BAA must sell three airports

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The Independent Online

The UK's aviation industry is on the brink of its biggest shake-up for 20 years, with the Competition Commission set to break up BAA's airport monopoly by forcing it to sell two of its London sites, and one of either Edinburgh or Glasgow.

The commission concluded that the operator's seven airports constitute a market dominance which is not in the best interests of passengers or airlines. Under the proposals, BAA will be allowed to hang on to Southampton and Aberdeen, but will have to sell either Heathrow or both Gatwick and Stansted. It will also have to get rid of one of its main Scottish sites.

"There is virtually no competition between the London airports and the two in Edinburgh and Glasgow, whereas under separate ownership, new operators would make the most of the opportunities and generally behave as companies do in a free market," said Christopher Clarke, chairman of the Competition Commission's BAA inquiry.

When the British Airports Authority was privatised in 1987 and became BAA, control of all the London airports was kept together to ensure sufficient capacity improvements. But after more than two decades, the UK aviation industry still suffers from massive overcrowding.

The commission said that BAA, without the impetus of competition, has delayed infrastructure investments; put little pressure on glacial government planning procedures and failed to respond to market demands. "Here we are today with shortage of capacity and the earliest date by which we could build a new runway at Stansted is 2015 and at Heathrow is 2020," said Mr Clarke. "BAA has not been particularly adventurous and has tended to plan its investments on a sequential basis. There is also very considerable criticism of the lack of responsiveness by BAA to airlines' needs."

BAA's defence is that it has been stymied by political opposition to airport expansion. The commission's plans may even prove counter-productive, it warns. "The new terminal at Heathrow took 22 years, not because BAA was slow but because the planning officials did not have a government policy against which to compare the project," said Colin Matthews, BAA's chief executive.

Such a policy is now in place, but to shake its foundations on the eve of decisions about plans to improve capacity will threaten progress, said Mr Matthews. "My fear is that, by changing the policy, progress will, perversely, be slowed down," he added.

If, or when, it comes to it, BAA should have few problems off-loading its assets. Names touted recently as possible buyers for the London airports include the German airport operator Fraport; the construction group Hochtief; Australia's Macquarie; the Global Infrastructure Partners investment fund; Manchester Airport Group; and Ryanair.

The commission is also recommending an overhaul of the powers available to the Civil Aviation Authority to regulate airport operators. The Department for Transport (DfT) is already reviewing the regulatory systems. The commission said changes should include clearer duties regarding consumer interests, powers to consider competition issues and the ability to impose licences.

Andy Harrison, easyJet's chief executive, said: "We need root-and-branch regulatory reform of the airport monopolies and I am not confident that the DfT review will meet those requirements."

The commission's findings will be under consultation pending a final report in the spring.

What the airport shake-up means for passengers

What does it really all mean?

With all the fanfare surrounding the Competition Commission's plans to break up BAA's dominant ownership of UK airports, particularly in the South-east, the big question is what the proposals will mean for passengers fed up with high prices, long queues and frustrating travel.

Will flights cost less?

Unfortunately, probably not. While a new owner of, say, Gatwick, might try to attract new routes or bring down landing fees to draw trade from nearby rivals, the impact on individual passengers is likely to be minimal. Landing charges make up only a small share of airlines' per-passenger costs, and, as rising oil prices increase fuel costs, the proportion becomes even smaller. Even if lower fees were passed on, the effect would most likely be infinitesimal.

Will there be improvements in facilities and services available at airports?

Even BAA admits that the passenger experience at the busy London airports is not always what it should be. Colin Matthews, the chief executive, said: "The strength of emotion amongst travellers about improvement in airports is considerable."

The incumbent operator says the only way to improve the situation is to boost capacity, which is only possible with the backing of government planning policy. The Competition Commission argues that rivalry from nearby airports will force operators to improve the customer service experience – increasing the number of security staff to speed up customs and immigration checks, for example, or investing in more interesting leisure options for passengers waiting for flights. But aviation experts warn even these improvements are likely to be negligible. "Ultimately the whole aim of competition is to introduce better service at lower price, which is the opposite of what monopolies provide, but it is a long process," said Gert Zonneveld, of Panmure Gordon. "There won't be an immediate result, or any noticeable effect in the near term."

So who does benefit?

The biggest impact will be felt by the airlines as competing airport operators vie to be more responsive to their needs. The impact of lower landing fees or improved passenger through-put will have a more direct impact on carriers than on their passengers, and there is also the potential for closer collaboration on development plans.

For example, there is a stand-off over the proposals for a second runway and terminal extension at Stansted. Some 85 per cent of the take-off and landing slots are held by no-frills carriers Ryanair and easyJet, which are objecting to BAA's £4bn scheme as "a gold-plated Taj Mahal" that is not suited to their passengers, and has unnecessarily multiplied the cost many times over. An airport serving largely low-cost airlines offering online check-in only, might be able to make less investment in check-in desks – keeping costs down for its carrier customers.