Competition regulator orders rethink on Heathrow charges

A decision on how much Heathrow Airport can charge airlines must be reconsidered, competition regulator the Competition and Markets Authority (CMA) said.

In February, aviation regulator the Civil Aviation Authority (CAA) said the cap on Heathrow’s average charge per passenger must be reduced from £31.57 for 2023 and last year, to £25.43 over the next three years.

But the airport and three airlines – British Airways, Delta Air Lines and Virgin Atlantic – appealed against the CAA’s decision.

Kirstin Baker, who chairs the CMA’s group which assessed the appeals, said: “Having considered these appeals, we found that the CAA’s Heathrow price control struck broadly the right balance between ensuring prices for passengers are not too high and encouraging investors to maintain and improve the airport over time.

“There are a handful of smaller issues we have ordered the CAA to look at again and it has agreed to do this swiftly.”

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

The CMA said it “broadly found in favour of the CAA” but there are three aspects of its pricing decision that must be reconsidered.

The competition regulator agreed with the airlines that the CAA made errors in one “relatively minor” aspect of its cost of debt calculation and a “small element” within its allowance for exceptional events which might reduce passenger numbers.

Meanwhile, the CMA agreed with Heathrow that the application of an adjustment in relation to the recovery of revenues lost due to the coronavirus pandemic was “inappropriate given the extreme impact” of the virus crisis.

A Heathrow spokesperson said: “We’re naturally disappointed, but it’s time to move on.

“We will do our best to deliver the outcomes that passengers told us they wanted within this tight framework.

“Going forward, the CAA needs to take more account of the views of consumers so that the settlement delivers the Heathrow experience passengers are looking for and not just higher profits for airlines.”

Luis Gallego, chief executive of British Airways’ parent company IAG, said: “Heathrow’s charges remain among the highest in the world and are not competitive.

“We would like to work with the CAA to improve the regulatory framework for the future.”

A Virgin Atlantic spokesperson said: “Following more than three years of regulated consultation on Heathrow charges, it’s disappointing that the CMA has largely endorsed the CAA’s decision, which did not go far enough to protect consumers from excessive charges at Heathrow.

“Heathrow Airport’s repeated attempts to impose excessive charges demonstrate how the regulatory framework, including the formula used to set charges at the world’s most expensive airport, is broken.

“With fresh leadership at both the CAA and Heathrow, now’s the time for a fundamental review of how these charges are set, ensuring that customers are protected ahead of shareholders.

“Heathrow must work collaboratively with airlines to ensure it gets back to its best, so it can deliver a world class experience commensurate with being the world’s most expensive airport.”

CAA chief economist Andrew Walker said: “We welcome the final determination by the Competition and Markets Authority that has largely supported our decision.

“It represents a good deal for consumers using Heathrow, whilst allowing the airport to efficiently finance its operations and invest in improving services for the future.”