The Civil Aviation Authority (CAA) managed to upset both airlines and Heathrow on 16 December when it confirmed the interim price cap which will be implemented at the London hub from 1 January.
From the current £19.60 the charges will go up to £29.50 in 2020 prices, amounting to £30.19 per passenger because of the peak in inflation rates registered this year.
The authority stated to have introduced the interim cap to protect consumers, given that the new measures for the next five years won’t be made and take effect until next summer.
The CAA’s decision was lambasted by Heathrow’s management, who said the airport was “extremely disappointed” by the figure.
“There are material and basic errors in many aspects of the CAA’s assessment,” a Heathrow spokesperson told PA news agency. “Uncorrected, this risks leaving Heathrow without sufficient cash flow to support investment in improving passenger service and resilience.”
Major UK airlines responded with a similar disdain. Luis Gallego, chief executive of British Airways’ owner IAG, said he was “disappointed” while Virgin Airways’ boss Shai Weiss threatened to appeal to the Competition and Markets Authority, as the CAA’s decision “defies belief and fails to protect consumers.”
What is the price cap and why Heathrow needs it?
Applying to hubs with more than 5 million passengers, airport charges are paid by airlines but get passed onto consumers through air fares, as they depend on factors such as passenger demand and commercial revenue.
Heathrow had initially lobbied for charges to go up between £32 and £43 per passenger, as it has yet to recover from the pandemic’s disastrous impact.
Even under the proposed CAA’s cap, Heathrow’s charges still remain the highest in Europe.
The hub has in fact accumulated around £20bn in debts during the last 21 months, while losses amounted to £3.4bn.
“It’s true that Heathrow is proposing a higher pandemic price increase than continental airports, but we are neither state-owned nor have we received billions in state aid during the crisis – we rely entirely on private investment,” said a spokesperson for the hub.
“Heathrow passengers want a reliable, quality experience. The higher charge will enable us to deliver key investments in the next five years to protect passenger service.”
The delivery of a third runway – whose carbon value has doubled to £100bn – feature among the key investments.
“Just as Aldi offers great food, plenty of Brits are still very happy to shop at Waitrose and appreciate the value for money they get,” they said.
Why are airlines against the increase?
Airlines and other industry stakeholders have always lobbied against the rise in charges, criticising the airport for its “zero commercial nous”.
Speaking at the International Air Transport Association’s (IATA) general meeting in October, Former IAG boss Willie Walsh called the airport’s strategy “b*******”.
“It is unacceptable behaviour to benefit from your customers during good times and stick it to them in bad times,” he said. “We should not compromise the recovery with the irresponsibility and greed of some of our partners who have not addressed costs or tapped their shareholders for support.”
Walsh doubled on his initial comments a month later, when – alongside Gallego and Weiss – said Heathrow was “back at its old tricks – using its dominant market position to enrich shareholders at the expense of travellers, airlines and the UK’s economy”.
“The UK’s Global Britain aspirations rely on cost-efficient infrastructure. Heathrow’s plans to further increase its charges – even at the lower level that the CAA has suggested – put that in jeopardy,” they said in a letter published by the Sunday Telegraph.
Speaking a day later at the Airlines 2021 conference in Westminster, Gallego threatened to cut Heathrow flights.
“The reality is that more than 40 per cent of the people who use Heathrow are connecting passengers,” he said. “They are simply passing through on their way to other destinations and could easily go by other, more competitive hubs.
“Hiking charges will not help. It will not attract demand – it will have the opposite effect.”