Virgin flies the flag for end to BAA monopoly

Sir Richard Branson has demanded that Britain's Competition Commission breaks up airports operator BAA.

The tycoon, who controls Virgin Atlantic, believes that BAA's stranglehold on London airports Heathrow, Gatwick and Stansted is bad for customers and airlines.

In a letter to the Commission, Virgin argues that a "major revision" of the Government's policies on BAA is required to promote competition. "In particular, we believe the issue of whether or not BAA should be broken up should be studied via a transparent consultation process," states the letter.

Virgin argues that because BAA owns competing airports in the UK, it could be tempted to invest in the locations that produce the highest capital returns, which may not be in the best interests of passengers or the airlines.

Virgin declined to comment on the letter, but sources close to the company said that it would like to see the Government consider introducing legislation to force BAA into an auction of its airports in the South-east of England.

Virgin isn't alone in expressing concern that BAA's monopoly is bad for business. In an 80-page submission to the Commission on the way the airport operator should be regulated, British Airways says: "Opening markets to competition is the preferred choice and the traditional route to regulatory disengagement... Despite BAA's assertions about the strong bargaining power of the airlines, even the largest airlines such as British Airways have found it difficult and sometimes impossible to negotiate with BAA because of their strong monopoly position."

However, a British Airways spokeswoman denied that it was lobbying for a break-up of BAA. "The UK Government has ruled that out, so any problems with BAA will be addressed by the regulator."

While a break-up would require legislation to give the regulator, the Civil Aviation Authority (CAA), new powers, the Government has toyed with the idea in the past.

In his 1999 Budget, Chancellor Gordon Brown surprised the City by announcing that the Government was to review whether BAA, which is run by Mike Hodgkinson, should be carved up.

It is understood that the chief architect of the proposal was former Treasury mandarin Sir Steve Robson, who also mapped out the privatisation of Railtrack.

But the review turned out be a half-hearted affair, with very little evidence taken from the industry. The proposal was knocked on the head in November 2000 by the Deputy Prime Minister John Prescott, who concluded that, "scope for competition between airports is limited".

A senior Whitehall source said because of the difficulties facing National Air Traffic Services and the continuing effects of 11 September on the industry, the Government is unlikely to consider changes to BAA in the short term.