UK competition regulator supports CAA's decision on Heathrow airport charges amid controversy

In a significant development for the aviation industry, the United Kingdom's competition regulator, the Competitions and Markets Authority (CMA), has offered its provisional support for the majority of the Civil Aviation Authority's (CAA) decisions regarding the pricing structure for London's Heathrow Airport over the period from 2024 to 2026.

This decision comes in response to appeals lodged by both Heathrow Airport and several airlines, including British Airways owner International Airlines Group (IAG) and Virgin Atlantic, following the CAA's proposal to reduce charges for this period. The dispute revolves around the pivotal issue of pricing, with Heathrow contending that higher fees are essential to maintain service quality, provide shareholder returns, and support investment.

On the other hand, airlines are challenging the CAA's pricing methodology, asserting that the proposed cuts were insufficient and based on overly pessimistic passenger forecasts.

Heathrow Airport's stance is firmly grounded in its belief that higher fees are indispensable to sustaining the quality of service it provides, ensuring returns for its shareholders, and fuelling future investments. The airport maintains that reducing fees further would negatively impact its ability to carry out these vital functions.

Conversely, airlines, particularly IAG and Virgin Atlantic, argue that the CAA's pricing calculations are flawed, underestimating passenger numbers and still leaving Heathrow as one of the world's most expensive airports even with the proposed cuts.

The CMA, having undertaken the task of reviewing these appeals, has stated that it provisionally believes that the CAA's decisions were generally correct in most of the appealed areas. However, it's essential to note that this is still a provisional stance, and the CMA is set to make its final decision on or before October 17th.

During this interim period, the CMA will consider comments and input from various stakeholders regarding its preliminary findings.

The CAA had initially informed Heathrow in March that fees needed to be reduced to approximately £25.43 ($31.75) per passenger in nominal terms over the 2024-2026 period, down from £31.57 per passenger this year.

In response to the CMA's provisional support, a Heathrow spokesperson stated that they were "carefully considering the CMA's initial findings to understand what impact they may have on passengers and our ability to deliver our investment plans".

Virgin Atlantic and IAG have expressed their disappointment with the CMA's provisional stance, with IAG's Chief Executive, Luis Gallego, stating: "We would be disappointed if this was the final outcome of the CMA appeal. We will participate in the remainder of the appeal process."

This indicates that airlines remain committed to pursuing further reductions in airport charges.

The CAA has responded to the CMA's provisional support by reiterating its confidence in the original pricing decision. The CAA's statement emphasised its belief that the charges it has set for Heathrow Airport strike a balance that benefits consumers while also allowing the airport to invest in enhancing its services for the future.

"We would expect any such changes to have only a small net impact relative to the CAA's overall price control decision, particularly as they may work in opposite directions," the competition watchdog said.

While this ongoing dispute unfolds, it is important to acknowledge the backdrop against which it is taking place. Despite a threefold increase in passenger numbers in 2022, Heathrow Airport reported an adjusted loss of £684 million, compared to a loss of approximately £1.3 billion in the previous year.

The airport's forecasts for 2023 indicate that it will reach 83 per cent of its 2019 passenger levels, demonstrating a slow but steady recovery from the severe impacts of the COVID-19 pandemic. In this context, airlines continue to advocate for deeper cuts in airport charges.

A spokesperson for Virgin Atlantic expressed disappointment in the CMA's provisional ruling, asserting: "The airport has prioritised shareholders over consumers, relying on pessimistic passenger forecasts to support its agenda, in stark contrast to the actual number of passengers flying from Heathrow, which is close to pre-pandemic levels."

This statement underscores the tension between airlines and the airport's management regarding the prioritisation of financial interests in the wake of the pandemic.