BAA set to lose £40m over air travel slump

Airports operator is hit by the loss of big-spending, long-haul passengers
Click to follow
The Independent Online

BAA, the world's largest airports operator, could lose up to £40m as a result of the slowdown in transatlantic air travel.

BAA, the world's largest airports operator, could lose up to £40m as a result of the slowdown in transatlantic air travel.

City analysts believe the company is particularly exposed to the fall in shopping levels at its flagship, Heathrow airport, following the atrocities of 11 September.

BAA owns seven UK airports and manages seven overseas, including four in the US. Under the terms of its deals with airport shops, BAA's rental income is linked to retailers' turnover. But already retailers have warned of a dramatic drop in sales.

During the seven days after the terrorist attacks in America, passenger numbers at Heathrow fell by 19 per cent. Early estimates show that there was only a slight recovery last week.

WH Smith, which has outlets in 18 UK airports, including Heathrow, is expected to be one of the first retailers to reveal the extent of the problems. A spokes-woman for the company said: "Trade will have been affected in the week after the attacks, but we can't comment further." WH Smith will give the Stock Exchange a full update on trading when it posts its full-year results on 18 October.

BAA, run by Mike Hodgkinson, refused to comment. The airports operator will reveal the full extent of the slowdown to its business when it reports its interim results at the end of October.

Andrew Darke, an analyst at Williams de Broë, said: "The major impact on BAA will be in the second half of the year. We predict it will take a £40m hit."

He added, however, that BAA wouldn't suffer as much as the transatlantic airline operators. In the last two weeks the airlines have scrapped flights, grounded aeroplanes and cut thousands of jobs.

BAA's problems are compounded by the fall in the number of long-haul passengers passing through its major airports. A Morgan Stanley spokesman said: "This is significant, as long-haul passengers, with full duty-free allowances, spend more at airport shops than intra-EU or domestic travellers." The investment bank also warned that longer check-in periods and restrictions on carry-on luggage may further reduce airport shopping opportunities. Last week Morgan Stanley told its clients: "We continue to believe that there is easier money to be made in the transport sector [than buying BAA shares]."

BAA, which was privatised in 1987, also generates income from its regulated business, which charges airlines for using its airport space. This side of the business, according to analysts, will help to protect BAA from serious financial danger. BAA's last set of results, covering the three months to 30 June, showed a 3 per cent increase in operating profit to £171. Net retail income rose 9 per cent for the three months to £124m, with the income per passenger standing at £3.81.

Before the atrocities in the US, BAA was struggling with a 3.5 per cent monthly fall in passengers at Heathrow. In total, traffic growth across BAA's seven airports increased by just 0.7 per cent in July on the previous month. This was partly due to the foot-and-mouth epidemic, which reduced the number of inbound tourists.

News of the potential profits fall comes as the Government is planning to pass judgement on the controversial £2bn project to build a fifth terminal at Heathrow.

Sources close to BAA say the slump in passenger numbers at Heathrow is unlikely to affect the development, if it is given the go-ahead. This is partly because, in the longer term, passenger numbers are projected to grow by 5 per cent a year.