UK airports face a period of possible upheaval after the Competition Commission (CC) hinted that BAA, which owns seven British airports, should be broken up.
The UK government also announced a review of the regulatory regime governing British airports.
The CC report and government review were welcomed by several British airlines.
BAA, which is owned by the Spanish company Ferrovial, rejected any call for its break up.
The CC said in its interim report that BAA's common ownership of seven airports "may not be serving well the interests of either airlines or passengers."
The seven airports are Heathrow, Gatwick, Stansted and Southampton all in the south east and Glasgow, Edinburgh and Aberdeen in Scotland.
The CC stressed that no conclusion had yet been reached. It is due to publish its provisional report in August.
But Christopher Clarke, the CC chairman, said: "BAA dominates the airports markets in the South-East of England and in lowland Scotland, both areas of high economic activity and importance.
"Currently, there is no competition between BAA's three London airports (Heathrow, Gatwick and Stansted) and only very limited competition from non-BAA airports (including London City and Luton).
"Similarly, there is no competition between their two airports in lowland Scotland (Edinburgh and Glasgow) although Glasgow does face competition from one non-BAA airport (Prestwick)."
Mr Clarke there was shortage of capacity in the south east and one view was that there could be no competition until this problem had been solved, possibly not until 2020.
He added: "Two of the questions we will be seeking to answer at the next stage are whether and to what extent the shortage of capacity is a consequence of the lack of competition between these airports and also whether alleviation of that shortage can reasonably be expected in the absence of competition.
"We are particularly concerned by its apparent lack of responsiveness to the differing needs of its airline customers, and hence passengers, and the consequences for the levels, quality, scope, location and timing of investment and levels and quality of service.
Virgin Atlantic, flybe, bmi and easyJet were among UK carriers which welcomed the CC findings.
Nigel Turner, bmi's ceo, said: "We identified last year that BAA's high market share for air passengers appears to prevent, restrict or distort airport competition within the UK and strongly believe that to ensure future real intra-airport competition in the UK, the only option facing the regulators is the dismantling of BAA's monopolistic grip over the UK's busiest airports in the South-East (Heathrow, Gatwick and Stansted) and in Scotland (Edinburgh and Glasgow)."
Andy Harrison, easyJet's ceo, welcomed the interim report but warned: "Breaking up BAA alone is not enough or even the first step.
"We need a fundamental overhaul of UK airport regulation which will introduce more competition and tougher regulation.
"Transferring ownership of our major airports from one highly indebted monopolist to another will benefit no one apart from the City deal-makers.”
Britain's transport secretary Ruth Kelly said she was setting up a special panel to review the economic regulation of Britain's airports.
She added: "It has been over 20 years since the Airports Act 1986 put in place the current regime of economic regulation and as such it is one of the oldest economic regulatory systems in the country.
"Much has changed since then, and there is an urgent need to consider how the framework needs to be updated to reflect today's realities."
BAA said it did not believe that breaking it up was in the consumers' interest.
Colin Matthews, its ceo, said: "We recognise many of the concerns that have been expressed by airlines, and reflected by the CC, and we will be doing everything we can to address these. “However, BAA remains of the view that its ownership is in passengers' interests, both in terms of tackling the shorter term service problems, and in following through with major commitments to investment in new facilities and capacity."
* see BTE Analysis