Heathrow Airport plans to expand its third runway with ‘strong incentives’ for ‘efficiency’

The Civil Aviation Authority (CAA) has announced that Heathrow Airport will have "strong incentives" for the "efficient delivery" of its proposed third runway. Consequently, the CAA is set to review options for the economic regulation of the west London hub.

Chancellor Rachel Reeves showed her support for the expansion of Heathrow in a speech about growth earlier this year. In response, Heathrow stated it intends to present its plans to the Government this summer.

Originally estimated at £14 billion back in 2014, the cost of the project is expected to have increased significantly since then. Airlines have expressed concerns that the expansion could become unaffordable unless there are changes to Heathrow's economic regulation.

Heathrow currently operates under the regulatory asset base (Rab) model, which allows the airport to impose fees on airlines based on agreed infrastructure improvements with the CAA and allowed returns for investors. The CAA commented: "This review will look at options to ensure the regulatory model provides strong incentives for the efficient delivery of the substantial costs involved in expansion and how to best protect the interests of consumers."

Furthermore, the regulator outlined its method for setting the cap on Heathrow's charges for the period from 2027 to 2031. The CAA aims to guarantee that "consumers and airlines face airport charges that are no higher than necessary".

The Heathrow Reimagined campaign, representing entities such as British Airways' parent company International Airlines Group, Virgin Atlantic, and hotel magnate Surinder Arora, has responded to the Civil Aviation Authority's (CAA) announcement of a regulatory review for Heathrow expansion. A spokesperson said: "Whilst the CAA's announcement of a regulatory review for Heathrow expansion is a step forward, it doesn't go far enough."

They added, "Heathrow is the most expensive airport in the world and continues to fail passengers and airlines." The spokesperson also expressed concern that "We are concerned that the priority of the CAA has been to launch the business as usual review of passenger charges for the next five-year period."

They warned, "The current flawed regime will lead to higher passenger charges which is why we urge the CAA to go even further and commit to an urgent and fundamental review of regulation at Heathrow." In contrast, a Heathrow spokesperson stated: "Heathrow is the UK's gateway to growth and we share the Government's ambition to expand and increase our capacity to trade, connect and do business with the world."

They continued, "To deliver these benefits for the whole country at pace we need to work with ministers on the necessary policy changes, including ongoing dialogue about adjustments to the regulatory framework for a third runway."

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