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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Boots £5bn sale abandoned; Heathrow landing fees to fall; petrol at new record – as it happened

Heathrow Heathrow Airport CAA Christine Lagarde BEIS Competition and Markets Authority ECB
A branch of Boots the chemist on Oxford Street.
A branch of Boots the chemist on Oxford Street. Photograph: Oli Scarff/Getty Images

Closing summary

Time for a recap

Walgreens Boots Alliance has abandoned the sale of the Boots chemist chain, after market turbulence meant bidders couldn’t meet its expectations.

Sarah Riding, a retail partner at the law firm Gowling WLG, says:

“While disappointing news, it is right to set aside acquisition plans if the financial commitment cannot be met – the current and future value that incorporating the Boots brand would bring to any buyer is immense, given its strong domestic market and also its global reach.

It will be interesting to see if this opens the floodgates for other, more alternative buyers from the private equity market to consider an offer.”

The UK car industry has called for more help on soaring energy bills, and warned that uncertainty over the Northern Ireland protocol could hurt investment.

Heathrow has claimed that passengers will get a worse service, after the aviation regulator laid out plans to cut its landing fees over the next few years. Airlines, though, argued the charges were still too high.

Supermarket shoppers are turning to cheaper frozen foods as they watch “every penny and every pound”, according to the boss of Sainsbury’s.

The cost of living crisis has hit lottery ticket sales too, as cash-strapped customers rein in spending.

Abuse and violence towards shop workers and service staff is on the rise again, research shows, with a quarter of those reporting hostility blaming the cost of living crisis for putting increased stress on customers.

The AA has accused fuel retailers of ‘pump fiction’, after petrol prices hit a fresh record on Monday despite recent falls in wholesale prices.

The head of the European Central Bank has pledged to go ‘as far as necessary’ to cool rising prices. Christine Lagarde admitted inflation in the eurozone was “undesirably high”, but also played down concerns of a recession.

Consumer confidence in the US has been hit by rising inflation, while house price growth has decelerated a little.

Tram drivers in south London are holding a 48 hour walkout in a dispute over pay, just as Royal Mail postal workers receive ballots about possible industrial action too.

Stock markets have rallied, as China eased the Covid-19 restrictions on international arrivals.

The UK’s FTSE 100 is the highest in two weeks, up 92 points at 7350, with oil companies, miners and travel firms rising.

Fiona Cincotta, senior financial markets analyst at City Index, says:

Easing COVID restrictions, investors hope will improve global supply chain issues and help lower the possibility of a global recession.

Commodity prices rose on the news with iron ore and copper reversing losses while oil gained.

Updated

The National Bank of Hungary has startled the markets with a massive interest rate rise.

The NBH raised its base rate by a whopping 185 basis points to 7.75%, from 5.9%, far ahead of the 50bp rise which economists had expected.

The hike came after the forint plunged to a record low this week, while inflation keeps surging.

Inflation fears push US consumer confidence down

Rising inflation has knocked US consumer confidence to its lowest in over a year.

The Conference Board’s index of consumer sentiment dropped to 98.7 this month, from 103.2 in May, which is the lowest reading since February 2021.

The survey showed a sharp drop in consumers’ short-term outlook for income, business, and labor market conditions, to the lowest since March 2013.

“Consumer confidence fell for a second consecutive month in June,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board.

“While the Present Situation Index was relatively unchanged, the Expectations Index continued its recent downward trajectory—falling to its lowest point in nearly a decade.

Consumers’ grimmer outlook was driven by increasing concerns about inflation, in particular rising gas and food prices. Expectations have now fallen well below a reading of 80, suggesting weaker growth in the second half of 2022 as well as growing risk of recession by yearend.”

Stocsk have opened higher in New York, following gains in Europe.

The Dow Jones industrial average is up 309 points, or 1%, at 31,747 in early trading.

Energy stocks are leading the way, following a rise in the oil price, along with banks and industrial firms as recession worries ease.

House price growth across America has slowed a little, in what could be an early sign that the market is cooling.

Prices jumped by 20.4% in April compared with the same month a year ago, the S&P CoreLogic Case-Shiller Index showed.

That’s still a major jump, but slower than March’s 20.6%, as rising interest rates push up borrowing costs.

“April 2022 showed initial (although inconsistent) signs of a deceleration in the growth rate of U.S. home prices,” sayd Craig Lazzara, managing director at S&P DJI, who points out that price have surged across the US.

