The UK Civil Aviation Authority has today published its Final Proposals for the maximum charges that Heathrow Airport Limited (HAL) can charge airlines for using the airport for the next five years.
Using Office for Budget Responsibility inflation forecasts, the average maximum price per passenger that airlines will pay Heathrow will fall from £30.19 today to £26.31 in 2026. When the effects of inflation are removed, this is equivalent to nearly a six per cent reduction every year from today’s level up to 2026.
This 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 proposals include new mechanisms to deal with the remaining uncertainty in respect of passenger numbers.
Following extensive analysis and consultation to set the level of the cap, the Civil Aviation Authority has set expectations for the appropriate level of efficiency to expect from HAL and an appropriate return for capital providers to ensure it can efficiently finance its regulated activities.
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.
Richard Moriarty, Chief Executive at 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.”
What the Final Proposals will mean for consumers?
- 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 £1.3bn upgrading 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.
What are the next steps?
- It is expected that Heathrow Airport Limited 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 will publish a Final Decision on the modifications we make to Heathrow’s licence. We currently intend to publish that Final Decision in Autumn 2022.
What did the Civil Aviation Authority consider when making this decision?
- Because of the uncertainties involved in forecasting passenger traffic levels as the aviation industry recovers from the pandemic, this has been a challenging review. During the review, it has become clear that both Heathrow Airport Ltd and the airlines using the airport have starkly divergent views on the level of charges for the next five years.
- Over the course of the price control period to the end of 2026, increased demand is expected to result in a sustained recovery in the aviation sector. Spring 2022 has seen sharp increases in demand driven particularly by UK outbound leisure passengers taking advantage of the relaxation of UK and international travel restrictions.
- Passenger numbers in May 2022 were approximately 79% of pre-pandemic levels. However, uncertainties persist into 2023 and beyond and passenger numbers at Heathrow are predicted to return to 2019 levels by at least 2025.
Notes to Editors
- The consultations that informed our Final Proposal ran from 17 October and 17 November 2021 and ended in January 2022.
- Further information about today’s announcement is available here: www.caa.co.uk/cap2365a
- It is expected that Heathrow Airport Limited will begin to consult on its future airport charges in around August 2022, in line with expectations set out in the Airport Charges Regulations 2011 (ACR11).
- After considering responses we receive to the Final Proposals, the Civil Aviation Authority will publish a Final Decision on the modifications we make to Heathrow’s licence. We currently intend to publish that Final Decision in Autumn 2022.