London Heathrow will have to cut its passenger charges by around 20 per cent in 2024 after the UK’s Civil Aviation Authority (CAA) made its final decision on how much the airport can charge in the next few years.
The UK’s hub airport is being allowed to charge an average maximum price of £31.57 per passenger in 2023, but the CAA said this will fall to £25.43 per passenger next year and then “remain broadly flat” at that level until the end of 2026.
Heathrow had wanted to raise the charge to up to £40 per passenger, while airlines had insisted it should be held below £20. The charge is normally passed directly on to the customer through the ticket price.
The airport had been allowed to increase its charges by 50 per cent on an interim basis in December 2021 as the sector emerged from the depths of the pandemic.
The CAA said its new decision meant that the average maximum price per passenger flying from Heathrow would be £27.49 over the five-year period between 2022 and 2026. This was a £0.90 reduction on its previous proposal made in June 2022 when the CAA said the maximum average would be £28.39 per passenger.
“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,” said the CAA in a statement.
Heathrow responded to the CAA’s decision by saying that it would “take some time to carefully consider our next steps”. The airport has six weeks to appeal to the Competition and Markets Authority (CMA).
“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,” said Heathrow in a statement.
“This makes no sense and will do nothing for consumers at a time when the CAA should be incentivising investment to rebuild service.”
Richard Moriarty, the CAA’s chief executive, defended its decision after hearing “sharply differing views” from the airport and airlines about the level of charges.
“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,” he added.
“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.”
Clive Wratten, CEO of the Business Travel Association, said: “While the 20 per cent cut to airline fees at Heathrow is a step in the right direction, costs for the next five years remain higher at the UK’s biggest airport than at many other global hubs.
“It is vital that Heathrow and the CAA work together to establish a financial balance that promotes efficiency, while remaining cost-effective for the traveller to avoid the stagnation of business travel.”
Shai Weiss, CEO of Virgin Atlantic, recognised that the CAA had “finally adjusted course” on Heathrow’s price cap but added that the level of charges still “penalises passengers at the world’s most expensive airport”.
“The CAA has not gone far enough to push back on a monopolistic Heathrow and fulfil its statutory duty to protect consumers,” added Weiss.
“Heathrow has abused its power throughout this process, peddling false narratives and flawed passenger forecasts in an attempt to win an economic argument. This process has proven that the regulatory framework, including the formula used to set charges, is fundamentally broken.”
Luis Gallego, CEO of British Airways’ owner IAG, added: “Heathrow already charges three times more per passenger than other major airports in Europe including Gatwick and Madrid, and five times more than Dublin.
“We will continue to assess our options for further action to ensure UK consumers do not pay an unfair price to use Heathrow.”