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BAA should sell two UK airports, regulator says

Travelers arrive at Heathrow Airport’s new Terminal 5 in London, England, on March 14. PHOTO: EPA

BAA Ltd, the owner of London’s Heathrow Airport, should be broken up and its Gatwick and Stansted terminals sold off to foster competition in the UK capital, antitrust regulators said.

The unit of Spanish builder Grupo Ferrovial SA should also be required to dispose of either Glasgow or Edinburgh airports in Scotland, the Competition Commission said yesterday in a Regulatory News Service statement. Final recommendations are due by the end of the year.

Crowded concourses at BAA’s London airports and the chaotic opening of Heathrow Terminal 5 have led lawmakers to advocate splitting up the company’s holdings. Airlines including Ryanair Holdings Plc and Virgin Atlantic Airways Ltd, struggling with higher fuel costs and slowing economies, also back dismantling BAA, saying its dominance provides no incentive for improvements.

“The commission proposes the divestiture of two of BAA’s London airports,” the London-based body said in the statement. “Guidelines mean that it unlikely to require the divestiture of Heathrow unless the sale of Gatwick or Stansted is likely to be impractical or ineffective.”

Ferrovial has dropped 31 percent in Madrid trading this year amid speculation that the UK unit would be forcibly broken up and concern about customer dissatisfaction at Heathrow, Europe’s busiest airport, where more than 600 flights were canceled when Terminal 5 opened in March. The company’s stock has fallen 46 percent since the US$19 billion BAA purchase closed on Aug. 15, 2006.

Yesterday’s recommendations come four months after the commission published initial findings that the world’s biggest airport operator’s domination of markets in southeast England and central Scotland limited competition and contributed to a shortage in capacity.

“There isn’t enough competition at UK airports, in particular Gatwick and Heathrow,” Paul Charles, a spokesman for London-based Virgin Atlantic, said last week. “There aren’t enough incentives at the moment for BAA to improve their level of customer service and the prices they charge.”

BAA has a 91 percent share of airport passengers in southeast England through Heathrow, Gatwick, Stansted and Southampton, and 84 percent in Scotland, where it owns terminals in Edinburgh, Glasgow and Aberdeen. Splitting BAA would offer a “very real prospect of competition,” with surveys showing passengers willing to use any of the available airports, the commission said April 22 in an “emerging thinking” document.

Opinions differ as to how much a forced sale will ease crowding at London airports.

Heathrow operates at 99 percent of its government-allowed flight capacity, BAA said.

“One of the criticisms that BAA has faced was that they didn’t provide enough capacity, but simply splitting the owners doesn’t necessarily mean three new runways in the Southeast,” Tim Coombs, joint managing director of Aviation Economics, a London-based consulting company, said before the commission’s report. “Splitting up the ownership isn’t going to solve the capacity issue.”
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