Four million fewer flyers make dent in BAA's profits

Gatwick sale expected to go through in early April
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The Independent Online

Some 4.2 million fewer passengers flew from the UK's biggest airports last year, dragging BAA's profits down by nearly a fifth. Heathrow held up best, with passenger numbers declining only 1.4 per cent overall, boosted by a 3.5 per cent rise in long-haul traffic. But total passenger numbers across BAA's seven UK airports dropped by 2.8 per cent, and the three London airports – Heathrow, Gatwick and Stansted – combined saw a 2.6 per cent drop, which equates to 3.4 million fewer travellers.

The result for the airport operator was adjusted operating profits of £582m, some 18.4 per cent lower than the £713m the company made in 2007. Alongside declining passenger number, costs also rose thanks to the opening of Heathrow T5 and additional security procedures.

But despite the gloom, the group remains bullish. Revenues for 2008 rose by 14.5 per cent to £2.1bn across the whole UK group, and by 16 per cent to £2.2bn for the London airports, helped by shopping revenues up 2.9 per cent per passenger and regulatory changes allowing BAA to charge higher landing fees at Gatwick and Heathrow.

Despite the difficult year ahead, the company is to go ahead with capital investment plans worth £1.3bn overall, £1.2bn of it in London. Colin Matthews, BAA's chief executive, said: "2009 will be challenging, but BAA is resourced and structured to meet those challenges."

The sub-division of BAA which owns the three London airports still has £9.4bn-worth of debt on its books, thanks to the £10.3bn price tag paid when its owner, Ferrovial, the Spanish infrastructure giant, bought the whole company in June 2006. But a refinancing package completed in August offering bonds secured against the regulated facilities has obviated concerns about the highly leveraged deal.

But the group will nonetheless pay down debt with the proceeds from Gatwick, which it is in the process of selling in line with Competition Commission guidance. Three bidders remain – Manchester Airports Group, Global Infrastructure Partnership and Lysander – and the deal is expected to go through in early April.

Stansted is likely to be next. Although the commission indicated it will require the sale of two London airports, BAA is waiting for the regulator's final report, expected next month, before going ahead. Any money raised from Stansted will also pay down debt. But recent developments may lower the price tag. Ryanair, the low-cost airline that represents about half of all Stansted traffic, said last week that it plans to remove all check-in desks by the end of the year, and rely instead on online services. The plan will cost BAA, when it comes to sell, according to Gert Zonneveld, at Panmure Gordon. "If all Ryanair passengers just check-in online and drop their bags off at the airport, they will spend less time there, and less money," Mr Zonneveld said. "And since that is typically where all the profits are made, the shift won't help the selling price."