Wales has been denied permission to abolish Air Passenger Duty and create its own version of the airline traveller tax.
The government ruled out devolving APD to Wales for direct long-haul flights.
APD was the only one of 31 financial measures not to be allowed to be devolved from Westminster to the Welsh government.
Yesterday’s announcement came after the Silk Commission, set up by Westminster to look into devolved powers, said Wales should be responsible for raising some of the money it spends.
The decision was made on the grounds that different rates of APD on either side of the border between Wales and England would be likely to redistribute passengers between airports rather than significantly increasing the overall demand within the UK.
Concern was raised that Welsh government-owned Cardiff airport would gain a competitive advantage if APD were to be scrapped in Wales.
But the Welsh administration is to continue to push for the tax to be devolved to Wales.
Robert Sinclair, chief executive of rival Bristol Airport, said: “We are very pleased and relieved that the UK Government has decided to reject the Silk Commission’s recommendation on APD and not devolve this particular tax to Wales.
“Air travel is an open and competitive market across the UK where passengers seek out the best deal, wherever that might be.
“Bristol and Cardiff airports are about an hour’s drive apart and we both compete for passengers in the South Wales market.
“If devolved, the intention was to scrap or zero rate APD, which is the highest aviation tax in the world. Such a move would have distorted a highly competitive market, causing a tax-payer funded re-distribution of passengers from airports in England to Cardiff airport, with no net benefits.”
He claimed that existing services from Bristol to major European hub airports would have been impacted and the case for future long-haul services to the US and the Middle East undermined.
This could have jeopardised jobs, connectivity and the airport’s £150 million expansion programme over the next decade and beyond.
“The Welsh government’s purchase of Cardiff airport would have exacerbated this issue, creating a clear conflict of interest between the Welsh government’s role as the owner of Cardiff airport, the only international airport in Wales, and its role as a taxing authority,” said Sinclair.
“We are disappointed, therefore, that despite today’s announcement the Welsh government’s finance minister has confirmed that the Welsh government ‘will continue to put forward a strong case to devolve long-haul Air Passenger Duty to Wales’.
“We ask the Welsh government to cease its calls for devolution of APD and operate Cardiff airport on an arm’s length, commercial basis, with no subsidies being offered to the airport or to airlines.”