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London - Heathrow warned on Friday it could struggle to grow its business after accusing the industry regulator of imposing a "draconian" cap on the prices Britain's biggest airport can charge airlines.
Britain's Civil Aviation Authority (CAA) said it would insist that Heathrow set its prices at 1.5% below inflation from April 2014 after finding that the airport - Europe's busiest - had too much market power.
Heathrow said it might appeal the cap, which was much lower than expected for the next five years, but airlines said the move did not go far enough as the hub still had some of the most expensive charges in the world.
Inflation
The cap is well below an interim suggestion made by the regulator for prices in line with inflation and it's also well below Heathrow's original request for a rise in tariffs of 4.6% above inflation, as measured by the retail prices index (RPI).
The previous five-year tariff was RPI plus 7.5%.
Chief Executive Colin Matthews said: "We want to continue to improve Heathrow for passengers.
"We will review our investment plan to see whether we can still finance it in light of the CAA's settlement."
The airport, to the west of London, which has expanded in recent years with Terminal 5 and the redevelopment of Terminal 2, said the new price limit would result in a fall in the cost charged per passenger from £20 to 20.71 in 2013/14 to £19.10 in 2018/19 in real terms.
Passengers
It said this would result in a rate of return on capital investment of an "unsustainable" level of 5.35% compared with the 6.7% it was seeking.
The CAA said it was confident its proposals would still allow Heathrow to invest sufficiently while reducing prices for consumers. It said it had toughened the regulation after seeing passenger traffic forecasts strengthen and the cost of capital revised at the airport.
But Heathrow questioned the CAA's forecasts for the next five years in terms of passengers and costs and said it would have to cut operational expenditure by more than £600m and increase commercial revenue targets by more than £100m by increasing retail and car park charges.
Heathrow, whose owners include Spain's Ferrovial and the sovereign wealth funds of Qatar, China and Singapore, is the third busiest airport in the world, with almost 200 000 passengers arriving and departing each day.
Capacity crunch
Analysts at Mirabaud said the news was very bad for Ferrovial. But they noted that it could be balanced by the increasing chance that Heathrow will be allowed to expand from two runways to three by 2030 as part of a government review to address a capacity crunch that could slow economic growth.
The regulator had been reviewing the market power of the big airports - and whether this needed to be curbed by price caps - following complaints from the airlines.
British Airways, the dominant airline at Heathrow, said the price curbs were a step in the right direction to address the excessive charges, while Virgin Atlantic noted that prices at the airport were triple the level they were 10 years ago. Virgin is the second largest airline at Heathrow.
For rival airports Gatwick and Stansted, the CAA said it would accept and monitor Gatwick's proposal to agree fair terms with individual airlines and not regulate Stansted at all.
Britain's Civil Aviation Authority (CAA) said it would insist that Heathrow set its prices at 1.5% below inflation from April 2014 after finding that the airport - Europe's busiest - had too much market power.
Heathrow said it might appeal the cap, which was much lower than expected for the next five years, but airlines said the move did not go far enough as the hub still had some of the most expensive charges in the world.
Inflation
The cap is well below an interim suggestion made by the regulator for prices in line with inflation and it's also well below Heathrow's original request for a rise in tariffs of 4.6% above inflation, as measured by the retail prices index (RPI).
The previous five-year tariff was RPI plus 7.5%.
Chief Executive Colin Matthews said: "We want to continue to improve Heathrow for passengers.
"We will review our investment plan to see whether we can still finance it in light of the CAA's settlement."
The airport, to the west of London, which has expanded in recent years with Terminal 5 and the redevelopment of Terminal 2, said the new price limit would result in a fall in the cost charged per passenger from £20 to 20.71 in 2013/14 to £19.10 in 2018/19 in real terms.
Passengers
It said this would result in a rate of return on capital investment of an "unsustainable" level of 5.35% compared with the 6.7% it was seeking.
The CAA said it was confident its proposals would still allow Heathrow to invest sufficiently while reducing prices for consumers. It said it had toughened the regulation after seeing passenger traffic forecasts strengthen and the cost of capital revised at the airport.
But Heathrow questioned the CAA's forecasts for the next five years in terms of passengers and costs and said it would have to cut operational expenditure by more than £600m and increase commercial revenue targets by more than £100m by increasing retail and car park charges.
Heathrow, whose owners include Spain's Ferrovial and the sovereign wealth funds of Qatar, China and Singapore, is the third busiest airport in the world, with almost 200 000 passengers arriving and departing each day.
Capacity crunch
Analysts at Mirabaud said the news was very bad for Ferrovial. But they noted that it could be balanced by the increasing chance that Heathrow will be allowed to expand from two runways to three by 2030 as part of a government review to address a capacity crunch that could slow economic growth.
The regulator had been reviewing the market power of the big airports - and whether this needed to be curbed by price caps - following complaints from the airlines.
British Airways, the dominant airline at Heathrow, said the price curbs were a step in the right direction to address the excessive charges, while Virgin Atlantic noted that prices at the airport were triple the level they were 10 years ago. Virgin is the second largest airline at Heathrow.
For rival airports Gatwick and Stansted, the CAA said it would accept and monitor Gatwick's proposal to agree fair terms with individual airlines and not regulate Stansted at all.
