BAA set to lose stranglehold on airports

The break-up of BAA's virtual monopoly over London airports moved a step closer yesterday after the Competition Commission said the much-maligned operator showed a chronic "lack of responsiveness" to passengers and airlines.

In a damning intervention, the watchdog highlighted a succession of problems at BAA airports including poor infrastructure, insufficient capacity and long security queues. The issues catalogued in a 168-page interim report make it almost certain the commission will recommend that BAA lose control of at least part of its airport portfolio. A sale of Gatwick is seen as one of the most likely outcomes.

The commission found that BAA's seven airports, which handle more than 60 per cent of all UK air passengers, showed "a lack of responsiveness to the differing needs of its airline customers, and hence passengers, and the consequences for the levels, quality, scope, location and timing of investment and levels and quality of service" .

The report also stated that the "distraction" of Terminal 5, which opened recently amid chaotic scenes, had prevented BAA taking steps over other necessary improvements to Heathrow.

On the back of those findings, Ruth Kelly, Secretary of State for Transport, piled further pressure on the company yesterday, launching an inquiry into the economic regulation of the country's airports.

Set up under the Airports Act of 1986, the system puts severe constraints on the power that the Civil Aviation Authority exerts over BAA and has been accused by several airlines of being toothless. Harry Bush, head of the CAA, said: "We have been long-time proponents for changes to the economic regulation, so it's nice to see others are joining the bandwagon."

Airlines, which have long contested BAA's dominant position, said they were delighted with the report.

A spokesman for Virgin Atlantic said: "The twin issues of competition and regulation are being addressed, and that's a good thing." On the commission's findings, he added: "They support the views of every airline and every passenger that there is no competition at our major airports. We now need to see a road-map laid out for changing their ownership structure." The commission will issue its definitive ruling in August.

Colin Matthews, the chief executive of BAA, who was brought in three weeks ago to overhaul its operations, said that improving its airports in London and lowland Scotland would be best done by a BAA that remained whole.

"We recognise many of the concerns expressed by airlines and reflected by the commission and we will be doing everything we can to address these," he said.

"However, BAA remains of the view that its ownership is in passengers' interests, both in terms of tackling the shorter term service problems, and in following through with major commitments to investment in new facilities and capacity."

BAA's control of London is near absolute – its ownership of Heathrow, Gatwick and Stansted means it handles more than 90 per cent of passengers taking off and landing in the capital. The commission said: "Separate ownership would create greater incentive to expand capacity at the three airports."

Christopher Clarke, chairman of the commission, said BAA also exhibited a "lack of ambition" in its airport improvement programme and competition could bring "different solutions at different airports under different ownership. Right now we're not seeing a lot of difference."

The developments will further complicate the efforts of Ferrovial to refinance the £10bn debt that the Spanish group took on when it bought BAA in 2006. The plan, already delayed by the credit crunch, could be wrecked if BAA is broken up. That would be bad news for customers.

Mr Clarke said: "The published [investment] plans, particularly for Heathrow and Gatwick, are contingent on the successful refinancing by Ferrovial."