Regulator decides on changes to Heathrow Airport Limited’s airline charges in response to CMA appeal

The UK Civil Aviation Authority has today published its decision on the changes it is making to the annual caps it applies to charges Heathrow Airport Limited levies on airlines for using the airport until the end of 2026.

The UK Civil Aviation Authority’s Final Decision on the price cap in March 2023 estimated that charges (in nominal price terms) would be capped at £25.24 per passenger in 2025 and £25.28 per passenger in 2026. These changes will lead to Heathrow’s charges decreasing by around 6 per cent or £1.52 in 2025 and £1.57 in 2026 and the price per passenger being capped at an estimated £23.73 in 2025 and £23.71 in 2026.

The regulator has made this decision to address the Competition and Markets Authority’s (CMA) determination on the H7 licence modification appeals from Heathrow Airport Limited and airlines in April 2023.

The CMA found in October 2023 that the UK Civil Aviation Authority had struck broadly the right balance between ensuring prices for passengers are not too high and encouraging investors to maintain and improve the airport over time. It also determined that there were some smaller issues for the UK Civil Aviation Authority to re-examine.

The announced changes reflect:

• a smaller reduction in charges for the over recovery of revenue by Heathrow in 2020 and 2021;
• elimination of the premium that had been allowed on indexed linked debt in calculating Heathrow’s cost of capital; and
• changes to ensure that Heathrow’s charges reflect the costs of pension deficit repair payments and business rates.

This decision should allow Heathrow to reflect these matters in its 2025 charges consultation due later this Summer and is consistent with the requirements of the CMA’s Final Determination.

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For further information, please contact:

Andrew McConnell, Deputy Director for Communications & Engagement, Communications Department - 0333 103 6000

Robert Crawford, Head of Corporate Communications, Communications Department - 0333 103 6000

Notes to editors:

• The UK Civil Aviation Authority is the UK’s aviation and aerospace regulator. We work to protect people and enable aerospace in the UK.
• The H7 regulatory period runs from January 2022 to December 2026.
• The full decision document can be accessed on the UK Civil Aviation Authority website.
• Outturn charges will differ from those set out in the Final Decision, with the difference being due to the inevitable forecasting error arising from, for example, making forecasts of inflation.
• The additional correction factor reflects the difference between Heathrow Airport Limited’s actual and allowed revenues per passenger in 2020 and 2021 (that is, in the period immediately prior to the current “H7” price control period). The CMA ordered the UK Civil Aviation Authority to reconsider the level of this adjustment as part of its Final Determination of the appeals against the H7 Final Decision.
• Overall, instead of the reduction of the order of £390 million from the additional correction factor arising from the UK Civil Aviation Authority’s Final Decision on the H7 price control, revenues will reduce by a total of around £250 million, made up of £119 million from the revised additional correction factor, and £131 million from the other adjustments to the H7 price control (all in nominal prices).
• This reduction is around £140 million smaller (in nominal prices) compared to the UK Civil Aviation Authority’s Final Decision.
• References to nominal prices are to prices after taking account of inflation and the time value of money.