Heathrow ordered to reduce controversial passenger charges despite lengthy campaign to raise them

Mar 8, 2023

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London’s Heathrow Airport (LHR) has failed in its bid to raise the fee it charges airlines to use its runways, and has instead been told to cut them.

Europe’s busiest airport had wanted to boost its landing fees from £31.57 per passenger to £43 — a 36% increase on a charge that is ultimately passed down to passengers via their tickets as part of those pesky “fees, taxes and surcharges”.

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But today, in what will be seen as a major victory for airlines, industry watchdog The Civil Aviation Authority (CAA) told the hub to reduce its fees down to £27.49.

Heathrow said it is now “considering its next steps” in its campaign to squeeze more money from airlines to aid its post-pandemic recovery.

A spokesperson said: “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.

Heathrow said it is now “considering its next steps” now its fierce campaign to squeeze more money from airlines to aid its post-pandemic recovery has fallen flat. GETTY IMAGES

“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.”

The CAA had told Heathrow that keeping the charge down will benefit passengers, as they are the ones to whom airlines will ultimately pass it on.

“This lower level of charges from 2024 recognises that passenger volumes are expected to return to pre-pandemic levels and should benefit passengers in terms of lower costs, while also allowing Heathrow Airport Limited to continue investing in the airport for the benefit of consumers and supporting the airport’s ability to finance its operations.

“The package includes a £3.6bn 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 £1.3bn and should bring considerable passenger benefits, including an improved security experience and more resilient infrastructure.”

What are the airlines saying?

Virgin CEO Shai Weiss accused Heathrow of “peddling false narratives and flawed passenger forecasts in an attempt to win an economic argument.” NICOLAS ECONOMOU / NURPHOTO VIA GETTY

While airlines celebrate the ruling as a big win, some believe the CAA hasn’t gone far enough.

Virgin CEO Shai Weiss has been the most vocal, issuing a statement on the airport that lays bare the strained relationship between his airline and its U.K. base.

He accused Heathrow of “peddling false narratives and flawed passenger forecasts to win an economic argument.”

“After nearly two years of consultation and an abundance of evidence that supports a significantly lower price cap, the CAA has finally adjusted course,” he said. “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.”

Former BA chief Willie Walsh said the CAA had been “hostage to Heathrow’s pessimistic passenger outlook”. DINENDRA HARIA / SOPA IMAGES / LIGHTROCKET VIA GETTY

Adding that Virgin will “review its position carefully”, he added: “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 of IAG, the parent company of British Airways, said “high charges” were “designed to reward shareholders at the expense of customers” and risked undermining Heathrow’s competitiveness.

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Willie Walsh, director-general of the International Air Transport Association, which represents airlines, said the regulator was “hostage to Heathrow’s pessimistic passenger outlook”, adding the decision still means airlines and passengers would “continue to pay one of the highest airport charges in the world”.

“Given that Heathrow have succeeded in securing this generous settlement, we’ll be watching their performance this summer and beyond very closely. Any repeat of the failures we have seen over the past few years would be totally unacceptable,” he added.

What are airport charges?

Airport charges, or landing fees, are essentially taxes dished out by airports onto airlines to use their runways. (Photo by Issarawat Tattong/Getty Images)

Airport charges, or landing fees, are essentially taxes dished out by airports onto airlines to use their runways. They help pay for a range of services, including operating terminals, runways, baggage systems, security and general upkeep. They vary from airport to airport and are usually calculated based on various factors such as an aircraft’s size.

To cover these costs, the airlines then break down the landing fee into a per-passenger basis based on the number of seats on that aircraft. This cost is then passed onto passengers via airfares.

Why does Heathrow want the charge raised?

Heathrow’s argument is essentially that the COVID-19 pandemic negatively impacted its operations, which it continues to rebuild at great expense.

It says it needs income now more than ever, and that the services they offer will suffer due to the cut.

Heathrow chief executive John Holland-Kaye said last year that the CAA “continues to underestimate what it takes to deliver a good passenger service, both in terms of the level of investment and operating costs required and the fair incentive needed for private investors to finance it”.

He added that, if “uncorrected”, decreasing the fee it charges airlines to use its runways “will only result in passengers getting a worse experience at Heathrow as investment in service dries up.”

How do Heathrow’s fees compare to others around the world?

Heathrow was last year the most expensive airport in the world for airlines. JETLINER IMAGES / GETTY IMAGES

According to Jacob’s Review of Airport Charges 2022, Heathrow was last year the most expensive airport in the world for airlines.

The report compiles an annual list of the most expensive airport charges in the world based on a sample of eight different aircraft types making one landing and one departure at each of fifty airports worldwide. It then converts the charge from its local currency to the Special Drawing Right (SDR) — a form of international money set by the International Monetary Fund (IMF) defined as a weighted average of international currencies.

Note: its 2023 report is due for publication in the coming months. The below figures do not represent today’s reduction in Heathrow’s landing fees.

At the top is Heathrow, which charges 69.62 SDR per passenger (per the above metric), followed by Newark International in New Jersey (46.14SDR), and Toronto (43.53SDR).

Here are the top ten airports with the most expensive landing fees in the world:

  1. Heathrow (69.62 SDR)
  2. Newark (46.14)
  3. Toronto (43.53)
  4. Sydney (41.47)
  5. Mexico City (40.21)
  6. Zurich (38.66)
  7. JFK (38.40)
  8. Frankfurt (37.30)
  9. Moscow (36.89)
  10. Budapest (36.60)

London Gatwick was 29th on the 2022 list, charging 25.44SDR per passenger, while Dublin came in at 47th at a cost of 14.46SDR per passenger.

FEATURED IMAGE BY AMANDA LEWIS / GETTY IMAGES

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