Heathrow Airport ordered to reduce passenger charges

Regulator releases its final proposals for price controls at the west London airport

The departures hall of Terminal 2 at Heathrow Airport in London on Monday. Reuters

Heathrow Airport has been told by the aviation regulator it must reduce its passenger charges as travel resets after the coronavirus pandemic.

The Civil Aviation Authority said the cap on the west London airport’s average charge per passenger will fall to £26.31 ($32.30) in 2026, from £30.19 today.

It said when the effects of inflation are removed, this is equal to a reduction of about 6 per cent every year from today’s level up to 2026.

The CAA said the pricing profile reflects expected increases in passenger numbers as the recovery from the pandemic continues, and will be adjusted based on what happens to inflation.

In response, Heathrow said the regulator underestimates what it takes to run an effective airport.

There has been a bitter dispute between the airport and airlines about what the level 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.

Heathrow had called for the cap to range from £32 to £43.

The CAA said these were its “final proposals”, with a “final decision” due to be published this autumn.

Civil Aviation Authority chief executive Richard Moriarty said the announcement on Heathrow’s charges was “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,” he said.

“Our independent and impartial analysis balances affordable charges for consumers while allowing Heathrow to make the investment needed for the future.”

He told the BBC that Heathrow must “up its game”.

The airport has been beset by troubles since Covid travel restrictions were removed earlier this year. Flight cancellations, long queues and delays at luggage collection have frustrated passengers.

British Airways staff at the airport have also voted to strike over the summer.

______________________________

Decades of flight: Heathrow through the years — in pictures

______________________________

Heathrow chief executive John Holland-Kaye said that as the industry rebuilds, the airport was focused on working 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,” he said.

“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.

Mr Holland-Kaye said economic regulation should drive affordable private investment in Britain’s infrastructure to the benefit of users, and not hamper it.

“The CAA’s proposal will undermine the delivery of key improvements for passengers, while also raising serious questions about Britain’s attractiveness to private investors,” he said.

“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.”

The CAA is now undertaking a consultation on its final proposal, to which Heathrow will respond, before a final decision is made later this year.

Last month, Heathrow increased its passenger number forecast by 16 per cent for the year to about 53 million, from 45.5 million.

Five million passengers travelled through Heathrow during the busy Easter period in April.

The airport said that it had been boosted by outbound leisure travellers and a recovery in passenger demand, which is set to last throughout the summer.

The forecast means Heathrow expects passenger numbers to reach 65 per cent of pre-pandemic levels this year.

This is a “realistic assessment”, the airport insisted.

The airport’s owners include sovereign wealth funds from China and Qatar, Spanish construction company Ferrovial and large infrastructure funds.

About £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.

Heathrow was previously branded a “monopoly-abusing hub airport” by the airline industry.

Virgin Atlantic chief executive Shai Weiss said the CAA’s announcement was a “positive step towards a price cap that puts customers first”.

But he insisted the regulator “can and must go further” to lower fees to reflect “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,” Mr Weiss said.

What the CAA told Heathrow

The package of measures set out in the proposals include:

· A five-year control period, which will allow the airport to reduce charges for consumers and provide investors with medium-term certainty. The control period, known as H7, runs from 2022 to 2026.

· Affordable charges for consumers, which will also support the recovery in passenger numbers.

· 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.

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 infrastructure at Terminal 2.

What the final proposals will mean for consumers?

The CAA said:

· "Our primary duty as the UK’s aviation regulator is to protect the interests of consumers, both in the short and long term, and today’s announcement will bring considerable passenger benefits. This will include allowing significant investment to improve Heathrow for passengers, such as [a] £1.3bn upgrading [of] 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 H7 five-year period will see airport charges reduce over time from today’s level."