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Heathrow’s response to CAA’s Q6 price control decision

10 January, 2014

Airport (general)

Terminal 5

Terminal 5

Today the Civil Aviation Authority (CAA) has published its decision on the economic regulation of Heathrow, cutting airport charges by RPI -1.5% from 2014-2019. This will see Heathrow’s per passenger airline charges fall in real terms from £20.71 in 2013/14 to £19.10 in 2018/19.

The CAA’s decision in April 2013 of RPI -1.3% was revised up to RPI +0% in October and has now been revised down again to RPI -1.5%. Heathrow had already described the October decision as the toughest price review it had faced.

Heathrow Chief Executive Colin Matthews said:

“We are concerned by the degree of change since the CAA’s final proposals just a short while ago. In October the CAA accepted the need for changes to their April proposals, but has now reverted to a draconian position.”

“We want to continue to improve Heathrow for passengers. We will review our investment plan to see whether it is still financeable in light of the CAA’s settlement.”

Heathrow’s rate of return on capital investment (or WACC), was set by the CAA at 5.35% in its initial proposal, increased to 5.6% in its October final proposal, and has now been reduced again to an unsustainable level of 5.35%.

The CAA’s final decision includes aggressive operational, commercial and passenger forecasts. It requires Heathrow to reduce operational expenditure by more than £600 million, stretches commercial revenue targets by in excess of £100 million, which includes revenues from retail and car park charges, and assumes significant passenger volume growth over Q6. The settlement leaves little spare resource available to manage the consequences of potential disruption at Heathrow.

Heathrow has invested £11 billion in the airport over the last ten years and passengers say they have noticed the difference. In 2013, Heathrow was named the best large airport in Europe and passengers voted Terminal 5 the ‘world’s best terminal’. This year the new £2.5bn Terminal 2 will open, continuing the transformation of Heathrow.


Notes to editors

  1. The CAA’s proposal for RPI -1.5% compares to RPI +4.6% in Heathrow’s Alternative Business Plan and to RPI +0% in the CAA’s final proposals. The annual tariff increase during Q5 was RPI +7.5%.
  2. The CAA’s cost of capital (WACC) of 5.35% compares to 6.7% in Heathrow’s Alternative Business Plan and 5.6% in the CAA’s final proposals.
  3. The current price per passenger of Heathrow’s charges is £20.71 (for 2013/14). Heathrow’s Alternative Business Plan would have seen charges rise to £25.72 in 2018/2019.

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