Terminal 5 fiasco: The new 'Heathrow hassle'

Disappearing bags, 30 cancelled flights and passenger delays are not the way that British Airways wanted to open its new terminal at Heathrow. By Danny Fortson

It was not the most auspicious of beginnings. By most measures it was a complete disaster. On the first day of operation from its new home at Heathrow's Terminal 5 – the gleaming, £4.3bn building that was nearly two decades in the making – British Airways was forced to cancel more than 30 flights due to what it termed a "staff familiarisation" issues. Check-in was temporarily suspended. The first flight to land in Paris arrived without luggage – one of three that took off sans baggage.

Billed as a beginning of a new era for British aviation and a major step towards the banishing of the infamous "Heathrow hassle", this was not the way it was supposed to be.

Complaints of hours-long waits and disappearing luggage were rife. The airline did its best yesterday to put a positive spin on the chaos, classifying the issues as inevitable teething problems, especially for the labyrinthine baggage system snaking through the Hyde Park-sized structure.

Indeed, going from operating zero flights one day to 380 the next, there were going to be some hiccups. Yet critics, and there are many, seized on the delays and other complications as clear evidence that BA's shiny new building, with its sweeping views of London, wide open spaces and rows of luxury shops, will change little at the carrier, recently given the dubious distinction of losing more passenger bags than almost every other European airline.

BA desperately needs Terminal 5 to work. So does its chief executive, Willie Walsh, who will rely heavily on the airline's new state-of-the-art base – it will ultimately be home to 90 per cent of BA's 550 daily flights from the airport – as he attempts to steer it through a gathering storm of rising oil prices and slowing economies on either side of the Atlantic.

Earlier this month, the carrier issued a profit warning due to the skyrocketing price of jet fuel. Any hope of relief on that front was eliminated yesterday after the sabotage of a major oil-exporting pipeline in Iraq pushed the oil price back to more than $107 per barrel, perilously close to the $120 per barrel level at which the airline has warned that it will lose all profitability. An economic slowdown in the UK and America – the latter its most important foreign market – has added to the gloom descending over the prospects for the company. Its share price has halved in the past year.

The inauguration of a trademark hub on par with other major international airports is, it would seem, just what BA needed; a ballast against the strengthening headwinds. T5 is designed to handle up to 30 million passengers a year. But with its swish departure lounges, high-end shops such as Tiffany's and a Gordon Ramsey restaurant, it is clearly aimed at one client segment more than any other: business and first class passengers.

Premium passengers, as they are called – those willing to pay several thousand pounds on top of the basic fare for some extra leg room and in-airport pampering – are the profit generators for BA. The airline just about breaks even on its economy fares, which have been forced down by no-frills carriers such as EasyJet and Ryanair.

But premium customers have in recent years begun switching to ultra-modern European hubs like Amsterdam and Frankfurt for transfer flights to avoid the queues, drab surroundings, and risk of lost bags at Heathrow. Douglas McNeill, an analyst at Blue Oar Securities, said that T5 could get those passengers to come back. "One of BA's great strengths in recent months has been that premium traffic has remained very strong. Moving into Terminal 5 positions them more strongly in that market," he said.

Indeed, since security was heightened in August 2006 after a plot to used liquid bombs to blow up airliners was foiled, Heathrow's infamy has reached new heights.

Security queues have grown ever longer, giving passengers extra time to contemplate their shabby surroundings. With the Open Skies treaty set to take effect next week, a new era of increased competition for trans-Atlantic business from Heathrow will begin.

T5 will give BA a timely leg up on rivals, who, stuck operating from Heathrow's older terminals, will look poor by comparison. Mr McNeill said: "Being associated with the 'Heathrow hassle' wasn't doing BA any favours. I suspect we'll now hear a lot less about that, except from the airlines that are still using the shabbier, older terminals."

The airy new space will increase on-the-ground capacity, but it does nothing to address the bottleneck in the air. Heathrow is Europe's busiest airport but has just two runways. For a comparison, Amsterdam's Schipol is looking at putting in its seventh, despite handling just two-thirds of the traffic that Heathrow does. The upshot is that planes destined for the airport are much more likely to be stuck doing circles for half an hour over west London while they wait for their turn in the landing queue. The Government has expressed support for the construction of a third runway, but a fierce campaign by environmental protesters and local authorities means that it surely remains years in the offing, if it's ever built at all.

The issues have greatly complicated Mr Walsh's efforts to streamline the business and increase its profitability. At the investor day earlier this month, he was forced to abandon his prediction that the carrier would achieve a 10 per cent profit margin next year. T5 will help on that account. Though BA will have to absorb an estimated £36m in costs associated with the opening of the terminal this year, it will begin to realise cost benefits from 2009. Automation and greater efficiency will mean a reduction of about 700 jobs at the airport.

Yesterday's opening was the end of an odyssey which began in the late Eighties, when the new terminal was mentioned for the first time in a government planning document. BAA, the airport operator, made its first planning application 15 years ago. After the longest public inquiry in UK history – four years – approval was finally given in 2001. Construction began in 2003.

Mr Walsh will be hoping that yesterday's issues are as billed – teething problems that will soon be worked out. If not, it will make add an unwelcome dimension to the turbulence into which the airline is heading. "This is important for Willie and the group," said Mr McNeill. "But they are looking at serious challenges, the oil price is the most obvious, the economic slowdown is the other. This doesn't address either of those."