“We continue to observe very broad strength in the housing market, as all 20 cities notched double -digit price increases for the 12 months ended in April.

April’s price increase ranked in the top quintile of historical experience for every city, and in the top decile for 19 of them.

Prices across 20 of the largest US cities jumped 21.2% in the last year, up from 21.1% in the year to April:

Ernst & Young pays $100m to settle US charges of cheating by audit staff

In a remarkable development, auditing giant EY has agreed to a record $100mn settlement to resolve claims that dozens of its employees cheated on an ethics exam (!).

Our US business editor Dominic Rushe reports:

Ernst & Young, one of the world’s largest accounting firms, agreed to pay a record $100m to US regulators on Tuesday amid charges that dozens of its audit staff cheated on an ethics exam and misled investigators.

The Securities and Exchange Commission (SEC) charged that “over multiple years” EY’s audit professionals cheated on exams required to obtain and maintain Certified Public Accountant (CPA) licenses, and withheld evidence of this misconduct from the SEC’s enforcement division during an investigation of the matter.

SEC enforcement director Gurbir Grewal

“It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things.

“And it’s equally shocking that Ernst & Young hindered our investigation of this misconduct.”

EY says it has taken “thorough, extensive, and effective” action, following the unacceptable behaviour. More here:

Updated

Shares in Walgreens Boots Alliance are down 2.7% in pre-market trading, after it threw in the towel over its plans to sell Boots.

Neil Saunders, managing director of GlobalData Retail, fears Boots the Chemist will now be ‘treading water’:

Walgreens Boots Alliance confirms Boots auction is off

It’s official, the £5bn sale of Boots the chemists has been abandoned, with its owner blaming ‘market instability’

Walgreens Boots Alliance has announced that it has decided to keep its Boots and No7 Beauty Company businesses under its existing ownership. after months of trying to agree a sale.

WBA blames the turmoil in the financial markets, which meant that interested parties couldn’t raise enough financing to make the deal fly.

It says:

WBA has been encouraged by productive discussions held with a range of parties, receiving significant interest from prospective buyers.

However, since launching the process, the global financial markets have suffered unexpected and dramatic change.

As a result of market instability severely impacting financing availability, no third party has been able to make an offer that adequately reflects the high potential value of Boots and No7 Beauty Company.

Consequently, WBA has decided that it is in the best interests of shareholders to keep focusing on the further growth and profitability of the two businesses.

WBA’s chief executive officer, Rosalind Brewer, insists that Boots, and the No7 Beauty Company, still hold ‘strong fundamental value’, but also suggests a deal could be done in the ‘longer term’.

It is an exciting time for these businesses, which are uniquely positioned to continue to capture future opportunities presented by the growing healthcare and beauty markets.

The Board and I remain confident that Boots and No7 Beauty Company hold strong fundamental value, and longer term, we will stay open to all opportunities to maximize shareholder value for these businesses and across our company.”

Updated

Britons seek cheaper grocery options as inflation bites

Britons are shifting to cheaper food alternatives in their supermarket shopping as they try to navigate a worsening cost of living crisis, market research group NielsenIQ has reported today.

NielsenIQ reported that sales of frozen poultry are up 12% year-on-year, while sales of rice and grains increased 11%, canned beans and pasta were up 10%, gravy/stock up 9%, canned meat up 9% and dry pasta up 31%.

Overall shopping volumes fell 5.5% year-on-year, in the four weeks to 18th June, as customers tried to economise due to the rising cost of living. But despite buying less, shoppers spent 1.5% more.

There was also a big drop in online shopping compared to a year ago, when the UK was emerging from lockdowns. Online sales fell 12% compared with last year, with almost half a million fewer online shoppers than in June 2021

Mike Watkins, NielsenIQ’s UK Head of Retailer and Business Insight, says people are shopping around more to save money:

“It is no surprise that with budgets squeezed some households are less willing or less able to spend on a large online shop.

Moreover, with no restrictions on visiting stores, this is encouraging shoppers to shop around for the best prices as well as shopping little and more often to help manage the weekly food budget. Shoppers are starting to make different choices in how to compensate for their rising cost of living.

For some households, the way to save money is to buy cheaper products and our analysis suggests that some of the increased cost of an overall basket can be mitigated in this way3.”

