How to end the 'Heathrow hassle' BAA's monopoly on the capital's three main airports means that it has become complacent, writes Russell Hotten

IT IS difficult to think of another company with so many dissatisfied customers. More than 70m passengers have passed through Heathrow Airport in the past 12 months and it seems a reasonable bet that not many enjoyed the experience. Most businesses...


BAA needs to create more space within the terminals for security functions, says Prof Doganis. But there is a constraint on space caused by BAA's expansion of its retail activities - prompting dismissive complaints that Heathrow is now a shopping mall with an airport attached. BAA's aviation activities are regulated by the Civil Aviation Authority (CAA), which has capped the company's pre-tax rate of return at 7.75pc and may reduce it to 6.2pc.

BAA has always argued that this price regime incentivises the expansion of unregulated operations - that is, retail. But the "lack of space'' argument does not wash with a lot of people - one of them being the head of the International Air Transport Association (IATA), Giovanni Bisignani. He acknowledged the inconvenience created by the Government's passenger screening policies, but says BAA should be spending more. "The only beneficiary is the airport operator - BAA - that continues to deliver embarrassingly low service levels by failing to invest in appropriate equipment and staff to meet demand. This must stop,'' he said.

Constraint on space has always been an issue for Heathrow. The airport's real capacity is probably about 45m passengers a year, but it now handles more than 70m. Building terminals between the runways was a mistake, because it put an immediate limit on expansion. Terminal 5 opens next year, but planning inquiries and delays put the project years behind schedule. But even T5 won't solve all BAA's problems, as 60pc of passengers will still use the other terminals.

A fundamental problem, Prof Doganis told the BBC earlier this week, is that "successive Governments have failed to bite the bullet and build more runways''.

Not only should there be more runways built in south-east England, another one is needed at Heathrow, he said. Yet, Governments have considered this route and turned back, either because of the economics or because it was not politically expedient.

Instead, there is a growing consensus around the airlines' view that the best way to force London's three main airports to invest and improve is to get them to compete.

Regulators are now considering breaking up BAA's London monopoly but Ferrovial would have considered that as possibility before buying it and probably found the value of the sum of the parts to be greater than the pounds 10bn it paid.

BAA's threat that it could even withhold investment from Heathrow unless the CAA allows it to raise charges is unlikely to endear the company to those considering its future structure. For BAA's critics, the existing regulatory structure has failed. Time to try a new framework.

>

We Recommend