UK airports ownership in doubt after OFT intervention

The ownership of airports in the UK is facing its first major shake-up for nearly 20 years – sparking a war of words between BAA and the airlines over how to deliver a better service for travellers.

The ownership of airports in the UK is facing its first major shake-up for nearly 20 years – sparking a war of words between BAA and the airlines over how to deliver a better service for travellers.

The Office of Fair Trading (OFT) said the current ownership of seven airports by BAA, including Heathrow, Gatwick and Stansted, “does not deliver best value for air travellers in the UK”.

It said greater competition could bring significant benefits for passengers and indicated that it planned to request a full investigation by the Competition Commission.

But experts questioned whether the review would lead to a better service for travellers given the dominance of airports in certain markets, such as Heathrow for long-haul travel and Stansted on short-haul budget flights.

The inquiry could also take as long as two years to report – casting doubt over planned investment in new runways and terminals.

The airlines welcomed the OFT report with Ryanair boss Michael O’Leary – a vocal critic of BAA – labelling Heathrow “a shambles” which most passengers would avoid if they could, and Stansted “an over-specified, gold-plated Taj Mahal”.

But BAA – which also controls Southampton, Glasgow, Edinburgh and Aberdeen - said the break-up of its ownership could lead to higher air fares and put expansion plans at Heathrow and Stansted in doubt.

BAA chief executive Stephen Nelson said airlines such as British Airways and Ryanair wanted to “weaken” BAA and gain “greater control over prices and investment at airports they dominate”.

“This should not be confused with acting in the passenger interest,” he said.

The row reopened wounds inflicted during the summer chaos caused by the terror alert at Heathrow in August, which saw planes grounded, passengers stranded and security measures ramped up at airports across the UK.

The scare cost the airlines millions of pounds and analysts believe it has made them more determined than ever to get a better deal out of BAA in the next round of regulatory talks with the Civil Aviation Authority, which sets the prices BAA charge airlines.

Aviation analyst Andrew Fitchie said: “The airlines want blood this time. They want the tables rebalanced and they have been saying that for years.”

Mr Fitchie said the terror scare in August boosted the airlines’ case because it exposed what the carriers saw as the “operational incompetence” of BAA.

He also said that the £10bn (€14.9bn) Spanish firm Ferrovial paid for BAA in the summer showed how valuable the current regulatory arrangement is.

The airlines want ownership of the airports to be split up and a better deal on prices, either through regulation or through market forces driven by competition.

Prices at Glasgow have fallen amid competition from Prestwick and it is thought that a similar process could happen at a de-regulated Stansted under pressure from Luton.

Mr Fitchie said the outcome of the Competition Commission review could be the sale of Gatwick or Stansted and Edinburgh or Glasgow.

Such a move may not be unwelcome to Ferrovial, with Stansted and Gatwick thought to be worth around £2bn (€3bn) each. The money could be used to reduce the debt taken on when Ferrovial bought BAA.

BAA – formerly the British Airports Authority and now owned by Spanish firm Ferrovial – was privatised by Margaret Thatcher in 1987 and now handles 90% of flights in the South East of England and 80% in Scotland.

BAA chief executive Stephen Nelson said the main issue facing the UK was not ownership of airports but the lack of terminal and runway capacity in the South East.

He said the problem arose because of “complex planning laws, an antiquated regulatory system and inflexible slot allocation” not because of BAA’s structure.

The British government confirmed its backing for a third runway at Heathrow and a second at Stansted when it delivered its progress report on the 2003 Aviation White Paper this week.

But BAA is concerned that the ability to fund the planned expansion will be thrown into doubt if the airports are broken-up.

The company warned that a smaller company would struggle to meet the costs of the investment – resulting in higher prices for airlines and passengers.

Ryanair looks at the investment programme differently, however, claiming that the current situation “encourages the BAA monopoly to waste £4bn (€6bn) building a second runway and terminal at Stansted” when it could be done for less than £1bn (€1.5bn).

Analysts said a shake-up of ownership could result in rival investment plans being put forward – with backing going to the one delivering best value rather than to BAA automatically.

Peter Morris, chief economist at aviation analysts Ascend, said the current ownership of airports in the UK was “an unholy mess”.

But he doubted whether it would lead to lower airfares for passengers, with reduced prices for use of airports adding to airlines’ profits.

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