Heathrow Airport told to cut passenger charges in move that could lower airfares

Heathrow Airport has been told to cut its passenger charges for airlines next year in a move that could translate to lower ticket prices.

The Civil Aviation Authority (CAA) has said the drop in charges were required after a better-than-expected recovery in demand for flights post-pandemic.

The aviation regulator said the cap on the west London airport’s average charge per passengers will reduce from £31.57 for 2023 and last year to £25.43 over the next three years.

Passengers had been expected to face an average charge of £28.39 in nominal charges over the five-year period to 2026. The CAA said it has now reduced this average by 90p to £27.49 for the period.

As a result of higher interim charges over 2022 and 2023, passengers will see a substantially lower rate in the following three years to meet this new five-year average.

The CAA said the cut in charges reflected the fact that travel demand was set to return to pre-pandemic levels from 2024 and “should benefit passengers in terms of lower costs”.

Heathrow and airlines will have six weeks from Wednesday (8 March) to appeal the decision with the Competition and Markets Authority.

But the decision has been slammed by Heathrow, with the airport saying it would “do nothing for consumers”. Bosses at the airport have been highly critical of plans to reduce the proposed landing charges, highlighting significant recent cost inflation.

Last month, the airport operator reported underlying pre-tax losses of £684 million for last year, against losses of £1.3 billion in 2021, but it said it saw the largest increase in passengers of any European airport last year.

A spokesman for Heathrow said: “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.

“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.”

The CAA said its plans include a £3.6 billion capital investment programme, with passengers set to benefit from next generation security scanners and a new baggage system in Terminal 2, which are collectively expected to cost around £1.3 billion.

It added that the new charging structure also incentivises Heathrow to provide a good quality of service for passengers and have measures and targets to meet, such as on time waiting in security queues and helpfulness of staff.

British Airways and Virgin Atlantic, two of Heathrow’s largest airlines, have long complained that fees at the airport and said it already charges “three times more” than many major airports in Europe.

Luis Gallego, chief executive of British Airways’ parent company 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. We will continue to assess our options for further action to ensure UK consumers do not pay an unfair price to use Heathrow.”

Virgin Atlantic claimed the new average charge “still penalises passengers at the world’s most expensive airport”. Shai Weiss, chief executive of the airline, said: “The CAA has not gone far enough to push back on a monopolistic Heathrow and fulfil its statutory duty to protect consumers.

“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. We’ll review our position carefully.”

Richard Moriarty, chief executive at the CAA, insisted the regulator had “carefully considered the sharply differing views from Heathrow Airport Limited and the airlines”. He said: “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.

“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.”