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The cost of flying from Heathrow is set to fall as the Civil Aviation Authority is to force the airport to cut passenger charges.
The CAA has set out its proposals on Heathrow’s passenger charges for its next five year control period from January 2022 to December 2026, known as H7.
The last control period expired on 31 December 2021. Late last year, the CAA allowed an interim increase of Heathrow’s maximum passenger charge from £19.36 to £30.19. This was a substantially larger increase than any other major European airport.
Passenger charges make up the bulk of Heathrow’s income, along with retail income and revenue from the Heathrow Express.
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What Did Heathrow Want?
Heathrow wanted an additional increase to £41.95 per passenger.
The airport maintained this is necessary for a projects such as a new baggage system for Terminal 2 and upgraded security scanners to allow liquids and electronics to stay in hand luggage during screening.
Heathrow also liked to point out that its proposed increase will only increase ticket prices by around by 2%.
Airlines had protested against this increase. British Airways accused Heathrow of deliberately issuing downbeat passenger forecasts. Only last week Heathrow once again revised its forecasts upwards.
They were infuriated that Heathrow has not, like they have, called on its shareholders to provide new funding to cover pandemic losses.
In response, Heathrow points out that unlike other major European hubs it did not receive any specific state support during COVID-19.
The CAA’s Proposals
The CAA has today, Tuesday 28 June, set out its proposals.
The maximum passenger charge will stay at £30.19 this year and will then fall to £26.31 by 2026.
Before inflation, this is equivalent to a 6% cut each year until 2026. The CAA has used forecasts for inflation from the Office of Budget Responsibility in its proposals.
As there is uncertainty over passenger numbers beyond 2023, the CAA has proposed new mechanisms to address this.
Heathrow’s Response
Heathrow has issued the following statement:
“As the industry rebuilds, our focus is to work 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. 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.
“Economic regulation should drive affordable private investment in Britain’s infrastructure to the benefit of users, 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.
“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.”
What Happens Next?
This is no doubt a win for airlines and a blow to Heathrow.
Today’s proposals are subject to further consultation. The CAA will publish a final decision in the autumn of this year.