Britain's aviation regulator told Heathrow Airport on Wednesday 8 March it will have to cut the fees it charges airlines over 2024-2026, bowing to pressure from airlines who have long said charges at the hub are too high.
The Civil Aviation Authority (CAA) announced that Heathrow, Britain's biggest airport, could charge an average maximum price per passenger of £27.49 in nominal prices over the 2022-2026 period.
Following two years of higher interim prices over 2022 and 2023, which includes a charge of £31.57 per passenger for this year, Heathrow charges would fall to about £25.43 per passenger in nominal terms over the 2024-2026 period.
The lower fees will boost airlines such as IAG's British Airways and Virgin Atlantic, two of Heathrow's biggest, making the airport cheaper for them.
They have long complained that fees at Heathrow, the busiest airport in western Europe, are the highest in the world.
But the CAA's decision will come as a blow to Heathrow, owned by Spanish group Ferrovial, Qatar Investment Authority and other financial investors, which had wanted charges to rise to about 40 pounds.
"This makes no sense and will do nothing for consumers at a time when the CAA should be incentivising investment to rebuild service," Heathrow said, noting that it remained loss-making while airlines were profitable.
Heathrow said it would consider its next steps.
It has six weeks to lodge an appeal with Britain's competition regulator, the CMA, over the charges.
Heathrow has argued it needs higher fees to provide a good service, pay its shareholders returns and fund investment such as new security scanners which mean liquids can stay in bags and a modern baggage system for one of its terminals.
IATA, the airlines' global industry body, said Heathrow had secured a "generous settlement", adding that the present model for deciding charges needs a fundamental review.
IAG and Virgin Atlantic said the CAA had not gone far enough in cutting charges.
"If the CAA had fully taken into account industry forecasts of passenger volumes post COVID, it should result in lower prices for consumers," said IAG CEO Luis Gallego.
Both airlines said they were assessing their options.
The strong bounceback in travel since the lows of the pandemic prompted the CAA to reduce the fees Heathrow can charge in the coming years.
Passenger Number Forecast
Improved forecasts for passenger numbers this year and next year mean Heathrow will be able to generate higher revenue, said the CAA, which uses passenger numbers to calculate the charges.
Heathrow's passenger numbers could recover to about 90% of pre-pandemic levels this year, the airport has said, but despite that it has warned it does not expect to be able to pay its owners a dividend for 2023.