BAA reports loss of £316m as debt costs soar

Passenger numbers fall for second quarter running as recession cuts travel
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The Independent Online

BAA, airports operator, reported rising losses yesterday thanks to ballooning debt costs and a second consecutive quarter of falling passenger numbers.

The number of travellers passing through the group's three London airports in the three months to March fell by 10 per cent. Even excluding mitigating factors such the early Easter and London's worst snow for nearly two decades, underlying traffic is still down 7.2 per cent, following a 7.1 per cent drop between October and December last year.

Although BAA is forecasting that the falls will stabilise, the remainder of the year is still expected to be difficult. The group posted a first-quarter pre-tax loss of £316m yesterday, far beyond the £55.6m loss in the same period of 2008.

The main culprit was £168m in interest payments on bond and bank debts, alongside a £141m loss on financial instruments principally relating to index-linked swaps. The group has net debt of £9.5bn, incurred from its £13bn takeover by Spanish infrastructure giant Ferrovial in 2006.

Colin Matthews, the chief executive, said: "Today's results were delivered in the most difficult economic circumstances, but are in line with our expectations. Although overall traffic trends weakened due to the economic downturn, Heathrow continues to demonstrate resilience, benefiting from its position as a major global hub airport for long-haul services. The rest of the year will be difficult and will present more challenges but our focus remains on raising service standards and maximising efficiency."

Domestic travel is the worst-hit segment of BAA's business, losing 12.6 per cent of passengers compared with the same period of 2008. European traffic is down 10.9 per cent, while long haul is the best performer with a reduction of only 8 per cent. Passenger numbers at Heathrow have proved the most resilient to the global downturn, with an underlying fall of 3.6 per cent over the first quarter, compared with a 14.6 per cent drop at both Gatwick and Stansted. Neither the loss-making group's debt position, nor the dwindling traffic, will help the group's efforts to sell off Gatwick at a good price.

The airport has been up for sale since September, pre-empting the findings of a two-year Competition Commission investigation into BAA's dominance of the London and Scotland airport sector. Three consortia are in the running for Gatwick – led by Manchester Airport Group, Global Infrastructure Partners and Lysander Investment – and the winner is to be announced imminently.

But the deal, once touted to be worth £1.8bn, is now not expected to go any higher than £1.5bn – bad news for BAA's plans to use the funds to pay down its debt mountain.

Once the Gatwick deal is concluded, BAA must proceed with the sale of Stansted, the Competition Commission ruled in its final report in March. Either Edinburgh or Glasgow airport must also be sold within two years.

Despite the overall gloom, BAA posted revenues up by 15.5 per cent to £522m and earnings before interest, tax, depreciation and amortisation up 27.9 per cent at £185m, on the back of higher tariffs for airlines and strong retail performance.

Net retail income per passenger grew by 8.8 per cent to £4.71. Airside shops at Heathrow were particularly successful, up 12.7 per cent to £5.15.

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