Heathrow customers to face higher prices
The cost of flights to and from Heathrow are set to rise as the airlines face higher flying costs from April next year.
Airlines had called for a 9.8% cut to charges over the next five years, while Heathrow Airport itself proposed an above-inflation annual increase of 4.6% in charges during the next five years.
The Civil Aviation Authority, which sets the take off and landing fees airlines must pay at London's three main airports - Heathrow, Stansted and Gatwick - has ruled that airline charges must not rise higher than inflation (as measured by the Retail Price Index or RPI, currently 3.3%) until 2019.
Despite this being far less than Heathrow Airport had been demanding, Willie Walsh, chief executive of British Airways' parent company IAG, warned Heathrow customers that they will pay an extra £1 billion over the next five years as airlines pass on the extras costs to consumers.
Walsh said: "It is a bad day for our customers who have been let down by the CAA. With this settlement, Heathrow will continue to levy charges well above other major hub airports."
He added that CAA had neglected its primary duty to further the interests of passengers, by allowing Heathrow to "over-reward investors by imposing excessive charges on users."
Dame Deidre Hutton, CAA chair, defended the increase: "The challenge for Heathrow is to maintain high levels of customer service while reducing costs. We are confident this is possible and that our proposals create a positive climate for further capital investment, in the passenger interest."
Heathrow criticised the CAA for capping the charges level with RPI, saying this could have "serious and far-reaching consequences for passengers and airlines" at the airport.
For Gatwick, CAA said charges will increase by RPI plus 0.5% a year for seven years from 2014, and charges at Stansted are yet to be decided. The confirmation of these proposals will be made in January.
Replaced as the official measure of inflation by the consumer prices index (CPI) in December 2003. Both the Retail Price Index and CPI are attempts to estimate inflation in the UK, but they come up with different values because there are slight differences in what goods and services they cover, and how they are calculated. Unlike the CPI, the RPI includes a measure of housing costs, such as mortgage interest payments, council tax, house depreciation and buildings insurance, so changes in the interest rates affect the RPI. If interest rates are cut, it will reduce mortgage interest payments, so the RPI will fall but not the CPI. The RPI is sometimes referred to as the “headline” rate of inflation and the CPI as the “underlying” rate.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).