The UK’s biggest airline today reacted with fury to a new price regime that will drive up fares at Britain’s two busiest airports.
The Civil Aviation Authority (CAA) announced that airport operator BAA can substantially increase the landing fees it charges airlines at Heathrow and Gatwick over the next five years.
The settlement is bound to lead to airlines passing some of the increase on to passengers in terms of increased air fares.
British Airways said the CAA’s decision ‘to allow BAA to ramp up airport charges significantly demonstrates conclusively that the airport regulation system has failed’.
Paul Ellis, BA’s airport policy and infrastructure general manager, added: ‘When BAA’s new owners, Ferrovial, bought them, the CAA said they would not be influenced by Ferrovial’s high debt levels.
‘In practice, they have ignored their own policy and caved in to intense pressure from BAA by setting excessive price increases. Heathrow passengers will pay, on average, 17% more than the Competition Commission recommended in September 2007.’
Heathrow passengeres will pay, on average, 17% more than was recommended
Today’s announcement covers the period from April 2008 to the end of March 2013.
The CAA said BAA could increase charges at Heathrow in 2008/09 by 23.5% compared with the charges over the last five years, while the increase at Gatwick will be 21%.
At Heathrow the charges will be allowed to rise by no more than 7.5% a year above the retail price index inflation for the period from April 2009 to the end of March 2013, while the Gatwick annual rise will be no more than inflation plus 2.0% a year.
The CAA also ruled that BAA’s rate of return on its investments should be no more than 6.2% at Heathrow and no more than 6.5% at Gatwick.
This compared with a figure of 7.75% for both airports that BAA had requested.
The landing charge fees are higher than those proposed by the CAA last November. The CAA cited the additional investment at Heathrow and the additional airport security now needed as reasons for the higher charges.
‘Not enough money’
While BA bemoaned the new price controls, BAA complained that the settlement did not give it enough.
BAA said: ‘We remain committed to transforming Britain’s airports, and will spend £4.8 billion in the next five years doing so.
‘(Heathrow’s) Terminal Five, which is officially opened later this week, will only be the start of that process.
‘We believe, however, the (CAA) review does not recognise sufficiently: the scale of the task we are embarked on; the pressures of handling such large infrastructure projects; the full cost of the increased security requirements; as well as the impact of the credit market turmoil.’
BAA has been under fire for months, with passengers and politicians highly critical of conditions at Heathrow where travellers have experienced long delays and missing luggage.
The CAA said its new price controls provided for ‘shorter security queuing times, enhanced levels of service across the airports (such as more reliable equipment and cleaner terminals), and greater and more immediate information to passengers from BAA (including displayed in the terminals themselves) of how it is performing against the standards it has been set’.
© The Press Association, All Rights Reservedr Bush went on: ‘But airlines and passengers need to be sure that they are getting the enhanced facilities and services that they are paying for. Hence, the CAA’s emphasis on greater financial incentives – with BAA being penalised a lot more if it fails service standards and earning bonuses if it exceeds them (but only if passengers in every terminal benefit).’