; Passenger traffic at London Heathrow Airport (million)

Source; statisat.com retrieved from https://www.statista.com/statistics/226451/passenger-traffic at-london-heathrow-airport/

Figure 2. Revenues Earned By Heathrow Airport Holdings for the Last Four Years. (Billion)

 

Source; statisat.com retrieved from https://www.statista.com/statistics/278372/revenue-of-commercial-airlines-heathrow/

From the figure1 and 2 above it is evident that the number of passengers trafficking through the airport from one destination to another has been on a constant high increase over the last five years. Heathrow airport stands at the core of one of Europe’s key commercial hubs and is equally served by the largest city airspace in the whole world. The airport is served by eight other inner-city airports and is a connection hub that sees millions of passenger use its five terminals to reach their destination; subsequently showing the high number in traffic. According to De (2010, p.36), Heathrow Airport Holdings made approximately 11.7 billion pounds between 2011 and 2014 in reference to revenues generated from the passengers using its facilities. Projection reports in 204 estimate the number of passenger to increase by 10 million over the next century considering the changes seen in the aviation industry subsequently giving more reason to add the airport’s capacity.

The new terminal 2 also known as the Queens terminal is a five-storey ultra-modern building separated into two main sections; terminal A and a Terminal 2B which is a 522m-long satellite pier based in the heart of Heathrow. The Queens terminal will contain a number of high profile facilities including

  1. A 1,300-vehicle car park as well as forecourt lanes connecting the airport to the national road grid through the M4;
  2. Twelve boarding gates at terminal 2A capable of hosting 10 aircraft fixed stands plus two flexible stands capable of housing two smaller planes.
  3. Fourteen boarding gates at terminal 2B capable of hosting 14 planes hosting 14 fixed stands.
  4. Underground transport system that would ease passenger flow through entrance through the courtyard based between the car park.

Description of the project objectives 

The terminal 2 project was aimed at making Heathrow airport highly competitive considering the increasing change in the aviation industry that has seen the increase in a Point-Hub connection where passengers are mainly transported to major airports for connecting flights (Brady et al. 2006, p.12).  Terminal 2 was set to allow an increase in passenger capacity as it was estimated to carry up about 40% of the airports traffic without congestion encouraging more connection flights; consequently making the airport a high-income earner for the UK economy (Potts, 2009, p.6). According to Blow (2012, p.25), an increase in competition form Dubai, Abu Dhabi, Germany, as well as Paris International Airports, Heathrow’s revenues were placed under threat and its position in the aviation industry was highly scrutinized. Senguttuvan (2007, p.42), additionally pointed out the fact that the Airbus A380 as well as the new Boeing 747 sales were a clear indication that there was a need for Heathrow to have a new air traffic monitoring system, which would aid in helping control incoming traffic. Other than the aforementioned factors below are the objectives of developing the new terminal 2.

Objectives

   Increase of passenger traffic flying annually by 10 million by 2015 and 17 million by 2019.

   The old terminal 2 was highly costly the new construction was set to inherit modern facilities while at the same time meeting the expectation of low costs as well as environmental standards.

   Increase client experience with the development of new and better aircraft stands with the inclusion of that of larger planes such as the new 747 or the A380 Dreamliner.

   The development of a sophisticated transport infrastructure, including a new rail system as an extension of the Heathrow express.

   Improvement of the control tower, a new state of the art equipped control tower designed to effectively meet the demands of the airport’s future air traffic needs.

   To improve traffic flow by using the road through a tunnel system joining the M4 linking the Heathrow to the national road network.

   To use the space offered by both the old terminal 1 and 2 to set up a wide solar paneled dome that would aid in the improvement of incorporating several environmental enhancements

 

2.3 Deliverables

The new airport terminal is expected to deliver a number of expectations to the public as a project. According to (Fewings, 2013, p.103) the terminal 2 deliverables are part of the airport strategic planning majorly centering on both capacity as well as service delivery as stated below;

   The new terminal 2 building is expected to be environmentally friendly subsequently providing quality low cost electrical services.

   Provide additional stands, which are adopted to the most advanced planes as well as runway connections.

   Have additional comfortable lounges on level 5, level 4 (Gates A1-A26), Terminal 2B (Gates B31-B49), increasing capacity without compromising on passenger experience.

   Improvement of air traffic that is expected at the airport

   Ease on traffic congestion by linking the Airport to the M4 through a tunnel.

