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Independent Online Edition > Business News: British Airways opens new front in attack on BAA's monopoly
By Michael Harrison, Business Editor
Published: 26 September 2006
British Airways called yesterday for a one-third cut in the profits that BAA, the owner of Heathrow, Gatwick and Stansted, is allowed to earn on its assets to deter the airport operator from gold-plating new projects.

BA's head of economic regulation, Andrew Cunningham, also said there might be a case for giving airline representatives direct powers to vet some of BAA's larger investment projects.

The airports group is planning to invest £9.5bn over the next 10 years, including £2.5bn on a second runway for Stansted - a project already attacked by the low-cost operator Ryanair as an over-priced "Taj Mahal".

Mr Cunningham said that monopoly airport operators such as BAA should not be allowed to make inefficient investments that drove up ticket prices. Speaking at a London conference on airport finance and investment, he said BAA's allowed rate of return should be cut from its present level of 7.75 per cent to 5.6 per cent when a new five-year airport charging formula comes into effect in 2008. The airline has made a similar proposal in its written submission to the Civil Aviation Authority, which sets charges at BAA's regulated airports.

BA, the biggest user of Heathrow and Gatwick, has already called for the break-up of BAA in separate evidence to the Office of Fair Trading investigation into the company's south-east airports monopoly. This latest broadside will increase the pressure on the company, which was recently taken over for £10.3bn by Ferrovial of Spain.

Mr Cunningham said the CAA should carry out an annual review of the amount BAA spends to ensure it matched the level agreed during the forthcoming charges review. He also said it might be appropriate for airlines to have seats on the project boards for some of BAA's bigger investment programmes so they could scrutinise and challenge the company's spending plans.

Under the current price-control formula, charges at Heathrow alone will rise by £250m or 50 per cent between 2003 and 2008. BA and a number of other big airlines including Virgin Atlantic and bmi fought a rearguard action to try to get the charges reduced but failed to persuade the CAA.

Mr Cunnigham said: "The current level of return is too high and does not encourage airports to invest efficiently in new infrastructure or build facilities that airlines want."

A BAA spokesman said BA's proposals to break up the company and then limit its return on investment would "kill" aviation in the South-east. "A rate of return of 5.6 per cent would severely curtail our investment and put at risk projects such as Terminal 5 and the new Heathrow East terminal," he said.

British Airways called yesterday for a one-third cut in the profits that BAA, the owner of Heathrow, Gatwick and Stansted, is allowed to earn on its assets to deter the airport operator from gold-plating new projects.

BA's head of economic regulation, Andrew Cunningham, also said there might be a case for giving airline representatives direct powers to vet some of BAA's larger investment projects.

The airports group is planning to invest £9.5bn over the next 10 years, including £2.5bn on a second runway for Stansted - a project already attacked by the low-cost operator Ryanair as an over-priced "Taj Mahal".

Mr Cunningham said that monopoly airport operators such as BAA should not be allowed to make inefficient investments that drove up ticket prices. Speaking at a London conference on airport finance and investment, he said BAA's allowed rate of return should be cut from its present level of 7.75 per cent to 5.6 per cent when a new five-year airport charging formula comes into effect in 2008. The airline has made a similar proposal in its written submission to the Civil Aviation Authority, which sets charges at BAA's regulated airports.

BA, the biggest user of Heathrow and Gatwick, has already called for the break-up of BAA in separate evidence to the Office of Fair Trading investigation into the company's south-east airports monopoly. This latest broadside will increase the pressure on the company, which was recently taken over for £10.3bn by Ferrovial of Spain.
Mr Cunningham said the CAA should carry out an annual review of the amount BAA spends to ensure it matched the level agreed during the forthcoming charges review. He also said it might be appropriate for airlines to have seats on the project boards for some of BAA's bigger investment programmes so they could scrutinise and challenge the company's spending plans.

Under the current price-control formula, charges at Heathrow alone will rise by £250m or 50 per cent between 2003 and 2008. BA and a number of other big airlines including Virgin Atlantic and bmi fought a rearguard action to try to get the charges reduced but failed to persuade the CAA.

Mr Cunnigham said: "The current level of return is too high and does not encourage airports to invest efficiently in new infrastructure or build facilities that airlines want."

A BAA spokesman said BA's proposals to break up the company and then limit its return on investment would "kill" aviation in the South-east. "A rate of return of 5.6 per cent would severely curtail our investment and put at risk projects such as Terminal 5 and the new Heathrow East terminal," he said.