CAA confirms it wants Heathrow landing charges to fall from £30.19 to £26.31 for next 5 years
The CAA, as expected, has released its Final Proposals for the “H7” price control (5 year) period which runs from January 2022 – December 2026. The CAA is now undertaking a consultation on the proposal to which Heathrow, the airlines that use it, and others will respond. The CAA will consider the feedback it receives during this consultation before making a final decision on the H7 price control, which is expected later this year. The CAA has said that the average maximum price per passenger that airlines will pay Heathrow will fall from £30.19 today to £26.31 in 2026. (Heathrow was allowed an interim increase earlier this year, due to Covid issues). When the effects of inflation are removed, this is equivalent to nearly a 6% reduction every year (ie. down £1.87 in the first year, etc) from today’s level up to 2026. Heathrow has claimed huge losses due to the pandemic, and that it wanted the higher landing charge, to help recovery. But the CAA considers the return of high passenger numbers – that has been faster than anticipated – will bring in sufficient money into Heathrow, for its spending and investment requirements. The higher landing charge is not needed.
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UK Civil Aviation Authority confirms level of cap on future charges of Heathrow Airport Limited in the best interest of consumers
28 June 2022 (The CAA)
The UK Civil Aviation Authority has today published its Final Proposals for the maximum charges that Heathrow Airport Limited (HAL) can charge airlines for using the airport for the next five years.
Using Office for Budget Responsibility inflation forecasts, the average maximum price per passenger that airlines will pay Heathrow will fall from £30.19 today to £26.31 in 2026. When the effects of inflation are removed, this is equivalent to nearly a 6% reduction every year from today’s level up to 2026.
This pricing profile reflects expected increases in passenger numbers as the recovery from the pandemic continues and the higher level of the price cap in 2022, which was put in place in 2021 to reflect the challenges from the pandemic at the time.
While passenger numbers are expected to continue to recover in 2022 and into 2023, the proposals include new mechanisms to deal with the remaining uncertainty in respect of passenger numbers.
Following extensive analysis and consultation to set the level of the cap, the Civil Aviation Authority has set expectations for the appropriate level of efficiency to expect from HAL and an appropriate return for capital providers to ensure it can efficiently finance its regulated activities.
The package of measures set out in the proposals include:
A five-year control period, which will allow the airport to reduce charges for consumers and provide investors with medium-term certainty. The control period, known as H7, runs from 2022 to 2026.
Affordable charges for consumers, which will also support the recovery in passenger numbers.
Allowing Heathrow to appropriately invest in keeping the airport safe, secure and resilient, while at the same time providing a good experience for passengers. This includes investing in next generation security equipment and a new baggage system for Terminal 2.
Richard Moriarty, Chief Executive at the UK Civil Aviation Authority, said: “Today’s announcement is about doing the right thing for consumers. We have listened very carefully to both Heathrow Airport and the airlines who have differing views to each other about the future level of charges. Our independent and impartial analysis balances affordable charges for consumers, while allowing Heathrow to make the investment needed for the future.”
What the Final Proposals will mean for consumers?
Our primary duty as the UK’s aviation regulator is to protect the interests of consumers, both in the short and long term, and today’s announcement will bring considerable passenger benefits. This will include allowing significant investment to improve Heathrow for passengers, such as £1.3bn upgrading Terminal 2’s baggage facilities and introducing new generation security scanners to help reduce queues in the future.
Heathrow is among the most expensive airports in the world for its charges to airlines and it is important to note that the H7 five-year period will see airport charges reduce over time from today’s level.
What are the next steps?
It is expected that Heathrow Airport Limited will begin to consult on its future airport charges in approximately August 2022, in line with expectations set out in the Airport Charges Regulations 2011 (ACR11).
After considering responses received to the Final Proposals, the Civil Aviation Authority will publish a Final Decision on the modifications we make to Heathrow’s licence. We currently intend to publish that Final Decision in Autumn 2022.
What did the Civil Aviation Authority consider when making this decision?
