The Civil Aviation Authority (CAA) has given Heathrow the go-ahead to raise its charges to airlines by just over 50% from January in a move which could add £10 to the average return fare.
The CAA rejected Heathrow’s argument that it should be allowed to hike charges even higher, by 90%. But it dismissed arguments presented by airlines that Heathrow’s charges should be cut.
In doing so, the CAA questioned the carriers’ forecasts of passenger numbers for the first half of next year in light of the emergence of the Omicron Covid-19 variant.
The new cap of £30.19 per passenger (or £29.50 in 2020 prices) will apply from January 1. The current cap is £19.60. However, the cap will apply only temporarily until summer 2022, when the CAA will set a new five-year price-control regime.
Airline bosses expressed anger at the decision, with Airlines UK chief executive Tim Alderslade accusing the CAA of “allowing Heathrow to abuse the system by getting airlines and consumers to bail them out”.
Alderslade said: “The CAA has a statutory responsibility to protect consumers. If it thinks a 50% increase in passenger charges at the world’s most expensive airport is the way to do this, something has gone very wrong.”
Airline bosses wanted the current cap reduced to £19.39.
The CAA said its decision “reflects the uncertainty of the recovery of passenger volumes at the airport, particularly following the emergence of new information about the Omicron variant of Covid-19”.
It promised further details in a ‘decision document’ to be published “before Christmas”.
The cap was in line with that proposed in a CAA consultation which ended in mid-November.
Paul Smith, director of the CAA’s consumers and markets group, wrote to Heathrow chief executive John Holland-Kaye, British Airways chief executive Sean Doyle and Virgin Atlantic chief Shai Weiss to notify them of the decision today.
He noted of the consultation: “HAL [Heathrow Airport Ltd] said we had made errors in our approach and the holding price cap should be significantly higher; airlines and their representatives said that airports charges at Heathrow were already the highest in the world, that we had also made errors in our approach . . . and the holding price cap should be significantly lower.”
Airlines argued the CAA and Heathrow had underestimated the number of passengers likely to use Heathrow next year.
However, Smith argued: “There appears to be a greater level of uncertainty about the likely level of passenger volumes.
“This is not just due to the immediate responses by governments to the Omicron variant, but also the indication it provides about how governments may respond to future variants of concern.”
“We consider . . . it would be premature at this time to adopt the significantly higher forecasts of passenger numbers put forward by airlines.”
At the same time, Smith criticised Heathrow’s claim that the proposed cap could jeopardise its financing as “unduly pessimistic and not properly supported by evidence”.
He warned: “It is looking increasingly likely that the affordability of air travel for consumers in 2022 will be put under greater pressure by the costs of new travel requirements, such as additional testing.”
But Smith argued that while “there would undoubtedly be benefits to passengers in seeing lower airport charges . . . these benefits would be limited [and] a lower cap in the first part of 2022 would mean higher charges in the future”.
Alderslade said: “Heathrow is behaving as if it’s the only company to be adversely hit by Covid.
“Airlines have taken on billions of pounds in debt to stem their losses, with their shareholders not passengers, footing the bill. Meanwhile, Heathrow’s wealthy shareholders have taken out more than £100 million in dividends.
“The CAA should be preventing rather than endorsing this monopolistic behaviour.”
The Telegraph reported that Willie Walsh, director general of Iata, has urged transport secretary Grant Shapps to intervene in the matter.
“This decision also raises significant concerns on the wider process the Civil Aviation Authority is conducting for deciding Heathrow’s charges in the longer term,” he said.
“We are not confident that the CAA is prioritising the needs of consumers, nor is it considering the wider implications of Heathrow’s growing uncompetitive position as a global air hub. It is essential that the [transport] secretary intervenes to remind the CAA of its obligations.”