Heathrow's threat to increase charges ,-Life on the horns of a financial dilemma.

Heathrow Airport last week bluntly warned airlines that their failure to grow passenger numbers sufficiently risks charges being increased to maintain their revenue needs.

Their problem is easy enough to see and has several ingredients.

Firstly the airport is now effectively slot limited for much of the operational day. As result passenger throughput growth can only come from larger aircraft and higher density configurations rather than increased frequencies. Against this, some short haul operators have reduced aircraft size while the largest base operator,BA, has for the last ten years concentrated on higher yield business so that on long haul services it has relatively low density overall configurations with small Economy cabins. At the same time BA has not increased its active long haul fleet size for over ten years and ,despite the arrival from 2013 of drip feed of A380s replacing elderly B747-400s and B 787s doing the same for 767s ,has no dynamic plan for large scale growth. Neither of the other two base carriers, Virgin Atlantic and BMI appear to have substantial growth plans either. This has to be of particular concern to the airport operator who needs to maximise passenger numbers to boost per capita fees and duty free shop sales.

Secondly the abandonment of the third runway or even the idea of mixed mode operation on the existing two, mainly to please environmentalists and Conservative constituencies in West London, has condemned the airport to gradual erosion its market share by European rivals. Its position as a global interlining hub will be particularly hard hit and BA's overall market share will also slip as it concentrates on being mainly a point to point carrier serving primarily London and south eastern England.

UK Plc. has effectively decided on a strategy of relative managed decline or at best low growth for its hitherto highly successful airline industry. The north and Scotland have already been largely surrendered to foreign carriers' direct flights and last February Willie Walsh,now CEO of ICAG ,in welcoming "the competition" effectively declared himself to be happy with that. For UK Plc.the connection between the need to encourage inbound business and tourism, things the country is good at and desparately needs, does not seem to be understood by its politicians.

Thirdly,the effects of Britain's absurdly high rates of Air Passenger Duty are now beginning to kick in and discourage both outbound and inbound leisure traffic particularly on long haul. Overseas tour operators who thrive on round-Europe groups will sensibly plan either to avoid the UK altogether (and thus save the extra £65 UK-only non Schengen visa fee as well) or at least ensure that the UK is not the last place on the itinerary. The final port of call is usually where the bulk of tourists' shopping is done. BA in its yield chase is probably not too bothered about that but Heathrow Airport in particular will be and again see its only chance of remaining profitable as being in increasing fees to the airlines. Its investment in new terminal capacity including the current total rebuilding of Terminal 2 and Queen's Building into Heathrow East demands higher passenger throughput,- or increased fees to maximise returns from both imposed and self inflicted capacity constraints.

BAA Plc must feel trapped in an unholy pincer movement between an unsympathetic or simply oblivious high taxing green tinged Government, the environmental lobby and base carriers broadly marking time, both voluntarily and involuntarily, rather than vigorously or even subtly persuing global market share. Add to that the current general "don't spend" pressures particularly in Europe the UK and USA and the airport has only one albeit risky way out of the corner,-higher charges. How they must long for a tax removing Government like the Dutch, a runway building one like the French or even the impossible dream of a Gulf or Oriental one not only building furiously but also being open for business 24 hours a day.An aggressive and expanding base carrier would be nice too.