Select committee urges break-up of airports operator BAA

Owner of Heathrow, Gatwick and Stansted under fresh attack over South-east monopoly
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BAA's monopoly over airport capacity in the South-east of England should be broken up and competition introduced into the running of Heathrow, Gatwick and Stansted, an influential committee of MPs urged yesterday.

BAA's monopoly over airport capacity in the South-east of England should be broken up and competition introduced into the running of Heathrow, Gatwick and Stansted, an influential committee of MPs urged yesterday.

The cross-party Commons Transport Committee, chaired by Labour's Gwyneth Dunwoody, said BAA's stranglehold over the three airports was restricting the growth of capacity, putting London at an increasing disadvantage to rival airports such as Charles de Gaulle, Schipol and Frankfurt.

The MPs also accused BAA of being "culpably short-sighted" at best and "wilfully misleading" at worst when it told the Terminal 5 inquiry that an extra runway at Heathrow would be unacceptable for environmental reasons.

BAA is now urging the construction of a new short runway at Heathrow to the north of the existing site, together with a sixth terminal, and extra runways at Gatwick and Stansted.

This is not the first time the select committee has called for the break-up of BAA, which accounts for 93 per cent of all airport passengers in the South-east. The South-east in turn has 65 per cent of the UK airline passenger market.

But its condemnation of BAA's monopoly is written in much stronger language than before, accusing the company of deliberately using its monopolist position to restrict supply of new airport capacity for its own commercial interests.

"The dominant position of BAA means that the ownership structure of the UK's airports is deeply flawed. It is ineffective and inappropriate to have a single operator controlling such a large part of our aviation infrastructure. The Government must not assume that extra capacity in the South-east should be provided by BAA. In our view it would be more appropriate to break up its monopoly," the MPs said.

During its long inquiry, the committee held nine evidence sessions with a wide range of interested parties and received more than 100 submissions. The 110-page report says: "Many witnesses claimed that BAA's control of the three major South-east airports had led to it being unresponsive to market demands, encouraging greater use of Stansted rather than addressing the problem of lack of capacity at Heathrow and Gatwick. It has also meant that BAA has little incentive to take the long view about developments at particular sites."

BAA was dismissive of the MPs' recommendations, accusing the report of being "naïve and full of self-contradictions". Mike Clasper, BAA's new chief executive, added: "Breaking up BAA would not be a remedy for the shortage of airport facilities in the South-east. It would have the opposite effect, making it much harder to raise the huge investment sums necessary. As the MPs admit, the burden for this funding would fall firmly on the taxpayer. With Britain's ground transportation system already creaking through lack of investment, this thinking is perverse."

Mr Clasper went on to voice his confidence that the Government would ignore the MPs' report, as it did in 1998 when the select committee last called for the break up of BAA.

This time, however, it is not just backbench MPs that BAA is receiving flak from. It is also under fire from some of its biggest customers, who are fed up with having to pay higher landing charges now for facilities such as Terminal 5 which will not open for another five years.

BAA has been allowed by its regulator, the Civil Aviation Authority, to increase landing charges at Heathrow by 40 per cent, or £300m, over the next five years to help pay for Terminal 5, the centrepiece of an 11-year £9bn investment programme.

This, however, has infuriated its largest customers. British Airways, which will be the biggest beneficiary of T5 because the terminal is being built for its sole use, has attacked the rise in charges. So have Virgin Atlantic and BMI British Midland, which called the increase "obscene".

The row over landing charges seems to have exposed a deeper well of resentment against BAA. In its submission to the select committee, Virgin Atlantic's Sir Richard Branson was vocal in his support for the dismantling of BAA's monopoly. "A single entity controlling the whole of the London airport market cannot be the way forward because it is not in the interests of a monopolist to provide as much capacity as South-east England needs," said a Virgin spokesman. "There has to be competition to encourage more capacity."

Ray Webster, chief executive of easyJet, also backed a break up of BAA, saying: "BAA plc is an excellent manager of airport facilities, but consumers will always be ripped-off by monopolies and we welcome the select committee's contribution to the debate. We have long been concerned about the disparity in charges between those airports which operate in a truly competitive market and those that exert monopoly control. The consumer will only get the best deal when closely located airports can compete with one another for airline traffic."

BMI British Midland, Heathrow's second biggest occupant, has not gone quite as far as that. But its chairman, Sir Michael Bishop, has for the first time called on the Government to allow rival operators to run any new runway and terminal capacity built in the South-east.

"The temptations of a monopoly position are strong indeed and recent events suggest that BAA has succumbed," he said. "The competitive dynamic around BAA's position is broken and it must be fixed. We are asking the Government to ring-fence BAA at its current sites to existing operations and that the construction and operation of new facilities, including runways, should involve new operators, offering a truly competitive environment. We now have a range of experienced and successful airport operators in this country and they should be given the opportunity to bring their skills to the congested airports of the South-east."

BAA is already feeling the heat from those rival airport operators. TBI, the owner of Luton airport, has called on the Government to consider raising its capacity to 60 million passengers a year - the present size of Heathrow. Keith Brooks, TBI's chief executive, said: "All the traffic growth should not go to the monopoly operator BAA."

Ministers have dallied with the idea of tackling BAA's monopoly in the past. Not long after Labour came to power, the Chancellor, Gordon Brown, ordered a study into airport competition but the inquiry turned into a damp squib and then disappeared into the ether altogether.

The Government's attitude to BAA may become a little clearer when it publishes its long-awaited aviation White Paper at the end of this year, setting out where new runways should be constructed in the South-east.

Whether the Transport Secretary, Alistair Darling, has the stomach to take on BAA when he needs its support for the biggest and most politically controversial runway building programme the country has ever witnessed, is an interesting question.