The Civil Aviation Authority (CAA) has confirmed that Heathrow Airport Limited (HAL) will be permitted to recover the £320 million it has spent competing for the third runway contract by increasing passenger fares. The ruling also allows rival bidder Heathrow West to recoup its £4.2 million in costs, with HAL responsible for covering those if the rival bid fails.
How the ruling works
Under the compensation scheme, HAL can add 10 pence to every passenger fare over the next 20 to 25 years. The CAA determined that without the design and planning efforts from both bidders, the timely delivery of the third runway project would have been jeopardised. Both parties must demonstrate their claims have been independently scrutinised line by line before passing on costs.
Tim Johnson, the UK Civil Aviation Authority's director of consumers and markets, said: "Our decision strikes a balance between supporting the delivery of benefits to consumers through timely progress on Heathrow expansion, whilst also protecting them from undue increases in costs. The costs Heathrow can recover are capped, independently scrutinised and subject to efficiency reviews, helping ensure that passengers only pay for efficient costs that are justified."
Impact on passenger charges
Heathrow's charges are already the highest in the world at £28.80 per passenger. The CAA ruling will see the airport charge per passenger rise by approximately 15 pence in 2028, climbing to 30 pence in subsequent years. Once the full expenditure of the third runway is factored in, charges could climb by as much as £50.
The initial costs incurred by bidders are expected to be recouped through ticket prices over roughly 20 to 25 years. HAL argued it needs to cover its early outlay to keep the expansion financially attractive. The regulator noted that HAL's investment has already stretched into the hundreds of millions.
Background to the bidding process
The two operators have been competing fiercely to persuade ministers to back their respective third runway plans. They have assembled extensive planning documents and feasibility studies, while enlisting expensive third-party advisers. For incumbent HAL, that investment has already reached hundreds of millions, according to the CAA.
The CAA reached its decision alongside a wide-ranging review of Heathrow's overarching regulatory framework. It will also determine whether rival operators will be permitted to own and run key infrastructure within the airport. Airlines operating at the hub have grown increasingly frustrated with the exorbitant charges they pass on to passengers. Some have established a pressure group lobbying for a wholesale shake-up of red tape, in lockstep with Heathrow West bidder Surinder Arora.
Wednesday's CAA ruling marks a significant step in the expansion process, but airlines and passenger groups are likely to scrutinise the impact on fares. The decision follows a consultation held last year, and the regulator emphasised that the costs are capped and subject to efficiency reviews.