Sky: £5bn sale of Boots, Britain’s biggest chemist, abandoned

Sky News are reporting that the £5bn+ auction of Boots the Chemist is being abandoned, as rough conditions in the debt-financing markets scuppered the sale.

After a process lasting several months, Walgreens Boots Alliance (WBA) has decided to retain ownership of Boots, Sky says.

Earlier this month, Indian billionaire Mukesh Ambani’s Reliance Industries teamed up with US private equity fund Apollo Global Management to make a £5bn bid.

But it appears that bidders were having problems financing a deal, at a time when global markets were suffering turbulence as recession fears rose.

Here’s the details:

The move, which could be announced as soon as Thursday when WBA is due to announce financial results to the New York Stock Exchange, is likely to cast doubt over Boots’ long-term prosperity under WBA’s ownership.

Banking sources said on Tuesday that the £5.5bn auction had faltered badly in recent weeks, with the only bidder to make a binding offer for Boots - a consortium of Apollo Global Management and Reliance Industries - pinning its hopes on the steadfastness of a quartet of lenders.

Growing concerns about the global economy have triggered severe doubts among the big banks which help finance leveraged buyouts, with Boots among the biggest such deals in Europe.

Our financial editor, Nils Pratley, wrote recently that the Boots auction lacked much buzz (rarely a good sign in the deal world...)

Roll up, roll up, who wants to buy Boots, a grand old name of UK retailing with 170 years of history under its belt? Not many people, it seems. Or rather, not many at a price the seller, the US group Walgreens, had hoped to achieve.

The reported joint bid of slightly more than £5bn from Reliance Industries of India and the US private equity fund Apollo is a long way short of where the rumour-mill had suggested the winning line would lie. Advisers had been trying to talk the price into £7bn-plus territory. There’s still time for the action to heat up (the ubiquitous Issa brothers of Asda and EG petrol forecourt fame are not formally out yet) but there’s an unmistakable lack of buzz around this transaction.

Chancellor Rishi Sunak has insisted he will carefully consider calls for a “more substantial” fuel duty cut, to help motorists with record costs.

Asked in parliament today whether he would “think again about the cut in fuel duty”, and consider a larger cut, Sunak replied:

“What I will say to him is of course I will take all his recommendations under advisement.

Sunak announced a 5p/litre cut to fuel duty in March, but the jump in wholesale prices since means it’s not being felt at the pumps.

Rising prices prompted the government to demand a review of the sector, by the competition watchdog.

Sunak added:

I want to reassure him that the Energy Secretary is in dialogue with the CMA (Competition and Markets Authority) to make sure that fuel duty cut is being passed on as well.”

Record petrol prices are 'pump fiction', says AA

The AA has claimed that petrol and diesel prices are ‘pump fiction’, as motorists fail to see the benefits of falling wholesale costs.

Petrol crept up to a new alltime average of 191.10p per litre on Monday, the latest data shows, while diesel only fell slightly from last Saturday’s record high, to around 198.96p.

This means it costs over £105 to fill a 55-litre family car with petrol, up from around £72 a year ago.

Edmund King, AA president, says these prices don’t reflect the recent drop in wholesale petrol prices.

“The pump prices are now more like ‘pump fiction’ as they don’t reflect the general downward trends we have been seeing in wholesale prices. This is now an urgent situation. The Prime Minister has hinted at action but we need more than hints.

Pressure to force price transparency and a cut in duty would be a step in the right direction.”

RAC fuel spokesman Simon Williams hope that prices will start to fall:

“We strongly hope pump prices have peaked for the time being and will now start to decrease in line with wholesale prices which reduced last week. That, however, is the hands of retailers.”

Updated

A firefighters’ union leader is warning of strikes, after receiving an “utterly inadequate” 2% pay offer.

The Fire Brigades Union (FBU) is recommending rejection of the offer, which is well below the UK’s inflation rate of 9.1%.

Matt Wrack, FBU general secretary said the offer would mean “a further cut in real wages to firefighters in all roles” in the midst of the cost-of-living crisis.

The pay offer will now go for consideration by members, with the union’s executive council recommending rejection.

Wrack says the union will “consider all options, including strike action.”

“This latest insulting proposal follows 12 years of government-imposed reductions in real wages.

“This proposal will anger firefighters, those working in emergency fire controls, and those in all uniformed roles in fire services across the UK.

“It is galling to be insulted in this way, especially after our contribution to public safety during the pandemic.

“Firefighters will now inevitably begin to discuss reactions, including industrial action.

