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"BAA faces break-up in monopoly inquiry"

Wednesday, December 13, 2006

Airports operator faces break-up in monopoly inquiry
 OFT spotlights poor quality and high charges
 Company says changes would risk 9.5bn plans 
By Simon Bowers
United Kingdom - The Guardian 

BAA has warned that flight prices are likely to rise if competition
authorities force the airport operator to relinquish monopoly control of air
passenger travel in London and Scotland.

The company, taken over in June by a consortium led by Ferrovial, is
investing 9.5bn in London over the next 10 years, including a fifth
terminal at Heathrow in 2008 and a second runway at Stansted. It believes
this programme would become more expensive if carried out by smaller
businesses following a BAA break-up.

"Clearly a smaller company would have a smaller balance sheet and that would
make investment more expensive," a spokesman said. "It would therefore,
theoretically, lead to higher prices rather than lower prices."

BAA's warning came after the Office of Fair Trading said it was preparing to
refer the 2.8bn UK airport market to the Competition Commission. The OFT
does not accept the airport operator's argument that investment is most
efficiently carried out by a monopoly operator. It believes BAA has serious
competition issues in London and lowland Scotland.

"There is evidence of poor quality and high charges," said OFT's chief
executive, John Fingleton. "BAA's investment plans, which are of great
importance to the UK, have raised significant concerns among its customers.
These are signs of a market not working well for consumers."

BAA-owned Heathrow, Gatwick and Stansted account for more than 90% of air
passenger travel in and around London. The company makes just over half its
revenues from charges to airlines, with the rest made up of retailing and
other airport services such as car parking - elements of which were also
found by the OFT's report to be uncompetitive.

Airline operators, many of which have been pressing for a full competition
inquiry for some years, were delighted the OFT was planning a referral. BA
said: "Effective regulation is key to preventing abuse of monopoly power,
especially at Heathrow and Gatwick."

Ryanair's boss, Michael O'Leary, said: "Ryanair has long called for a break
up of the BAA monopoly. Heathrow is a shambles which most passengers, if
they could, would avoid at all costs. Equally Stansted, where we operate, is
an over-specified, gold-plated Taj Mahal."

BAA said it had already been the subject of a string of government and
regulatory inquiries, all of which had been satisfied that there was no need
to dismantle the firm's monopoly.

The government is expected to publish a transport white paper this week
confirming its support for investments at Heathrow and Stansted. Stephen
Nelson, BAA's chief executive, said: "The main issue facing the UK is a lack
of terminal and runway capacity in the south-east of England, which results
in delay and congestion ... Lack of capacity is a complex issue. It would be
wrong to jump to quick and simplistic conclusions about [BAA's] structure."
The airport operator said the UK's complex planning laws and an antiquated
regulatory regime were the greatest obstacles to investment in capacity.

But the OFT's report found that BAA's grip "limits competition between
airports to promote delivery of extra capacity in a timely and
cost-effective manner". Regulators have been deluged with submissions from
airlines critical of BAA's investment plans. None of the major carriers
supported these plans.

The OFT noted BAA was incentivised to carry out "gold plating" investments
in order to justify higher charges to airlines without necessarily expanding

Mr Fingleton yesterday invited comments on the OFT findings before the
matter is formally referred to the Competition Commission in eight weeks'
time. BAA will continue to press its case but is unlikely to offer any
concessions to Mr Fingleton in order to avoid the referral.

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