Airlines have hit out at new charges put forward by the Civil Aviation Authority for Heathrow.
The regulator has proposed controls that will not allow prices to rise by more than inflation at Heathrow against initial proposals for RPI minus 1.3%.
“A key reason for this is due to an increase in the cost of capital driven by higher debt costs, offset to some degree by more challenging targets for operating efficiency,” the CAA said.
But the Board of Airline Representatives in the UK described the move as “bad news for the UK’s international competitiveness”.
Chief executive Dale Keller said: “Airline CEOs will be reaching for their oxygen masks in the knowledge that they will be forced to pass on excessive airport charges to their customers for the next five years.
“Consumers have benefitted from intense competition between airlines, driven by major efficiency gains and razor thin margins.
“Yet the CAA’s new primary duty to consumers has failed its test flight by instead rewarding operating inefficiencies and excessive shareholder returns at the monopoly that is Heathrow.
“Following increases exceeding 300% over the past 11 years, the latest settlement allowing further RPI increases escalates costs to consumers and weakens the international competitiveness of the UK’s only hub airport.”
The CAA is to allow Gatwick to raise fees by RPI + 0.5% per year for seven years, suggesting that this is a “fair price” and in passengers’ interests.
But Keller said: “Gatwick also enjoys the benefits of significant market power and airlines are concerned that proposed price commitments may not go far enough to protect consumers from profiteering.
“Airlines and their customers expect the government to apply the same economic reality they encounter every day to regulated airport charges, and its own air passenger duty, by calling time on some of the highest air ticket charges in the world.”
Gatwick said it cautiously welcomed the CAA’s endorsement of its proposals “as a way to deliver better service levels, facilities and prices for passengers and airlines”.
Chief executive Stewart Wingate said: “We will now re-double our efforts to work with our airlines partners to make this work in the best interests of all parties, and in particular for passengers.”
No decision has been made on charges at Stansted following owner Manchester Airport Group reaching long-term commercial agreements with its two principal customers, easyJet and Ryanair.
The regulator will consult on how these “may affect the market power assessment before making a final decision on whether Stansted should be regulated and if so, on the appropriate regulatory approach for the airport”.
CAA chairman Dame Deirdre Hutton said: “Our proposals demonstrate how we can regulate airports more flexibly where this seems best for passengers, but also setting a tough efficiency challenge.
“We expect the airports to work closely with airlines to provide high-quality services to passengers.
“Tackling the upward drift in Heathrow’s prices is essential to safeguard its globally competitive position.
“The challenge for Heathrow is to maintain high levels of customer service while reducing costs.
“We are confident this is possible and that our proposals create a positive climate for further capital investment, in the passenger interest.
“Gatwick has tabled a revised price offer to airlines that we consider fair, and its new commitments framework offers a chance for a more commercially driven and tailored approach.
“To protect the diverse interests of passengers, we propose a licence based on the commitments.
“We would monitor the success of such a new approach and adjust our regulation over time to ensure it remains proportionate.”
Heathrow has argued that the CAA has “fundamentally underestimated” the cost of raising capital to invest in new facilities.
It says the regulator’s final proposals for the economic regulation means the airport will be subject to a real terms price freeze (RPI +0%) from 2014-2019.
Heathrow Chief Executive Colin Matthews said: “This proposal is the toughest Heathrow has ever faced.
“The CAA’s proposed cost of capital of 5.6% is below the level at which Heathrow’s shareholders have said they are willing to invest.
“The CAA’s settlement could have serious and far-reaching consequences for passengers and airlines at Heathrow.
“We want to continue to improve Heathrow for passengers. Instead, the CAA’s proposals risk not only Heathrow’s competitive position but the attractiveness of the UK as a centre for international investment.
“We will now carefully consider our investment plans before responding fully to the CAA.”
Heathrow warned in a statement: “International investors will not fund billions of upfront investment in UK infrastructure if the lesson from history is that their return will be cut as soon as they have built it.”
Heathrow called for a 4.6% annual real-terms increase in its charges over five years. Its airlines asked for a 9.8% per year cut, the CAA said.
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