CMA upholds CAA cut to Heathrow’s landing fees

SEPTEMBER 8 2023

The UK competition watchdog has provisionally upheld a ruling to force Heathrow to cut its landing fees in a long-running dispute between airlines and the owner of the country’s biggest airport.

The Civil Aviation Authority, the industry regulator, in March ordered the airport to the west of London to reduce its charges to airlines by almost a fifth from £31.57 per passenger to £25.43 from next year.

But both sides lodged appeals with the Competition and Markets Authority against the decision with Heathrow arguing it should be allowed to increase its fees, or risk investment at the airport, and airlines wanting a further cut.

In its provisional ruling on Friday, the competition watchdog found “the CAA was not wrong in most of [its] decisions”.

Heathrow and some of its biggest airline customers, including British Airways and Virgin Atlantic, have been at loggerheads over whether the airport should be allowed to increase its fees following the pandemic, which hit the aviation industry hard. The charges are typically passed straight on to passengers through ticket prices.

In its findings, the CMA noted that the CAA was “wrong in relation to one small element” of the calculation it made for an allowance for exceptional events that might reduce passenger numbers.

The competition watchdog also found that one policy from the aviation authority had been applied “in a purely mechanistic way [that] was inappropriate given the extreme impact of the Covid-19 pandemic on passenger numbers”.

But it added that any “reconsideration of these aspects” by the CAA were expected to have “only a small net impact” on the level of the charges.

“We would be disappointed if this was the final outcome of the CMA appeal,” said Luis Gallego, chief executive of IAG, BA’s parent company. “Heathrow’s charges are among the highest in the world and are not competitive,” adding: “We will participate in the remainder of the appeal process.”

Virgin Atlantic also expressed disappointment that the CMA had “largely endorsed the CAA’s decision, which did not go far enough to protect consumers from excessive charges at Heathrow”.

It added: “The airport has prioritised shareholders over consumers, relying on pessimistic passenger forecasts to support its agenda, in stark contrast to the actual number of passengers flying from Heathrow, which is close to pre-pandemic levels.”

Heathrow said: “We are carefully considering the CMA’s initial findings to understand what impact they may have on passengers and our ability to deliver our investment plans.”

The CMA will make its final ruling on October 17.

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See earlier:

Heathrow vs airlines – dispute continues as parties given permission to appeal price cap

12 May, 2023

Heathrow Airport and separately 3 major airlines (Virgin Atlantic, British Airways and Delta Air Lines) have been granted permission to appeal the Civil Aviation Authority (CAA)’s decision on the Heathrow price cap. The airlines have been locked in a fierce dispute with Heathrow over the amount the airport can charge per passenger.  Both sides launched rival appeals in April against the CAA’s decision to lower the cap; the appeal process was then passed to the Competition and Markets Authority (CMA). The appeals followed the CAA’s confirmation in March that the levy would remain fixed at the same rate as set out earlier in the year – not allowing Heathrow to charge a higher rate. The CAA  had announced in January that the 2023 cap would be raised to £31.57 per passenger, up from £30.19. It will then fall about 20% to £25.43 per passenger in 2024 and will remain there until 2026.  The airlines argue that Heathrow has played down its recovery from Covid, and used “knowingly undercooked and self-serving passenger forecasts,” to attempt to keep the cap, which is set based on passenger numbers, higher. Heathrow argue that the rate should be greater, to boost investment in the airport.

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Likelihood of Heathrow’s 3rd runway even lower, after CAA charges decision

14 March, 2023

The CAA has refused Heathrow’s demand for a big increase in the fees it charges airlines.  It had wanted up to £43 per passenger. But its regulator, the CAA, allowed it £27.49 on average. The present charge is higher, which means that fees will have to come down over the next few years. Heathrow can appeal to the Competition and Markets Authority (CMA). It looks increasingly unlikely that Heathrow will be able to build a 3rd runway.  There was little mention of it in the CAA’s recent analysis. The 242 page ruling on charges just says: “We [the CAA] have said we will deal with these matters separately and in a way consistent with our statutory duties if Heathrow were to reintroduce proposals for capacity expansion.” Heathrow will say only that the plan is under review. There is some evidence in the CAA’s prices ruling that the runway will be a long way off, if ever. The CAA said the charges they are allowing would give Heathrow sufficient financial headroom to pay investors £1.5 billion over the next few years, a rate of return in line with other utility investments. But Heathrow has a level of gearing – the ratio of borrowing to equity base — of over 82%, making even that rate of return unlikely. And the negative impact of the CO2 from an expanded Heathrow make the project ever more improbable.

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CAA rules that Heathrow average maximum price per passenger will fall from £31.57 in 2023 to £25.43 in 2024

10 March, 2023

The UK Civil Aviation Authority has published its Final Decision for the annual caps that will apply to the charges that Heathrow levies on airlines for using the airport, until the end of 2026. The CAA confirmed that charges for 2023 will remain fixed at the level set out in its interim decision issued earlier this year. The average maximum price per passenger will then fall by about 20% from £31.57* per passenger in 2023 to £25.43** per passenger in 2024 and will remain broadly flat at that level until the end of 2026. This means the average charge over the five years will be £27.49 compared to £28.39 for Final Proposals, a reduction of £0.90 (all in nominal prices). This lower level of charges from 2024 recognises that passenger volumes are expected to return to pre-pandemic levels, and should allow Heathrow to continue “investing in the airport for the benefit of consumers and supporting the airport’s ability to finance its operations.” The CAA hopes passengers will benefit from slightly cheaper fares, and better systems when they travel. The current passenger forecasts are higher than in earlier assessments.

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