Heathrow and IATA respond to CAA’s final proposal for the airport’s maximum airline charges

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Heathrow and IATA have responded to the CAA’s final proposals for the maximum charges that London Heathrow Airport can charge airlines for using the airport for the next five years.

Using Office for Budget Responsibility inflation forecasts, the CAA calculated that the average maximum price per passenger that airlines will pay Heathrow will fall from £30.19 (US$35.95) today to £26.31 (US$31.33) in 2026. When the effects of inflation are removed, this is equivalent to nearly a 6% reduction every year from today’s level up to 2026. This pricing profile was created to reflect expected increases in passenger numbers as the recovery from the Covid-19 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 proposals include new mechanisms to deal with the remaining uncertainty in respect of passenger numbers.

Following analysis and consultation to set the level of the cap, the CAA has set out a package of measures that includes a five-year control period, to enable the airport to reduce charges for consumers and provide investors with medium-term certainty. The control period, known as H7, runs from 2022 to 2026. The measures also include affordable charges for consumers, which is expected to support the recovery in passenger numbers. The CAA has also proposed permitting Heathrow to appropriately invest in keeping the airport safe, secure and resilient, while at the same time providing a good experience for passengers. This includes investing £1.3bn (US$1.5bn) in next-generation security equipment and a new baggage system for Terminal 2.

Richard Moriarty, chief executive at the UK Civil Aviation Authority, said, “This 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.”

It is expected that Heathrow Airport will begin to consult on its future airport charges in approximately August 2022, in line with expectations set out in the Airport Charges Regulations 2011 (ACR11). After considering responses received to the final proposals, the Civil Aviation Authority intends a final decision on the modifications it makes to Heathrow’s license in autumn 2022.

John Holland-Kaye, CEO of Heathrow, commented, “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 an 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. 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 traveling public.”

Willie Walsh, director general of IATA, added, “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. And 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 after the Covid-19 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.”

 For more London Heathrow Airport updates, click here.

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