Heathrow Airport must reduce its passenger charges amid a surge in demand for flights, the aviation regulator has announced. The Civil Aviation Authority (CAA) said the cap on the west London airport’s average charge per passenger will fall from £30.19 today to £26.31 in 2026.
This is equivalent to nearly a 6% reduction each year when the effects of inflation are removed, according to the regulator. The decision follows a bitter dispute between the airport and airlines about what the cap should be.
Charges are paid by airlines but are generally passed on to passengers in air fares. Heathrow was given permission to increase its average fees on January 1 from the previous level of £19.60 due to the collapse in passenger numbers caused by the coronavirus pandemic.
But the five-year control period from 2022 to 2026 announced by the CAA will see that cap cut to the lower end of the range of £24.50 to £34.40 which it consulted on. The CAA said these are its “final proposals”, with a “final decision” due to be published in the autumn.
Heathrow chief executive John Holland-Kaye claimed the regulator “continues to under-estimate 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”.
There is “still time for the CAA to get this right”, he said, adding: “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.”
CAA chief executive Richard Moriarty said the announcement is “about doing the right thing for consumers”. He insisted the regulator has “listened very carefully” to arguments from Heathrow and airlines.
“Our independent and impartial analysis balances affordable charges for consumers, while allowing Heathrow to make the investment needed for the future,” he said.
The CAA believes Heathrow will still be able to invest in improvements, such as next-generation security scanners and a £1.3 billion upgrade of baggage facilities at Terminal 2. Heathrow had called for the cap to range from £32 to £43.
The airport’s owners include sovereign wealth funds from China and Qatar, Spanish construction firm Ferrovial and large infrastructure funds. Nearly £4 billion in dividends to shareholders has reportedly been paid out by the airport since 2012.
But it expects to remain loss-making and not pay more dividends in 2022. The CAA’s figures for the control period are based on the Office for Budget Responsibility’s forecast for inflation.
The actual annual caps will be adjusted based on what happens to inflation. Heathrow was previously branded a “monopoly-abusing hub airport” by the airline industry.
Luis Gallego, chief executive of British Airways’ parent company IAG, said in October last year that it was “already the world’s most expensive hub airport”, adding that large increases in fees will “undermine its competitiveness even further”. Heathrow increased its annual passenger forecast last week due to “stronger-than-expected demand”.
The airport said it expects 54.4 million passengers to travel through its terminals this year. That is up by nearly nine million on guidance it gave in December, but remains around two-thirds of 2019 levels.
Heathrow was accused by airlines of playing down the recovery of demand for air travel in an attempt to convince the CAA to allow it to raise passenger fees further.
