Heathrow airport will be forced to cut its landing fees after demand for flying recovered from the pandemic faster than expected and airlines successfully lobbied against a significant increase in charges.
The UK aviation regulator on Wednesday said landing fees at the UK hub airport should fall from the current £31.57 per passenger to £25.43 from next year.
Heathrow and airlines, including British Airways and Virgin Atlantic, had engaged in a years-long row over whether the airport should be allowed to increase its fees following the pandemic and the fall in traveller numbers. The charges are typically passed straight on to passengers through ticket prices.
Heathrow pushed to be allowed to charge much higher fees — as much as £40 per passenger — and warned that investment in the airport was at risk.
But in an increasingly acrimonious dispute, airlines accused the airport of price gouging and deliberately underestimating the speed of the recovery in its passenger forecasts in order to win a better settlement on prices from the regulator.
Senior industry executives warned the dispute would rumble on, with Heathrow and the airlines both given six weeks to appeal to the Competition and Markets Authority, the competition watchdog.
Both Heathrow and British Airways owner, International Airlines Group, said they were considering their options, with neither side left satisfied.
The airport said the Civil Aviation Authority had cut charges to their lowest levels in real terms in a decade, and that instead it should be “incentivising investment to rebuild service”.
Luis Gallego, chief executive of IAG, said high charges “risked undermining [the UK’s] competitiveness” and that the regulator should have cut them further.
“The CAA has not gone far enough to push back on a monopolistic Heathrow and fulfil its statutory duty to protect consumers,” Virgin Atlantic chief executive Shai Weiss said.
Weiss said Heathrow had “peddled false narratives and flawed passenger forecasts in an attempt to win an economic argument,” and that the regulatory process was “fundamentally broken”.
As the war of words worsened, the airport said airlines had returned to “making massive profits” and drew a comparison with its own adjusted loss of £684mn over the same period.
In a sign of the distrust between the two sides, airlines questioned Heathrow’s accounting, and said the airport’s positive earnings were weighed down by £1.6bn in financing costs.
The new charges, published on Wednesday, represented a final decision from the CAA for pricing in the regulatory period between 2022 and 2026. The CAA had published a series of proposals and interim prices over the past two years.
Richard Moriarty, chief executive at the CAA, said the regulator had “carefully considered the sharply differing views” from the two sides about future levels of charges.
“We are confident our final decision represents a good deal for consumers using Heathrow, while having regard for the airport’s need to efficiently finance its operations and be able to invest in improving services for the future,” he said.
Charges will remain at about £25 in 2025 and 2026, the CAA said.
The regulator had last summer proposed an average fare of £28.39 over the period, but lowered it after considering the rapid recovery in passenger numbers against the macroeconomic backdrop, including high inflation.