The charge, which is paid by airlines per passenger but can be passed on through air fares, is currently set at £30.19. However, the CAA wants Heathrow to reduce this to £26.21 in 2026 – a near 6% reduction every year over the term of the next settlement.

The proposal for the next five-year control period (H7), which runs from 2022 to 2026, is subject to consultation with a final decision due later this year.

Heathrow, by contrast, wants to hike the charges to £41.95, ostensibly – it said – to allow it to invest a further £4 billion in its operations and infrastructure "without adding to ticket prices". The airport said the CAA should, instead, reply on regulation depreciation to "smooth" the passenger charge from its proposed £41.95 to £34.

"This is the same approach the CAA successfully used to enable the construction of Terminal 5," said Heathrow.

The CAA said its proposal reflected "expected increases" in passenger numbers as the recovery from the pandemic continues and the temporary increase in the price cap to £30.19 introduced last year.

"While passenger numbers are expected to continue to recover in 2022 and into 2023, the proposals include new mechanisms to deal with the remaining uncertainty in respect of passenger numbers," said the CAA.

Its "affordable charges" for consumers would also support a recovery in passenger numbers allowing Heathrow to "appropriately invest in keeping the airport safe, secure and resilient" while providing Heathrow’s investors "medium-term certainty".

“Today’s announcement is about doing the right thing for consumers," said CAA chief executive Richard Moriarty. "We have listened very carefully to both Heathrow airport and the airlines who have differing views to each other about the future level of charges.

"Our independent and impartial analysis balances affordable charges for consumers, while allowing Heathrow to make the investment needed for the future.”

‘Positive step’

Virgin Atlantic chief executive Shai Weiss said the CAA’s decision was a "positive step" towards a price cap "that puts customers first" but urged the authority to go further and reduce the cap to reflect the "robust demand for travel this summer and beyond".

“With travel’s recovery under way, our collective focus should be on upholding the best possible experience for customers with fair charges, especially with consumers facing cost of living pressures and our global Britain aspirations at stake," said Weiss.

"Along with the industry community, we’ll respond to the CAA’s consultation with the data that supports a further reduction, while reserving the option to appeal to the Competition and Markets Authority, so that passengers are protected and the CAA’s duties are fulfilled.”

Tim Alderslade, chief executive of Airlines UK, the body representing UK registered carriers, added: “This is a positive announcement that brings down the cost of using the airport for consumers, taking into account the robust recovery we’ve seen for air travel since the pandemic.

Charges are, though, still too high at Heathrow – the most expensive airport in the world – and so the CAA can and should go further to bring it into line with other European hubs. This is fundamental to the competitiveness of all of UK aviation as we emerge out of the worse crisis in its history.”

Competitive edge

Heathrow, though, reiterated that unlike airlines, its pricing options were fixed by the CAA, meaning its profits are "capped in the good times" and its losses potentially "unlimited in the bad times".

"While Heathrow’s prices remain controlled by the CAA, unregulated airlines have been able to benefit from the capacity constraints at the airport to generate £25 billon in extra airfares since 2012," Heathrow claimed on Tuesday (28 June).

"Airlines set their fares to what the market will bear not their cost base, and they have already increased fares by up to 100% this year," the airport continued, adding Heathrow risked losing ground to competitor hubs.

"Airports around the world are increasing their prices in the aftermath of the pandemic," it said. "While airlines often point to more limited price increases at continental airports like Amsterdam, Frankfurt and Paris, they fail to mention that these airports received billions of pounds in state aid during Covid while Heathrow received virtually none."