Ryanair spat adds to BAA woes

Life gets no easier for BAA: its refinancing is under threat, and it's facing a court battle with Ryanair...

Last Updated: 31 Aug 2010

Ryanair said this morning that BAA had launched legal action over the low-cost carrier’s refusal to stump up a 15% increase in landing charges at Stansted Airport, which has already cost BAA millions of pounds. Ryanair insisted back in April that it would refuse to pay the higher charges, and it’s now promised to fight BAA’s court action on the grounds that the fees are unwarranted. Well you wouldn’t expect anything less, would you…

It’s just the kind of headache that BAA doesn’t need as it enters a crucial week. The Spanish-owned airport operator is trying to refinance its huge debt package, and is currently trying to get its creditors to agree to the new terms, which include ‘migrating’ nearly £5bn of bonds into a new high-quality investment-grade structure. But according to today’s Telegraph, BAA is facing serious opposition from an influential hedge fund client of investment bank UBS, which has not yet signed up to the deal despite a week of negotiations – and its stake is big enough to scupper the whole thing.

So courtroom spats with Europe’s most belligerent airline are not exactly what the doctor ordered. To be fair, BAA and Ryanair have never exactly had an affectionate relationship: the ever-tasteful Ryanair boss Michael O’Leary called them ‘tw*ts’ last month, as he promised to cut the airline’s flights from Stansted by 14% this winter in response to the price hikes (which he says have made the routes uneconomical).

O’Leary insists that these cuts are not due to falling demand – and judging by Ryanair’s July traffic figures, released today, he seems to be right. The carrier sold nearly 5.7m tickets last month, a 19% increase on the previous year – meaning it’s now carried 15m passengers in the last three months. He insists Brits will be unwilling to give up their summer holiday in the sun come what may – and he may have a point.

This highlights the big problem for BAA: at Stansted in particular, it’s heavily reliant on Ryanair (and other low-cost airlines like Easyjet, which also refused to pay the higher charges initially) for passenger numbers. If fewer flights are going out of Stansted, BAA will not only lose out on landing charges but also the ancillary revenues from retail, car parking and so on. So it’s hard to see how this can end well for the beleaguered airport operator...

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