Heathrow passengers face paying more to ‘bail out’ airport, claims IAG

Airport owners says decision to limit rise in charges ‘undermines investor confidence’

Empty quarter: Heathrow lost 92% of its passengers in February 2021 compared with a year earlier (Simon Calder)

Britain’s biggest airport is at the centre of a row over passenger charges.

The Civil Aviation Authority (CAA) says Heathrow can increase its charges to help offset the losses from the coronavirus crisis. But while the airport owner says the raise is nothing like enough to compensate for the collapse in passenger traffic, the biggest airline group at Heathrow warns that users will be “unfairly penalised”.

Heathrow’s passenger traffic slumped by 92 per cent year-on-year in February 2021, the last reasonably comparable month.

Because demand is normally so high for travel through Heathrow, charges are regulated by the CAA rather than determined by market forces.

Airport executives had asked to be able to recoup the £2.6bn that it has lost so far as a result of the coronavirus pandemic – with an interim adjustment of £800m.

But the CAA says initially only £300m of Covid-related losses can be passed on to airport users.

Paul Smith, director at the UK Civil Aviation Authority, said: “We have taken the decision that an early intervention on the scale of [Heathrow’s] request is disproportionate and not in the interests of consumers.

“We do, however, recognise that these are exceptional circumstances for the airport and there are potential risks to consumers if we take no action in the short term.

“The decision we have announced today will incentivise and allow Heathrow to maintain investment, service quality and be proactive in supporting any potential surge in consumer demand later this year.”

In addition, passengers will be required to meet £500m in costs incurred for expansion plans at Heathrow, even though there is no certainty about whether the third runway project will go ahead.

The total expenditure of £800m – which is subject to an “efficiency” examination – will add about 5 per cent to the airport’s “Regulated Asset Base”, the figure that is used to calculate passenger charges at Heathrow.

A spokesperson for Heathrow said: “The CAA accepted the need for it to act in order to meet its duties to consumers and to Heathrow’s financeability – but today it has failed to deliver.”

“This undermines investor confidence in UK regulated businesses, and puts at risk the government’s infrastructure agenda.”

The financial impact on passenger charges is expected to be up to 80p, with the increase taking effect in 2022 and continuing for many years.

But IAG – which, as parent company of British Airways, Aer Lingus and Iberia, has more than half the slots at Heathrow – immediately hit out at the CAA’s decision.

A spokesperson said: “We’re extremely disappointed with the CAA’s decision which will unfairly penalise consumers.

“Heathrow is the most expensive hub airport in the world. For over seven years, passengers paid Heathrow higher airport charges to cover the risk in the case of lower traffic.

“Meanwhile Heathrow’s shareholders have earned nearly £4 billion in dividends. The airport has deliberately rewarded its investors at the expense of consumers and now the regulator is asking passengers to bail it out.

“The CAA’s role is to protect consumers’ interest not Heathrow’s shareholders’ profits. Post-Brexit this makes the UK even less competitive and will drive traffic to other airports. We’re assessing our options.”

It is thought that IAG may consider a judicial review of the CAA’s decision. Its former chief executive, Willie Walsh, is now director-general of the International Air Transport Association (Iata). He said: “This is the time when everyone in aviation should be pulling together to reduce costs and rebuild an important sector of the economy, not seeking to cover losses on the tab of its customers.”

Heathrow is currently using only two of its four terminals.