Heathrow says new price cap threatens growth

Fri Jan 10, 2014 6:36am EST
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By Kate Holton

LONDON (Reuters) - London's Heathrow warned 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 on Friday it would insist that Heathrow set its prices at 1.5 percent 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.

The cap is well below an interim suggestion made by the regulator for prices in line with inflation. It is also well below Heathrow's original request for a rise in tariffs of 4.6 percent above inflation, as measured by the retail prices index (RPI).

The previous five-year tariff was RPI plus 7.5 percent.

"We want to continue to improve Heathrow for passengers," Chief Executive Colin Matthews said. "We will review our investment plan to see whether it is still financeable 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 20.71 pounds in 2013/14 to 19.10 pounds in 2018/19 in real terms.

It said this would result in a rate of return on capital investment of an "unsustainable" level of 5.35 percent compared with the 6.7 percent it was seeking.   Continued...

Travellers queue to be processed by UK Border Agency immigration control officers at Heathrow airport's Terminal 5 in London May 20, 2012. Picture taken May 20, 2012. REUTERS/staff