BAA angers airlines with subsidy plan for Stansted

The airports operator BAA was facing a battle with some of Britain's leading airlines last night after indicating that the £4bn cost of a new runway at Stansted would be met partly by passengers using other London airports.

Current regulatory rules governing airport expansion say that any increases in capacity should be self-financing and based on what airlines and passengers using that airport are prepared to pay.

But Mike Clasper, BAA's chief executive, said yesterday that passengers using Heathrow and Gatwick could have to pick up part of the tab to reflect the benefit that air travellers across the south-east would derive from a second runway at Stansted, due to be in operation by 2011-12.

"The people who should pay are the airlines who use Stansted but we also believe that passengers across London will also benefit from a new runway at Stansted," he said.

He added that BAA would work with the regulator, the Civil Aviation Authority, to get the "right balance" between what Stansted's passengers and those at other airports should pay.

The CAA said in a statement that it would be prepared to depart from so-called "stand-alone regulation" of each of the three south-east airports only if there was "compelling evidence to demonstrate that users in aggregate were genuinely better off as a result and that the impact was not unduly distortionary or discriminatory as regards other airports in the South East."

But airlines at Heathrow, already smarting from a 40 per cent increase in landing charges to fund the new Terminal Five, warned they would oppose cross-subsidies fiercely. Sir Michael Bishop, chairman of bmi British Midland, Heathrow's second-biggest user, said: "We do not believe BAA can fund such investment without cross-subsidy from its Heathrow operations. But I can promise that we will fight such a threat every step of the way."

He added that if cross-subsidy did look likely then bmi would call for the break-up of BAA's south-east monopoly.

Sir Richard Branson, chairman of Virgin Atlantic, also warned that he remained "totally opposed to cross-subsidisation between London's airports", saying he would look to the CAA to make sure those who benefited from Stansted's expansion also paid for it.

Stansted made an operating profit of £42m on revenues of £132m last year, and although its passenger numbers have grown from 7 million five years ago to 19 million this year, there are severe doubts about whether it could finance the huge investment needed to grow to 80 million passengers by 2030 under its own steam.

Mr Clasper said BAA had learned the lessons of the past when it attempted to expand Stansted too quickly. He said the new expansion of the Essex airport would be carried out in a phased manner to ensure that capacity kept pace with demand. The initial phase will involve investment of about £2bn on the new runway and associated terminal, apron and parking to increase Stansted's capacity to 50 million passengers - 35 million using the existing runway when it is operating at full tilt and 15 million from the new runway. Only when the 50 million figure was reached would BAA increase investment to the full £4bn.

Mr Clasper also rejected fears that an increase in landing charges would undermine the business models of the low-cost carriers such as Ryanair and easyJet. By 2008 landing charges would rise by only £2 a passenger to £5, and even further rises after that would not be enough to make a big impact on ticket prices.