British Airways has given up hope of a third runway being built at Heathrow Airport. Willie Walsh, the chief executive of the airline’s parent company International Airlines Group, said his focus would now turn to expanding operations in cities such as Madrid.

BA was one of the main driving forces behind plans to expand its Heathrow base. However Walsh described plans for a new runway as “dead” following the decision by the UK coalition government to halt expansion at the airport.

Anti-expansion campaigners have hailed his admission as a victory. But business groups warned that it represented “tangible evidence” that current transport policy is harming the British economy.

Speaking at a chief executives’ summit organised by The Times newspaper, Walsh said: “I agree that a third runway will never be built at Heathrow.”

He also said that overcrowding in London had already forced airlines to look elsewhere.

“We’ve already lost because the growth in Dubai could have come to London,” he said.

Following its merger with the Spanish carrier Iberia in January, BA is now understood to be looking for new slots overseas.

“We will access growth outside of the UK,” he said.

Boris Johnson, the Mayor of London, told the summit: “If BA is telling us that in order to expand it has to go to Madrid that’s pretty serious.”

The mayor is backing a plan to build a massive new airport in the Thames estuary. He said Heathrow had been operating close to capacity for years and “perpetually struggling to fit a quart into a point pot.”