Cross-subsidy for Stansted vetoed

The airports operator BAA will not be allowed to cross-subsidise its new runway at Stansted by lifting charges at Heathrow and Gatwick, the industry regulator said yesterday.

The airports operator BAA will not be allowed to cross-subsidise its new runway at Stansted by lifting charges at Heathrow and Gatwick, the industry regulator said yesterday.

Sir Roy McNulty, chairman of the Civil Aviation Authority, told a transport conference that the runway at the Essex airport, due to enter service in 2012 at a cost of some £5bn, would have to pay for itself.

When the Government gave the go-ahead for the new runway late last year, BAA indicated that it might seek to cross-subsidise it through higher charges elsewhere because of the wider benefits it claimed the extra capacity would bring to London's airports overall. Heathrow's airlines immediately warned they would fight any such move tooth and nail.

Sir Roy yesterday re-iterated the principle of "stand-alone" regulation of each of BAA's airports, meaning that investment in new facilities had to be self-financing. "Against this background, it seems entirely reasonable that the working assumption should be that the CAA will continue to regulate BAA's designated airports on an individual or stand-alone basis both up to 2008 and beyond," Sir Roy said.

While it was possible the policy might need to be re-examined, "this is not automatic. It may or may not happen".

BAA's chief executive, Mike Clasper, at the same conference, seized on these last remarks to say that it would contest the stand-alone approach if "compelling reasons" were to arise.

The biggest operators at Stansted are low-cost airlines such as Ryanair and easyJet, whose economic models would be badly damaged by a big increase in airport charges. Ray Webster, the chief executive of easyJet, has already told BAA not to "gold-plate" the new runway, suggesting it could be built for a third of its proposed cost.