Heathrow Airport told to reduce passenger charges as demand for flights surges

The Civil Aviation Authority said Heathrow must cut passenger charges for airlines each year until 2026

Heathrow Airport has been told to reduce its passenger charges for airlines each year until 2026 by the aviation regulator.

The Civil Aviation Authority (CAA) said the reduction reflects the recent surge in demand for flights, but will still allow the west London airport to invest in improvements.

Heathrow Airport has been told to reduce its passenger charges for airlines each year until 2026 (Photo: Getty Images)Heathrow Airport has been told to reduce its passenger charges for airlines each year until 2026 (Photo: Getty Images)
Heathrow Airport has been told to reduce its passenger charges for airlines each year until 2026 (Photo: Getty Images)

How much will charges reduce?

The CAA said the cap on the airport’s average charge per person will fall from £30.19 today (28 June) to £26.31 in 2026.

This is equivalent to almost a 6% reduction each year when the effects of inflation are removed, according to the regulator.

The CAA’s figures for the control period are based on the Office for Budget Responsibility’s forecast for inflation. The actual annual caps will be adjusted based on what happens to inflation.

The charges are paid by airlines but are generally passed on to passengers in air fares, with the fees going towards operating terminals, runways, baggage systems and security.

Heathrow was given permission to increase its average fees on 1 January from the previous level of £19.60 following a drop in passenger numbers caused by the Covid pandemic.

However, the five-year control period from 2022 to 2026 announced by the CAA will see that cap cut to the lower end of the range of £24.50 to £34.40 which it consulted on.

The CA said these are its “final proposals”, with a “final decision” due to be published in the autumn.

What has Heathrow said?

Heathrow wanted the charges raised and had called for the cap to range from £32 to £43.

The airport said the move to reduce charges would limit its ability to invest in improvements, resulting in a worse experience for passengers.

John Holland-Kaye, Heathrow chief executive, claimed the regulator “continues to under-estimate what it takes to deliver a good passenger service” and said the proposal would “undermine the delivery of key improvements”.

Responding to the announcement, he said: “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.

“Economic regulation should drive affordable private investment in Britain’s infrastructure to the benefit of users, not hamper it.

“The CAA’s proposal will undermine the delivery of key improvements for passengers, while also raising serious questions about Britain’s attractiveness to private investors.”

He added: “There is still time for the CAA to get this right with a plan that puts passengers first and encourages everyone in the industry to work together to better serve the travelling public.”

But CAA chief executive Richard Moriarty said the announcement is “about doing the right thing for consumers” and insisted the regulator has “listened very carefully” to arguments from Heathrow and airlines.

He said: “Our independent and impartial analysis balances affordable charges for consumers, while allowing Heathrow to make the investment needed for the future.”

The CAA believes Heathrow will still be able to invest in improvements, such as next-generation security scanners and a £1.3 billion upgrade of baggage facilities at Terminal 2.

Calls for CAA to lower cap even further

Heathrow was previously branded a “monopoly-abusing hub airport” by the airline industry.

Luis Gallego, chief executive of British Airways’ parent company IAG, said in October last year that it was “already the world’s most expensive hub airport”, adding that large increases in fees will “undermine its competitiveness even further”.

Heathrow increased its annual passenger forecast last week due to “stronger-than-expected demand” and said it expects 54.4 million passengers to travel through its terminals this year. That is up by nearly nine million on guidance it gave in December, but remains around two-thirds of 2019 levels.

The airport has been accused by airlines of playing down the recovery of demand for air travel in an attempt to convince the CAA to allow it to raise passenger fees further.

Virgin Atlantic chief executive Shai Weiss praised the CAA proposals to reduce Heathrow charges, saying the CAA “has taken a positive step towards a price cap that puts customers first”, but called on the regulator to lower the cap even further.

He said: “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.

“With travel recovery under way, our collective focus should be on upholding the best possible experience for customers with fair charges, especially with consumers facing cost-of-living pressures and our Global Britain aspirations at stake.”