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BAA airport ownership questioned

BAA's ownership of seven airports in the UK may not be serving the interests of either airlines or passengers, the Competition Commission (CC) has suggested in its interim report into the supply of airport services by BAA in the UK.

At this point in the investigation, the CC believes that common ownership of the BAA airports adversely affects competition between airports. It also believes that shortage of airport capacity, government policy and the regulatory system for airports might be features that adversely affect competition.

However it emphasises that no conclusions have been reached at this stage - the report sets out the CC's current view on competition based on the evidence to date, and identifies areas where it is seeking further evidence and its next steps.

"BAA dominates the airports markets in the South-East of England and in lowland Scotland, both areas of high economic activity and importance," said Chairman of the BAA Airports inquiry, Christopher Clarke.

"Currently, there is no competition between BAA's three London airports (Heathrow, Gatwick and Stansted) and only very limited competition from non-BAA airports (including London City and Luton). Similarly, there is no competition between their two airports in lowland Scotland (Edinburgh and Glasgow) although Glasgow does face competition from one non-BAA airport (Prestwick).

"One of the principal reasons for structuring the privatised BAA in 1987 to include all three major London airports was to provide adequate airport capacity in the South-East of England. Currently there is a shortage of capacity, notably runway 1 capacity, to meet current and expected future demand.

"Even if the proposed expansion at both Stansted and Heathrow goes ahead within the expected timescales, this shortage will remain until at least 2015 and probably longer as a new runway at Heathrow could not be built until 2020."

In the report, the CC raises concerns about aspects of BAA's conduct such as its approach to planning airport development, which may be related to ownership of several neighbouring airports.

The CC says BAA seems to have taken a sequential approach to development, notably at its London airports - limiting development at one airport to concentrate on development elsewhere. This has been seen in projects like Terminal Five.

CC is also concerned by BAA's apparent lack of responsiveness to the differing needs of its airline customers, and the consequences for levels of quality and service.

Of the airports in the south-east, the CC believe there is a very real prospect of competition between the three London airports, and from the BAA London airports to Southampton subject to capacity constraints and regulation.

Separate ownership would create the incentive to expand capacity at the three airports. They also believe that under separate ownership there would be potential for competition between Edinburgh and Glasgow, and between Aberdeen and the other two BAA airports in Scotland, although the evidence on Aberdeen is less strong.

BAA said that it did not believe that either the London airports or the Scottish airports competed with each other.

"We recognise many of the concerns that have been expressed by airlines, and reflected by the CC, and we will be doing everything we can to address these," said BAA chief executive Colin Matthews.

"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."

The CC will now consider responses to this document and hold further hearings during the summer. The CC expects to publish its provisional findings in August and if competition problems are identified, it intends to set out its possible remedies at the same time. This may include the sale of one or more of BAA's airports.

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