BAA May Be Forced To Sell 3 Airports

by Robert Lee, Tax-News.com, London

21 August 2008

As has been widely speculated, the UK Competition Commission (CC) has provisionally found that there are competition problems at each of the seven UK airports owned and operated by BAA, with adverse consequences for passengers and airlines, meaning that the operator could be forced to sell at least two of its airports.

A principal cause for concern, according to the CC report published on 20th August, is common ownership by BAA of these airports, which include the three London airports of Gatwick, Heathrow and Stansted, in addition to Southampton, Edinburgh, Glasgow and Aberdeen. There are also competition problems arising from the planning system, aspects of Government policy and the system of regulation, the CC concluded.

The CC has also published its proposed remedies on which it will now consult. If these are implemented, the CC will order BAA to sell two of its three London airports, and also either Edinburgh or Glasgow airport. The CC will make its final decision on the issue in the first quarter of 2009.

The Commission is now seeking views on which two of BAA’s three London airports should be sold and similarly which of Edinburgh or Glasgow airports should be sold. It is also seeking views on improvements to the effectiveness of the current system of regulation. Work by the CC on the regulatory system will take place at the same time as the review of the airports’ regulatory system being undertaken by the Department for Transport (DfT), as part of which Professor Martin Cave is heading an advisory panel.

The Secretary of State for Transport, Ruth Kelly, has stated that the current basis of price controls at Heathrow and Gatwick for the five years from 1st April, 2008, and those at Stansted from 1st April, 2009 will remain in force. Accordingly they will not be affected by any change in ownership of any of these airports. However, views are also being sought by the CC on the most appropriate regulatory framework as competition develops.

The CC is similarly seeking views on those aspects of Government policy which adversely affect competition by restricting or distorting the development of airport capacity.

Christopher Clarke, Chairman of the BAA Airports inquiry group, commented:

"We have provisionally found that there are significant competition problems arising from BAA’s common ownership of seven UK airports. This is 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. 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."

The Commission criticised BAA for failing to take the, albeit limited, opportunities to expand runway capacity in the South East of the UK, and concluded that in the long-term, more competition between airports around London would increase capacity.

In response to the Commission's findings, BAA argued that by breaking up its monopoly, it risks delaying the delivery of further runway capacity still further.

“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," the company stated.

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