The total construction costs will be cut from £17bn in the initial estimate to almost £14bn.
Existing passenger facilities will be expanded at Terminal 2 and Terminal 5 to accommodate an additional 16.5 million travellers. This will save on the costs of constructing a separate terminal for the extra runway.
Approximately 12 million travellers will use the extended Terminal 2 and 4.5 million passengers will use the modified Terminal 5.
Heathrow executive director of expansion Emma Gilthorpe said: “The secretary of state set us the challenge to deliver an expanded airport for Britain with passenger charges staying close to current levels.
“We have now identified potential savings of £2.5bn and are increasingly confident we can meet the affordability challenge.
“We are looking forward to presenting detailed options on how to do it in our consultation in January, and while we will continue to work to reduce the cost of expansion, we will not compromise on our local commitments.”
The proposals will be released in detail as part of Heathrow’s ten-week public consultation in January.
Heathrow Airport has also announced a number of steps to improve passenger service for travellers with disabilities or mobility restrictions.
After a report by the Civil Aviation Authority this year, Heathrow is taking necessary steps to transform its service for these passengers. This will be funded by an upgraded £23m contract with special assistance partner, OmniServ.
The airport has launched new services such as lanyards that will allow passengers that need help and support to discreetly identify themselves to Heathrow staff.
Additionally, Heathrow has introduced new signage across the airport, which displays the United Nations symbol of accessibility.
Furthermore, the airport also promoted a new on-demand app for travellers across Heathrow to access trained British Sign Language translators to assist deaf passengers.