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Heathrow increases its passenger charge to £30.19 per person from next month

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The on-going battle between Heathrow Airport and the UK Civil Aviation Authority (CAA) over what it can charge airlines – which falls straight through to the price of your ticket, as one of the ‘taxes and charges’ you pay – continues.

Yesterday, the CAA told Heathrow what it can charge from the start of next year – a whopping £30.19 per person on average.

As you would expect, Heathrow is not happy and neither are the airlines – for totally different reasons.

The CAA publishes its view on Heathrow's proposed fee increases

Heathrow believes that, since its income is effectively capped by the CAA at below the market rate, it deserves some retrospective protection for the drop in income last year. That said, it still reportedly paid out a £106 million dividend to its shareholders in 2020 and did not need to raise new equity.

The airlines believe that Heathrow has a de facto monopoly on premium air travel in London and should be constrained appropriately, for the benefit of passengers and the wider economy.

As we covered earlier this year, Heathrow Airport has already added an £8.90 surcharge to all tickets issued.

It is fully within its rights to do this, since there is an agreement with the airlines that guarantees a minimum income level to cover the cost of running certain facilities. This income level was not reached in 2020 and the £8.90 surcharge will continue until the difference is made up.

£30.19 is a temporary fudge

The CAA is currently preparing a new charging formula to cover the period from mid 2022 to 2027.

Heathrow has asked for permission to increase charges on long-haul flights to £67.86 per person from Summer 2022, with a lower figure for short haul and domestic flights. This is unlikely to happen, but the CAA is generally regarded by the airlines as a bit of a pushover.

One sign of progress is that the CAA admits that ‘gold plating’ needs to end. At present, because Heathrow’s agreed returns are based on what it invests in the airport, there is an incentive to – literally – gold plate the toilets if allowed. The more it spends, the more it can earn. The CAA says:

“we consider that stronger incentives are needed to protect the interests of consumers from the increased costs that they would otherwise face were HAL to make inefficient capex investments.”

For comparison, the £30.19 charge for 2022 is up from the current average of £22. The charge added to your ticket is likely to be different as the airport is, I believe, allowed to allocate charges between long haul, short haul and domestic flights as it wishes to reach the £30.19 average.

Heathrow was apoplectic at the news that it will only be able to charge £30.19 per passenger for the first half of 2022. It said:

“We are extremely disappointed in this interim decision from the CAA. It relies on rushed analysis and will undermine passenger experience at the UK’s hub airport.

As an example, the CAA’s flawed analysis assumes that operating costs at Heathrow next year will be £173m lower than our budget. This is even lower than we were able to achieve in 2020, when we served half as many passengers with only one runway and two terminals operating and the benefit of a government furlough scheme. 

There are material and basic errors in many aspects of the CAA’s assessment. Uncorrected, this risks leaving Heathrow without sufficient cashflow to support investment in improving passenger service and resilience.

The decision by the CAA differs materially from the forecast assumed in our Investor Report published last week. We will analyse the impact and consider whether issuing an update in January is necessary. We are making a detailed submission to the CAA, and expect a more considered outcome when it makes its final decision in Spring 2022.”

You can read the CAA’s full adjudication letter here (PDF).

It does at least admit that:

“We are conscious of the challenges that the level of the holding price cap [£30.19] will create in the short term for consumers and, in the context above, the airlines that serve them.”

…. although this didn’t stop it agreeing to the figure.

Comments (75)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • Lady London says:

    Charges multiplied by the number of passengers through the airport each year are already obscene.

    Other businesses have had to suck up the effects of Covid so Heathrow should too. If their shareholders don’t like it then hand back the contract.

    There will be plenty of others willing to step in and invest their own money in Heathrow because of the monster returns over the long term.

    If the CAA had any b*lls they’d stare Heathrow out on this and not hand even more outsized profits for the future.

    I despair of the CAA. A fantastic organisation for air industry safety and standards. All comnercial regulation – including consumer regulation – should be taken away from them and put under the control of an organisation that is commercially smart and understands finance – including ex-private equity people.

    • PeteM says:

      I used to work in the public sector, left to work for a private “supplier” for five years and have now come back. Many colleagues I work with today simply refuse to believe my job at the supplier was to suck out every last penny from the public sector and do the public sector over at every opportunity. All whilst crying poverty, how difficult things are and making ourselves effectively indispensable. This isn’t generally the culture in the public sector, staff are often inexperienced, underpaid and gullible to the point of complete naivety, so it really is easy for private organisations to name their price / terms. And even if you get someone external to negotiate for you, their advice is often ignored or watered down so as not to upset the private sector, your boss or your own chances of landing a job in the private sector next year…

      • Mike says:

        My experience is the public sector is generally unwilling to do the upfront work so companies can bid effectively. You end up doing your best estimate which will be sandbagged as the public sector organisation will never want to pay more than the estimate done with scant info. There needs to be a reasonable investigation done before the error bars on an estimate get small, and generally a RFI etc. doesn’t have to detail.

  • Clayton Powers says:

    LHR is still a, very unfunny, joke now.

    They and browser farce can’t make their gates work and have LH flights being put on remote stands and waiting ages for busses just to delay pax numbers in T5 coz it’s already snaking around the whole place.

    No that wasn’t a summer thing it was still happening in late Nov when I went through the place. I resent paying anything for using the place right now

  • Tim says:

    What would happen if Heathrow went bust? Presumably someone else would aquire the business debt free from the receivers and be able to run it profitability with moderate charges.

    • TGLoyalty says:

      Purchased Debt free?

      They are getting the money from somewhere to acquire the business and it will eventually but the burden of Heathrow again once it’s be restructured.

      Anyway Heathrow is owned by a PLC and it’s highly unlikely it’ll go bust.

  • James Harper says:

    While all businesses are there to generate a profit, the do not have a right to and it must be earned. The culture at the top of LHR is toxic and they seem to believe in the right to make a profit and that people must pay through the nose to use their mediocre facilities to ensure that happens.

    I would have some sympathy if they had not paid out the 2020 dividend but having done so, I’d like to see their pricing capped for at least the next couple of years at 2019 levels to help them get to grips with the reality of running a business, not a cash machine.

    • Lady London says:

      As JDB said, though, legally once a dividend has been announced it has to be paid.

      Not that Heathrow won’t keep finding ways of abusing their monopoly position to keep funnelling excess returns to shareholders and management fatcat$.

  • Saj says:

    Why do they want to increase this charge? They are not providing the adequate service at the airport! Today I landed at 3.30 pm at Heathrow. I stood in the immigration qué for 5 hours. They had so many counters but only 4 officers working at the non UK passport holder qué. There hundreds of pax in the qué and the numbers were building each time a flight landed. Does this justify the increase cost for Heathrow?????? And then UK is reporting Omicron cases in rise. First employ more people to work at immigration counters so that the flow of pax is fast and pax exits the airport as fast as they can to avoid the spread. There was no social distancing in the qué. Then talk of increasing surcharge at Heathrow!!!

    • Nick says:

      Do you really think Heathrow pays for border officers? It’s not, it’s the Home Office.

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