Heathrow airport has been ordered to cut passenger charges by about 20% next year after airlines convinced the regulator to reassess its proposals, an outcome that could contribute to lower fares.
The decision by the UK regulator the Civil Aviation Authority (CAA) was described as “making no sense” by Heathrow, which had sought to charge much higher fees to airlines to fund baggage handling, security and other costs.
The CAA said its decision reflected the fact that travel was expected to return to pre-pandemic levels from 2024 and “should benefit passengers in terms of lower costs”.
Airlines, which had lobbied hard after the the CAA initially proposed charges closer to Heathrow’s demands, said the level remained too high.
While prices will remain the same for 2023, the average maximum per-passenger fee will drop from £31.57 this year to £25.43 in 2024, and will stay broadly flat until the end of 2026. Heathrow had pushed for an increase to more than £40 a passenger.
Heathrow has indicated it may appeal, warning that the regulator’s decision would disadvantage the UK’s largest airport and fail to benefit consumers.
“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 spokesperson for the London hub said in statement. “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.”
Last month the airport accused the CAA of “getting it wrong” by lowering landing fees for airlines, while the airport itself faced higher costs. Heathrow’s chief executive, John Holland-Kaye, said airlines were still able to “charge what they like” and make “huge profits” on high fares.
The regulator said the airport’s call for higher charges was driven, in part, by its attempt to secure higher returns for its shareholders, adding that it was confident its final decision represented a “good deal for customers using Heathrow”.
The 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, while paying no more than is needed for it.”
Airlines gave a muted welcome to the lower charges but argued that Heathrow remained uncompetitive. Luis Gallego, the chief executive of the biggest airline operator at the airport, British Airways’ owner, 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’s chief executive, Shai Weiss, said the CAA had “adjusted course but not gone far enough”. He said the level of charges “still penalises passengers at the world’s most expensive airport”.
Willie Walsh, the director-general of the global airlines trade body the International Air Transport Association, said: “The marginal improvement in the settlement shows we were right to push the CAA not to take Heathrow’s outrageous claims at face value. But let’s be clear: the CAA is still hostage to Heathrow’s pessimistic passenger outlook, and airlines and passengers will continue to pay one of the highest airport charges in the world.”
While passenger numbers trebled in 2022, Heathrow made an adjusted loss of £684m compared with a loss of about £1.3bn the previous year. It forecasts it will reach only 83% of 2019 passenger levels this year.