UK regulator tells Heathrow to cut fees in win for airlines

Virgin Atlantic says the new average charge 'still penalises passengers at the world's most expensive airport'

Heathrow Airport charges airlines a fee per passenger. Reuters

Heathrow Airport has been ordered to lower the passenger fees that it charges airlines using the UK hub.

The Civil Aviation Authority announced that Heathrow, Britain's biggest airport, could charge an average maximum price per passenger of £27.49 ($32.51) over the 2022-2026 period.

The lower fee will be a boost for airlines such as IAG's British Airways and Virgin Atlantic, two of Heathrow's biggest, by making the airport cheaper for them.

After two years of higher interim prices over 2022 and 2023, including a charge of £31.57 per passenger for this year, Heathrow charges will fall to about £25.43 per passenger over the 2024-2026 period. Passengers will pay a substantially lower rate in the next three years to meet a new five-year average fee.

The CAA said the cut in charges “recognises that passenger volumes are expected to return to pre-pandemic levels and should benefit passengers in terms of lower costs”.

Its chief executive Richard Moriarty said the regulator had “carefully considered the sharply differing views from Heathrow Airport Limited and the airlines”.

“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”, he said.

“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”, he added.

Airport executives have been highly critical of plans to reduce the proposed landing charges, highlighting Britain's high rate of inflation.

Last month, the airport operator reported underlying pre-tax losses of £684 million for last year, against a loss of £1.3 billion in 2021, even though it said it saw the largest increase in passengers of any European airport last year.

“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”, a spokesman for Heathrow said.

“This makes no sense and will do nothing for consumers at a time when the CAA should be incentivising investment to rebuild service.”

The CAA said its plans include a £3.6 billion capital investment programme, with about £1.3 billion to be spent on next generation security scanners and a new baggage system in Terminal 2, benefiting passengers.

It said the new charging structure incentivises Heathrow to provide a good quality of service for passengers and have measures and targets to meet, for example on time waiting in security queues and helpfulness of staff.

Luis Gallego, chief executive of British Airways' parent company IAG, said: “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.”

Virgin Atlantic said the new average charge “still penalises passengers at the world's most expensive airport”.

“The CAA has not gone far enough to push back on a monopolistic Heathrow and fulfil its statutory duty to protect consumers”, said Virgin's chief executive Shai Weiss.

“This process has proven that the regulatory framework, including the formula used to set charges, is fundamentally broken. We'll review our position carefully.”

Heathrow and airlines have six weeks to appeal the CAA decision with the Competition and Markets Authority.