The OFT said it planned to ask the Commission to carry out a more detailed investigation into BAA's provision of airport services after finding evidence of poor quality and high charges. It said the current structure "does not deliver best value for air travellers in the UK."

The consumer group will hold an eight-week consultation before the referral, it said in a statement.

British Airways and Ryanair welcomed the OFT's decision, saying an end to BAA's monopoly would lead to better decision-making on new runways in south east England.

BAA owns Heathrow, Gatwick, Stansted and Southampton airports in south east England, as well as Edinburgh, Glasgow and Aberdeen in Scotland. Together, the airports have an annual turnover of £2 billion and handle more than sixty per cent of all air passengers in the UK.

The OFT's market study found evidence of poor customer satisfaction, the statement said. It added that BAA's airports in the south east handle ninety per cent of passenger trips, and that under separate ownership they could compete to attract air passengers. The OFT said without competition, planned investment at those airports could be inefficient and costly for air passengers and for the UK.

John Fingleton, the OFT chief executive said: "We believe that the current market structure does not deliver best value for air travellers in the UK, and that greater competition within the industry could bring significant benefits for passengers. There is evidence of poor quality and high charges - BAA's investment plans, which are of great importance to the UK, have raised significant concerns among its customers. These are signs of a market not working well for consumers and we believe that a full inquiry into BAA's structure is justified."

BAA today defended its structure and said it had not abused its monopoly. Stephen Nelson, the chief executive, said: "The main issue facing the UK is a lack of terminal and runway capacity in the south east of England which results in delay and congestion. This problem has not arisen because of BAA's structure, but instead is the result of the UK's complex planning laws, an antiquated regulatory system and inflexible slot allocation."

He added: "Our investment in new airport facilities, together with world leading runway productivity, has helped create the most vibrant air transport market in Europe, great choice in destinations, low prices for passengers and some of the most profitable airlines in the world."

Ferrovial, which bought the airports operator for £10.3 billion in August, was not immediately available for comment.

Shares in Ferrovial were down 0.9 per cent to 74.35 euros at 1056 GMT. Earlier in the day, they hit a low of 73.65 euros.

Last week, the Civil Aviation Authority proposed reducing the return on capital that BAA reaps from Heathrow and Gatwick, interpreted by analysts as a sign that Ferrovial could have paid too much for the operator.

The Spanish company paid a 27 per cent premium over the regulated asset base for BAA, which later faced a sharp rise in security costs following the terrorist alerts at Heathrow.

Ferrovial has said it plans to spend about £1 billion annually until 2016 on upgrading Heathrow, Gatwick and Stansted.

British Airways, responding to today's decision, said: "Effective regulation is key to preventing abuse of monopoly power, especially at Heathrow and Gatwick.



"Separate ownership of Heathrow and Stansted would ensure decisions about new runways in south east England are not concentrated in the hands of one company."

Michael O'Leary, chief executive of Ryanair, called for the break-up of "the BAA monopoly."

He said: "Heathrow is a shambles, which most passengers if they could, would avoid at all costs. Equally, Stansted where we operate is an over-specified, gold plated Taj Mahal. The present ineffective regulatory regime operated by the CAA [Civil Aviation Authority] encourages the BAA monopoly to waste £4 billion building a second runway and terminal at Stansted, when these facilities could easily be built for less than one quarter of this figure.

"Competition works. It leads to more choice and better services for consumers."

Andy Harrison, the chief executive of Easyjet, the low-cost airline, said ownership of BAA was not the biggest issue.

"What the OFT needs to look at is that all the BAA’s London airports are

local monopolies which need much more stringent price regulation," he said. "Changing the ownership of BAA will not alter this fundamental structural problem."

According to the OFT market study, BAA's airports in Scotland, which carry more than 80 per cent of Scottish air passengers, are not price regulated and charges to airlines are higher than Gatwick and Stansted.

The study also found evidence that competition between independently owned airports, such as Liverpool and Manchester, delivers better value for travellers.

The OFT recommended that the airports regulator advise the Government on the case for the de-regulation of Manchester airport.

Mr O'Leary said: "The competition between Liverpool and Manchester airports has led to reduced charges and improved services for passengers. Equally, in Scotland, the competition between Glasgow Prestwick and Glasgow Paisley has led to lower charges and choice for consumers."

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