BAA faces break up after Competition probe

Michael O’Leary, CEO of Ryanair has called it the ‘best decision in the history of aviation ever.’ Colin Matthews, Chief Executive of BAA has slammed it as ‘flawed’. The Competition Commission has delivered a report which suggests that BAA should see three of its UK airports including two in London and one at either Edinburgh or Glasgow.

BAA - which is owned by a consortium of companies led by the Spanish business Ferrovial - has come under increasingly fierce criticism from low cost airlines, passenger groups and others for the poor quality of service and rising costs of using the airports that it controls. It’s BAA’s seven airports together account for over 60 per cent of all passengers using UK airports.

At present BAA owns Glasgow, Heathrow, Southampton, Aberdenn, Edinburgh, Stansted and Gatwick and it is the last two that are likely to be sold off if the final ruling due from the Competition Commission in March 2009 comes into force. There may well be a sale in around 15 months time although BAA may exercise its right to appeal. The reality is though that there is a momentum for breaking up one of the least loved monopolies in the UK economy.

The Competition Commission finds that

“We have found that at the south-east airports BAA currently shows a lack of responsiveness to the interests of airlines and passengers that we would not expect to see in a business competing in a well-functioning market. This is evidenced in BAA’s approach to planning capital expenditure, including weaknesses in consultation and lack of responsiveness to the differing needs of its airline customers, and hence passengers, and the consequences for the quantity, quality, location and timing of investment.”

Anatole Kaletsky struck a chord with me this morning with his comment piece in the Times.

“The Competition Commission’s proposal forcibly to split ownership of London’s three main airports, all at present owned by BAA, was one of the bravest and most sensible decisions by an official body in living memory…..competition generally yields better results, in terms of both customer service and economic efficiency than monopoly, regulation and central planning.”

The key question is who will come forward as potential bidders for these airports? Will Ryanair and EasyJet make a bid to operate their own airport - it would be a fascinating example of vertical integration!

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