Travel from Heathrow to get more expensive

Users are outraged by the 23.5% extra they will pay

By Reuters on 11 March 2008 in News

London's crowded Heathrow Airport will be allowed to raise airline charges by a bigger-than-expected 23.5 percent, giving a boost to the airport's indebted owner but sparking fury among its users.

Shares in Spanish construction group Ferrovial, which bought Heathrow owner BAA in a GBP10 billion pound (USD$20 billion) deal in 2006, rose 8.8 percent after BAA said on Tuesday the new charges should help it to complete a much-delayed refinancing of its debts by the end of June.

But Heathrow users such as British Airways reacted angrily to the price controls from regulator the Civil Aviation Authority (CAA), which were more generous to Ferrovial than its previous proposals in November.

"These overly generous charges far exceed what is required to upgrade facilities across Heathrow," British Airways said in a statement.

"The CAA must hold BAA to account throughout the five year period to ensure the airport operator delivers improvements and does not divert funds to pay off Ferrovial's debts."

As well as struggling to refinance its debt amid the global credit market turmoil, Ferrovial has come under fire for service levels at Heathrow, where delays and lost baggage have become commonplace.

The CAA said Heathrow would be allowed to charge GBP12.8 (USD$25.7) per passenger in the year starting April 1, and increase this by no more than retail price inflation plus 7.5 percent in the subsequent four years.

The regulator had proposed a price cap of GBP11.97 in November, but said it was increasing this to take account of the need for additional investment and security.

The CAA set a price cap of GBP6.79 per passenger for London's Gatwick Airport, which is also run by BAA, up from its previous proposal of GBP6.07.

BAA said the rise in charges was still not enough.

"The (CAA) review does not recognize sufficiently... the scale of the task we are embarked on," it said in a statement.

Nonetheless, BAA said the new charges would allow it to finalize its refinancing plans.

It plans to implement the refinancing by the end of the second quarter, and said it would include a migration of existing bondholders into an investment-grade, ring-fenced structure backed by its three London airports and the Heathrow Express rail service.

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