Heathrow Forced To Decrease Passenger Charges By 20%

In a win for Airlines/Passengers, Heathrow has lost its battle to increase passenger charges (Airlines pass this on as part of the ‘taxes and fees’ you pay when you purchase a ticket) even more than their current rate (Heathrow is already the world’s most expensive airport by some margin!)

So what are the Passenger Charges at Heathrow?

For the remainder of the year, Heathrow’s Passenger Charges are a maximum of £31.57 per passenger (interim settlement set by the CAA earlier this year)

From 2024 the maximum charge (cap) will drop roughly 20% to £25.43. This will remain roughly the same until the end of the current cap period (December 2026.)

How are they worked out?

Airports have a wide range of costs including operating terminals, runways, security, baggage, maintenance, and things such as investment into new security scanners, etc. To cover these costs Heathrow divides the total expected amount by their estimated number of passengers to use the Airport to come up with a passenger fee.

All sounds reasonable, right? Well, Heathrow has been massively underestimating its passenger totals and Airlines aren’t happy about it. Why? A lower estimated passenger total means the passenger charge is higher as the cost is worked out on estimates. So for example, if Heathrow estimates they will have 50 million passengers and costs of 2 billion the passenger charge will be £40. However, if they instead have 75 million passengers instead of 50 million there isn’t a refund/change to the passenger fee it remains at £40, and Heathrow pockets another billion (roughly*) for underestimating their numbers. See the issue? It is in Heathrow’s interests to estimate the numbers as low as they can so they get more money.

* The vast amount of these costs are fixed, meaning the costs don’t differ greatly regardless if the Airport has 10,000 or 100,000 passengers.

What do the Airlines think?

Despite the CAA ruling that Heathrow’s Passenger Charges must decrease from their current rate (rather than the increase that Heathrow wanted) Airlines aren’t happy. Virgin in particular has been particularly vocal with their CEO Shai Weiss saying…

“After nearly two years of consultation and an abundance of evidence that supports a significantly lower price cap, the CAA has finally adjusted course. However, an average cap of £27.49 until 2026, adjusted for inflation, still penalises passengers at the world’s most expensive airport, which by its own admission, grew more than any other airport last year. The CAA has not gone far enough to push back on a monopolistic Heathrow and fulfil its statutory duty to protect consumers.

Heathrow has abused its power throughout this process, peddling false narratives and flawed passenger forecasts in an attempt to win an economic argument. This process has proven that the regulatory framework, including the formula used to set charges, is fundamentally broken. We’ll review our position carefully. With Easter just weeks away and the start of a busy summer season, we are ready to fly and serve our customers and we expect Heathrow to deliver a quality experience for passengers.”

Luis Gallego, Chief Executive Officer of IAG International Airlines Group (the parent of British Airways) said…

Britain needs an efficient airport hub that will attract business, serve customers and support jobs. But high charges, designed to reward shareholders at the expense of customers, risk undermining its competitiveness. Heathrow already charges three times more per passenger than other major airports in Europe, including London Gatwick and Madrid Barajas, and five times more than Dublin International. If the CAA had fully taken into account industry forecasts of passenger volumes post-COVID, it should result in lower prices for consumers. We will continue to assess our options for further action to ensure UK consumers do not pay an unfair price to use Heathrow.

What does Heathrow Airport think?

For now, Heathrow has said they are considering their next steps…

The CAA has chosen to cut airport charges to their lowest real terms level in a decade at a time when airlines are making massive profits and Heathrow remains loss-making because of fewer passengers and higher financing costs. This makes no sense and will do nothing for consumers at a time when the CAA should be incentivising investment to rebuild service. We will now take some time to carefully consider our next steps.

They do have the ability to dispute the figures by appealing to the Competition and Markets Authority but this is unlikely. The CAA said…

“The package includes a £3.6 billion capital investment programme. Passengers will benefit from investments such as next generation security scanners and a new baggage system in Terminal 2, which are collectively expected to cost around £1.3 billion and should bring considerable passenger benefits, including an improved security experience and more resilient infrastructure.”

What does it mean for you?

Not a lot probably! Whilst the passenger charge is passed on by the airline in the ‘taxes & fees’ on your ticket you are unlikely to see any substantial change from this ruling. Why? Avios seats are covered by Reward Flight Saver which has a fixed cash element alongside the Avios amount. With this number bearing no connection to the real ‘taxes & fees’ on cash tickets, it’s unlikely you will see any change. Cash ticket prices are set by revenue management systems/teams that aim to sell as many seats as possible for the maximum cash rate possible. £6.14 is pocket change in the grand scheme of things, particularly on long-haul flights in premium cabins. So again it’s extremely unlikely you will see/notice any changes.

You can read the proposals made and the CAA’s final decision here – https://www.caa.co.uk/commercial-industry/airports/economic-regulation/h7/consultations/final-and-initial-proposals-for-h7-price-control/