Britain's airport regulator recommended the scrapping of price controls at Stansted yesterday in what would amount to the biggest shake-up in the regulation of the industry for 20 years.
The Civil Aviation Authority proposed that when new landing charges are set for BAA's South-east airports for 2008 onwards, they should apply only to Heathrow and Gatwick. The regulator said that at Stansted the market should be allowed to determine the level of charges.
The move could have a profound impact on government plans to build a second runway at the Essex airport. Ryanair, the biggest user of Stansted, said it could lead to "price gouging" by BAA.
BAA has estimated the cost of the new runway at £2.7bn but the low-cost carriers which use Stansted maintain it could be built for less than £1bn and are refusing to pay for what Ryanair's chief executive Michael O'Leary has claimed will be a "gold-plated Taj Mahal".
The proposal came as the Office of Fair Trading prepares to refer BAA's south-east airports monopoly to the Competition Commission. This could lead to a two-year investigation culminating in the break-up of the company. There is a growing belief that BAA's new owner, the Spanish toll roads operator Ferrovial, may decide to pre-empt the competition authorities by announcing its own plans to break up the company, possibly by selling off Gatwick.
In addition to its proposals for Stansted, the CAA also angered airlines at Heathrow by proposing an increase in charges of between 4 and 8 per cent a year in real terms between 2008 and 2013 to finance £3.3bn of expenditure at the two airports over the five-year period. This could mean a £4.50 increase in charges per passenger to nearly £14.
British Airways said it was "extremely disappointed" at the CAA's proposals which would mean a further 50 per cent increase in landing charges. Virgin Atlantic accused the regulator of being "more of a lapdog than a watchdog".
However, BAA itself said it was unhappy with the proposals, saying they were unsatisfactory and gave cause for "significant concern".
The CAA is proposing to cut the allowed rate of return at Heathrow from its current level of 7.75 per cent to 6.2 per cent, while Gatwick's will go down to 6.7 per cent.
In evidence to the regulator, BA had wanted BAA's cost of capital to be cut to 5.6 per cent, which would have meant charges at Heathrow rising by no more than the rate of inflation.
The 4-8 per cent increase in charges that the CAA is proposing to allow at Heathrow compares with a request from BAA for a 12.5 per cent rise. At Gatwick it wanted a 2.5 per cent increase whereas the regulator has suggested a range varying from a 2 per cent increase to a 2 per cent cut.
Harry Bush, the CAA's director of economic regulation, denied that the scrapping of price controls at Stansted cast doubt over the building of a second runway, arguing that leaving it to market forces might even speed up the project.
The regulator reiterated that BAA would not be allowed to cross-subsidise Stansted from higher charges at Heathrow and Gatwick. It also said that the proposed price caps had taken no account of the large amount of debt used to finance the takeover of BAA, which would lift its gearing levels to 80 per cent.
The CAA's proposals go to the Competition Commission at the end of March. It will then publish a final determination next November.Reuse content