The war of words between the UK’s air regulator and the operator of Heathrow has intensified today as it told the airport it would recommend a cut to its passenger charges.
The Civil Aviation Authority has published its final proposals for the maximum amount that Heathrow Airport Limited (HAL) can bill airlines for using the West London site over the next five years.
The headline figure sees the average maximum price per passenger that airlines will pay Heathrow fall from £30.19 today to £26.31 by the end of the ‘H7 price control period’ in December 2026. The CAA says that when the effects of inflation are removed, this is equivalent to a near six percent reduction each year compared to today’s level, however the devil is in the detail.
This is because the regulator gave permission in December 2021 for Heathrow to raise the charge from £19.60 to £30.19 as an interim settlement for this summer. Airlines have cautiously welcomed the £26.31 figure but highlight that this is still a marked increase on earlier levels. That said, there is likely to be a sigh of relief from carriers that Heathrow’s own suggestion of £41.95 has been dismissed.
The CAA acknowledged that this had been “a challenging review” due to the uncertainties involved in forecasting passenger traffic levels as the aviation industry recovers from the pandemic. It said its proposed pricing profile “reflects 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”.
While passenger numbers are expected to continue to recover in 2022 and into 2023, the plans include additional mechanisms to deal with “remaining uncertainty” regarding passenger numbers at the London hub.
Richard Moriarty, chief executive of the UK Civil Aviation Authority, 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.”
Within a press statement, the CAA indicated that it knew its proposal would be unpopular with HAL, reaffirming that its primary duty is “to protect the interests of consumers, both in the short and long term”.
For its part, Heathrow says the plan from the CAA could hamper investment in the complex and impact the quality of service received by passengers. John Holland-Kaye, the airport’s CEO 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.”
Holland-Kaye also suggested the proposal could undermine the UK’s performance on the global stage among overseas investors: “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.”
Difference of opinion
The CAA appears to disagree with Holland-Kaye’s perspective and insisted that its proposal would still bring “considerable passenger benefits” such as £1.3bn to upgrade Terminal 2’s baggage facilities and introducing new generation security scanners. The regulator also claimed that the West London site is “among the most expensive airports in the world for its charges to airlines” – a view shared by the bosses of many big name clients such as Virgin Atlantic and IAG.
Willie Walsh, IATA director general and former chief executive of British Airways gave a mixed assessment to the CAA’s proposal and blasted Heathrow bosses who he claimed “gouge” travellers using the facility: “It’s two steps back and eventually one step forward. While it's good that charges will slightly fall in the long term, the reality is that the UK's competitiveness, passengers and airlines need help now.
“Right now, charges are initially going up by a staggering 56% compared to 2021. This is based on false assumptions that are already being proven wrong by the strong post-pandemic demand for travel. Independent analysis has shown that charges could fall today, while still protecting investment and a generous rate of return for Heathrow. The CAA must stop rewarding this monopoly whose insatiable desire to gouge its customers will damage the competitiveness of ‘Global Britain’. Unless the CAA takes the opportunity to protect today’s consumers, the whole process should be reviewed,” added Walsh.
Today’s announcement from the CAA marks its final proposal, but there is still time left before the plans take flight. The regulator has now started a consultation on its proposal to which Heathrow will formally respond. After considering the responses received, the CAA will publish its final decision on the modifications to Heathrow’s licence – including the all-important pricing rates – in the autumn.
“We will take time to assess the CAA’s proposal in more detail and will provide a further evidence-based response to this latest consultation. 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,” concluded Heathrow’s Holland-Kaye.