CAA rules that Heathrow average maximum price per passenger will fall from £31.57 in 2023 to £25.43 in 2024
The UK Civil Aviation Authority has published its Final Decision for the annual caps that will apply to the charges that Heathrow levies on airlines for using the airport, until the end of 2026. The CAA confirmed that charges for 2023 will remain fixed at the level set out in its interim decision issued earlier this year. The average maximum price per passenger will then fall by about 20% from £31.57* per passenger in 2023 to £25.43** per passenger in 2024 and will remain broadly flat at that level until the end of 2026. This means the average charge over the five years will be £27.49 compared to £28.39 for Final Proposals, a reduction of £0.90 (all in nominal prices). This lower level of charges from 2024 recognises that passenger volumes are expected to return to pre-pandemic levels, and should allow Heathrow to continue “investing in the airport for the benefit of consumers and supporting the airport’s ability to finance its operations.” The CAA hopes passengers will benefit from slightly cheaper fares, and better systems when they travel. The current passenger forecasts are higher than in earlier assessments.
Level of the cap on how much Heathrow Airport Limited can charge airlines confirmed
8 March 2023
The UK Civil Aviation Authority has today published its Final Decision for the annual caps that will apply to the charges that Heathrow Airport Limited levies on airlines for using the airport until the end of 2026.
The regulator has confirmed that charges for 2023 will remain fixed at the level set out in its interim decision issued earlier this year. The average maximum price per passenger will then fall by about 20% from £31.57* per passenger in 2023 to £25.43** per passenger in 2024 and will remain broadly flat at that level until the end of 2026.
This means the average charge over the five years will be £27.49 compared to £28.39 for Final Proposals, a reduction of £0.90 (all in nominal prices).
This lower level of charges from 2024 recognises that passenger volumes are expected to return to pre-pandemic levels and should benefit passengers in terms of lower costs, while also allowing Heathrow Airport Limited to continue investing in the airport for the benefit of consumers and supporting the airport’s ability to finance its operations.
The package includes a £3.6 billion capital investment programme. Passengers will benefit from investments such as next generation security scanners and a new baggage system in Terminal 2, which are collectively expected to cost around £1.3 billion and should bring considerable passenger benefits, including an improved security experience and more resilient infrastructure.
The arrangements also incentivise Heathrow to provide a good quality service for passengers and include a suite of measures, targets, and incentives to capture the main aspects of airport operation services that are important to consumers. This includes retaining some current measures such as time waiting in security queues, but also now includes new measures such as helpfulness/attitude of security staff, wi-fi performance, availability of check-in infrastructure, as well as hygiene safety testing and more.
The Civil Aviation Authority’s updated analysis reflects a passenger forecast that has been revised upwards since Final Proposals were first published in June 2022, as recovery from the pandemic continues. The decision also reflects changes in the wider macro-economic environment, in particular updated forecasts of inflation and interest rates since the Final Proposals were published.
Richard Moriarty, Chief Executive at the UK Civil Aviation Authority, 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, whilst paying no more than is needed for it.
“We have carefully considered the sharply differing views from Heathrow Airport Limited and the airlines about the future level of charges. Understandably, their respective shareholder interests lead the airport to argue for higher charges and the airlines to argue for lower charges.
“Our job is to reach an independent decision from these conflicting commercial interests and focus on what is in the best interests for the travelling public that will use Heathrow in the years to come. In doing so we have taken all the points made by Heathrow Airport Limited and airlines into account, along with extensive consultation and our own detailed analysis.
“We are confident our final decision represents a good deal for consumers using Heathrow, while having regard for the airport’s need to efficiently finance its operations and be able to invest in improving services for the future”.
Notes to Editors
- *£26 per passenger in 2020 prices
- ** £21 per passenger in 2020 prices
- The average charge requested by Heathrow Airport Limited over the price control period was around £40 per passenger, whilst airlines suggested that the proposed charge should be no more than around £18.50 on average (both in 2020 prices)
- Figures are set out in nominal pricing and are subject to change depending on inflation over the price control period.
- In current year prices the maximum price per passenger for 2023 is £31.57.
- The consultations that informed our Final Decisions ran from June 2022 to August 2022.
- Following the publication of our Final Decision, Heathrow Airport Limited and airlines may decide to appeal to the Competition and Markets Authority (CMA) for a final determination of matters relating to the new price control arrangements.
- Further information about today’s announcement is available on the UK Civil Aviation Authority website.
See BBC too
Heathrow told to cut passenger charges in move that could lower fares
Decision by Civil Aviation Authority comes despite airport having argued for higher fees
By Kalyeena Makortoff and Gwyn Topham (The Guardian)
Wed 8 Mar 2023
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.
CAA new 2-week consultation about keeping Heathrow charge at £31.57
The CAA sets the maximum level of passenger charges that Heathrow can charge, generally for a 5 year period. Heathrow had few passenger for two years, due to Covid and the CAA allowed them to raise their passenger charges, while passenger numbers remained low. However, the numbers are now rising, and may be high next year. Back in June, the CAA said the cap would fall from £30.19 then to £26.31 in 2026. When the effects of inflation are removed, that is a 6% reduction every year. Now the CAA has published an interim cap consultation (8th December – for 2 weeks), which raises the cap from £30.19 this year to £31.57. By contrast, the charge was £19.36 pre-pandemic. Airlines believe the higher level of cap is unjustifiable, as based on 2023 traffic forecasts that are too low. Heathrow wants the high charges, in order to recoup its vast debts, pay its shareholders their dividends, and also perhaps for future expansion.
Virgin Atlantic withdraws support for Heathrow 3rd runway, due to its high landing costs
The CEO of Virgin Atlantic, Shai Weiss, has said he does not support the expansion of Heathrow if it continues with its very high landing charges for passengers. Heathrow will be allowed, by the regulator, the CAA, to raise charges by 56% next year, to £30.19 a passenger, but will have to reduce them to £26.31 in 2026. Heathrow claims this will not provide them enough money to invest in a 3rd runway. But the airlines using Heathrow consider the charges too high, and a disincentive to passengers. Weiss said Heathrow’s plan to raise charges was “great for the airport and its mostly foreign shareholders” – including Qatar and China’s sovereign wealth fund – but “a bad deal for consumers, airlines, and the UK economy”. He wants the CAA to reform a “broken” system and “pay closer attention to the abuse of power by a de facto monopolistic airport”. …”Until that happens, it is difficult to see how expansion at Heathrow can be supported.” He ruled out a return to Gatwick, which Virgin left during Covid, saying there was “no connectivity”. Virgin Atlantic had become more efficient since focusing all its operations on one London airport.