Civil Aviation Authority seeks reduction in airport charges

Heathrow airport has been told to introduce a real-terms cut in the fees it charges airlines in order to curb its “substantial market power” – a move that could put the brakes on spiralling air fare increases.

The Civil Aviation Authority (CAA) said Heathrow, the third busiest airport in the world in terms of passenger numbers, should increase take off and landing charges by a figure lower than inflation over the five years between 2014 and 2019.

But the airport, which is controlled by Spanish infrastructure group Ferrovial, warned that the proposals put at risk a long-term capital improvement programme designed to improve facilities for passengers.

Heathrow’s profits rose by 12% to £1.3bn in 2012, driven largely by an increase in the fees it charges airlines – by far its largest source of revenue. Although the charges are paid by airlines they are passed on to passengers through higher air fares. In 2012 almost 70 million passengers used Heathrow airport.

For 2014-19 the CAA has proposed that the increase in airline charges at Heathrow should be capped at RPI minus 1.3%. This is far less than the increase of RPI plus 7.5% over the five years from 2009, and below the figure for 2014-19 proposed by Heathrow bosses. That would have seen charges increase at the west London airport from the equivalent of £19.33 a passenger for 2012/13 to as much as £27.30 in 2018/19.

This is the first time a five-year set of charges has been announced when the three London airports have been under separate management. Before, airport operator BAA, now known as Heathrow Airport Holdings Limited (and owned by Ferrovial), ran all three airports.

Publishing its proposals the CAA said: “At Heathrow, the CAA found clear evidence of substantial market power and is proposing a traditional price control mechanism.

“After a decade when prices have risen – largely to enable major capital investments including new terminals to enhance passenger experience – the CAA is looking to encourage further investment whilst improving value for passengers in other ways.”

But Willie Walsh, the chief executive of British Airways parent IAG, warned that the proposals did not go far enough. The head of the largest airline operating from Heathrow said: “Heathrow airport is over-priced, over-rewarded and inefficient, and these proposals, which will result in an increase in prices, fail to address this situation.”

For London’s second largest airport, GIP-owned Gatwick, the CAA has proposed charges should rise by inflation plus 1% for the five years from April 2014.

At Stansted, where Ryanair chief executive Michael O’Leary has long complained about the level of charges, the CAA said it would move away from setting a five-year fixed price cap and instead introduce a price monitoring regime.

The CAA will consult on the proposals and publish draft licences for each airport in October. Final decisions on market power, economic regulation and final licences will be published in early 2014.

Neither Heathrow or Gatwick’s operators were happy with the CAA’s blueprint. At Heathrow, operators warned of a fall in investment resulting in cuts to passenger services. “We, and everyone interested in the health of our country’s transportation infrastructure, must consider whether this is a risk worth taking,” a statement said. Gatwick said the RPI plus 1% formula for 2014-19 was “too demanding and based on unrealistic assumptions”.

O’Leary, meanwhile, said he wanted to see cuts in Stansted’s fees. “We call on the CAA to require that airport charges at Stansted reduce by the rate of inflation minus 10% every year for the next five years,” he said. “We also call on Stansted’s new owners, Manchester Airport Group, to support this sensible and rational proposal which will allow Stansted airport to grow by allowing airlines to offer passengers a greater choice of routes and lower fares.”

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