The FBU says firefighters’ real pay has been cut by 12% since 2009, or nearly £4,000.

Updated

Britons crack down on waste in 'unprecedented' cost of living crisis, says Sainsbury's boss

Cash-strapped Britons are buying more cheap frozen food to help cut waste and cope with “unprecedented” soaring living costs, the boss of supermarket group Sainsbury’s has told Reuters.

Chief executive Simon Roberts said shoppers were “watching every penny and every pound”, visiting stores more often but buying less on each trip, and using technology to monitor their spending to avoid “till shock” at the check-out.

Roberts, a 30-year veteran of the UK retail sector who has run Britain’s second-biggest supermarket since 2020, addded

“In many ways there is no playbook for what we’re dealing with at the moment, these are unprecedented circumstances.”

Data from Kantar last week showed that supermarket inflation hit 8.3% per year in the past month, adding £380 to the annual cost.

In a pre-recorded video message, Chancellor Rishi Sunak told the SMMT’s audience of automotive leaders that the sector is “incredibly important to the UK economy” and “that’s why the Government is doing more to support you”.

He said this includes a commitment for £2.5bn of investment since 2020 to support the transition to zero emission vehicles.

That doesn’t really tackle the concerns we’ve heard from the SMMT; the FT’s global motor industry correspondent, Peter Campbell, for one, isn’t impressed:

Updated

As if all that wasn’t enough to worry about, more than 22,000 UK jobs making engines or other traditional car parts are placed at risk by the shift to electric vehicles.

The SMMT has calcualted that at least 22,000 jobs and £11bn of turnover in the UK is currently reliant on internal combustion engine-based technologies.

Thost jobs, working on products such as engines, exhaust systems or fuel tanks, would be threatened once the sale of petrol or diesel models is phased out. So the SMMT is keen for the government to help the industry adapt to the zero emission future.

It warns:

The timeframe to act is narrowing, however, with 2024 a looming milestone when EU-UK Rules of Origin get tougher and the Government’s Zero Emission Vehicle Mandate kicks in.

With the UK implementing one of the most ambitious road transport decarbonisation timelines in the world, phasing out the sale of new petrol and diesel cars and vans by 2030, the urgency of action required is self-evident.

UK car makers are also calling for urgent action to cool their spiralling costs.

The SMMT has calculated that the sector’s energy bill will spiral by £90m this year, due to the surge in electricity prices.

It says:

UK electricity prices are the most expensive of any European automotive manufacturing country and 59% higher than the EU average, meaning that last year, UK manufacturers could have saved almost £50m on energy costs if they were buying in the EU rather than the UK.

SMMT chief executive Mike Hawes warns that addressing the UK’s high energy costs is “the industry’s number one ask”.

UK car industry: Uncertainties around Northern Ireland Protocol could harm investment

The UK’s car industry is worried that the UK’s push to scrap parts of the Northern Ireland Protocol could harm investment in the sector.

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, warned this morning that Brexit has pushed up costs for car manufacturers, and that investment will suffer unless there is stability.

Speaking at the SMMT’s International Automotive Summit this morning, Hawes said there has been ‘little progress’ since the UK and EU agreed the Trade and Cooperation Agreement (TCA) at the end of 2020.

He says:

Brexit was a trauma; But it is not yet ‘done’ and the effects of it still being felt.

There was an immense sense of relief when the deal was finally made; it sought to protect this sector.

We viewed the TCA as a foundation, but there has been little progress since.

The promised working groups with the EU have not met. Critical UK-specific regulation has not been hammered out. Brexit costs are there and we cannot ‘kaizen’ them out. The progress promised has not materialised.

Hawes also warned that uncertainty over the Northern Ireland Protocol could deter investment, just as the government presses businesses to commit more.

He said:

The Chancellor has recently been critical of business for a lack of investment.

But investment needs stability. It needs trust not uncertainty.

For years business, especially automotive, operated with the uncertainty of a referendum, stalling trade negotiations, the threat of no deal. There are now uncertainties around Protocols. Investors will take note. They will pause, but investments are made in a small window.

They will not and cannot wait forever.

The proposed legislation to allow the UK to unilaterally rip up Brexit arrangements for Northern Ireland passed its first hurdles in the House of Commons last night, despite the risk of a trade war with the EU.

But there was opposition from some Conservative MPs; including former prime minister Theresa May, who said the move is illegal and unnecessary.