Figure 3. Share of passengers at Heathrow Airport in the United Kingdom (UK) in 2015, by terminal used

 

 

Source; statisat.com retrieved from; https://www.statista.com/statistics/304671/heathrow-airport-passengers-distribution-by-terminal-uk/

Table 1. Passenger volume by terminal (millions) 2015

Heathrow Terminal Number of passengers and flight
Terminal 2 16.7 million passengers on 116,861 flights
Terminal 3 15.2 million passengers on 76,974 flights
Terminal 4 9.2 million passengers on 53,357 flights
Terminal 5 33.1 million passengers on 215,716 flights

Source. Heathrow Airport Online Site retrieved from http://www.heathrow.com/company/company-news-and-information/company-information/facts-and-figures

 

From the figure above, it is evident that the Queen’s terminal though newer than the other terminals considering its late opening is the second most used terminal at Heathrow. From the data represented in figure 1 calculations show that terminal 2 handled 16.7 million passengers in 2015, a number within the design estimates as it is expected to rise to 19 million by 2017. From the above data, it is right to assess the Queens terminal as a success in operational terms.

Construction Milestones

Terminal 2 was constructed across two phases with the first phase beginning in 2009 and finished in 2014. The first phase involved the pulling down of the older terminal as well as construction of the first part of the new terminal structure in addition to the completion of a 1,713 ft satellite at terminal 2B (Hass, 2009, p.67). The second phase was set to begin after the complete demolition of terminal 1 suggesting that its progress is determinant of phase one. According to Hass (2008, p.68), the second phase was expected to be finished by the beginning of 2019; however, on March 2013, the Heathrow Airport Ltd. stated that progress was slow and the earlier provided date. It is stated that on completion the terminal will have a similar operational capacity to terminal 5.

The progress of the new terminal 2 has not been on schedule considering it was expected to be open in 2012 in time for the summer Olympic Games; however, due to the late start of phase one the airport terminal saw its gates open in 2015. Despite this, the first phase of terminal 2B had reached its completion by the end of 2009 and was partly operational during the Christmas as well as the New Year holiday (Peterson, 2009, p.56). Passengers used six gates by this time, this being possible through a connection bridge constructed from terminal 1.  By 2013, Terminal 2A was announced to be weather tight; consequently suggesting that the internal fittings were underway with reduced chance of damage from rain or humidity a factor that saw installations completed six months later.

The demolition of the old terminal 2 Air Traffic control tower, which was a part of the Central Terminal Area, commenced after the internal fittings of terminal 2A had been completed. The building was pulled down to give way to the connecting road that was to link the new terminal 2 to the M4. According to (Brady et l.,2006, p.35) the demolition of the old terminal 2 Air Traffic Control tower did not affect Heathrow operations since according to the plans laid the functions of the building had been transferred to a new tower in 2007.  The project plans had already been drawn, giving the management staff time to relocate without compromising the airports safety. After the connecting road had been finished, the new terminal 2 or the Queens terminal was open for business.

Resources and Involved Parties

Some of the construction materials used in the Queen’s terminal were directly sourced from the old building; however, in a major part recycling was the primary source of the materials used in the new terminal 2 building. According to (Fewings, 2013, p.98) the building designers Foster and partners as well as Pascall and Watson responsible for the fit out phase had made a decision to make 25% of the new building from materials from the old terminal in an effort to conserve the environment. The use of such material brought down the cost of developing the new terminal by approximately 15% as stated by Robinson et al. ( 2016, p.50). The most involved parties in this project were Heathrow Airport Holdings, the government through BAA and the Heathrow Airport Management Ltd.

Project Analysis

According to (Gardiner, 2005, p.56), risk management is the assessment of the potential dangers that may put a business or a project under risk. The process of risk management includes planning; identifying potential risks; analyzing these risks; developing response strategies; monitoring results as well as controlling other underlying outcomes (Cooper et al., 2005, p.22). The terminal 2 project during its launch was one of the biggest and most multifaceted projects to have been undertaken in the UK. The amount of risks expected ranged from construction; financial; time as well as practicality, considering the fact that all statements are only projections that are derived from calculated assumptions that may not be accurate. Terminal 2 risks though have turned to be significant enough to delay operations; however, the current turnout is highly productive

