View from City Road: Profits from BAA's monopoly keep rolling in

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The Independent Online
The more time passes, the more obvious it becomes that the Government threw away a golden opportunity to bring some sense into airport policy when the Civil Aviation Authority concluded its five-yearly review of BAA's monopoly over Heathrow, Gatwick and Stansted 18 months ago.

Not only did the review fail even to consider whether such a monopoly was in the public interest, the CAA ended up allowing BAA to levy much higher airport charges over the next five years than it had originally intended.

Now, a little over a year into the new price control formula, BAA tells us that it is not working properly. BAA would like to 'premium price' Heathrow to cut demand for its precious slots until Terminal Five is on stream early next century. This would push less profitable services and airlines out to other airports in the South-east.

But what is most convenient for BAA is not necessarily best for Britain. Two years ago BAA defeated those who would have seen it broken up by playing the national interest card - that to lose a three-hub airport system would merely help Paris and Frankfurt.

Now it is employing the same strategy, arguing that the more uncomfortable and overcrowded Heathrow becomes, the more people will prefer Charles de Gaulle.

That may be the case, but it should be for the CAA to decide. Nor is it too soon to revisit the whole issue of airport monopolies and pricing, particularly since BAA has raised the issue.

Meanwhile the profits from that monopoly roll on. BAA's answer to price controls has been a spectacular improvement in productivity - passengers per airport employee jumped by 27 per cent last year - and a drive to improve unregulated shop income. From next year onwards the regulatory pricing regime becomes progressively less stringent, falling from RPI minus 8 per cent to RPI minus 4 per cent and RPI minus 1 per cent in 1995. BAA expects to achieve further productivity gains at least in line with inflation, suggesting few problems with price caps.

With the success of retailing, there is little in the way of a threat to continued profits growth. Although analysts yesterday were showing little inclination to raise their profit forecasts, they may be pleasantly surprised by traffic growth above BAA's 3.5 per cent assumption. Profit estimates and BAA's shares will rise.

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