BAA facing double dose of turbulence

A bad week ahead for airport operator BAA - passengers down at Heathrow, and it's taking on the Competition Commission.

Last Updated: 31 Aug 2010

The Competition Commission ruling that Spanish-owned BAA is challenging is the one ordering it to dispose of three of its seven UK airports. You can see why chief exec Colin Matthews doesn’t want to take that lying down – never mind the reduction in the size of his business, he’s going to get a lousy price for big-ticket assets like that at the moment.

Now to make matters worse, an annual survey of passengers by the Civil Aviation Authority (CAA) has found that the number of business passengers using it flagship location, London’s Heathrow, nosedived by 5% last year to 22.8 million. It never rains but it pours.

Luckily, the CAA report doesn’t spell all bad news for the beleaguered airport operator: bosses may find a crumb of consolation in the fact that the number of leisure passengers using Heathrow rose by more than one million to 44 million, as airlines took to drastic discounting to keep the punters – and their own firms – airborne.

The survey of 200,000 passengers also shows that even tourists are feeling the pinch though. At Gatwick and Stansted – which are used primarily by holidaymakers – the average length of a trip has been cut by one day.

But the news of Heathrow’s declining business class passenger numbers will be a big blow to Matthews, who was told by chairman Sir Nigel Rudd when he joined the company last year to focus on overhauling operations at Heathrow, and to rebuild its reputation post-T5 in the process.

But his more immediate worry may be that BAA goes to court today. The CC has ordered that BAA is an effective monopoly and must sell Gatwick, Stansted and Edinburgh or Glasgow airports within two years to boost competition. The Commission found in March that there were competition problems at the operator’s seven UK sites, and it reckoned passengers are losing out as a result. It could also be argued that given the fact that BAA controls 90% of departures from South East, it doesn’t currently have a big enough incentive to sort things out.

BAA is expected to maintain that the ruling is unsound due to ‘apparent bias’ – a claimed association between a member of the ruling panel and a company interested in buying the airports.

Losing the appeal would definitely be a blow for BAA, although cash from any sale would help reduce its considerable debt. But given that Gatwick has been up for sale for some months already without a sniff, BAA may have to resort to taking Air Miles against some of the £2bn asking price if it’s ever going to find a buyer.


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