Regulator warns Heathrow airlines of big rise in charges

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The Independent Online

Airlines operating from Heath-row are gearing up for a fresh battle over landing charges after the airports regulator warned yesterday that they should expect a further marked increase in prices.

Charges at the airport have already risen by 50 per cent since 2003 to pay for investment in new facilities, principally Terminal 5.

Now the Civil Aviation Authority has told airlines to be prepared for another big jump in charges when price caps are set again for the five-year period from 2008. Speaking at a conference in Rome, the CAA's director of economic regulation, Harry Bush, said "the direction of prices at Heathrow is likely to remain significantly positive in real terms".

Sources at the CAA said this could conceivably mean a repeat of the price increases in 2003, since when landing charges have risen by 6.5 per cent a year above the rate of inflation.

British Airways, Heathrow's biggest operator, immediately warned that it would fight any attempt to raise prices in real terms. It wants charges to rise only in line with inflation, arguing that BAA, the owner of Heathrow, Stansted and Gat-wick, can make big efficiency savings to prevent prices having to rise.

Other airlines with a big presence at Heathrow, such as Virgin Atlantic and bmi, are also likely to mount a fierce campaign against any attempt to increase charges substantially in real terms. But Mr Bush said further increases in charges were needed to pay for the extra investment that had been made in Heathrow since 2003 which were not reflected in current charges, lower-than-forecast traffic growth, ongoing investment and higher security costs in future.

Mr Bush also said that following the takeover of BAA by the Spanish construction group Ferrovial, a deal that was funded with more than £6bn of debt, there was likely to be a "marked reduction" in the future in the allowed rate of return on investment. This is because the cost of servicing debt has fallen a long way.

At present BAA is allowed a 7.75 per cent rate of return before tax. British Airways, in its submission to the regulator, has argued that this should be reduced to 5.6 per cent for the next regulatory period.