BAA issues profits warning as passenger growth slows

The airports operator BAA indicated yesterday that profits would stall this year because of a combination of lower traffic growth and higher pension contributions, interest charges and security costs.

Analysts have pencilled in pre-tax profits before exceptional items of £520m-£525m - in line with the £524m that BAA has just reported for 2002-03.

Mike Clasper, who formally takes over as chief executive next Monday, said BAA expected traffic growth at the group's seven UK airports to slow to between 3 and 4.5 per cent compared with the 4.7 per cent increase to 128 million passengers achieved last year.

The resumption of pension contributions after a five-year holiday will lop £50m off pre-tax profits, while investment will rise from £744m to £1.2bn, increasing BAA's borrowings and interest payments.

Debt is due to peak at £6bn in 2009-10 under BAA's 11-year, £9bn investment programme, the centrepiece of which will be Heathrow's new £3.9bn Terminal 5 which opens in 2008.

BAA is also planning to hire another 300-400 security staff in addition to the extra 1,000 taken on in the last 18 months, taking the increase in its annual security bill since 11 September to £30m.

Mr Clasper also warned BAA's retail revenues would be affected by the mix of passengers through its airports. The Sars virus has reduced the number of high-spending Asian passengers into the UK.

Offsetting the various cost increases will be a £35m rise in the landing charges BAA is allowed to levy at Heathrow under its new price control formula.

Heathrow accounted for £340m or 61 per cent of the £557m in operating profits BAA made from its core UK airport operations last year. Profits at Gatwick were down by 10 per cent to £93m, while Stansted saw a 16 per cent increase in profits to £43m.