Heathrow has been told to cut fees charged to airlines by 20% from 2024 for two years.
The aviation regulator ruled today that the London hub’s charges per passenger can remain at £31.57 in 2023 but fall to £25.43 next year.
The price cap decision applies to the charges that Heathrow levies on airlines for using the airport until the end of 2026.
This means the average charge over five years will be £27.49.
The lower level of charges from 2024 “recognises that passenger volumes are expected to return to pre-pandemic levels and should benefit passengers in terms of lower costs, while also allowing Heathrow to continue investing in the airport for the benefit of consumers and supporting the airport’s ability to finance its operations”.
The package includes a £3.6 billion capital investment programme covering next generation security scanners and a new baggage system in Terminal 2, which are collectively expected to cost around £1.3 billion “and should bring considerable passenger benefits”, including an improved security experience and more resilient infrastructure.
Heathrow was allowed to raise the passenger charge for airlines in December 2021 from £19.60 to £30.19 for the summer of 2022 to help it get through the pandemic.
CAA chief executive Richard Moriarty said: “Our priority in making this decision today is to ensure the travelling public can expect great value for money from using Heathrow in terms of having a consistently good quality of service, whilst paying no more than is needed for it.
“We have carefully considered the sharply differing views from Heathrow Airport Limited and the airlines about the future level of charges.
“Understandably, their respective shareholder interests lead the airport to argue for higher charges and the airlines to argue for lower charges.
“Our job is to reach an independent decision from these conflicting commercial interests and focus on what is in the best interests for the travelling public that will use Heathrow in the years to come.
“In doing so we have taken all the points made by Heathrow Airport Limited and airlines into account, along with extensive consultation and our own detailed analysis.
“We are confident our final decision represents a good deal for consumers using Heathrow, while having regard for the airport’s need to efficiently finance its operations and be able to invest in improving services for the future”.
Regulatory framework ‘broken’
But Virgin Atlantic chief executive Shai Weiss remained critical of the charging regime.
He said: “After nearly two years of consultation and an abundance of evidence that supports a significantly lower price cap, the CAA has finally adjusted course.
“However, an average cap of £27.49 until 2026, adjusted for inflation, still penalises passengers at the world’s most expensive airport, which by its own admission, grew more than any other airport last year.
“The CAA has not gone far enough to push back on a monopolistic Heathrow and fulfil its statutory duty to protect consumers.”
He added: “This process has proven that the regulatory framework, including the formula used to set charges, is fundamentally broken. We’ll review our position carefully.
“With Easter just weeks away and the start of a busy summer season, we are ready to fly and serve our customers and we expect Heathrow to deliver a quality experience for passengers.”
Luis Gallego, chief executive of British Airways owner International Airlines Group, said: “Britain needs an efficient airport hub that will attract business, serve customers and support jobs.
“But high charges, designed to reward shareholders at the expense of customers, risk undermining its competitiveness.
“Heathrow already charges three times more per passenger than other major airports in Europe including Gatwick and Madrid, and five times more than Dublin.
“If the CAA had fully taken into account industry forecasts of passenger volumes post Covid, it should result in lower prices for consumers.
“We will continue to assess our options for further action to ensure UK consumers do not pay an unfair price to use Heathrow.”
A Heathrow spokesperson said: “The CAA has chosen to cut airport charges to their lowest real terms level in a decade at a time when airlines are making massive profits and Heathrow remains loss-making because of fewer passengers and higher financing costs.
“This makes no sense and will do nothing for consumers at a time when the CAA should be incentivising investment to rebuild service.
“We will now take some time to carefully consider our next steps.”
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