The Civil Aviation Authority has today ruled that Heathrow can increase its passenger charges by the rate of inflation over the next five years.
The final proposal, which will now go out to consultation for the next month with a decision due to be made in January 2014, has been criticised by airlines including British Airways and Virgin Atlantic.
Under the CAA’s plan, Heathrow would be able to raise charges annually by the rate of inflation, as measured by the retail prices index (RPI), from 2014 to 2019. The UK hub currently charges £20.71 per passenger.
The new charges will apply from April 2014.
Airlines including BA and Virgin Atlantic today hit out at the decision as the CAA had originally proposed that Heathrow would only be able to charge fees at the rate of RPI minus 1.3 per cent.
Willie Walsh, chief executive of BA’s parent company IAG, called the decision “a bad day for customers”.
He added: “With this settlement, Heathrow will continue to levy charges well above other major hub airports.
“As the only hub airport in the UK, Heathrow exerts monopoly power over its users. Like other airlines at Heathrow, we cannot move to a better-run UK hub that offers customers real value for money.
“No such alternative exists today but these excessive charges combined with a complacent management team at Heathrow make an alternative hub look more attractive and more realistic.”
Virgin Atlantic said in a statement: “It is deeply disappointing to see the CAA has bowed to pressure from Heathrow Airport Limited and its shareholders.
“The decision to further increase charges at the airport for the next five years is another hammer blow for both UK consumers and overseas visitors wanting to travel to this country.
“Prices at Heathrow are already triple the level they were ten years ago and coupled with ever increasing Air Passenger Duty, passengers are facing some of the highest charges in the world and this is deterring inbound tourism and foreign investment.”
However, CAA chairman Deirdre Hutton defended the proposal.
She said: “Tackling the upward drift in Heathrow’s prices is essential to safeguard its globally competitive position. The challenge for Heathrow is to maintain high levels of customer service while reducing costs.
“We are confident this is possible and that our proposals create a positive climate for further capital investment, in the passenger interest.”
Heathrow is also unhappy about the settlement over charge increases. The airport had wanted to be able to raise charges by RPI plus 4.6 per cent to continue funding improvements.
LGR chief executive Colin Matthews said: “This proposal is the toughest Heathrow has ever faced. The CAA’s proposed cost of capital of 5.6 per cent is below the level at which Heathrow’s shareholders have said they are willing to invest.
“The CAA’s settlement could have serious and far-reaching consequences for passengers and airlines at Heathrow.
“We want to continue to improve Heathrow for passengers. Instead, the CAA’s proposals risk not only Heathrow’s competitive position but the attractiveness of the UK as a centre for international investment.”