Budget airlines set to make big fare increases

Air fares on low-cost airlines are set for massive increases in the wake of the publication today of the Government's White Paper on aviation.

The decision to opt for an additional runway at Stansted will mean far higher costs for carriers such as Ryanair and easyJet.

The airports operator BAA said yesterday that the only way of funding a new £4bn runway at the Essex complex would be by increasing airport charges. Such rises would inevitably be passed on to passengers. At the moment BAA raises £2.89 for each passenger passing through the airport. Under present regulations it could raise that figure to £4.89, an increase of around two-thirds.

BAA has recently been boosting its "take" by about 5 per cent a year, but a senior spokeswoman indicated that the rate of increase could rise substantially in order to pay for the development.

The airports operator argues that a recent official statement from the Civil Aviation Authority, the industry's regulator, will allow the company to raise charges at its other airports, such as Heathrow and Gatwick, in order to pay for the extra capacity at Stansted. But sources at the authority contend that such "cross subsidy'' would not be allowed.

BAA declared that if it is not allowed to spread the burden, it will pay for the expansion through raising revenue at Stansted. Some of the extra money would come from charging retailers more for shops at the airport, but much of it would come from airlines.

Michael O'Leary, chief executive of Ryanair, said it was "beyond comprehension'' that there should be any increase in charges where the number of passengers rose from 20 million to 40 million a year. He said it was "ludicrous'' that BAA should be attempting to enhance its revenue ahead of any benefits to passengers.

He argued that the new runway at the Essex airport should only cost about £120m and that BAA should not be allowed to "piss away" customers' money. He said it was time to end the nationalised company's monopoly of Britain's big international airports.

The spokeswoman at BAA argued that the company's airport charges were considerably lower than those of its competitors at Charles de Gaulle Airport in France and Frankfurt in Germany. She said revenue raised per passenger in such airports amounted to £8-£9 per passenger.

While calling for a new runway at Stansted, today's White Paper will not rule out expansion elsewhere. Gatwick, rather than Heathrow, could be the next candidate for expansion. A legally binding agreement preventing a second runway at the Sussex airport expires in 2019.

The Government will also present a range of policies intended to placate environmentalists. The White Paper will predict that demands for air travel will expand three-fold over the next 30 years, but will also suggest measures to bring such expansion under control.