BAA referred to the Competition Commission

Airports operator BAA has has been referred to the Competition Commission by the Office of Fair Trading over concerns about its market dominance.

The inquiry is expected to take up to two years and will focus mainly on BAA’s ownership of the three main London airports – Heathrow, Gatwick and Stansted. Depending on the result, BAA might be forced to sell off one of these airports.

The OFT said it had decided to make the referral after an initial consultation found most industry bodies supported it.

“Having considered the points made by respondents to the consultation, the majority of whom supported referral, the OFT is of the view that the competition concerns it identified prior to the consultation exercise remain valid and that an investigation by the Competition Commission is now warranted,” it said in a statement.

CAA group director economic regulation, Dr Harry Bush, said:
“The CAA’s recommendations to the Competition Commission in support of its price control reference build on and largely confirm the CAA’s initial proposals.

“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. It now awaits the Competition Commission’s analysis and advice on these important issues.

“The CAA wants to see a better passenger experience at Heathrow and Gatwick. That is partly about new facilities, such Terminal 5 at Heathrow. But it is also about better service, efficiently and well delivered. The CAA’s proposals to increase the penalties for poor performance and to introduce rewards for improving performance are intended to sharpen further BAA’s focus on the passenger.”

Easyjet said the CAA’s current pricing proposals for Heathrow and Gatwick were “a bad deal for air travellers, but great for BAA’s new owners”.

It said the CAA’s proposal to allow BAA to increase charges above inflation at Gatwick every year is a step backwards.

The airline is calling on the Competition Commission to carry out a full investigation into whether the UK’s major airports are being run in the interests of the travelling public.

Andrew Barker, easyJet planning director, said: “Today’s announcement that the OFT has referred BAA to the Competition Commission clearly demonstrates that there is a problem with the running of our major airports. So, we are disappointed that the CAA is recommending a deal that is so obviously pro-BAA.

“Ferrovial, the Spanish construction firm, paid £11bn (significantly above the market price) to acquire BAA last year. They would only have paid such a premium if they felt there was scope to reduce costs or increase prices – the CAA is helping them achieve the latter. Ferrovial is the clear winner from today’s announcement and the air traveller is the clear loser.

“Let’s hope that the CAA uses the extra time it has given itself to force a more pro-consumer solution at Stansted Airport.”

Meanwhile, Stansted Airline Consultative Committee chairman David O’Brien said it also welcomed the OFT’s decision.

“Despite the recent change in ownership, BAA is progressing with plans to spend in excess of £4 billion to expand capacity of Stansted Airport,” he said.

“Although Stansted users unanimously support the expansion of the airport, BAA is using this opportunity to waste £ billions on gold plated facilities in order to hike up its airport charges to airlines and consumers.

“This will result in airport charges being almost tripled, which in turn will lead to higher air fares for UK consumers. The Stansted ACC has put forward alternative proposals, which would cater for the growth of the airport while keeping costs to consumers low and saving over 800 acres of Essex countryside.

“BAA has consistently refused to consider lower cost alternatives for this development and have ignored the requests of their airline users.

“The BAA’s monopoly over the three main airports in London is clearly anti-competitive and this is the reason why these airports are regulated by the CAA.

“However, this regulation has been ineffective. It has failed to prevent BAA from developing expensive, inefficient facilities, which do not meet the requirements of users, in order to inflate airport charges through the regulatory process.

“Stansted ACC’s submission to the OFT detailed the abject failure of BAA to consult with users on their requirements. It also highlighted the fact that the BAA wastes £ millions on consultants and then expects the travelling public to pay for them.

“BAA has confirmed that it has spent over £40 million on consultants to develop plans for their £4 billion second runway and yet claims that there are no written reports by these consultants. This alone warrants a public enquiry.”

By Bev Fearis