The United Kingdom is the most expensive country in the world to fly out of, thanks to the Air Passenger Duty that’s levied on flights. That doesn’t even account for individual airport taxes and passenger charges, which can also be steep.
In October 2021 we learned how London Heathrow, the UK’s busiest airport, planned on increasing fees for travelers significantly in 2022. Airlines and the airport were at odds over this change, so a compromise has now been reached.
Pre-pandemic, London Heathrow Airport (LHR) had a passenger charge of up to £22 per person, which contributes towards operating terminals, runways, baggage systems, and security.
Earlier this year, Heathrow Airport executives revealed that they wanted to raise the passenger charge to as much as £43 over the next several years. Airline executives were furious about this, since those higher fees need to be bundled into ticket prices, and will reduce demand and margins for airlines. So the UK’s Civil Aviation Authority (CAA) has been mediating this issue, and has now made a decision.
As of January 1, 2022, Heathrow Airport will be able to increase the passenger charge to up to £30.19. That’s a 37% increase over pre-pandemic levels. Even worse is that this is only an interim solution, and we’ll see even more of a passenger charge hike later in 2022. As the CAA describes this:
“This value is in line with our consultation and reflects the uncertainty of the recovery of passenger volumes at the airport from the pandemic, particularly following the emergence of new information about the omicron variant of Covid-19 since the end of the consultation period.”
Both Heathrow Airport and airlines aren’t happy with the CAA’s decision. Heathrow Airport wanted the fee to be even higher, while airlines didn’t want the fee to increase this much.
Second Heathrow passenger charge hike coming in mid-2022
The new passenger charge applies for the first six months of 2022, and is just an interim solution. So currently a five year plan is being worked on for the Heathrow passenger charge to be increased.
Heathrow Airport wants to raise fees to the range of £32 to £43 over that period, though it’s anyone’s guess if that becomes a reality. So far, the CAA has suggested that the passenger charge could potentially be increased to £34.40 by 2027, so that’s a milder increase than what the airport is hoping for.
Heathrow Airport executives have argued that the coronavirus pandemic has severely decreased the demand for air travel, which reduces funding for the airport, and puts the airport’s long-term projects at risk. The airport had a £2 billion annual loss in 2020. Of course the airport was a cash cow before that, and the airport wasn’t exactly putting aside money for a rainy day. Now the airport wants consumers to pay for that.
Airport fees are a tricky topic
Understandably, relations between airports and airlines can be contentious. On the one hand, they have to work together, and want to offer a good experience for passengers. On the other hand, airlines are responsible for adding a vast majority of taxes & fees to the cost of a ticket, and at some point that starts to impact demand.
There’s a limit to what consumers are willing to pay, especially for a quick weekend getaway. Take a one-way British Airways fare from London Heathrow to Frankfurt, which has a total price of $108.20. In reality, only $50.90 of that is actual airfare, while $57.20 of that is taxes & fees (and these are real fees, and not carrier imposed surcharges).
If airport taxes go up even more, that doesn’t necessarily mean the airline can just raise the fare proportionally without it impacting demand.
What complicates things even further here is that Heathrow is privately owned. Back in October, Virgin Atlantic CEO Shai Weiss pointed out that the airport’s owners have been abusing their “monopoly” position, building up substantial debt leading up to the pandemic, all while paying billions of dollars in dividends to shareholders. Now that times are tough, the airport wants passengers (and by connection, airlines) to pay.
This isn’t the first such attempt we’ve seen from Heathrow. During the pandemic, the airport has added an “exceptional regulatory surcharge,” essentially accounting for fewer travelers covering the same fixed costs.
Bottom line
As of January 1, 2022, Heathrow Airport will be increasing its passenger charge to £30.19, which is an increase of 37% over the pre-pandemic fees. That’s only an interim solution, as there are negotiations ongoing about how the fees will be increased over the next five years.
Airlines are obviously hugely impacted by passenger charges of this sort, since this needs to be rolled into the ticket cost, and when you consider that airline margins are razor thin, this can have a real impact on airlines. It really is incredible how expensive it is to fly out of Heathrow, between the airport fees and the UK Air Passenger Duty, which is potentially much bigger.