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Britain's CAA proposes hike in airport fees... Air Jamaica facing more charges
published: Wednesday | December 6, 2006

An overhead view of Terminal Five of Heathrow Airport in London, August 10. The British Civil Aviaition Authority has proposed an increase in the price cap on airport land and take-off fees at Britain's main airports. - Reuters

Britain's aviation regulator has proposed hiking airline charges at London's Heathrow and Gatwick airports, sparking fierce criticism from airlines.

National airline Air Jamaica, already burdened by heavy operational costs The airline did not respond immediately to requests for comment on the expected financial impact, but already Finance Minister Dr. Omar Davies has pinpointed the London route as a heavy loss-maker for Air Jamaica.

Saying rcently on the radio programme RJR's Beyond the Headlines, Davies said London was a $25 million loss-maker, signalling it was one of the issues under review in the airline's new business plan.

Air Jamaica made a loss of $119.9 million in 2005, pushing its deficit at December 31 to US$952.8 million ($63 billion).

London flights dropped

Caribbean Airlines, the carrier that replaces BWIA on January 1, has dropped flights to London, choosing instead to partner with British Airways to service that gateway.

Air Jamaica is currently trying to sell its business plan to government. The current administration has already committed US$30 million per year for five years to the carrier, but its plan call for stronger assistance.

Britain's Civil Aviation Authority (CAA) said on Tuesday it would raise the amount by which airport operator BAA can increase take-off and landing fees at Heathrow, one of the world's busiest airports, and Gatwick.

BAA is owned by Spain's Ferrovial.

The proposed pricing regime for London's regulated airports from 2008 and 2013 comes as airlines face calls for higher taxes to offset carbon emissions and debate over whether the government should allow more runways to be built.

"Airport charges will increase by 50 per cent during the current five-year charging period, yet passengers have yet to see an improvement in facilities and service," British Airways general manager of airport policy Paul Ellis said.

"To advocate another 50 per cent rise over the next five years cannot be justified."

A spokesman for Richard Branson's Virgin Atlantic said: "We believe the CAA is being too generous to BAA and is demonstrating it's more of a lapdog than a watchdog."


However, BAA also criticised the proposals, saying they created uncertainty.

"It generates uncertainty at a moment in which we have to take important investment decisions whose results will directly affect the quality of passenger service in the next few years," BAA chief executive Stephen Nelson said in a statement.

The charges are designed to help fund new infrastructure, such as terminals and runways, amid a boom in air travel.

The CAA proposed a cap of RPI (Retail Price Index) plus 4-8 per cent each year at Heathrow compared to the current rate of growth in price caps of RPI plus 6.5 per cent.

The CAA recommended a price cap of RPI minus 2.0 to plus 2.0 per cent each year at Gatwick, compared to RPI plus zero per cent currently. Price caps would be abolished at Stansted under the proposals.

Market power

"The CAA finds only a limited possibility that Stansted can be expected to enjoy a position of market power that justifies price regulation," the regulator said in a statement.

The CAA also proposed cutting BAA's allowed cost of capital, or the rate of return it can earn on investments, to 6.2 per cent at Heathrow and 6.7 per cent for Gatwick from 7.75 per cent currently. The cut was not as much as airlines had sought.

BA called for a cost of capital, a key factor the CAA uses when it sets the charges, to be set at 5.6 per cent for Heathrow.

BAA is building a 4.2 billion (US$8.32 billion) fifth terminal at Heathrow and plans a second runway at Stansted under government-backed plans to cope with growing demand.

BAA is regulated because it effectively has a monopoly as the owner of London's three main airports.

Reuters and Gleaner reports

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