Heathrow has signed a new deal on airport charges worth hundreds of millions of pounds with airlines operating at the airport.
Following detailed negotiations over the past several months, Heathrow and major airlines operating at the airport have agreed terms which the airport hopes will deliver passenger benefits in releasing funds to drive investment and growth.
The CAA has supported the negotiation of the commercial arrangement and is expected to launch a public consultation on the solution in the coming weeks.
Under the terms of the agreement, Heathrow will establish a new growth incentive that will encourage airlines to increase passenger numbers at the airport ahead of expansion.
Airlines at Heathrow currently operate with average load factors below the IATA global average.
If airlines at Heathrow reached global averages for filling aircraft there is an opportunity to reduce passenger charges by ten-20 per cent against what they might otherwise be, in addition to helping Heathrow meet the government’s affordability target for expansion.
With more passengers on each existing flight, Heathrow would be able to spread the development costs of expansion across a larger passenger base – helping to keep airport charges close to 2016 levels in real terms throughout the expansion project.
Heathrow chief executive, John Holland-Kaye, said: “Over the past several months we’ve been working hard with our airline partners to agree a deal on airport charges to 2021.
“We are delighted that the result is the first-ever commercial agreement at Heathrow which will unlock hundreds of millions of pounds of potential investment for our passengers.
“We’ve shown that we can achieve more by working together and we will continue working to build on this momentum as we expand.”
If the CAA gives final approval to the commercial arrangement, the current regulatory settlement would be extended until December 2021 – removing the need to negotiate an interim iH7 regulatory settlement.
This would allow all parties – from the regulator to airlines and the airport – to focus their resources on agreeing the regulatory settlement that will be in place during the main expansion works from 2022 (subject to the airport being successful in its development consent order application).
However, IAG – owners of British Airways and Iberia, among other airlines – questioned the deal.
A statement argued: “The CAA was unable to broker this deal, raising serious questions about its ability to control Heathrow’s expansion costs.
“Between 2014-17, Heathrow pocketed £434 million of additional customer charges because passenger numbers exceeded the forecasts on which charges were based.
“The CAA wanted any extra customer charges between 2020-21 to be repaid over the next 20 years.
“Airlines couldn’t stomach this proposal as the airport had been overpaid for years with no redress.
“They cut the CAA out of the loop and agreed a five year repayment period directly with the airport.”
The commercial agreement is not intended to provide an alternative framework for future regulatory settlements, which will continue to be determined by the CAA, Heathrow said.
It is based on commercial rebates supplementing existing regulation, securing the protections that regulation currently provides to investors and representing an additional offer to airlines reflecting Heathrow’s continued commitment to growing the airport and delivering for passengers.
The CAA has been authorised by the government to check Heathrow’s spending and agree on the new passenger charges.
The government had earlier said that Heathrow should keep charges ‘close to today’s level’.