Ferrovial, owner of the embattled airport group BAA, has courted fresh controversy by publishing internal predictions that its profits at Heathrow will more than double within five years.
The Spanish group expects the airport to generate £1.37bn in earnings after expenses by 2012, up an astonishing 117 per cent from the £632m it expects to pocket this year from a facility that British Airways' chief executive, Willie Walsh, recently said had been "a national disgrace for many years".
The projections will be damning for BAA, which has in the past threatened to shelve major investment programmes, such as Heathrow East, if it did not receive sufficient financial incentives. It will also make uncomfortable reading for the CAA, the aviation watchdog whose approval of major increases to the landing fees that the London airports can charge airlines will make the outlandish earnings possible.
By 2012, BAA expects to have operating margins of 61 per cent at Heathrow. "Airlines work on margins of 3 or 4 per cent. What other business do you know that has 60 per cent margins? It clearly shows that there is only one joke in town, and that is the [regulatory] system in the UK," said Paul Charles of Virgin Atlantic. "The CAA is a lapdog, not a watchdog."
A spokesman for the CAA pointed out that the regulator actually cut last year the allowed return on capital that BAA can pocket. He added: "Nothing in Ferrovial's announcement suggests the CAA's price control decision was inappropriate. The decision involved cutting the cost of capital from 7.75 to 6.2 per cent, but it also involved allowing for some £5bn of investment over the next five years and halving of security queuing times. Passengers deserve improvement to service quality, but these improvements have to be paid for."
Ruth Kelly, the Secretary of State for Transport, began a review of UK airport regulation last month. The Competition Commission has hinted it will recommend a break-up of BAA's monopoly over London's airports later this year.Reuse content