Bloomberg.com: Worldwide

Bloomberg.com: Worldwide: "BAA Airport Assets Face Increased Threat of Breakup (Update4)

By Tracy Alloway
March 30 (Bloomberg) -- BAA, the owner of London's Heathrow and Gatwick airports, will be investigated by the U.K.'s top antitrust regulator after airlines complained about the company's dominance, increasing the chances of a breakup.
BAA, owned by Spain's Grupo Ferrovial SA, was referred to the Competition Commission after a three-month probe by the Office of Fair Trading, which received more than 60 responses from airlines, consumers and organizations. BAA's seven U.K. airports handle 63 percent of flights to and from Britain.
A breakup of BAA could see U.K. airports, including Heathrow, Europe's busiest, transferred to new owners. BAA's airports generate 2 billion pounds ($3.92 billion) of revenue every year and handle 90 percent of passengers in southeast England.
``The ownership of Stansted might become different from the ownership of Heathrow and Gatwick,'' said Gert Zonneveld, an airline analyst at Panmure Gordon in London. ``If there is more competition, rates could come down.''
Shares of Ferrovial rose as much as 30 cents, or 0.4 percent, to 75.4 euros and were up 0.2 percent as of 9:27 a.m. in Madrid. Mark Mann, a spokesman for BAA, said the company will make a comment on the referral later today.
Airlines including British Airways Plc, Europe's third- biggest, and Ryanair Holdings Plc, the region's largest discount carrier, have criticized BAA's monopoly on U.K. airports, citing rising fees and expansion costs.
Heathrow Airport
London's Heathrow handled 67.7 million passengers in 2005, and its biggest customer is British Airways. Stansted is the largest base for Ryanair, which has its headquarters in Dublin
``We support the OFT decision to refer the BAA U.K. market to the commission,'' Richard Goodfellow, a spokesman for British Airways, said today in an interview.
In December the OFT said there was evidence of ``poor customer satisfaction,'' at BAA's airports and that a lack of competition could lead to ``inefficient'' investment. Heathrow has almost completed a 4.3 billion-pound fifth terminal, and BAA last year proposed a 2.7 billion-pound second runway at Stansted.
``There needs to be more competition in the airport ownership market as BAA's dominance provides little incentive for better customer service,'' said Paul Charles, a Virgin Atlantic spokesman. ``We welcome this referral and hope to see major changes in future in the way our airports are owned and maintained.''
Today the U.K.'s Civil Aviation Authority stuck with its airline fee recommendations for Heathrow and Gatwick airports. The charges should increase in line with the regulator's December proposal to help BAA invest in new terminals and facilities, the London-based authority said in a statement.
Airport Charges
Charges at Heathrow should increase by the inflation rate, measured by the retail price index, plus 4 percent to 8 percent each year between 2008 and 2013, the CAA said. Charges at Gatwick should shift by inflation plus or minus 2 percent.
Heathrow's fees between 2003 and 2008 have been allowed to increase by inflation plus 6.5 percent annually. At Gatwick and Stansted airport, fees could rise only by the inflation rate. The authority recommended in December that the price cap on Stansted fees be removed in the next period.
``The CAA considers that it has struck an appropriate balance in challenging BAA to continue to improve its operating efficiency and service quality, and providing adequate rewards for timely investment at Heathrow and Gatwick,'' Harry Bush, the authority's group director of economics regulation, said in the statement.
The U.K. Transportation Department's 30-year national air- traffic plan, published in December 2003, called for a new runway and terminal at Heathrow by 2020, following construction of the runway at Stansted.
Ferrovial Investment
Madrid-based Ferrovial plans to spend about 1 billion pounds annually through 2016 on upgrading terminals at the three BAA airports serving the U.K. capital, Chief Executive Officer Joaquin Ayuso said July 3.
Heathrow's Terminal 5 project is 90 percent complete, and is scheduled to open March 30, 2008. Consultation and budgeting for a separate project, a third runway at Heathrow, will take place this year. "