Heathrow Airport anger as bid to increase passenger charges fails

Pandemic has decimated aviation sector but UK regulator calls airport’s demand disproportionate

Heathrow Airport passengers will not be subject to higher charges for the time being. Reuters

The UK's Civil Aviation Authority has rejected Heathrow Airport's request to recoup losses suffered during the pandemic through increasing passenger charges.

Britain's biggest airport had sought to increase its regulatory asset base by £2.6 billion ($3.6bn), which would have allowed it to increase tariffs on passengers and airlines.

Instead it will be allowed to raise just a tenth of the figure - £300m - with time-limited additional levies, a sum Heathrow said “failed to deliver” in a manner that underpinned investor confidence in infrastructure projects.

The verdict means that from 2022 Heathrow can raise the landing fees, which currently stand at £21.08 pounds per passenger, by 30 pence per passenger or 1.4 per cent.

RAB is part of a funding model set by the CAA that governs returns for investors while setting limits on charges paid by passengers.

British Airways owner IAG, the biggest carrier at Heathrow, said it was disappointed that the fees were raised at all. “Heathrow is the most expensive hub airport in the world,” the company said.

The CAA acknowledged Heathrow's black holes but determined that the proposed sum was “disproportionate and not in the interest of consumers”.

It said that quality of service and investment, as well as the airport’s financial position, were considered in coming to a verdict that recognised risks to Heathrow’s financing should be a matter for shareholders, not consumers.

“The decision will incentivise and allow Heathrow to maintain investment, service quality and be proactive in supporting any potential surge in consumer demand later this year,” CAA director Paul Smith said.

Heathrow disagreed and said the £300m ceiling was unacceptable for its shareholders.

[Verdict] undermines investor confidence in UK regulated businesses and puts at risk the government's infrastructure agenda

“The CAA accepted the need for it to act in order to meet its duties to consumers and to Heathrow’s financeability – but today it has failed to deliver,” the airport said.

“At a minimum, the CAA needed to restore immediately regulatory depreciation in line with UK regulatory principles – the interim adjustment falls far short.

“This undermines investor confidence in UK regulated businesses and puts at risk the government’s infrastructure agenda.

“The CAA will need to address fully all the issues related to adjustment in the upcoming H7 regulatory settlement to attract the investment needed to maintain service, keep prices lower than they would otherwise be, and protect resilience through the recovery.”

The H7 price control review will begin in January 2022 and run for five years.

The CAA says the review will consider fairer ways of sharing risk between Heathrow and its airlines, as well develop mechanisms to increase efficiency in the airport’s capital expenditure.

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