London Heathrow-Gatwick service charges to shoot up as BAA allowed to hike rates

The UK Civil Aviation Authority (CAA) has allowed BAA to raise charges at London Heathrow (LHR) and Gatwick (LGW) by more than 20 per cent next year and in the process has left carriers, already burdened with rising fuel and operating costs, fuming at the decision.

For the five-year period ending 31 March 2013, CAA is increasing the price cap at Heathrow by £2.44 ($4.92), or 23.5% in real terms, to £12.80 per passenger for the year starting next month. Rates over the four subsequent years could rise by 7.5% per year above inflation.

At Gatwick, the price cap is set at £6.79 per passenger in 2008-09, a 21% increase in real terms from the current cap. Rates will be allowed to increase 2% above inflation annually over the next four years.

"The CAA recognizes that the resulting increases in airport charges are significant. However, these higher airport charges are essentially paying for the modernization of Heathrow and Gatwick in terms of both facilities and service, for the direct benefit of the passenger," the regulator said.

It added that its package of price caps and incentives "will enable and encourage BAA to deliver genuine service quality improvements and to invest to raise the level of facilities and service that can be delivered to passengers and airlines. The outcome for passengers should be decently modern airports and consistently high service standards."

The CAA's reasoning, however, left airlines furious. British Airways said the increases demonstrate conclusively that the airport regulation system has failed to the detriment of customers. "We suffer from very poor regulation and the whole process needs a root and branch review," GM-airport policy and infrastructure Paul Ellis said. "The objective of the regulator should be to ensure that BAA provides the infrastructure and services that customers require but in a cost-effective and efficient way that does not overcompensate the airport operator financially."

Bmi, easyJet, Ryanair and Virgin Atlantic Airways issued a joint statement that called for a fundamental regulation overhaul. "The dramatic price rises at Heathrow and Gatwick clearly demonstrate that the system is broken and needs to be changed," the four said. "That these price increases are significantly less than those demanded by BAA is a cause for alarm, not celebration, as BAA has demonstrated that it is expecting the travelling public to pick up the bill for Grupo Ferrovial's highly leveraged speculative acquisition."