Watchdog launches inquiry into break-up of airport owner BAA

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The dismantling of BAA's airport monopoly in south-east England and Scotland was put firmly on the agenda yesterday after the Office of Fair Trading confirmed that it is to investigate competition within the industry.

The OFT also indicated for the first time that it might recommend the break-up of the local authority-owned Manchester airport by inviting separate companies to run its two runways and terminals.

An end to BAA's control over Heathrow, Gatwick and Stansted in the South-east and Edinburgh, Glasgow and Aberdeen in Scotland would represent the biggest shake-up of the industry since it was privatised nearly 20 years ago.

BAA's airports account for two-thirds of all airline passengers entering or leaving the UK.In Scotland, that figure rises to more than eight in 10 passengers while in London it is nine in 10.

The OFT inquiry comes weeks after Spain's Ferrovial agreed to buy BAA for £10.3bn and was welcomed by most of Britain's leading airlines. The OFT indicated in May that it was likely to launch an investigation before the Ferrovial bid closed.

John Fingleton, the chief executive of the OFT, said greater competition between airlines had led to wider choice and lower fares for air travellers. "We now think it is time to explore the potential for greater competition within the airport industry as this could ultimately yield significant benefits in terms of timely and adequate investment in UK airports and a better value service to the UK travelling public."

He also said it could lead to less regulation of the airport industry which could in turn reduce the costs borne by airport operators and ultimately their customers.

British Airways, easyJet, bmi and flybe all welcomed the investigation, reflecting how dissatisfied some of BAA's biggest customers have become with the level and cost of service provided over the years.

Nigel Turner, the chief executive of bmi, the second biggest airline at Heathrow, said: "For a long time, we have made clear that competition between UK airports is essential, particularly in London and Scotland, where there is a monopoly provider." He added that in London and Scotland airport charges had remained far too high to the detriment of airlines and passengers.

EasyJet asked why the investigation had taken so long and said one of the issues the OFT would have to consider was whether the current regulatory regime encouraged BAA to "gold-plate" projects such as the second runway at Stansted.

BA said that, while the investigation was going on, the Civil Aviation Authority should continue to work to ensure airport users got better value for money than they did at present.

Flybe, which operates extensively from BAA's seventh UK airport, Southampton, said BAA's dominance of the market had meant a lack of healthy competition and excessive fares.

The OFT is due to report back in six months and may recommend a full-blown investigation of the airport market by the Competition Commission which could take more than a year. Allowing competition within a single airport would break new ground, and could apply equally to Heathrow, which already has two runways and may get a third.