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BAA’s common ownership of seven airports in the UK may not be serving well the interests of either airlines or passengers, the Competition Commission (CC) has suggested in its interim report on its investigation into the market for the supply of airport services by BAA in the UK.

Possible remedies 

The report on its ‘emerging thinking’ sets out the CC’s current view on competition in the relevant UK airports markets on the basis of the evidence to date, identifies areas where it is seeking further evidence and outlines its next steps.

No conclusions have been reached at this stage but the CC expects to publish its provisional findings in August and if competition problems are identified, it intends to set out its possible remedies at the same time, whether requiring the sale of one or more of BAA’s airports or otherwise.

Christopher Clarke, chairman of the BAA Airports inquiry, said that BAA dominates the airports markets in the South-East of England and in lowland Scotland, both areas of high economic activity and importance.

Currently, there is no competition between BAA’s three London airports (Heathrow, Gatwick and Stansted) and only very limited competition from non-BAA airports (including London City and Luton).

Similarly, there is no competition between their two airports in lowland Scotland (Edinburgh and Glasgow) although Glasgow does face competition from one non-BAA airport (Prestwick).

Shortage of capacity 

One of the principal reasons for structuring the privatised BAA in 1987 to include all three major London airports was to provide adequate airport capacity in the South-East of England.

Currently there is a shortage of capacity, notably runway capacity, to meet current and expected future demand.

Even if the proposed expansion at both Stansted and Heathrow goes ahead within the expected time scales, this shortage will remain until at least 2015 and probably longer as a new runway at Heathrow could not be built until 2020.

It has long been argued by BAA and others that competition cannot develop between BAA’s London airports until the shortage of capacity has been alleviated. 

Two of the questions the CC will be seeking to answer at the next stage are whether and to what extent the shortage of capacity is a consequence of the lack of competition between these airports and also whether alleviation of that shortage can reasonably be expected in the absence of competition.

There are no similar capacity constraints at any of BAA’s other four airports at Edinburgh, Glasgow, Aberdeen and Southampton.

Lack of responsiveness

Particular features which the CC has identified as potentially limiting competition include the common ownership by BAA of each of its seven airports and the way it conducts its business.

Clarke said that the Competition Commission was particularly concerned by its apparent lack of responsiveness to the differing needs of its airline customers, and hence passengers, and the consequences for the levels, quality, scope, location and timing of investment and levels and quality of service.

He added that it was also concerned about other aspects of BAA’s conduct such as its approach to the system of planning airport development which may, in part at least, be related to ownership of several neighbouring airports.

“Over many years, BAA seems to have taken a sequential approach to development, notably at its London airports, and been prepared to limit development at one airport to concentrate on development elsewhere,” Clarke said.

While it has successfully undertaken a significant number of smaller projects simultaneously, it seems largely to have limited itself to one major project at a time, for example Terminal 5.

Government policy 

The planning system itself is an inherent constraint on at least the timing of airport development, but airport operators are not unique in having to comply and function within it.

There are other long-term infrastructure businesses, such those engaged in utilities and energy projects and property development which operate successfully within similar constraints.

There are, however, other features which appear to limit the scope for competition, including aspects of government policy.

While the 2003 white paper provided a much-needed policy framework for airport development, there are certain elements which may have the unintended consequence of introducing constraints which reduce competition.

In particular, by supporting the specific location and timing of additional runway capacity at Stansted and Heathrow, and also by stating that it would not support the development of a new runway at Gatwick before 2019 unless there was demonstrably no alternative way forward, it may have introduced at least two constraints.