Hawes adds that the TCA has been “critical” in releasing investment, once the threat of a no-deal Brexit was lifted.

In the year following the deal, £4.9bn was announced for Sunderland, Ellesmere Port, Halewood and elsewhere. Billions pledged for new technology, battery facilities, new zero emission models.

But we must unlock further investment, into new jobs, new skills, new businesses. To do this, Government must do all it can to create stability, to help keep us competitive, especially during this storm.

Full story: Heathrow airport ordered to cut passenger charges each year until 2026

A plane taking off from Heathrow Airport
A plane taking off from Heathrow Airport Photograph: Steve Parsons/PA

London’s Heathrow airport has been ordered to reduce its landing charges over the next four years, a proposal that will please airlines while the airport said it would result in a worse experience for passengers.

The move by the Civil Aviation Authority (see opening post) deals a blow to the airport, which had argued for higher fees to help protect customer service, at a time when the travel industry is recovering from the pandemic.

The regulator said the average maximum price for each passenger that airlines will pay Heathrow will fall from £30.19 now to £26.31 in 2026. Excluding the effects of inflation, this is equal to a near-6% reduction every year until then.

The CAA said its final proposals would “be in the best interest of consumers”. It is undertaking a consultation and will announce its final decision later this year.

In a bitter dispute, airlines had pushed for a reduction in landing charges, while Heathrow argued that this would hit customer service. The CAA said the two sides had “starkly divergent views on the level of charges for the next five years”.

The airport’s chief executive, John Holland-Kaye, said:

“The CAA continues to underestimate what it takes to deliver a good passenger service, both in terms of the level of investment and operating costs required and the fair incentive needed for private investors to finance it.

“Uncorrected, these elements of the CAA’s proposal will only result in passengers getting a worse experience at Heathrow as investment in service dries up.”

More here:

Lagarde: We'll go 'as far as necessary' to cool inflation

Inflation in the euro area is undesirably high and it is projected to stay that way for some time to come, European Central Bank chief Christine Lagarde has warned this morning.

Speaking at the Forum on Central Banking in Sintra, Portugal, this morning, Lagarde says the ECB - which expects to raise interest rates from record lows in July - will “go as far as necessary” to get price rises back to its 2% target.

As she puts it:

As Victor Hugo is said to have remarked, perseverance is the “secret of all triumphs”.

Lagarde blames “an extraordinary series of external shocks”, including global supply chain disruption and the Ukraine war, for driving eurozone inflation to a record 8.1% last month.

She vows to “act decisively”, if needed, to “stamp out the risk of a self-fulfilling spiral” if higher inflation threatens to de-anchor inflation expectations.

Lagarde warns that rising inflation will eat into people’s real incomes -- which could lead to a loss of demand and pressure on the jobs market. But she plays down speculation of a recession, saying:

In this setting, we have markedly revised down our forecasts for growth in the next two years. But we are still expecting positive growth rates due to the domestic buffers against the loss of growth momentum.

Fears of a new eurozone debt crisis flared up this month, as the gap between Italian and German borrowing costs widened.

Lagarde said that European Central Bank’s new crisis tools will prevent a disorderly widening of bond yield spreads while keeping pressure on eurozone governments to keep their budgets in order:

“The new instrument will have to be effective, while being proportionate and containing sufficient safeguards to preserve the impetus of Member States towards a sound fiscal policy.

Royal Mail staff begin voting on strike action

A postal worker delivers mail in rural Cambridgeshire

Postal workers have begun voting on whether to take industrial action in a dispute over pay that could intensify Britain’s summer of strikes.

Around 115,000 members of the Communication Workers Union (CWU) have received ballot papers and will decide in the coming weeks if they want to mount a campaign of industrial action. A result is due on 19 July.

The CWU is insisting on a “straight, no-strings” pay increase for employees, saying that a planned 2% pay rise which will be a “dramatic real-terms wage cut” because of soaring inflation.

A union spokesman said:

“Britain’s postal workers are being forced into accepting a massive pay cut by the same people they have generated incredible profits for.”

But Royal Mail insists there are no grounds for industrial action, with a spokesperson saying:

We offered a deal worth up to 5.5% for CWU grade colleagues, the biggest increase we have offered for many years, which was rejected by the CWU.

We need to reach an agreement on the changes required to ensure Royal Mail can grow and remain competitive in a fast-moving industry, securing jobs for the future and retaining our place as the industry leader on pay and terms and conditions.”

