The aviation watchdog ordered Heathrow Airport this morning to reduce its passenger charges amid a surge in demand for flights.
The Civil Aviation Authority (CAA) said the cap on the west London airport’s average charge per passenger will fall from £30.19 today to £26.31 in 2026. Adjusted for inflation, the fare will amount to £28.39 per passenger.
This is equivalent to nearly a 6 per cent reduction each year when the effects of inflation are removed, according to the regulator.
The decision follows a bitter dispute between the airport and airlines about what the cap 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.
CAA chief executive Richard Moriarty said the announcement is “about doing the right thing for consumers”.
He insisted the regulator has “listened very carefully” to arguments from Heathrow and airlines.
“Our independent and impartial analysis balances affordable charges for consumers, while allowing Heathrow to make the investment needed for the future,” he said.
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 facilities at Terminal 2.
The decision came as the airport raised its passenger number forecast for the year to 54.4 million travellers.
Heathrow had called for the cap to range from £32 to £43.
Responding to the CAA’s final proposal, Heathrow CEO John Holland-Kaye said this morning: “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.”
He added: “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.”
Finally, Holland-Kaye 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.”
Heathrow’s disappointment was shared by community group Back Heathrow, which represents 100,000 residents that support the hub’s expansion.
According to the group’s executive director Parmjit Dhanda, lowering the airport’s cap would only advantage Heathrow’s EU competitors.
“The CAA needs to consider the importance of the passenger experience and the rollout of the sustainability agenda at our only hub airport,” he said.
“If it can’t invest more in these key areas, rival hubs in Paris, Amsterdam and Frankfurt will be the beneficiaries.”
Airlines welcome the move
The airport’s main customers, Virgin Atlantic and British Airways’ owner IAG, welcomed the news, praising the regulator for putting passengers first.
“The CAA has recognised that Heathrow needs to be more efficient for the benefit of consumers,” said IAG’s boss Luis Gallego. “Global Britain needs a competitive hub and we look forward to continue working with the CAA to make this happen”.
Both Virgin Atlantic chief executive Shai Weiss and Airlines UK boss Tim Alderslade called on the CAA to further lower the cap, as Heathrow’s charges remain the highest in the world.
“With travel recovery underway, 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,” Weiss said.
“Along with the industry community, we’ll respond to the CAA’s consultation with the data that supports a further reduction, while reserving the option to appeal to the Competition & Markets Authority, so that passengers are protected and the CAA’s duties are fulfilled.”