CAA clears path for airports to raise landing fees

Landing charges are set to rise at London's three main airports after the Government's aviation regulator announced yesterday that BAA will no longer have to subsidise them from its commercial revenues.

The move by the Civil Aviation Authority could herald higher passenger fares for Britain's hard-pressed airlines, although the changes will not take effect until April 2003.

Under the CAA's proposals charges per passenger will be higher than they otherwise would have been at Heathrow, Gatwick and Stansted. Charges at Manchester airport will rise as well.

The regulator is also proposing to allow BAA to levy a charge of around £2 for each passenger using Heathrow's Terminal 5, assuming the project gets the Government go-ahead. In addition BAA will receive incentives to earn higher revenues by increasing runway usage at Heathrow – a move which is certain to meet fierce resistance from residents and local authorities in West London.

But the airport operator will be penalised if it fails to meet service quality targets. The CAA plans to impose a congestion charge to reduce queuing and waiting times, particularly at Heathrow and Gatwick.

BAA gave the CAA's announcement a guarded welcome saying the proposals "addressed directly the need for airport charges to be set at a level that encourages investment in airports to meet the nation's needs''. BAA shares rose 1.5 per cent to 574p.

But the response from airlines using the four airports is likely to be more mixed. Under the present pricing arrangements, known as the single till system, landing charges are kept artificially low because BAA subsidises them with income from commercial activities such as airport retailing, duty free sales and car parking.

Under the new system, BAA will be allowed to keep all its commercial revenues and then set landing charges which reflect the costs of operating, maintaining and improving the four airports. The charge per passenger at Gatwick will be as much as £1.60 higher than under the existing system while at Stansted and Manchester it will be £1.15 more. At Heathrow it will be just 15p higher. Passenger charges last year ranged from £4.06 at Gatwick to £6.73 at Manchester.

But the CAA's Director of Regulation, Doug Andrews, said it could not say what the new charges from 2003 would be because forecasts for airports traffic had "turned to mush'' following the 11 September terrorist attacks.

The CAA is proposing that BAA be allowed to earn a return of 6.5 per cent to 8.5 per cent on its regulated assets. But it has restricted what assets can be included. At Heathrow, for instance, BAA will not be allowed to include either the Heathrow Express rail link or investments made in preparation for the Terminal 5 go-ahead – a total of about £600m. Nor will BAA be able to cross subsidise Stansted from its other South-east airports any longer which should limit the rise in charges at Heathrow and Gatwick.