That 5.5% figure includes a new ‘above and beyond’ bonus for staff, and is also dependent on changes to working patterns being agreed.

FTSE 100 at two-week high

European stock markets have opened higher, as anxiety over a global downturn appears to ease.

London’s FTSE 100 index has jumped by 75 points, or 1%, to 7334, its highest in over two weeks. Miners, oil companies and hospitality firms are leading the risers.

This follows gains in Asia, where traders were cheered by Beijing announcing an easing of quarantine rules for people arriving in China.

Travelers will now only need to spend seven days in a quarantine facility, and then monitor their health at home for a further three days, according to a revised government protocol released by China’s National Health Commission.

This move has boosted hopes of a recovery for the world’s second biggest economy from the pandemic.

Heathrow charges: what the papers say

Today’s final proposal on Heathrow landing fees is at the lower end of the range the CAA had been considering, points out the Financial Times.

Overall, the charges will average £28.39 between 2022 and 2026 — enough, the regulator said, for Heathrow to install security equipment and a baggage system in Terminal 2, replacing technology that failed this month.

The decision can be appealed to the Competition and Markets Authority.

The Telegraph focuses on Heathrow’s warning that customers will suffer (see earlier post):

Heathrow passengers face “a worse experience”, the airport has warned, after it was told by the regulator to cut charges levied on travellers amid a surge in demand for flights.

The Civil Aviation Authority (CAA) said that the cap on landing fees charged per passenger at Heathrow will fall from £30.19 to £26.31 by 2026, following a furious lobbying effort by the airport and airlines.

Airlines have long argued that Heathrow is one of the most expensive airports in the world and urged the CAA to resist its demands to raise charges to more than £40 per passenger.

Heathrow, meanwhile, has said that it needs to raise the fees to make sure the airport does not fall into disrepair.

Reuters says the CAA has responded to presure from airlines over the cost of flying at Heathrow:

Major airlines including British Airways and Virgin Atlantic have been locked in a bitter dispute with Britain’s biggest airport for months, with airlines arguing that Heathrow was already the most expensive airport in the world.

Heathrow had argued it needed to double the fee it charged airlines in order to invest and provide a better service to customers while retaining the support of private investors.

Cost of living crisis hits lottery tickets sales

Camelot, the outgoing UK national lottery operator, has warned that players have “tightened their belts” in the face of soaring living costs, as it reported lower sales of tickets and instant win games.

The company, which has launched legal action against the Gambling Commission after losing the lottery’s next licence to the Czech-owned newcomer Allwyn, posted a 3% drop in sales to £8.1bn in the year to 31 March.

It said most of that fall was caused by a 7% decline in sales of National Lottery Instants to £3.4bn.

Camelot said:

“This was largely down to greater competition for people’s attention and spend after the lifting of Covid restrictions, followed by growing economic uncertainty over the latter part of the year.”

Virgin Atlantic chief executive Shai Weiss argues that the CAA should insist on lower landing fees at Heathrow.

Weiss argues that this morning’s proposals are a move in the right direction, saying:

“In its final proposals for Heathrow charges, the CAA has taken a positive step towards a price cap that puts customers first.

“However, the regulator can and must go further to lower the cap beyond the proposed average of £28.39, adjusted for inflation, up to the end of 2026, reflecting robust demand for travel this summer and beyond.

With travel recovery under way, our collective focus should be on upholding the best possible experience for customers with fair charges, especially with consumers facing cost-of-living pressures and our Global Britain aspirations at stake.”

Updated

The Civil Aviation Authority says its final proposal on heathrow landing fees will bring ‘considerable passenger benefits’.

It explains:

  • This will include allowing significant investment to improve Heathrow for passengers, such as £1.3bn upgrading Terminal 2’s baggage facilities and introducing new generation security scanners to help reduce queues in the future.

  • Heathrow is among the most expensive airports in the world for its charges to airlines and it is important to note that the five-year period will see airport charges reduce over time from today’s level.

Last year, our financial editor Nils Pratley wrote a stinging rebuke of Heathrow’s push for a big rise in landing charges.

He argued that the airport’s owners should count their blessings, rather than look for special pandemic privileges, and dismissed the argument that investors would shun the UK.

Pointing out that Heathrow’s shareholders enjoyed £4bn of dividends in recent years before the pandemic, he wote:

The owners of Heathrow, who have done very nicely for themselves over the years, have an extraordinary ability to believe the world owes them a living in all circumstances.

