Business | Airports operator faces break-up in monopoly inquiry

Business | Airports operator faces break-up in monopoly inquiry: Airports operator faces break-up in monopoly inquiry
· OFT spotlights poor quality and high charges
· Company says changes would risk £9.5bn plans

Simon Bowers
Wednesday December 13, 2006

Guardian

BAA has warned that flight prices are likely to rise if competition authorities force the airport operator to relinquish monopoly control of air passenger travel in London and Scotland.
The company, taken over in June by a consortium led by Ferrovial, is investing £9.5bn in London over the next 10 years, including a fifth terminal at Heathrow in 2008 and a second runway at Stansted. It believes this programme would become more expensive if carried out by smaller businesses following a BAA break-up.

"Clearly a smaller company would have a smaller balance sheet and that would make investment more expensive," a spokesman said. "It would therefore, theoretically, lead to higher prices rather than lower prices."

BAA's warning came after the Office of Fair Trading said it was preparing to refer the £2.8bn UK airport market to the Competition Commission. The OFT does not accept the airport operator's argument that investment is most efficiently carried out by a monopoly operator. It believes BAA has serious competition issues in London and lowland Scotland.

"There is evidence of poor quality and high charges," said OFT's chief executive, John Fingleton. "BAA's investment plans, which are of great importance to the UK, have raised significant concerns among its customers. These are signs of a market not working well for consumers."

BAA-owned Heathrow, Gatwick and Stansted account for more than 90% of air passenger travel in and around London. The company makes just over half its revenues from charges to airlines, with the rest made up of retailing and other airport services such as car parking - elements of which were also found by the OFT's report to be uncompetitive.

Airline operators, many of which have been pressing for a full competition inquiry for some years, were delighted the OFT was planning a referral. BA said: "Effective regulation is key to preventing abuse of monopoly power, especially at Heathrow and Gatwick."

Ryanair's boss, Michael O'Leary, said: "Ryanair has long called for a break up of the BAA monopoly. Heathrow is a shambles which most passengers, if they could, would avoid at all costs. Equally Stansted, where we operate, is an over-specified, gold-plated Taj Mahal."

BAA said it had already been the subject of a string of government and regulatory inquiries, all of which had been satisfied that there was no need to dismantle the firm's monopoly.

The government is expected to publish a transport white paper this week confirming its support for investments at Heathrow and Stansted. Stephen Nelson, BAA's chief executive, said: "The main issue facing the UK is a lack of terminal and runway capacity in the south-east of England, which results in delay and congestion ... Lack of capacity is a complex issue. It would be wrong to jump to quick and simplistic conclusions about [BAA's] structure." The airport operator said the UK's complex planning laws and an antiquated regulatory regime were the greatest obstacles to investment in capacity.

But the OFT's report found that BAA's grip "limits competition between airports to promote delivery of extra capacity in a timely and cost-effective manner". Regulators have been deluged with submissions from airlines critical of BAA's investment plans. None of the major carriers supported these plans.

The OFT noted BAA was incentivised to carry out "gold plating" investments in order to justify higher charges to airlines without necessarily expanding capacity.

Mr Fingleton yesterday invited comments on the OFT findings before the matter is formally referred to the Competition Commission in eight weeks' time. BAA will continue to press its case but is unlikely to offer any concessions to Mr Fingleton in order to avoid the referral.

Dear parking

Users of car parks at Britain's airports will welcome any Competition Commission investigation. The charges are the highest in the world.

Someone parking their car in Heathrow's short-stay car park pays £44.50 a day. Leaving the car there for a week will cost £311. These charges have tripled over the past two years and are four times those charged elsewhere.

Those leaving their car at Frankfurt airport pay a maximum of £75 for between seven and 14 days. Users of Tokyo's Narita airport pay £48 for a week. New Yorkers parking in JFK's most expensive lot pay only £15 a day. BAA, which has said that a quarter of its profits come from airport parking, currently has complete control over charges.

Critics also point to the high cost of public transport. The Heathrow Express, operated by BAA, charges adults £14.50 for a 15-minute journey. At the recently upgraded Madrid airport, train fares to the city centre cost €1.