BAA charges to be slashed by pounds 150m over next five years

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BAA, the airports group that owns Heathrow, Gatwick and Stansted, will tomorrow be told to cut its charges by about pounds 150m over the next five years.

The Civil Aviation Authority, the UK regulator for the air industry, is expected to announce final price control proposals that will require BAA to keep increases in landing charges at Heathrow and Gatwick to inflation minus 3 per cent.

However, BAA is expected to be allowed to raise charges in real terms at Stansted by 1 per cent a year.

The price curbs, though likely to be greeted as challenging by BAA, represent an easing of the current charging regime. Under the existing five-year formula, prices are capped at inflation minus 4 per cent.

In addition, BAA is also expected to be allowed to raise charges by a one-off 15 per cent in 1999 to recoup about pounds 55m of the profit it will lose if intra-EC duty free sales are abolished at the end of the century.

BAA had urged the CAA to allow it to raise charges at the three airports by the rate of inflation and recoup all the duty-free income it stands to lose.

Nevertheless, the company is certain to accept the new pricing formula quite happily, unlike British Gas, for instance, which is taking its dispute with the regulator to the Monopolies and Mergers Commission.

The CAA's final proposals are virtually identical to its initial recommendations which it published in July.

The City greeted the proposed price caps enthusiastically, marking the company's shares up by 15p to 493p in a falling market.

Last night, one industry source said: "It will be surprising if the CAA has come up with anything radically different at this stage. Nobody in the industry has expressed the view that they should do anything different from the proposals they came up with in July."

Airport charges account for 28 per cent of BAA's pounds 1.25bn revenues and are made up of the fees paid by airlines for landing and parking at the three airports.

In evidence to the CAA, airlines overwhelmingly supported its case that it should be allowed a price formula that enabled it to invest in large projects such as Terminal 5 and the Heathrow Express rail link.

The company's investment programme over the next 10 years is set to reach pounds 4.4bn.

The new level of charges will reinforce the position of Heathrow and Gatwick as two of the world's cheapest airports for airlines and passengers alike. The formula, which runs from April 1997 until 2002 is expected to lower the landing charge per passenger from pounds 4.64 to around pounds 4.