Watchdog orders BAA to sell Gatwick and Stansted

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The Competition Commission today ordered BAA to sell three of its airports.

In its final report into the airport operator, the Competition Commission (CC) said Spanish-owned BAA had to dispose of Gatwick and Stansted airports as well as either Glasgow or Edinburgh airport within two years.

BAA, heavily criticised for the standard of services at its seven UK airports, has already put Gatwick up for sale.

The CC, which has been investigating BAA for two years, said the airports will have be sold in sequence, beginning with Gatwick, then Stansted, followed by either Edinburgh or Glasgow.

BAA also runs Heathrow, Southampton and Aberdeen airports.

"We are confident that the sale of these airports will bring substantial benefits to passengers and airlines," said Christopher Clarke, who chaired the CC inquiry.

He went on: "We expect that the new airport owners, with the operating capabilities and financial resources to develop them as effective competitors, will have a much greater incentive than BAA to be more responsive to their customers."

BAA said it would consider the CC report carefully before deciding how to respond.

The company said: "We accept the need to change and, having re-organised to improve customer service and having initiated the sale of Gatwick, BAA is already changing.

"However, we believe the Commission's analysis is flawed and its remedies may be impractical in current economic conditions."

The CC said it would be up to BAA which of Edinburgh or Glasgow airports it sold.

The commission added that it was requiring BAA at Aberdeen to improve consultation with airlines as well as publish certain financial and other information.

In addition, the CC is recommending to the airports' regulator the Civil Aviation Authority (CAA) that it should take specified action at Heathrow "where BAA will continue to have substantial market power even after the sale of Gatwick and Stansted".

The CC is also recommending that the Department for Transport (DfT) consider the impact of the 2003 aviation White Paper on the aviation market, particularly in south east England in the light of the sale of Gatwick and Stansted.

Listing a series of lack-of-competition problems besetting the current airport-ownership set-up, the CC also said: "Aspects of Government policy are features which restrict or distort competition between airports."

The CC said there were competition problems adversely affecting passengers and airlines at all seven BAA UK airports.

Mr Clarke said: "We have decided that the only way to address comprehensively the detriment to passengers and airlines from the complete absence of competition between BAA's south east airports and between Edinburgh and Glasgow is to require BAA to sell both Gatwick and Stansted as well as either Edinburgh or Glasgow.

"They will each then operate under separate ownership from BAA's other airports.

"We recognise that in using our powers in this way, we will have a significant impact on BAA's business.

"However, given the nature and scale of the competition problems we have found, we do not consider that alternative measures, such as the sale of only one of the London airports or greater regulation, will suffice."

Mr Clarke said that as well as the benefits of bringing in new owners to the three to-be-sold airports, "we also expect further benefits from BAA's own response to the action taken by these new competitors".

He went on: "Such action can take a number of forms, including lower prices, improved levels of service and more efficient investment in response to customers' needs."

He said that the airport sales would "kick-start a process of competitive rivalry from a standing start where today there is no competition at all".

Mr Clarke continued: "We are requiring BAA to sell all three airports within two years. To ensure an orderly sales process and in recognition of current market conditions, we consider it sensible for them to be sold in sequence, beginning with Gatwick, then Stansted, followed by either Edinburgh or Glasgow.

"Although we consulted on the basis that there might be competition factors which favoured the sale of Edinburgh over that of Glasgow, we have concluded that the case is not sufficiently strong to favour one over the other, so we have decided that it is appropriate for BAA to have the choice."

The CC concluded:

* The airports must be sold to different purchasers

* If the sales are not completed by specified dates, the CC reserves the right, in each case, to appoint an independent divestiture trustee to carry out the sales.

BAA chief executive Colin Matthews said the company may contest the ruling.

"We might have to. We have just seen this morning a very long report and we need to study it in detail," he told the BBC Radio 4 Today programme.

"It is not just a question of whether we agree or not with the Competition Commissioner's analysis, it is also a question of the practicalities of selling three airports in the current, extraordinarily tough (conditions)."

Speaking on behalf of BAA Scotland, Gordon Dewar, the managing director of Edinburgh Airport, said: "BAA Scotland will consider the terms of the Competition Commission's report before deciding how to respond.

"We remain proud of our track record in Scotland, and have delivered substantial investments in both customer service and route development, to the country's clear competitive advantage.

"We continue to believe that the Commission's analysis of the Scottish airports market is misguided and its remedies may not be practical in current economic conditions."

Shadow transport secretary Theresa Villiers said: "The Conservatives have been calling for BAA's monopoly to be broken up for over a year, so I welcome the commission's recommendation that BAA should loosen its grip and sell Gatwick and Stansted.

"We will continue to keep pressure on BAA to ensure it improves the quality of service it gives customers in the airports it retains. Only then will it be possible to address the Heathrow hassle that can cause so much frustration to business passengers and holidaymakers."

Virgin Atlantic communications director Paul Charles said: "We welcome the report. The break-up of BAA is something Virgin Atlantic has requested for many years and it will undoubtedly benefit consumers.

"Better airport facilities in the UK and lower prices will be the result and we therefore congratulate the CC on its findings.

"The important next step is to ensure that there is adequate oversight of the divestment process. We hope the commission will remain fully involved to ensure that the sales process is a fair one.

"We agree with the commission that even after divestment, the interests of consumers and airlines must be protected by effective economic regulation of London's airports."

Manchester Airports Group (MAG), which runs Manchester, East Midlands, Bournemouth and Humberside airports, is one of the companies in the running to take over Gatwick, with a sale figure likely to be around £2 billion.

MAG is rumoured to be also interested in operating either Glasgow or Edinburgh airport.

Welcoming the CC's findings today, an MAG spokesman said today: "Today's CC report will inject much-needed competition into the UK airports market. Ultimately, air passengers and airlines will benefit from a greater choice of airport operators which will have to compete on price and service for their business.

"We have always said that MAG is interested in acquiring assets that will add value for our shareholders and that this could include one or more of the BAA airports."