BAA must continue to pay passenger charges

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The Independent Online

Passenger charges at Heathrow, Gatwick and Stansted will continue to be subsidised from the profits the airport operator BAA makes from its retail activities, the industry regulator has announced.

Passenger charges at Heathrow, Gatwick and Stansted will continue to be subsidised from the profits the airport operator BAA makes from its retail activities, the industry regulator has announced.

The Civil Aviation Authority also ruled that BAA would have to shoulder the bulk of any unexpected increase in costs arising out of additional security requirements imposed by the Government at the three airports.

The ruling is a victory for airlines which had lobbied hard against BAA being allowed to ring fence its commercial revenues and so increase landing charges for carriers by a bigger amount.

The new price formula announced by the authority will see charges per passenger rise by 6.5 per cent in real terms at Heathrow from next April, while at Gatwick and Stansted they will be frozen in real terms.

BAA described the price curbs as "tough" and the "minimum necessary" to finance its 10-year, £7.7bn investment programme, the centrepiece of which is Heathrow's £3.7bn Terminal 5.

It expressed dismay at the authority's ruling on additional airport security costs. Under the present system, BAA can pass on 95 per cent of any extra costs but the authority is now proposing that it absorb the first £23m of additional costs and then be allowed to pass on only 75 per cent of the remainder. Shares in BAA dropped 4 per cent to 524p.

The new price formula means that passenger charges at Heathrow will rise from £6 to £6.48 from next April. By the end of the five-year period covered by the formula they will be £8.10.

The charge at Gatwick will be £4.32 from next April and at Stansted it will be £4.89, although BAA will be under pressure from low-cost carriers at the airport to charge less than this per passenger.

The authority had wanted to introduce a "dual till" mechanism whereby BAA's retail income was treated separately. This would have had the effect of increasing charges at Heathrow by an additional £3 by the end of the five-year period, and it would also have allowed BAA to increase charges at Gatwick and Stansted by 5 per cent and 6.7 per cent respectively in real terms.

But the Competition Commission vetoed this plan on the grounds that airlines deserved to share in the benefits of the retail revenues passengers helped bring into the three airports.

Mike Hodgkinson, the chief executive of BAA, said: "The proposed level of charges will be a tough settlement but it will enable us to set out on the investment programme to deliver Terminal 5 and other improved facilities." The formula, he added, provided the "minimum required, with no room for manoeuvre".

The new formula also gives BAA an incentive to squeeze more use out of Heathrow's two runways at peak times. BAA will be allowed to earn an extra £200 for each additional slot it creates at peak times.

British Airways, the biggest operator at Heathrow, said it needed time to consider the new measures.

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