Airlines operating out of Heathrow could reduce passenger charges by between 10-20% if they hit load factor targets, the airport has announced.

Heathrow says its new “landmark” deal with airlines, supported by the Civil Aviation Authority, is worth hundreds of millions of pounds and will help it drive up passenger numbers from the airport while keeping airport charges “close to 2016 levels”.

Currently, airlines at Heathrow – Europe’s largest airport, carrying 80 million passengers a year – operate with average load factors below the IATA global average.

If the CAA gives final approval to the commercial arrangement, the current regulatory settlement would be extended until December 2021.

Heathrow chief executive John Holland-Kaye said: “Over the past several months we’ve been working hard with our airline partners to agree a deal on airport charges to 2021.

“We are delighted that the result is the first-ever commercial agreement at Heathrow which will unlock hundreds of millions of pounds of potential investment for our passengers. We’ve shown that we can achieve more by working together and we will continue working to build on this momentum as we expand.”

Heathrow and airlines representing each of the alliances operating out of the UK hub have already signed the agreement. Heathrow says others are expected to sign “in the coming weeks”.

The airport says the deal will help it meet the government’s affordability target for expansion. It says that with more passengers on each existing flight, Heathrow would be able to spread the development costs of expansion across a larger passenger base – “helping to keep airport charges close to 2016 levels in real terms throughout the expansion project”.

If it is agreed, Heathrow says the deal will remove the need to negotiate an interim iH7 regulatory settlement and allow all parties – from the regulator to airlines and the airport – to focus their resources on agreeing the regulatory settlement that will be in place during the main expansion works which are planned from 2022.

Heathrow says the commercial agreement is “not intended to provide an alternative framework for future regulatory settlements, which will continue to be determined by the CAA”. It says it is based on commercial rebates supplementing existing regulation, “securing the protections that regulation currently provides to investors and representing an additional offer to airlines reflecting Heathrow’s continued commitment to growing the airport and delivering for passengers”.