"British airports operator keeps its feet on the ground"

Tuesday, November 5, 2002

Airports operator keeps its feet on the ground
United Kingdom - The Daily Telegraph


A "RESILIENT BUSINESS". That's how Mike Hodgkinson, the BAA chief
executive, described his airports operations yesterday. It's hard to
disagree. 

Mr Hodgkinson is in the privileged position of running a virtual
monopoly of airports in the South East - Heathrow, Gatwick and Stansted
- so can afford to be relatively sanguine. 

He's been through a tough period, what with 9-11 and the abolition of
duty-free, but the biggest challenge - breaking up BAA - is not on the
Government's agenda.

Yesterday, Mr Hodgkinson made a pretty good fist of arguing why BAA is
the right company to complete the long-overdue airport investment
Britain needs. 

Though passenger traffic grew only 1pc over the half, bouncing back from
9-11, Mr Hodgkinson expects long-term growth of 3pc-4pc a year. 

That could yet be conservative if the low-fare carriers, whose growth
offset the drop in long-haul traffic, can keep on their current flight
paths. 

Given such forecast growth, the regulators have little option but to
allow BAA big enough increases to landing charges to finance new
infrastructure, such as Terminal 5 at Heathrow. 

Mr Hodgkinson shrugs his shoulders over whether the Civil Aviation
Authority gets its way and ring-fences BAA's retail income, up 5pc last
half to pounds 274m, rather than use it to subsidise landing charges.
But that would be BAA's best outcome. 

Last half, despite the modest increase in passengers, spend per head
rose 4pc to pounds 3.91. The airlines won't like it, but if BAA could
keep shopping income to itself, it could demerge a minority of its
retail operations to add value. 

The shares rose 31 yesterday to 586p. On forecasts of pounds 543m
profits this year, the multiple is 17 times, yielding 3.3pc. 

The pounds 65m hole in BAA's final salary pension scheme, which is
staying, may need filling. Even so, the shares are good long-term value.


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