Heathrow and BAA have come in for major criticism following what can only be described as a PR disaster over hastily introduced upgraded government requested security measures two weeks back.
BAA have failed to explain the background to preparations for such an eventually. Presumably an internal enquiry is taking place, but the results should be made public. Tony Douglas, CEO Heathrow, has arrived with a terrific reputation for getting T5 to where it is. He has a great deal of sorting out to do. Stephen Nelson, the youthful and newly appointed BAA Plc CEO, was previously responsible for the shops and retail outlets and only joined BAA from Sainsbury”s in 2005. Talk about jumping out of the frying pan and into the fire. With BAA now owned by Ferrovial it is even less transparent than previously.
The security fracas has brought into sharp focus the question of what is a monopoly. The Office of Fair Trading is undertaking a study of the UK airport market. British Airways is leading a whole gaggle of airlines in calling on it to refer this study to the Competition Commission because of its concerns about current airport regulation and ownership. The fact that Ferrovial, who own BAA, also own handling agent Swissport, is bound to be raised.
British Airways says the Competition Commission should recommend airport regulations that deliver a better outcome for consumers and airlines. It should also enhance competition in the UK airports' market and provide an effective framework for future airport growth. The separate ownership of Heathrow and Stansted airports should be considered by the Competition Commission says BA.
These views are the opposite from when BAA Plc was floated on the London stock market back in 1987. It was a classic piece of Maggie Thatcher manoeuvring. She privatised the then British Airports Authority and obtained a new airport for London for free, Stansted. Lord King, another Maggie placement, acquiesced. The counter argument is that BAA Plc has been a great success creating the world's most successful airport group. In Paris the two major airports are run by a single authority and the same goes for New York, where Kennedy, La Guardia and Newark are all part of the Port Authority of New York and New Jersey. For the most part it is similar around the world.
British Airways believes that decisions on new runway construction in South East England should not be concentrated in the hands of one company.
In the event of a break-up of BAA, BA says that there will be a continued need for strong regulation to protect users against monopoly power, particularly at Heathrow and Gatwick.
British Airways” chief executive, Willie Walsh, noted ”The Competition Commission has an important role to play in determining the future of UK airports. Separate ownership of Heathrow and Stansted would make infrastructure developments at the airports more responsive to airlines' and their customers' needs and expansion at one airport would not be held back to suit the commercial needs of a monopoly owner.” No mention of Gatwick here.
The airline believes that there should be increased competition within the London airports and is proposing that competitive tendering is introduced for a wider range of services at airports such as providing IT systems. Virgin Atlantic makes the point that in building the splendid new Clubhouse in Terminal 3 they had to use the so-called ”approved” BAA contractors. ”It was a question of take it or leave it. We had to employ the BAA supplier. This has to stop!”
Willie Walsh added: ”We want to see sharper incentives for better customer service and for BAA to be more responsive to the needs of its users”.
bmi is Heathrow”s second largest customer. "We have not said as part of our OFT submission that the findings should be referred to the Competition Commission. However, we wouldn”t object if that was the case".
And if BAA were to be broken up. Don”t cry for Ferrovial. Whilst it has not yet been sold rumours are that the annual 2m-passenger plus London City Airport will be sold for close on ”500m. On that basis Gatwick, running currently at 34m is worth ”8.5m and Heathrow, 63m at a colossal ”16bn. The Spaniards paid ”10.3bn for the whole lot including Aberdeen, Edinburgh, Glasgow and Southampton airports. Clearly these figures should not be looked at without deep analysis so causally. The debt and ongoing works have to be taken into account. And there is Stansted of course. Could a buyer be found to not only purchase the airport but have sufficient funds to battle their way through a public enquiry and pay for the development of a second runway and the necessary infrastructure. The present plans do not even have provision to a proper railway link into the airport.
Splitting the airports will eliminate a possible headache for BA in ensuring no cross subsidies for Stansted II, but it is going to take an enormous gamble for another airport operator to march in. However there are not many other air terminals for sale with a current throughput of 20m+ passengers and enormous potentail.