BAA to sell Gatwick airport following Competition Commission’s preliminary report

29 September 2008

Jeremy Robinson

Within a month of the publication of the Competition Commission’s provisional findings report, BAA has announced that Gatwick Airport is for sale. The Competition Commission’s BAA Airports Market investigation report, published on 20 August 2008, had provisionally found that there were competition problems at BAA’s UK airports, and was consulting on remedies, which included selling two out of three of BAA’s London airports i.e. Stansted, Gatwick and Heathrow. The announcement of the divestment of Gatwick by BAA is in advance of the final report which is due to be published during the first quarter of 2009.

The Competition Commission’s investigation into whether the supply of airport services by BAA Limited (BAA) prevents, restricts or distorts competition was initiated by a reference under Enterprise Act 2002 by the Office of Fair Trading on 29 March 2007. Under Section 131 of Enterprise Act 2002, the OFT can make a market investigation reference to the Competition Commission if it has reasonable grounds for suspecting that any feature or combination of features, of a market in the United Kingdom for goods or services prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the UK or part of it. Following the publication of issues on 9 August 2007, the Competition Commission invited comments, which led to the publication of a statement of Emerging Thinking on 22 April 2008. The Competition Commission’s BAA Airports Market investigation report was published on 20 August 2008.

The provisional report found that there are competition issues at each of BAA’s seven UK airports, namely Heathrow, Gatwick, Stansted, Southampton, Edinburgh, Glasgow and Aberdeen. These issues are considered to have adverse consequences for passengers using these airports and airlines.

The main provisional findings of the report are that the common ownership of Edinburgh and Glasgow airports prevents competition between them. A similar finding was found for the three BAA London airports, although there was some scope for competition between them in the short term despite the existing capacity constraints. Heathrow Airport’s position as the only significant hub airport in the South-East of England, and indeed the UK, is a feature which restricts competition between airports from some airlines. The common ownership of Southampton Airport, and both Heathrow and Gatwick, prevents competition between them, and particularly a lack of responsiveness by BAA in developing Southampton in line with the requirements of its airline customers. Common ownership of the three London airports further restricts competition through its effects on capacity constraints; coupled with the inadequacies of the regulatory system, this leads to a reduction in the benefit of regulation and distortion of the competition between the airlines. It was recognised that Aberdeen, because of its isolated location and size of local population, is not an attractive place to site a second airport, and so competition is deterred.

Other features reported to restrict competition are planning restrictions, aspects of Government policy which restrict or distort competition by contributing to the capacity constraints at the BAA London airports, and the current system of regulation of airports.

The remedies put forward for consultation before the publication of the final document were to divest either Glasgow or Edinburgh airport, and divest two of the three London airports i.e. Heathrow, Gatwick or Stansted.

The Competition Commission considers it likely that the regulation of Gatwick and Stansted will still be required while capacity still continues to restrain competition. Heathrow will still require regulation as the main hub airport.

BAA’s reaction to the Competition Commission’s provisional findings was that their analysis was flawed and should be assessed in light of the urgent need for new airport capacity and a modern regulatory framework, as well as a need for an improved service from the airport operator. BAA argues that the Commission proposals for a fundamental restructuring of BAA and a review of the Government’s Air Transport White Paper risk delaying the delivery of new runways, as well as creating uncertainty and confusion at exactly the wrong time. In addition in Scotland, BAA states that the Competition Commission has apparently ignored the evidence that clearly demonstrates that separate markets are served and therefore they do not and would not compete, regardless of ownership.

The Chairman and the Chief Executive of BAA pointed out that Heathrow’s competition does not come from Gatwick or Stansted but from fast-emerging super-hubs across Europe and the Middle East. Airports such Paris and Schipol already have four runways, and thus are equipped and willing to act as Britain’s hub. The 2003 policy document published by the Government “30-year Air Transport policy document”, recognised that new capacity remains the key issue facing Britain’s airports, and recommended that two new runways should be built in the south-east, one at Stansted and one at Heathrow. These executives from BAA consider that the 2003 policy document still remains a far-sighted and realistic aviation policy and gave the industry clear vision.

The announcement by BAA that it planned to sell Gatwick airport, was made on 17 September 2008. BAA stated that the decision was not taken lightly, but taken so that customers, staff and business will benefit from the earliest possible resolution of the uncertainty. BAA will continue to present its case in respect of South East airports, and those in Scotland. With regard to Stansted, it is felt by BAA that a change of ownership would interfere with the securing of planning approval for a second runway.

The Competition Commission responded to BAA’s announcement stating that they would consider responses to the provisional findings and remedies notice and publish the final report in early 2009. This will take into account any action by BAA in the meantime which may have an effect on the competition problems provisionally identified.

Source: The Competition Commission BAA Airports Market Investigation Provisional findings report. Published 20 August 2008