Airline fury over rise in Heathrow landing charges

Airlines reacted with fury yesterday after the industry regulator unveiled plans to scrap the system under which British Airports Authority (BBA) is forced to subsidise airport charges from the huge retail revenues that it earns.

The proposals announced by the Civil Aviation Authority will mean increases in landing charges of £2 per passenger at Heathrow, £1 at Gatwick and £1.70 at Stansted, which is the base for three low-cost airlines.

Charges at Manchester airport will not increase in real terms. BAA shares rose 5 per cent to 647p.

The increases could mean higher fares but airlines will be under pressure not to pass the extra costs on to passengers in light of the drastic fall in traffic levels following the 11 September terrorist attacks.

The CAA has recommended to the Competition Commission that charges rise in real terms by 6 per cent a year at Heathrow and Stansted and by 5 per cent at Gatwick.

But it has also called for the abolition of the "single till" system whereby profits from retail activities at the three London airports are used to reduce landing charges.

Last year the three London airports earned £548m from airport charges but £674m from other commercial activities. These included retailing and property development.

BMI British Midland, the second-biggest carrier at Heathrow, described the proposals as "the single most retrograde step the airline industry has faced for many, many years".

British Airways said it opposed the regulator's plans, and a spokesman added: "The proposed price increases are very generous to the airport operator and will result in higher charges to our passengers."

A spokesman for Virgin Atlantic said the airline was "surprised and dismayed" at the CAA's recommendations and served notice that it would attempt to get the "perverse decision" overturned by the Competition Commission.

The CAA defended its proposals by saying that the new charges, which start next April and run for five years, would increase the incentive for BAA to invest in its airports while lightening the regulatory load.

But the airlines argued that BAA's profits would be swollen still further with no guarantee that it would use the money to provide better facilities.

Steve Ridgway, the chief executive of Virgin, said: "This is an increase of almost 40 per cent over the period with no equivalent improvement in service from BAA to the airlines."

BMI British Midland said the single-till approach had been a compromise solution which at least ensured airlines and their passengers benefitted from the extensive retail development undertaken by BAA at its airports.

Now, said BMI, passengers would be paying twice for the privilege of using airports such as Heathrow.

"They will inevitably face increased air fares to accommodate the increase in charges to the airlines and the increase in the cost of goods in airport retail outlets, due to higher rental costs for tenants," a spokesman said.

Doug Andrew, the Civil Aviation Authority's director of economic regulation, said that airlines paid substantially less at Heathrow than they did at comparable airports such as Amsterdam, Frankfurt, Charles De Gaulle and New York-JFK.

Fees at Heathrow were less than a third of the level at Osaka – the world's most expensive major airport.

The CAA said airlines could absorb much of the extra costs at the three London airports through improved efficiency. The regulator acknowledged that it could not force BAA to spend its retail profits on airport improvements, but CAA sources argued that the company would be foolish to ignore its wishes.