BAA ‘should sell 3 airports’
20.08.08
BAA may be forced to sell three of its seven UK airports because of concerns about its market dominance, the Competition Commission said in a report released today. The watchdog is recommending that the airport operator should have to sell two of its three airports in the South East - Heathrow, Gatwick and Stansted - plus one of Glasgow or Edinburgh.
The final decision on the company's future will be taken next April, but is likely to reflect the substance of these provisional findings. In an initial response to the report, BAA said it had ‘no intention’ of selling Heathrow, its largest airport, and described the regulator's verdict as ‘flawed.’ It said the forced sale of leading airports would be ‘counter-productive’.
Publishing the preliminary findings of its inquiry into BAA's control of the UK's largest airports, the Commission said BAA's current ownership structure was having ‘adverse consequences’ for passengers and airlines. It said many of the problems of recent years were due to the ‘common ownership’ of Heathrow, Gatwick and Stansted, which account for nearly 90% of departures and arrivals into London.
The regulator said: ‘A principal cause [for the problems at UK airports] is their common ownership by BAA. There are also competition problems arising from the planning system, aspects of government policy and the system of regulation.’
The Commission will now consult on whether it is appropriate for BAA to have to sell two of its three flagship airports, but the disposal of Gatwick and Stansted now looks increasingly likely. And should these two airports be sold, the Commission said they should be owned separately in the future to promote competition.
The regulator said BAA had shown a ‘lack of responsiveness’ to the needs of airlines and a ‘lack of initiative’ over expanding capacity. Christopher Clarke, who headed up the inquiry, said the lack of competition at BAA's seven airports was ‘evident from a large number of factors, including its lack of responsiveness to the needs of its airline customers and a lack of initiative in planning capacity’.
He added: ‘This has resulted in investment that is not tailored to the requirements of airport users and lower levels and quality of service for both airlines and passengers. BAA has argued that there is no scope for competition to develop so long as there are capacity constraints. We take the opposite view. Unless the market is opened up to competition, there is a serious risk that the current capacity constraints will persist.’
The commission said that BAA was likely be allowed to keep control of Southampton and Aberdeen airports as the competition concerns there would be settled by other disposals or were, in Aberdeen's case, caused by particular factors.
BAA's chief executive Colin Matthews said he accepted the report's concerns about ‘poor service’ and ‘frustration’ for passengers. He declined to comment on the future for individual airports but said BAA had ‘no intention of selling Heathrow’.
He said the break-up of the company could threaten efforts to build new runways at airports in London, seen as vital to boosting passenger capacity and keeping the city competitive as a business location. He added: ‘We will continue to point out to the commission the many areas where we believe its analysis is flawed and its remedies would be disproportionate and counter-productive.'
The Commission also appeared to cast doubt on the Government's aviation policy and the building of a third runway at Heathrow, by recommending that the 2003 Air Transport White Paper, which supported the development of a new runway at Heathrow, should be reviewed. BAA said that it would ask Ruth Kelly, the Secretary of State for Transport, for clarification on the implication of the commission's comments on the 2003 White Paper in the next few days.
Mr Matthews reacted strongly to these statements. He said ‘By calling not just for a fundamental restructure of BAA but also for a review of the Government’s Air Transport White Paper, the commission risks delaying that delivery of new runways and making better customer service less, not more, likely.'
‘Just as the Government is about to make the decisions that could lead to the first full-length runways being built in the South East since the second world war, the commission risks creating uncertainty, delay and confusion at exactly the wrong time.'
On its other airports, BAA said: ‘In Scotland, the commission has apparently ignored the evidence presented by BAA, and supported by numerous respected third-party organisations, that clearly demonstrates that Edinburgh and Glasgow airports serve separate markets and therefore do not and would not compete, regardless of ownership.’
However, airlines applauded the regulator's findings, and also called for the system of economic regulation to be reviewed. British Airways, the biggest airline at Heathrow, said: ‘The focus must be on ensuring that the current regulation of BAA's London airports is strengthened. The right conditions must be put in place to provide good service quality standards, cost efficiencies and infrastructure improvements that customers demand.’
Andy Harrison, chief executive of easyJet, which operates from Stansted, Gatwick, Edinburgh and Glasgow, said simply selling one of BAA’s airports would not deliver a better deal for passengers. He said: 'The solution is better regulation, because each one of these airports - including those in Scotland - are local monopolies and they need better regulation, not simply being sold to another highly-indebted owner.'
Ryanair said: ‘BAA’s monopoly control over the London airports has been highly detrimental to competition and consumers. BAA has long ignored the needs of its airline users and the travelling public and provided inefficient, gold plated facilities, encouraged by an ineffectual regulator, the CAA.'
Virgin Atlantic said: ‘Monopolies are not good for consumers or for airlines, because there is only one player you can talk to and only one player who can invest in most of our airports in the UK. So this is certainly very welcome, what the Competition Commission is saying, and we back all of it.'
bmi, the second largest airline at Heathrow, said: ‘One of the problems of having all three London airports in the same ownership has been a lack of push to get additional capacity in those airports, because they have nobody to compete to drag other airlines to their facility. There is no competition. Gatwick management is not saying, 'Let's try and drag those airlines out of Heathrow to come to Gatwick offering better facilities and better prices,' and so you just get this lethargy of development, you get one project at a time. While T5 has been going on, really nothing else has been going on in terms of development, so I think a lot of it is to do with just getting that additional capacity into the marketplace.'
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