British airports operator may face break-up following inquiry

The British Airports Authority (BAA) came a step closer to being broken up yesterday after airlines won their battle for a full investigation into the dominant UK airports operator.

The Office of Fair Trading (OFT) referred the Heathrow, Gatwick and Stansted owner to the Competition Commission after most industry bodies it consulted during a three-month inquiry supported such a move.

It said it stuck by its provisional view in December that the current market structure did not "deliver best value for air travellers in the UK".

The Competition Commission's inquiry will take up to two years and could recommend the break-up of the operator, which owns airports at Southampton, Glasgow, Edinburgh and Aberdeen, as well as Heathrow, Stansted and Gatwick.

The commission will look at BAA on a second front after receiving proposals from the Civil Aviation Authority (CAA) about how much BAA can charge airlines at Heathrow and Gatwick between 2008 and 2013.

The proposals are in line with its earlier guidance, but include the addition of new measures to ensure BAA achieves greater service quality, particularly in reducing passenger queuing time for security.

It wants greater financial penalties imposed on BAA where passenger service falls short, while the operator could secure bonuses if passenger service across each airport is significantly above agreed standards.

CAA group director Dr Harry Bush said: "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."

Ryanair welcomed the OFT referral, claiming that BAA's market dominance had resulted in inadequate facilities and excessive passenger charges at the London airports in particular.

Peter Sherrard, Ryanair's head of communications, said spinning out Heathrow, Gatwick and Stansted into separately owned companies would force them to compete against each other, including in terminal and car parking charges.

He added: "Regulation by the CAA has clearly failed. It is time to allow competition between the London airports to deliver better facilities and lower costs for British passengers and British business".

EasyJet said the CAA's proposals represented a bad deal for travellers. It is unhappy that BAA could be be allowed to recover inflation plus up to 2 per cent every year at Gatwick over the course of the next five years - "without providing any discernible benefits to air travellers that they shouldn't be providing already".

The CAA said the rise at Heathrow could be as much as 8 per cent plus inflation, compared with a current rate of growth of inflation plus 6.5 per cent.

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."