Budget airlines have been cleared by Europe's top court to continue with the business model that has helped the likes of Ryanair and easyJet to flourish by topping up revenue from low headline fares with separate baggage and seating charges.

Additional charges for checked-in luggage, overweight bags, allocated seating and priority boarding contribute a significant and growing proportion of revenue for budget carriers but have been criticised by consumers and rival airlines as hidden fees.

However, the Luxembourg-based Court of Justice of the European Union (ECJ) said on Thursday that fees levied for checking in luggage were justified, overruling a Spanish ruling that had upheld a complaint against low-cost airline Vueling, part of British Airways and Iberia owner IAG.

"Spanish law requiring airlines to carry checked-in baggage without a surcharge infringes EU law," the ECJ said, adding there were grounds for such fees.

"The processing and storing of checked-in baggage is likely to lead to additional costs for the airline, which is not the case for carrying hand-baggage. Furthermore, the extent of the liability of the carrier for damage to baggage is greater when baggage is checked in than when it is not."

The Vueling case had been brought by a Spanish woman who complained about a 40 euro charge for two pieces of checked-in luggage on a trip between La Coruna and Amsterdam four years ago.

The Galician Consumer's Institution sided with the complainant and slapped a 3,000 euro fine on Vueling, but a Spanish court subsequently asked the ECJ whether the Spanish law complied with EU legislation. - Reuters