Price caps for the next five years of operating charges at Heathrow and Gatwick have been raised higher than anticipated by the Civil Aviation Authority (CAA) – and some costs will inevitably be passed from airlines to passengers.

At Heathrow, BAA can charge £12.80 ($25.75) per passenger in 2008/09, an increase of £2.44 or 23.5% from last year’s cap. After that it can subsequently raise the charge by retail price index (RPI) plus 7.5% per year until 2013.

The charge at Gatwick goes to £6.79 this year, up £1.18 or 21%, with raises of RPI plus 2% permitted each year afterwards.

At both, the first-year rise is higher than the CAA’s price cap proposals from last November, by nearly a pound (83p) at Heathrow and 72p at Gatwick.

The CAA said the rise was due to additional investment, particularly at Heathrow – ‘the need for which was largely endorsed by the airlines operating at each airport’ – and also higher security costs.

“Passengers and airlines deserve better than they have been provided with at Heathrow and Gatwick in recent years,” said CAA group director economic regulation, Dr Harry Bush. “However, the resulting improvements in airport facilities and service standards - some £5bn of investment over the next 5 years and a halving of security queuing times - have to be paid for in increased charges.

“But airlines and passengers need to be sure that they are getting the enhanced facilities and services that they are paying for. Hence, the CAA’s emphasis on greater financial incentives – with BAA being penalised a lot more if it fails service standards and earning bonuses if it exceeds them (but only if passengers in every terminal benefit).”

The airlines are furious – British Airways said the airport regulation system has failed, with its general manager airport policy and infrastructure, Paul Ellis, adding: “When BAA’s new owners, Ferrovial, bought them, the CAA said they would not be influenced by Ferrovial’s high debt levels. In practice, they have ignored their own policy and caved in to intense pressure from BAA by setting excessive price increases. Heathrow passengers will pay, on average, 17% more than the Competition Commission recommended in September 2007.”

The airline believes urgent changes must be made to current UK airport regulation and has made its views known to the Competition Commission.

Meanwhile Virgin Atlantic, easyJet, Ryanair and bmi took the almost unprecendented step of holding a joint press conference this morning (11 March) to voice their vociferous opposition to the decision – details of which to follow shortly.

Perhaps less predictably, the airport operator is also unhappy.

‘BAA believes the Review does not recognise sufficiently: the scale of the task we are embarked on; the pressures of handling such large infrastructure projects; the full cost of the increased security requirements; as well as the impact of the credit market turmoil,’ a company statement said.

But it said it remains committed to transforming Britain’s airports, and will spend £4.8bn in the next five years doing so.

It also said today’s review ‘represents the passing of an important milestone in the refinancing process for BAA’ which it intends to implement ‘by the end of the second quarter of this year - plans are well advanced.’