Heathrow warns on investment as regulator eyes reduction in passenger charges

June 28, 2022

Heathrow Airport has warned that a proposed reduction in the amount of money it can charge airlines per passenger would result in a major reduction in investment.

In its final proposals revealed on Tuesday, the Civil Aviation Authority (CAA) said the average maximum charge - which is passed on to passengers in their air fare - should fall from its COVID crisis level of £30.19 to £26.31 in 2026.

The airport had sought a range between £32 to £43 - bitterly opposed by airlines including BA and Virgin Atlantic which argued that the west London hub airport was already the most expensive to operate from.

The CAA said the proposed pricing reflected "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".

It said that when the effects of inflation were removed, the proposed cap levels were equivalent to nearly a 6% reduction every year from today's level up to 2026 and would be "affordable" for consumers amid the cost of living crisis.

They are adjusted each year of the period to account for inflation.

CAA chief executive Richard Moriarty 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."

Heathrow, which lost almost £4bn during the public health emergency that all but closed down global travel, is expected to remain loss-making this year as it tries to get back on its feet after the disruption.

The aviation industry has been plagued by staff shortages that have hampered the return of passengers, resulting in delays and cancellations during peak periods this year with Heathrow recently failing to get to grips with baggage volumes, resulting in mountains building up at arrival halls.

Its chief executive, John Holland-Kaye, said of the CAA's proposals: "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."

The CAA's decision now goes out to industry consultation ahead of a final decision in the autumn.

Virgin Atlantic boss Shai Weiss said in response: "In its final proposals for Heathrow charges, the CAA has taken a positive step towards a price cap that puts customers first.

"However, the regulator can and must go further to lower the cap beyond the proposed average of £28.39, adjusted for inflation, up to the end of 2026, reflecting robust demand for travel this summer and beyond."

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