Vowing End to 'Heathrow Hassle,' London Expands Bursting Airport

"If we as a country turn our backs on expanding Heathrow, then we are throwing in the economic towel -- and must prepare ourselves for the consequences of a low-growth or perhaps no-growth economy in the future," he said

"More capacity at the country's hub airport is essential for the future prosperity of an island nation in a globalized economy," he added.

The British government is equally concerned with the need to expand congested Heathrow to support London's continued economic growth. Last week Transport Secretary Ruth Kelly unveiled proposals for a third runway and a sixth terminal. The CAA has estimated the project could cost as much as 9 billion pounds.

"If nothing changes, Heathrow's status as a world-class airport will gradually be eroded -- jobs will be lost and the economy will suffer," she cautioned.

Once seen as Europe's No. 1 airport, Heathrow now serves fewer destinations than Frankfurt, Amsterdam and Paris.

Until these plans get the green light, a process likely to take years, BAA argues it needs the extra money from higher fees to carry out major refurbishments to other Heathrow facilities after T5 is completed. The airport's four other terminals have been in use for 50-odd years, and are showing their age.

With T5 nearly completed, lobbyists have turned their attention to the other terminals.

Earlier this month city business leaders demanded government action to reduce "Heathrow hassle," which in the third quarter included the temporary closure of terminal 4 following a security alert and repeated failures of the luggage system.

The 30-plus senior executives at a biannual meeting put their concerns to BAA management. Business leaders see the current fee review by the CAA as an opportunity to set tougher standards for quality of service and prioritize investment to restore Heathrow to world-class status.

Business passengers will fare especially well at T5, with half a dozen lounges, a champagne bar, a wine gallery and a spa, as well as showers and changing rooms.

But BAA's Bullock is adamant that all passengers will enjoy the benefits of T5, if indirectly.

"T5 does two things for us. It lets 27 million passengers move out of existing terminals and into British Airways' new home and it creates opportunities for us to redevelop the other terminals," he said.

Work has already begun on T1 and T3 and is starting later this month on T4. T2 is set to be demolished and entirely rebuilt. Most airlines flying to and from the U.S. out of Heathrow, including American Airlines (AMR) , United Airlines (UAUA) and Virgin Atlantic Airways, are based out of Terminal 3, which was built in the sixties.

BAA is hoping to have all the work done in time for London's 2012 Olympic Games.

Some aviation experts, however, caution that expectations may be too high. They said the new terminal is unlikely to entirely eliminate Heathrow hassle.

"T5 has to be seen as a remedial action without any doubt," said Peter Morris, chief economist of U.K.-based aviation consultancy Ascend. In particular he noted that T5 means British Airways passengers will no longer face the "misery" of having to trek from T4 to T1 to change flights.

"That's a huge improvement," he said.

But regardless of T5, Heathrow will remain a building site for the next five years as older terminals are refurbished, he added.

"T5 is by no means an overall panacea," he concluded.

Will it be enough?

Some analysts also worry that the move to T5 won't be enough for British Airways to offset the negative effect of the "open-skies" pact between Europe and the U.S. The agreement is set to liberalize transatlantic traffic starting in April and means the carrier is likely to see much more competition on some of its most lucrative routes.

Rivals Air France-KLM (AKH) and Delta Airlines (DAL) have already unveiled plans for a joint venture that will see them share costs and revenue on transatlantic routes.

Many other airlines are considering similar alliances.

Meanwhile, investors are growing impatient with the airline's share price. British Airways' shares are down roughly 37% so far this year compared with a 27% decline at Air France-KLM and a 15% drop at Lufthansa (823212) .