UK. London Heathrow Airport released its full-year results for 2020 today, and warned that the loss of tax free sales to international visitors would change its pricing proposition and put £200 million of annual revenues at risk.
As reported, Heathrow has repeatedly called on the UK Chancellor to review the decision to abolish the VAT refund scheme and remove airside tax free shopping from 1 January. A judicial review of the decision, launched by Heathrow, Dufry and Global Blue, was heard on Monday (see below).
Commenting in its 2020 results announcement, Heathrow said: “The existing tax-free status is a key purchase driver among passengers, particularly in high-spend categories such as luxury and technology. The VAT Refund scheme incentivises international residents to visit the UK and spend in the UK retail sector which benefits the wider economy and ‘UK PLC’. It is also a material source of revenue subsidising passenger charges.
“These changes will impact our pricing proposition materially and are therefore a significant and credible threat to our income of circa £200 million annually. Removing tax free shopping would lead to a c.15% increase in passenger charges from 2022, due to increased difficulty to remain price competitive versus foreign airports and destinations, as well as the knock-on impact of passengers using the VAT refund scheme at the airport. Heathrow, World Duty Free, and Global Blue, have launched a Judicial Review on the government’s decision for which a hearing took place in late February.”
In the year, Heathrow revenues plummeted by -61.7%, or almost £2 billion, to £1,175 million compared to 2019. Pre-tax losses hit £2 billion, compared to profit of £546 million a year earlier. EBITDA of £270 million was down by -85.9%.
Retail revenue declined by -67.6% driven by reduced passenger numbers and the mix of retail service available. Retail revenue per passenger increased +18.6% to £10.58, a figure skewed by the reduced passenger numbers. Passenger traffic fell by -72.7% to 22.1 million in the year.
Heathrow CEO John Holland-Kaye said: “2020 has been one of our most challenging years – but despite £2 billion of losses and shrinking to passenger levels we haven’t seen since the 70s, I am hugely proud of the way that our colleagues have kept our passengers safe and the UK’s hub airport open for vital supplies throughout.
“We can be hopeful for 2021, with Britain on the cusp of becoming the first country in the world to safely resume international travel and trade at scale. Getting aviation moving again will save thousands of jobs and reinvigorate the economy, and Heathrow will be working with the Global Travel Taskforce to develop a robust plan underpinned by science and backed by industry.
“The Prime Minister will then have the unique opportunity to secure global agreement on a common international standard for travel when he hosts the G7 in June. In the meantime, we need next week’s Budget to support aviation’s recovery by extending furlough and providing 100% business rates relief.”
Judicial Review
As reported, Heathrow Airport, Dufry and Global Blue mounted a joint legal challenge to the UK Treasury’s hugely controversial move to end tax free sales and VAT rebates for outbound tourists.
The move, announced on 11 September, meant that tax free sales at UK airports were withdrawn for all outbound passengers from 1 January on goods other than liquor & tobacco. That includes the all-important fragrances & cosmetics category, as well as fashion, luxury, and consumer technology.
As reported by Law360, at the Judicial Review hearing on Monday the airport said that the government’s reasoning that led it to withdraw the VAT Retail Export Scheme and the Extra Statutory Concession on tax free sales was flawed.
HM Treasury, it said, only considered drawbacks such as the costs of operating the schemes and failed to properly take into account their potential benefits, Heathrow’s Counsel Daniel Beard QC said.
“The withdrawal of these schemes is a huge blow to the tourism industries at a time when they are suffering from restrictions,” he added.
The Treasury defended the decision at the review (as also reported by Law360). Eleni Mitrophanous QC, Counsel for HM Treasury, said that it had taken a “multi-factoral decision” that balanced “all the relevant factors”.
Extending tax free shopping to more passengers would have required new legislation, Mitrophanous told the Court of Appeal. She said that evidence that VAT savings would be passed onto passengers if the programmes remained in place was inconsistent.
Mitrophanous said that the claimants could not meet the high threshold of proving that the decision was “absurd”. She added that the expert [Treasury] officials might not have quantified economic implications, but they took them into account, she claimed, adding that there was “undeniable uncertainty” over the potential drop in passenger numbers and decreased spending.
