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

The UK Civil Aviation Authority has today published a consultation setting out changes it proposes to make to the annual caps that apply to the 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 (the nominal price per passenger) would be capped at £25.43 in 2024, £25.24 in 2025 and £25.28 in 2026.

The regulator’s consultation addresses 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.

In the interest of consumers, the regulator is proposing adjustments to Heathrow Airport Limited’s Licence following a re-examination of its H7 decision including:

• Reflecting, through an additional correction factor, the difference between Heathrow Airport Limited’s actual and allowed revenues in 2020 and 2021, to reduce airport charges in 2025 and 2026;
• Addressing the CMA’s request to re-examine the inclusion of a premium for index-linked debt in Heathrow Airport Limited’s overall weighted average cost of capital by removing it completely; and
• Seeking to ensure that Heathrow Airport Limited neither loses nor gains from matters that are beyond its control when it comes to pension deficit repair costs and business rates.

If, following the six-week consultation, the regulator decides to implement the changes it proposes, then, taken together, it would lead to decreases in Heathrow Airport Limited’s charges of around £1.52 in 2025 and £1.58 in 2026.

While this is around six per cent lower than the charges for 2025 and 2026 that the UK Civil Aviation Authority set in its H7 Final Decision, it amounts to an increase of approximately 3.5 per cent compared to what charges would have been had no changes been needed to the Final Decision, with the regulator also proposing to change the correction factor term in the price control.

Compared to the estimated price caps in the Final Decision, the proposed changes would lead to Heathrow Airport Limited’s nominal price per passenger being capped at an estimated £23.72 in 2025 and £23.70 in 2026.

It is the UK Civil Aviation Authority’s intention to make its decision on whether to modify Heathrow Airport Limited’s Licence in the manner proposed in the summer of 2024. Adjustments will be spread evenly over 2025 and 2026.

This allows Heathrow Airport Limited to reflect the decision when it consults on 2025 charges later in the year and is consistent with the requirements of the CMA’s Final Determination.

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 - December 2026.
• The full consultation document can be accessed on the UK Civil Aviation Authority website. The consultation period will run for 6 weeks.
• The figure of £25.43 referred to is the forecast for the price cap made at the time of the Final Decision and was presented in it. The outturn charge for 2024 is £26.78, 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.
• After considering the responses we receive to this consultation, we will publish our decision on the modifications we make to the Licence. If the responses we receive indicate that we need to propose an approach that differs substantially from that set out in this consultation, we will re-consult before making that decision.