Because of the uncertainties involved in forecasting passenger traffic levels as the aviation industry recovers from the pandemic, this has been a challenging review. During the review, it has become clear that both Heathrow Airport Ltd and the airlines using the airport have starkly divergent views on the level of charges for the next five years.
Over the course of the price control period to the end of 2026, increased demand is expected to result in a sustained recovery in the aviation sector. Spring 2022 has seen sharp increases in demand driven particularly by UK outbound leisure passengers taking advantage of the relaxation of UK and international travel restrictions.
Passenger numbers in May 2022 were approximately 79% of pre-pandemic levels. However, uncertainties persist into 2023 and beyond and passenger numbers at Heathrow are predicted to return to 2019 levels by at least 2025.
Notes to Editors
The consultations that informed our Final Proposal ran from 17 October and 17 November 2021 and ended in January 2022.
Further information about today’s announcement is available here: www.caa.co.uk/cap2365a
It is expected that Heathrow Airport Limited will begin to consult on its future airport charges in around August 2022, in line with expectations set out in the Airport Charges Regulations 2011 (ACR11).
After considering responses we receive to the Final Proposals, the Civil Aviation Authority will publish a Final Decision on the modifications we make to Heathrow’s licence. We currently intend to publish that Final Decision in Autumn 2022.
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See earlier:
CAA allows Heathrow to increase passenger charge from £22 to £31.19 from January – to be reviewed again
The UK Civil Aviation Authority (CAA) has allowed Heathrow to charge its airline customers more in the period from 1 January 2022, as an interim measure, for six months. Heathrow’s current price control expires on 31 December 2021 and the final decision and licence modifications for a new 5-year control period (H7) will not be made and take effect until the summer of 2022. At present the airport can charge up to £22 per passenger, and it wanted to increase that to £43 in January 2022. The CAA now says Heathrow can charge £30.19 per passenger. The CAA says: “Once we have set the final price control for the H7 period, any difference between it and the holding price cap will be trued up or down.” The rise to £31.19 is an increase of 37%, compared to the current inflation rate of 5.1%. Shareholders have received more than £4bn in dividends since 2012. Airlines are deeply opposed.
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See earlier:
CAA may very soon announce its decision on whether Heathrow can charge £1.7 bn more
The Telegraph believes the CAA may announce this week that it will reject Heathrow’s demand to be allowed to raise £1.7bn in increased future passenger and airline levies. The airport wants to be get back some of its losses caused by the pandemic. But the CAA is expected to confirm the rejection that it consulted on in October – the consultation ended on 5th November. The CAA said in October that Heathrow had not “demonstrated its request is a proportionate measure” and was seeking further evidence. Heathrow finance chief Javier Echave threatened legal action unless the CAA backed down and accused the regulator of sending a “terrible” message to foreign investors (who have made immense profits out of Heathrow in recent years). Industry insiders cautioned that the CAA is “playing its cards very close to its chest” over its decision and “could offer concessions to break the deadlock.” Heathrow claims it will have to raise consumer prices, after the immense losses caused by having very few passengers over the past year.
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CAA likely to prevent Heathrow increasing its airport charges to cover Covid losses of £1.7bn
Heathrow wanted to increase charges to compensate for the economic fallout of the coronavirus pandemic. But its regulators, the CAA, have rejected its request to increase airport charges by £1.7bn to Covid losses. The CAA said Heathrow’s demands were not “proportionate”. Heathrow operates under a regulatory mechanism that allows it to increase airport charges based on the costs it incurs, but this has to be agreed by the CAA. Separately, Heathrow is waiting on a final decision from the CAA on whether it can recharge airlines £500m for costs it has built up, prematurely, in (unwise)preparation for the building of a 3rd runway – even before all legal and planning hurdles were overcome. Heathrow said revenue losses in 2020 and 2021 would be more than £2.2bn – ie. the £1.7billion + the £500 million. The CAA now has a consultation (ends 5th Nov) on Heathrow’s request for RAB adjustment. IAG, said “Heathrow is a wealthy, privately owned company which should seek funds from its shareholders as many other businesses in our industry have done to weather this pandemic. We look forward to participating in the CAA’s consultation process.”