An unloved monopoly: turbulent times over Heathrow

BAA's new Spanish partner has landed in an industry row over the company's airports monopoly. By James Moore

There is little doubt that another industrial-sized order of migraine pills was winging its way towards Ferrovial's Spanish headquarters yesterday as its Heathrow Headache flared up again with a vengeance.

Stephen Nelson, the chief executive of the Ferrovial-owned BAA, was forced to rush out a statement in the wake of reports of plans to axe 2,000 support jobs for an efficiency programme. The reports were, he said, "exaggerated and misleading".

His BAA Change Programme – which has apparently been running for several months – has been designed to "simplify our organisation and invest efficiency savings from back office support functions in front-line customer service, as evidenced by our recent recruitment of 1,500 new security guards".

We really ought to see the efficiency drive as "this company very obviously putting passengers first".

Unfortunately for Mr Nelson, by the time the statement was out the damage had already been done as the company's many critics gleefully grabbed another opportunity to lay into BAA's running of its portfolio of airports, especially Heathrow.

The company was again accused of doing a poor job, focussing on profits at the expense of service, and carrying too much debt (its £10.3bn takeover was fuelled by £8.97 bn of borrowing).

But are the criticisms fair? Ferrovial has, after all, only been running the show for the past year and critics have been describing Heathrow as a hell hole for an awful lot longer than that.

A spokesman for Ferrovial/BAA – "you should consider us one and the same" – made this very point. "It is very clear that there has been a chronic lack of investment for decades and there is chronic lack of capacity. Heathrow was built for 45 million people and yet it is handling 68 million. The solutions are, of course, investment."

As for its airline critics: "They have some of the cheapest fees in Europe. We are very much service orientated."

He said the company was pouring £9.5bn into improving airports in the South East. However, he added: "BAA and Ferrovial feel that this investment needs to be incentivised."

That, of course, is a nod to the regulatory review of the charges the company is allowed to levy.

But any increase in charges will be fiercely resisted by the airlines, which are deeply unhappy over the state of Heathrow, and some of BAA's other airports. Earlier this month Ryanair (of course) loudly demanded that the Competition Commission break up BAA's monopoly (the commission is looking at that very issue).

Jim Callaghan, the Ryanair head of regulatory affairs, said: "The situation has now reached crisis levels. The BAA needs to be broken up urgently in the best interests of British consumers, visitors to the UK and airline users."

Ryanair is furious about plans to increase charges at Stansted and claims passengers have been forced to wait at security there for over an hour. "It is clear that the situation will continue to deteriorate until competition is introduced in the London airports markets," Mr Callaghan added.

On this issue, the loud-mouthed Irish low-cost airline is not alone. American Airlines, Virgin Atlantic, British Airways, EasyJet, and a host of others have all levelled stinging criticism at BAA.

Yet Ferrovial's contention that the problems go back years is not entirely dismissed out of hand. Says one industry insider: "The problem was it [BAA] used to run like a Government department, because 20 years ago that is what it was. This carried on after privatisation and it meant that BAA was not focussed commercially on the needs of its customers, both passengers and airlines. It tended to follow political priorities."

The source says these included a reluctance to push for improvements at Heathrow in favour of Stansted, because expanding the Essex airport was a political priority. To a certain extent, this has changed.

"Since Ferrovial has taken over there have been some welcome changes. For example, they have finally joined Future Heathrow, which all the airline users, unions and others with an interest in Heathrow were members of, but which BAA, its owners, were not."

But another insider said not much had changed in day-to-day operations. "On the ground it's still pretty awful. It's hard to see what they have done to improve the situation."

This is also a bone of contention with BA. The airline accepts that there have been problems for years. Head of communications Paul Marsden says: "Terminal Five should have been done 10 years ago. Heathrow has been struggling for capacity for a long period." However he adds: "In terms of the day-to-day service delivery at Heathrow, we have not seen any real improvement."

And this, perhaps, is where Ferrovial's problems lie. There were many in the industry who welcomed its takeover, hoping that a commercially driven owner would be able to make some improvements to the day-to-day operations, while accepting that past failings would mean that bringing it up to the standards of international rivals (such as Charles de Gaulle in Paris) would take time.

But what goodwill there was towards Ferrovial, has been rapidly evaporating. The limit on hand luggage to one item – imposed at the time of an alleged terror plot – has, for example, never been lifted despite the fact no other airport in the world has continued with it. Passengers coming into the UK can have as many pieces as their airline will allow. It is a situation the airlines call "ridiculous" but is only one of a host of gripes and complaints that they have.

Yesterday BAA was trumpeting the hiring of its first chief operating officer, Stephen Baxter, head of its Scottish airports, as chief operating officer with a brief to "fix the airports where they are not currently performing". That presumably means he will be spending an awful lot of time at Heathrow.

But at the same time Donal Dowds, director of safety, security and services, has quit, the latest of a string of senior departures amid rumours that Rafael del Pino, executive chairman of BAA, is taking a hands-on role in running the company that is causing high levels of friction within the organisation.

As for those job losses, the company is not saying how many "back office" staff will be axed only that the 2,000 figure is one that it does not recognise. It has also insisted it has "no plans" to sell any of its airports.

The long-term problems with Heathrow are not of Ferrovial's making, but the perception in the industry is that it is not doing much to help itself. Perhaps a gesture with the hand luggage would help – after all is that not what the extra 1,500 security staff are there for.

Because as the furore continues to grow it might not be long before somebody – probably at the Competition Commission – calls time on BAA and applies the axe to this unloved monopoly.