London Heathrow Airport, while still a vital aviation hub, could lose its leadership position in Europe if capacity constraints remain in place, concludes a report by Frontier Economics, funded by BAA owner Ferrovial.

Rival hubs on the continent, chiefly Frankfurt, Paris Charles de Gaulle, Amsterdam Schiphol and Madrid, are challenging Heathrow as their airlines gain access to emerging markets after being denied operations to BAA-operated Heathrow. The report says capacity paralysis at Heathrow was demonstrated recently by the inability of Vietnam Airways to open a new route to London.

The report suggests that airlines serving Frankfurt and Paris CDG will pass up Heathrow within 10 years if constraints are kept in place. Major European hubs with unconstrained capacity are forecast in the next decade to increase flights to emerging markets by 70%.

BAA had planned to build a third runway at Heathrow, but the effort was stymied by the environmental movement and finally curtailed by a policy statement of the coalition government that precludes runway construction in the Southeast of England. A new airport for the region has been proposed, the report says, but it would cost an estimated £40 billion ($62.7 billion) and take as long as 25 years to complete.

In part, Frontier’s report is a response to a government inquiry, “Developing a Sustainable Framework for U.K. Aviation,” which raises the question of whether the nation needs a hub airport. The report points to the air carriers' practice of favoring hub airports because they can focus operations on long, dense routes and reduce fixed costs per passenger.

Frontier says the failure of Heathrow to gain new markets is costing the U.K. economy £1.2 billion a year. If constraints continue, the penalty will rise to £14 billion over 10 years. The report aims to make the case that the Heathrow hub is a necessity tied to the nation’s economic health and that it should be permitted to expand capacity.

Heathrow’s traffic feed system has been hampered recently by the loss of short-haul flights, which carried transfer passengers to long-haul flights. Yet the airport remains Europe’s largest hub, providing daily service to 65 countries and 82 destinations via long-haul flights and offering 46 short-haul services three times daily.

In the report’s foreword, BAA CEO Colin Matthews says Heathrow should be confronting the challenges brought by the shift of the center of gravity in the world’s economy. “Instead, we are edging towards a future as an island, cut off from some of the world’s most important markets.”