British Airways owner International Consolidated Airlines Group SA (LSE:IAG) and other major airlines will be charged slightly more per passenger by Heathrow Airport under a new temporary price cap from the UK regulator.
The UK Civil Aviation Authority (CAA) said it was setting the interim price cap for 2023 at £31.57 per passenger in nominal prices, up from £30.19 last summer.
A final price control for the next five-year period will be confirmed in March, while the last interim price cap for Heathrow charges expired on 1 January. The charges are paid by airlines, which can be passed onto passengers via airfares.
The CAA said the interim price cap has been set amid “developments in the wider economy” since the final proposals were published last June, that have “given rise to a degree of volatility in forecasts of inflation and interest rates”.
Last summer, the regulator had said the average maximum price per passenger that airlines will pay Heathrow will fall from £30.19 today to £26.31 in 2026.
But today it said the new interim cap was being set so it can “take further time and conduct additional analysis before reaching our final decision”.
There has been a dispute between Heathrow and airlines over the price cap, with the airport reportedly calling for the cap to range from £32 to £43 per passenger.
BA, which is the west London airport's biggest customer, owning more than half its airline slots, and Heathrow made objections to the CAA plan during its consultation.
Heathrow, BA, airline trade bodies, American Airlines and a joint response from Virgin Airlines/Delta Airways supported the proposal for a holding price cap for 2023 but "expressed reservations around the level of the proposed holding price cap and disappointment on the general delay" to the final decision.
Furthermore, respondents suggested that the subsequent truing up/down adjustments should take place immediately after the CAA’s Final Decision on H7 rather than taking effect from January 2024.
The airline bodies airlines said that the interim cap should be lower, pointing to higher-than-expected passenger numbers, while Virgin/Delta claimed that the cap should be £31.11.