UK regulators have stuck with their provisional proposal under which the cap on London Heathrow Airport charges would be raised by a third from the start of next year ahead of a longer-term pricing decision.
Current pricing regulations expire this month and a consultation is ongoing on the charging cap covering the five-year period starting from summer 2022.
To cover the interim period, the UK CAA in October consulted on proposals to increase the airport charge cap from £22 ($29) to £29.50 at 2020 levels – though in practice the charge will be £30.19 after inflation – from the start of January. That is in the middle of the £24.50 to £34.50 range the CAA is consulting on for the five years from next summer.
In a letter to Heathrow Airport and its primary operators, the CAA points to the advantages of retaining the assumptions around passenger forecasts and expenditure included in its initial proposals, given the heightened uncertainty created by the new Omicron Covid variant.
Airlines have argued charges at Heathrow are already the highest in the world and that the CAA has underestimated likely passenger numbers at the airport.
Heathrow has been the hardest hit of the major European hubs since the pandemic and, despite a lift in transatlantic traffic from easing restrictions in the USA, passenger numbers remained under half pre-crisis levels in November. It expects 45 million passengers in 2022, just over half the 80.9 million it handled in 2019.
For its part Heathrow Airport has argued errors were made in the CAA’s approach, including making allowances too low for its operating costs. ”We are extremely disappointed in this interim decision from the CAA,” says Heathrow Airport. ”It relies on rushed analysis and will undermine passenger experience at the UK’s hub airport.”
The CAA says it will consider the points made by both airlines and the airport operator in making its decision on the five-year charging period.
”Proposals… may be different from our decision on the holding price cap as it will benefit from the further evidence and analysis that we are conducting prior to making our final decision,” the CAA says.
”Nonetheless, the approach set out in the October 2021 consultation to calibrating the holding price cap remains valid for this stage of our process as an accurate a reflection of the evidence we have overall, especially in the context of the present levels of uncertainty.
”We are conscious of the challenges that the level of the holding price cap will create in the short term for consumers and, in the context above, the airlines that serve them, but we are also of the firm view that the holding price cap needs to be established in a way that is consistent with [Heathrow Airport] continuing to be able to finance necessary investment in security, safety and resilience.”
The CAA argues that given the greater uncertainty created by the Omicron variant, that now “would not be an appropriate time” to significantly tighten the holding price price.
It though adds it will look to set ”suitably stretching targets” for Heathrow Airport when its makes it decision on the upcoming five-year period.
”By retaining our approach to the holding price cap, but also looking again at the underlying assumptions and efficiency targets for the five year price control, we should ensure that consumers interests are appropriately protected while also having regard to [Heathrow Airport’s] financeability and the financing of new investment,” the CAA says.