Financial Risk

Initially terminal 2 was to cost approximately 900 million to 1.1 billion UK pounds; however, the total amount now stands at 2.2 billion. This is despite using recycled material that was supposed to bring down costs. The reason for this may be a cause of the iron triangle, which at some point majorly during internal designs took a higher cost (Burke, 2013, p.63). The queens terminal 2 project was the first to fully adopt the ‘iron triangle’ mechanism. According to (Ogunlana, 2010, p.12) the iron triangle is placed to aid stakeholders highlight as well as specify the cost, quality and time-constraints, giving them a chance to choose one for the other in order to achieve their objectives.  The Queens terminal host the longest permanent sculpture in the whole of the UK; this structure famously known as the slipstream designed by Richard Wilson spans the entire length between two passenger walkways it cost plus installation is in the millions.

Construction Risk

The construction of terminal 2B was delayed since it required the entire old terminal 2 to be demolished plus additional construction of terminal 2A. This was a risk based on time considering an entire satellite building was dependent on the completion of three-storeys of the new terminal 2A, which again had to be weathe proof for other constructions to continue.

The above-mentioned risks were the ones that faced the Queens terminal and a variety of solutions were generated in the process of finally finishing the operational phases of developing terminal 2. The Iron triangle strategy was the best mechanism that was used to develop the queens terminal considering that it covered both time, quality as well as cost high risk factors that though some were not achieved got the best alternative results. The lessons from other projects were the reasons why the project used such as mechanism

Terminal 5 DMAIC Analysis

According to Shokri (2014, p.12), a DMAIC analysis is a data-stimulus approach that is used to improve a process mainly in project management. This strategy is an essential measure of a Six Sigma initiative; however, in most cases, it is used as a standalone quality assurance measure as part of an entire project improvement scheme.

Define. According to Wit and Meyer (2010, p.45) this phase of the analysis is based on underlying the project objectives. The Terminal 5 project identified the need for Heathrow to increase its capacity by 20 million passengers annually a factor that came into question when re-engineering terminal 2.

Measure.  During the development of terminal 5 measure was found in the reason to relieve the passengers’ frustration caused by the Heathrow hassle. The same mechanism was used as terminal 2 was based both on reducing passenger congestion, but also increasing quality and luxury with the introduction with self-service high profile services

Analyze. According to Shokri (2014, p.63) this part of the analysis identifies potential hiccups in the terminal 5 it came mostly from construction considering there was a wall 30,000 square meters made of glass; 13 km of underground tunnels and increasing rainwater dropping on the building. In the Queens terminal, the mechanism showed time constraints risk as well as costs considering the buildings fittings.

Improve. This phase of the analysis is based on finding the root cause of the risk and redesigning the whole system (George, 2002, p. 27). In the terminal 5 case the issues was based on construction finding a way to block rain water from getting into the building tunnels as well protection of the glass wall. In the Queens terminal case the iron triangle gave the stakeholders to improve the designs as well as the cost of the building.

Control. This section is majorly placed to maintain high standards and the overall success of the project. In the Queen’s terminal case the luxury as well as reduced traffic is a constant check that have aided in the performance of the terminal for the last two years.

 

Recommendation

The above case of the reconstruction of terminal 2 of Heathrow is a prime example of how large projects should  be done; however, due to the late opening of the structure a number of reconditions are significant to avoid such schedule snags. The use of the iron triangle, though effective needs constant checkups considering like terminal two it is easy to lose track of either, time, cost as well as quality. The queens terminal though luxurious and one of a kind, was costly and had issues of quality considering the last minute rush. Another recommendation is the development of independent projects that can be driven by different contractors. The delay on terminal 2B was caused by the actions of 2A a factor not put to consideration

Conclusion

The Heathrow Queen’s terminal project has provided project managers as well as researchers with several significant lessons. One primary lessons is the implementation of the balance scorecard analysis brought in by the use of the iron triangle mechanism. The iron triangle influenced the BAA procurement system, risk management, as well as finding absolute benefits from the project. The iron triangle mechanism; however, has a bad side considering it was the cause of the delayed as well as increased cost of the project.  In conclusion, terminal 2 represents both a success as well as a fail over the results of project management. When analyzing a project one has to consider the deliverables, objectives as well as the resultants costs. Queen’s terminal is currently achieving its goals as well it deliveries; nonetheless, it came at a cost of over 1.1 billion pound above budget and late opening. BAA next project is likely to have less snags as the association has learnt from this experience

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