Heathrow: This means passengers would get worse experience

Heathrow has criticised the CAA’s decision that its landing fees should fall over the next few years.

CEO John Holland-Kaye said it will mean a worse experience for passengers:

“As the industry rebuilds, our focus is to work alongside airlines and their ground handlers to give passengers a reliable and consistent journey through Heathrow.

The CAA continues to underestimate what it takes to deliver a good passenger service, both in terms of the level of investment and operating costs required and the fair incentive needed for private investors to finance it. Uncorrected, these elements of the CAA’s proposal will only result in passengers getting a worse experience at Heathrow as investment in service dries up.

Holland-Kaye also claims that the CAA’s ruling raises “serious questions about Britain’s attractiveness to private investors” [Heathrow is owned by a consortium of shareholders, led by Spanish infrastructure group Ferrovial and Qatar’s sovereign wealth fund].

And he’s not given up changing the CAA’s mind, it seems:

“We will take time to assess the CAA’s proposal in more detail and will provide a further evidence-based response to this latest consultation. There is still time for the CAA to get this right with a plan that puts passengers first and encourages everyone in the industry to work together to better serve the travelling public.”

Introduction: Heathrow Airport told to cut landing fees

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

Landing charges at Heathrow will fall over the next few years, the UK’s aviation regulator has ruled, following pressures from airlines to cut the cost of flying to the London airport.

Britain’s Civil Aviation Authority is proposing this morning that the average maximum price per passenger that airlines will pay Heathrow will fall from £30.19 today to £26.31 in 2026.

The CAA says its final proposals would be “in the best interest of consumers”, and works out as a 6% reduction every year once you account for inflation.

The decisition follows a long-running consultation into charges at the UK’s largest airport, as the sector tries to recover from the pandemic.

Heathrow had pushed for higher landing fees, while the airlines warned higher charges would be passed onto consumers, in a bitter dispute between the two sides (who had “starkly divergent views on the level of charges”, the CAA says).

The move should please airlines, who have been piling pressure on the CAA to lower these fees as they try to recover from the pandemic. But it’s a blow to the airport, which had argued for higher fees to help provide a better service.

The cap was just £22 per customer in 2020, but was raised to £30 on an interim basis this summer.

Richard Moriarty, chief executive at the UK Civil Aviation Authority, said this morning:

“Today’s announcement is about doing the right thing for consumers.

We have listened very carefully to both Heathrow Airport and the airlines who have differing views to each other about the future level of charges.

The deal will allow Heathrow to “make the investment needed for the future”, Moriaty adds.

This is necessary, judging by the masses of uncollected baggage that has piled up in the travel chaos, and the misery suffered by some passengers during recent disruption.

The CMA explains:

Allowing Heathrow to appropriately invest in keeping the airport safe, secure and resilient, while at the same time providing a good experience for passengers. This includes investing in next generation security equipment and a new baggage system for Terminal 2.

Heathrow had called for the charges to range from £32 to £43 a passenger, as it sought to recoup losses caused by the coronavirus pandemic.

That proposal led Willie Walsh, the head of global airline body Iata, to accuse the airport of “gouging” its customers.

Also coming up today

European Central Bank policymakers are gathering in Sintra, Portugal, for their annual forum on Central Banking -- at a time when the eurozone risks both a downturn and a new sovereign debt crisis, as policymakers try to cool inflation. We’ll hear from Christine Lagarde this morning.

Tram drivers in south London have started a 48-hour walkout in a dispute over pay, after about 150 members of the Aslef union on the London Trams network, formerly known as the Croydon Tramlink, rejected a 3% offer from operator FirstGroup.

In parliament, MPs will question the Government’s preferred candidate to chair the Competition and Markets Authority, Marcus Bokkerink.

The Business, Energy and Industrial Strategy (BEIS) Committee will also hear from business secretary Kwasi Kwarteng.

The agenda

  • 7am BST: German consumer confidence survey for May
  • 8.30am BST: SMMT International Automotive Summit
  • 9am BST: ECB president Christine Lagarde speech at its Forum on Central Banking
  • 10.15am BST: Marcus Bokkerink, the government’s preferred candidate for Chair at Competition and Markets Authority, appears at the BEIS committee
  • 11am BST: Business secretary Kwasi Kwargeng appears at the BEIS committee
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