Business has been crying out for this decision so, at long last, this is great news.

Confederation of British Industry

"Giving the go-ahead for a fifth terminal at Heathrow is essential if we are to maintain Heathrow as one of the world's leading airports and bring benefits to the British economy both locally and nationally," UK Transport Secretary Stephen Byers said.

And Mike Hodgkinson, chief executive of BAA - which operates many of the UK's airports - called the decision a "huge boost" for the aviation industry.

BAA also says the go-ahead will generate or safeguard about 16,500 jobs in and around Heathrow, as well as creating about 6,000 construction jobs.

Difficult investment

The huge investment comes at a difficult time for the aviation industry which is suffering a slump in demand following the 11 September terrorist attacks.

More than 100,000 jobs have been cut worldwide as companies try to trim costs, and many airlines are facing bankruptcy.

This... is vital to the economic prosperity of the nation, of London and of the local communities around Heathrow, as well as to airlines and customers

Rod Eddington BA chief

And BAA itself - which made profits of �334m during the first six months of the year - has launched a wide-reaching cost-cutting programme to help it survive the downturn.

But Mr Hodgkinson has said that, while "short term capacity projects" might be deferred "it would not be in the interests of shareholders, the aviation industry, or the country to stop investing because of short-term disruption to traffic".

"In the long-term there will be a shortage of airport terminal capacity, and Terminal 5 is about quality as well as capacity," he said, when announcing the cost cutting measures.

Shares in BAA fell 2.7% to 581p on Mr Byers' announcement.

Financial capital

Mr Byers said that the UK needs Terminal Five in order to compete with its international rivals.

Heathrow needs to expand to meet passenger and airline demand and to help London maintain its prime position as a business centre with leading European financial centres.

The industry can't afford the protracted decision making process that has occurred over Terminal Five

Virgin Atlantic spokesman

And if airlines are denied the opportunity to grow at Heathrow many of them will choose other European airports such as Paris, Frankfurt or Amsterdam to expand their business, reducing the UK's competiviteness.

CBI Director of Business Environment, Michael Roberts, said:

"Business has been crying out for this decision so, at long last, this is great news.

"But Terminal Five must be allowed to operate in a way that meets the needs of passengers and airlines as the UK competes in a fierce global market.

"At this difficult time for aviation it's more important than ever that we continue to plan for the long term and create foundations for the sustainable growth in the aviation industry that is so vital to the UK economy."

Cautious airlines

Leading airlines welcomed the deal, although many also expressed caution about the need for future investment and the limits the governments has imposed on the number of flights allowed into Heathrow.

"[The government] has recognised that this... is vital to the economic prosperity of the nation, of London and of the local communities around Heathrow, as well as to airlines and their customers," said Rod Eddington, chief executive of British Airways.

Virgin airlines said the decision was as a step forward, but added that it would not solve the problems of over-capacity in the air industry in the southeast of England.

"The industry can't afford the protracted decision making process that has occurred over Terminal Five," a spokesman for Virgin told BBC News Online.

"We hope the government has learned from this experience."

British Midland, Heathrow's second biggest user, also welcomed the decision, but warned that it must not detract from the ongoing needs for further investment at other terminals.

Other bodies welcoming Mr Byers' statement included trade unions, British Chambers of Commerce, and the London Tourist Board.