"BAA in new airport charges wrangle"

Sunday, November 3, 2002

BAA in new airport charges wrangle
By Edward Simpkins
United Kingdom - The Telegraph


Two of Britain's most powerful regulatory authorities are set to clash
over the future of London's airports. The showdown could see air fares
rise for millions of passengers.

The Competition Commission last week submitted a report that is
understood to put it at loggerheads with the Civil Aviation Authority
over the level of charges that the UK's biggest airports, Heathrow,
Gatwick and Stansted, can impose on airlines. 

Any increase is likely to be passed on to passengers by the
cash-strapped airlines in higher ticket prices. The row centres on
whether £479m of earnings made from retail operations by BAA - owner of
the airports - should be taken into account when considering the level
of fees it can charge the airlines.

BAA argues that it needs to be allowed to raise charges to pay for
improvements to airports that it wants to make, such as building the
controversial Terminal Five at Heathrow. It says its retail income
should be ignored when assessing its resources.

The Civil Aviation Authority has sided with BAA. It proposes that the
current system, which looks at all of BAA's revenues, should be replaced
with a regime under which only BAA's returns on its aeronautical
operations would be considered when setting a cap on charges.

Meanwhile, the Competition Commission has argued in a submission to the
authority that the current regime, which is supported by the major
airlines, should continue. It says there is no evidence that there has
been inadequate airport investment in the past or that allowing BAA to
charge more would lead to extra investment in the future.

In its preliminary findings, the commission says it fears a dual revenue
system could have the reverse effect from that intended. Commercial
activities would benefit at the expense of aeronautical, it argues.

The commission is convinced that retailing revenues should not be
considered separately from operational income because the shops could
not exist without the airports. It also believes that, since it is the
airlines that bring in the customers who make the shops profitable, they
should share in the spoils.

The commission is normally the final arbiter in such disputes. But under
the terms of the privatisation of the airports, the Civil Aviation
Authority has the final say over these charges.

A spokeswoman for BAA said the company would respond formally when the
CAA had completed its review. "As long as we can raise charges to fund
the £8 billion investment programme we've got, then that's fine," she
said.


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