Heathrow Airport ordered to reduce passenger charges

Regulator releases its final proposals for price controls at the west London airport

The departures hall of Terminal 2 at Heathrow Airport in London on Monday. Reuters

Heathrow Airport has been told by the aviation regulator it must reduce its passenger charges as travel resets after the coronavirus pandemic.

The Civil Aviation Authority said the cap on the west London airport’s average charge per passenger will fall to £26.31 ($32.30) in 2026, from £30.19 today.

It said when the effects of inflation are removed, this is equal to a reduction of about 6 per cent every year from today’s level up to 2026.

The CAA said the pricing profile reflects expected increases in passenger numbers as the recovery from the pandemic continues, and will be adjusted based on what happens to inflation.

In response, Heathrow said the regulator underestimates what it takes to run an effective airport.

There has been a bitter dispute between the airport and airlines about what the level should be.

Charges are paid by airlines but are generally passed on to passengers in air fares.

Heathrow was given permission to increase its average fees on January 1 from the previous level of £19.60 due to the collapse in passenger numbers caused by the coronavirus pandemic.

But 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.

Heathrow had called for the cap to range from £32 to £43.

The CAA said these were its “final proposals”, with a “final decision” due to be published this autumn.

Civil Aviation Authority chief executive Richard Moriarty said the announcement on Heathrow’s charges was “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,” he said.

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

He told the BBC that Heathrow must “up its game”.

The airport has been beset by troubles since Covid travel restrictions were removed earlier this year. Flight cancellations, long queues and delays at luggage collection have frustrated passengers.

British Airways staff at the airport have also voted to strike over the summer.

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Decades of flight: Heathrow through the years — in pictures

Heathrow Airport in London, the UK's busiest, has been a travel hub for decades. Here The National takes a look back at Heathrow through the years. All photos: Getty Images

An Airco De Havilland biplane of the British airline, Aircraft Transport and Travel Limited, about to leave on the company’s inaugural flight from Hounslow Heath Aerodrome, later known as Heathrow, to Le Bourget, Paris, in August 1919

Waterlogged runways at London Airport - Heathrow's original name - one week before it became Britain's main aerial gateway to the US in 1946

The new BOAC maintenance headquarters at London Airport circa 1955

The air traffic control room at the airport's new terminal in 1955

US film star Marilyn Monroe with her husband, playwright Arthur Miller, after arriving at the airport in July 1956

An aerial view showing the runways in 1958

The arrivals and departures board in 1960

A new airport gift shop, selling items by Chanel, Wedgwood and Pringle of Scotland, in 1961

The Queen's Building and the No. 1 Building Europa at Heathrow in 1965

The Beatles leave Heathrow for Salzburg in Austria, to resume filming of the movie Help!, in 1965

Passenger terminal gates at Heathrow in 1966

Keith Granville, managing director of BOAC, holding up a model of the Boeing 747 jet, with the new aircraft hangars under construction in the background, at Heathrow in 1969

An aerial view of Heathrow in 1970

Passengers boarding the first BOAC Jumbo Jet 747 used for a commercial flight, from London Heathrow to New York, in 1971

Passengers going through the departure lounge at Heathrow in 1973

Concorde takes off from Heathrow on her first commercial flight for British Airways in 1976

Men at work finalising the Heathrow Central underground station before its opening in 1977

Queen Elizabeth II passing though the Tube gates at Heathrow Central station on its opening in 1977

An aerial view of Heathrow in 1978

Passengers waiting near a departures board in 1979

Holidaymakers waiting in the departure lounge at Terminal 3 of Heathrow in 1981

British Airways employees protesting at Heathrow in 1984

Passengers and staff observe a silence in Heathrow's Terminal One to mark the beginning of the funeral of Diana, Princess of Wales, in 1997

Rower Steve Redgrave at Heathrow with daughters Sophie and Natalie and son Zak after returning from the Sydney 2000 Olympic Games with his gold medal

Spectators watch the last Concorde land at Heathrow in 2003

Fans surround the coach carrying the England rugby team at Heathrow, as they arrived from Sydney after winning the World Cup in 2003

Heathrow's Terminal 2 in 2004

Passengers queue to check in at Terminal 1 of Heathrow Airport during the Christmas 2006 and New Year period

Passengers wait at Terminal 1 on August 10, 2006, after airport security was raised to critical when a terrorist plot to blow up planes in mid-flight from the UK to the US was disrupted by police

Planes queueing to take off at Heathrow in 2007

The new Terminal 5 at Heathrow in 2008

Aircraft at Heathrow Airport in front of the London skyline in 2016

Members of Team GB arrive from Rio de Janeiro at Heathrow, after returning from the 2016 Olympics, which saw Great Britain's strongest performance at the Games in over a century

A composite photo shows planes taking off from Heathrow in November 2016. Forty-two planes were captured between 10.17am and 11.17am and a montage was created from those single images

Items are arranged during an auction preview at Heathrow in 2018. The contents of Terminal 1, which closed in 2015, were being sold

An airline passenger wearing a face mask pushes her bags through Heathrow's Terminal 5 during the coronavirus pandemic in 2020

British Airways employees welcome Olympians returning from the Tokyo Olympics in 2021

Travellers wait in a long queue to pass through the security check in 2022

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Heathrow chief executive John Holland-Kaye said that as the industry rebuilds, the airport was focused on working 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,” he said.

“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.

Mr Holland-Kaye said economic regulation should drive affordable private investment in Britain’s infrastructure to the benefit of users, and 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 said.

“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.”

The CAA is now undertaking a consultation on its final proposal, to which Heathrow will respond, before a final decision is made later this year.

Last month, Heathrow increased its passenger number forecast by 16 per cent for the year to about 53 million, from 45.5 million.

Five million passengers travelled through Heathrow during the busy Easter period in April.

The airport said that it had been boosted by outbound leisure travellers and a recovery in passenger demand, which is set to last throughout the summer.

The forecast means Heathrow expects passenger numbers to reach 65 per cent of pre-pandemic levels this year.

This is a “realistic assessment”, the airport insisted.

The airport’s owners include sovereign wealth funds from China and Qatar, Spanish construction company Ferrovial and large infrastructure funds.

About £4 billion in dividends to shareholders has reportedly been paid out by the airport since 2012. But it expects to remain loss-making and not pay more dividends in 2022.

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

Virgin Atlantic chief executive Shai Weiss said the CAA’s announcement was a “positive step towards a price cap that puts customers first”.

But he insisted the regulator “can and must go further” to lower fees to reflect “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,” Mr Weiss said.

What the CAA told Heathrow

The package of measures set out in the proposals include:

· A five-year control period, which will allow 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.

· Affordable charges for consumers, which will also support the recovery in passenger numbers.

· Allowing 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 in next-generation security equipment and a new baggage system for Terminal 2.

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 infrastructure at Terminal 2.

What the final proposals will mean for consumers?

The CAA said:

· "Our primary duty as the UK’s aviation regulator is to protect the interests of consumers, both in the short and long term, and today’s announcement will bring considerable passenger benefits. This will include allowing significant investment to improve Heathrow for passengers, such as [a] £1.3bn upgrading [of] Terminal 2’s baggage facilities and introducing new generation security scanners to help reduce queues in the future."

· "Heathrow is among the most expensive airports in the world for its charges to airlines and it is important to note that the H7 five-year period will see airport charges reduce over time from today’s level."