The UK Civil Aviation Authority has denied Heathrow Airport’s request to increase its charges to airlines by £2.6 billion ($3.6 billion), deeming such a rise to be “disproportionate and not in the interests of consumer”.
However, the regulator will allow the airport operator to raise its charges by £300 million in order to recover some lost earnings from the pandemic. This, adds the CAA, will enable Heathrow to “plan effectively, reopen its terminals in a timely way for a summer recovery, and generally invest to benefit its consumers.”
Heathrow Airport has also received clearance to recoup the cost of the £500 million that it spent on its expansion programme between 2017 and 1 March 2020, a process that it can begin through higher charges from the start of next year.
“Following Heathrow’s request for a RAB [regulatory asset base] adjustment we have taken the decision that an early intervention on the scale of its request is disproportionate and not in the interests of consumers,” states CAA director Paul Smith.
“We do, however, recognise that these are exceptional circumstances for the airport and there are potential risks to consumers if we take no action in the short term. The decision we have announced today will incentivise and allow Heathrow to maintain investment, service quality and be proactive in supporting any potential surge in consumer demand later this year.”
The CAA will consider the issue of higher charges as part of its next price review, which will run for five years from 1 January 2022.
The regulator adds that it is examining a new risk-sharing mechanism which would “help manage the ongoing uncertainty about future passenger volumes by sharing the risk more equitably between the airport and airlines”.
Future measures could include mechanisms to incentive more efficient capital spending by the airport.
IAG, the parent company of British Airways, Heathrow’s largest airline customer, said that it is “extremely disappointed with the CAA’s decision which will unfairly penalise consumers”.
The group argues that the airport “has deliberately rewarded its investors at the expense of consumers, and now the regulator is asking passengers to bail it out. The CAA’s role is to protect consumers’ interest, not Heathrow’s shareholders profits. Post-Brexit this makes the UK even less competitive and will drive traffic to other airports. We’re assessing our options.”
Passenger numbers plummeted 73% at the London airport last year, to just 22.1 million, more than half of which were recorded in the first two months of 2020 before the pandemic fully hit air travel in Europe. This resulted in a £2 billion loss for the year, against a £564 million profit in 2019.
