Watchdog set to force airports sell-off

BAA will almost certainly be forced to sell three of its UK airports, including Gatwick and Stansted, following a provisional report today by the Competition Commission.

The commission confirmed that, subject to final consultation, it would require the Spanish-owned airport operator to sell Gatwick in West Sussex and Stansted in Essex, as well as Edinburgh Airport.

The watchdog, which will publish a final report in the next few weeks, said it also proposed to introduce measures to ensure investment and services levels at Heathrow improved for airlines and passengers.

BAA, which has been under fire for many months for poor performance, runs seven UK airports, including Heathrow.

Christopher Clarke, who is chairing the commission's inquiry into BAA airports, said separate ownership of the three main London airports and the two main Scottish ones was the most effective way to introduce competition in south east England and lowland Scotland.

Mr Clarke went on: "Under the common ownership of BAA, there is no competition. Under separate ownership, the airport operators, including BAA, will have a much greater incentive to be far more responsive to their customers, both airlines and passengers."

BAA also runs Southampton, Glasgow and Aberdeen Airports.

At Aberdeen, the commission said today that it was proposing measures to promote investment linked to rebates on charges.

the commission also intends to make recommendations to the Government on a more effective, and ultimately more flexible, system of airport regulation and also on aspects of Government airports policy.

As far as airport policy is concerned, the commission said the Department for Transport should "give consideration to the ambitions of the new owner of Gatwick Airport, including the possibility of a second runway after 2019".

the commission will now consider responses to its provisional decision document published today. It expects to publish its final report on BAA's seven UK airports, and the appropriate remedies, in late February or early March 2009.

BAA chief executive Colin Matthews said today: "As we said when the Competition Commission published its provisional findings in August, we do not believe that it has set out compelling evidence to support its view that selling Stansted as well as Gatwick will increase competition and we remain concerned that its proposed remedies may actually delay the introduction of new runway capacity.

"In Scotland, the commission has not provided any substantial evidence to support its view that Edinburgh and Glasgow would compete under separate ownership, and we believe there is no justification for specifying which of these airports should be sold. We will continue to make our case to the commission."

Mr Clarke said: "We recognise that current capacity constraints in the South East will limit the pace of development of competition. Even in the short term, however, we expect benefits from different approaches to airport management as well as greater initiative in longer-term planning and development of new investment which will be critical to sustained effective competition.

"We will also be making recommendations to the Government on a more effective, and ultimately more flexible, system of airport regulation as part of the Department for Transport's current review. However, we recognise that any significant changes to the current system of regulation will take time and will require legislation.

"We therefore propose to introduce more immediate measures, as soon as possible after we publish our final report early next year, to ensure that at Heathrow, and possibly at Gatwick and Stansted, there is continued and improved focus on the needs of airlines and passengers in terms of investment and the level and quality of service."

Following the commission's report in August this year, BAA announced that it would be selling Gatwick anyway, with Sir Richard Branson's airline, Virgin Atlantic, among a number of companies interested in bidding for the West Sussex airport.

These were the main points in today's provisional decision document:

* the commission will require the sale of both Gatwick and Stansted Airports to different purchasers, as well as Edinburgh Airport, although the commission remains open to further views on the alternative of selling Glasgow airport. A monitoring trustee will oversee the sales process;

* Views are sought on the timing of the Stansted sale, given the forthcoming planning inquiry on a second runway;

* Measures to provide rebates on charges at Aberdeen Airport linked with investment incentives and improved consultation with airlines on capital expenditure;

* Ahead of any longer-term changes to airport regulation, proposals to strengthen the consultation process between BAA and airlines, as well as for additional provisions on quality of service and non-discrimination at Heathrow (and possibly Gatwick and Stansted).

In relation to airport regulation, recommendations to the Department for Transport (DfT) said that:

* The Government should adopt a licence-based regime of economic regulation for airport owners, to give the regulator (the Civil Aviation Authority) more ability to intervene flexibly when necessary on issues such as performance and adequate financing. The licence should impose a set of duties on the operator of Heathrow and give the regulator adequate information-gathering powers;

* The regulator's primary objective should include a duty to promote effective competition between airports and to assess the interests of consumers, while having due regard to the view of airlines;

* The regulator should be under a duty not to set price caps nor impose related licence obligations, nor retain them, unless there is risk of the airport operator being able to set charges at an excessively high level;

* Legislation should be amended to allow for terminals to be developed or redeveloped and operated separately from runway facilities;

* the commission's role should be changed to that of an appeal body, with the right of appeal extended to airlines.

In relation to airports policy, the commission said the DfT should, in the context of the development of the forthcoming aviation national policy statement (NPS), consider the impact of the aviation White Paper on the aviation market in the South East in the light of the divestment of Gatwick.

The commission added: "It (the DfT) should ensure that the aviation NPS does not unduly constrain this market and should give consideration to the ambitions of the new owner of Gatwick Airport, including the possibility of a second runway after 2019.

There is a long-standing agreement that no second runway will be built at Gatwick before 2019.

Today the CC said: "We acknowledge the reasons for the Government's decision not to overturn the... agreement at Gatwick.

"Given the timescales involved in developing a planning application and obtaining planning approval, we see little benefit at this stage in recommending that the Government should consider overturning this agreement."

Speaking generally about the Government's 2003 aviation White Paper, the CC said: "We accept that the White Paper does not itself authorise or preclude any particular airport development. However, we remain of the view that, following the reforms of the planning regime, particularly through the Planning Bill, the specificity of the White Paper overly constrains the ability of airport operators to bring forward new projects in response to changes in the market, particularly in the South East."

The commission went on: "However, we also accept that the evidence we have received points towards the need for a cautious approach to a recommendation to review the White Paper, both in terms of the timing of a potential review and its scope.

"In particular, we are mindful of the impact of such a recommendation on the SG2 (Stansted) planning inquiry. In common with the DfT, we are also keen to ensure that the right framework is in place to help ensure the delivery of additional runway capacity in the South East as soon as possible and in an economically efficient manner.

"We are currently of the view that this will be best achieved by instilling competition in the planning and delivery of new runway capacity at London's major airports, in a way consistent with the objectives of the White Paper."

The CC continued: "We consider that this could be achieved not through a fundamental review of the White Paper but within the process leading up to the formulation of the aviation NPS. This process will take place after our divestiture remedies come into effect.

"Although this approach would not address all the competition concerns that we have identified, it currently appears to us to represent a pragmatic compromise between effectiveness and practicality, consistent with wider Government objectives."