Virgin accuses Heathrow of ‘abusing its power’ as British Airways weighs in price fix cap

ByTravelling For Business

March 18, 2023
Virgin Atlantic and Virgin Red have launched a new flight redemption offer, with members able to get 30 per cent off reward seat redemption on selected routes to the US, Caribbean and Asia.Virgin Atlantic and Virgin Red have launched a new flight redemption offer, with members able to get 30 per cent off reward seat redemption on selected routes to the US, Caribbean and Asia.

A war of words has broken out between Heathrow Airport and major carriers Virgin Atlantic and British Airways, following the Civil Aviation Authority’s decision to fix the passenger price cap.

The regulator confirmed the average maximum price per passenger will fall by about 20 per cent from £31.57 per passenger in 2023 to £25.43 per passenger in 2024 and will remain at that level until the end of 2026.

Airlines had been arguing for the cap to be reduced while Heathrow had previously asked the CAA to hike the price cap to as much as £41.95 per passenger for the period up to 2027.

Britain’s biggest airport was among those to hit out at the Cvil Aviation Authority’s decision this morning, saying it “makes no sense and will do nothing for consumers”, but the west London hub also came in for criticism for “abusing its power” during the consultation process.

This means the average charge over the five years will be £27.49 compared to £28.39 outlined in its earlier proposals.

The CAA said the lower level of charges from 2024 recognised that passenger volumes were expected to return to pre-pandemic levels and should benefit passengers in terms of lower costs, while also allowing Heathrow to continue investing in the airport for the benefit of consumers and supporting the airport’s ability to finance its operations.

The airport however strongly criticised the CAA, saying it “has chosen to cut airport charges to their lowest real terms level in a decade at a time when airlines are making massive profits and Heathrow remains loss-making because of fewer passengers and higher financing costs.”

“This makes no sense and will do nothing for consumers at a time when the CAA should be incentivising investment to rebuild service.

“We will now take some time to carefully consider our next steps.”

Heathrow also announced a £3.6bn capital investment programme which will include the installation of next generation security scanners and a new baggage system in Terminal 2.

These are collectively expected to cost around £1.3bn and the CAA said they should bring considerable passenger benefits, including an improved security experience and more resilient infrastructure.

Last month, Heathrow announced it had narrowed its losses to £1.3bn.

Virgin Atlantic’s chief executive Shai Weiss reacted furiously to the CAA’s decision, accusing Heathrow of having “abused its power” during the two year process.

He said after years of “consultation and an abundance of evidence that supports a significantly lower price cap, the CAA has finally adjusted course.

“However, an average cap of £27.49 until 2026, adjusted for inflation, still penalises passengers at the world’s most expensive airport, which by its own admission, grew more than any other airport last year.”

He accused the regulator of not having “gone far enough to push back on a monopolistic Heathrow and fulfil its statutory duty to protect consumers.”

“Heathrow has abused its power throughout this process, peddling false narratives and flawed passenger forecasts in an attempt to win an economic argument”, he claimed.

“This process has proven that the regulatory framework, including the formula used to set charges, is fundamentally broken.”

Virgin, he added will “review our position carefully” ahead of the busy Easter holidays.

Meanwhile, British Airways owner International Airlines Group   (IAG) also hit out at the CAA for its decision, while calling Heathrow to stop charging “unfair” prices.

Luis Gallego, IAG’s chief executive said “high charges, designed to reward shareholders at the expense of customers, risk undermining its competitiveness.”

“Heathrow already charges three times more per passenger than other major airports in Europe including Gatwick and Madrid, and five times more than Dublin.

“If the CAA had fully taken into account industry forecasts of passenger volumes post COVID, it should result in lower prices for consumers.  We will continue to assess our options for further action to ensure UK consumers do not pay an unfair price to use Heathrow.”

Heathrow passenger cap fixed

Richard Moriarty, chief executive at the UK Civil Aviation Authority, said: “Our priority in making this decision today is to ensure the travelling public can expect great value for money from using Heathrow in terms of having a consistently good quality of service, whilst paying no more than is needed for it.

“We have carefully considered the sharply differing views from Heathrow Airport Limited and the airlines about the future level of charges.  Understandably, their respective shareholder interests lead the airport to argue for higher charges and the airlines to argue for lower charges.

“Our job is to reach an independent decision from these conflicting commercial interests and focus on what is in the best interests for the travelling public that will use Heathrow in the years to come.  In doing so we have taken all the points made by Heathrow Airport and airlines into account, along with extensive consultation and our own detailed analysis.

“We are confident our final decision represents a good deal for consumers using Heathrow, while having regard for the airport’s need to efficiently finance its operations and be able to invest in improving services for the future”.

Clive Wratten, CEO of the BTA  said: “While the 20% cut to airline fees at Heathrow is a step in the right direction, costs for the next five years remain higher at the UK’s biggest airport than at many other global hubs.

As the UK travel industry continues to recover, it is vital that Heathrow and the CAA work together to establish a financial balance that promotes efficiency, while remaining cost-effective for the traveller to avoid the stagnation of business travel.”