David Robertson, Business Correspondent
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Read the full report on BAA from the Competition Commission
Read BAA's response to the Competition Commission's report
Anyone travelling through Heathrow and Gatwick could face years more misery after BAA, the airports’ owner, threatened to cut investment after failing to secure the passenger price increases that it was seeking.
The probability that BAA will speed up the sale of core assets, which may include Gatwick, also increased after the Competition Commission published its report into the airport operator’s future charges.
The commission is recommending that BAA be allowed to increase by 18 per cent the amount it levies on airlines for each passenger carried but that is not as much as BAA wanted.
Ferrovial, the Spanish construction company that bought BAA last year, was hoping for a larger increase in passenger duty to help it to pay off the enormous debt it took on to finance the purchase.
A reduction in that revenue is likely to reduce Ferrovial’s returns at a time when it is already struggling with interest payments of £820 million a year. The company is selling nonterminal property and the World Duty Free stores to cut the debt load.
Ferrovial is also trying to refinance up to £10 billion of debt but that could be jeopardised by the commission’s recommendation of lower charges.
Analysts said that this was likely to force it to sell even more assets, with Gatwick and Glasgow likely candidates.
The lower than hoped for passenger charges will also limit future investment in Heathrow, BAA said.
In its submission to the commission, BAA said that investment during the next five years could be as low as £500 million, which would effectively mean nothing new being done.
Plans are in place to rebuild Terminals 1 and 2 at Heathrow in time for the 2012 Olympics in London, but they could be scrapped.
Stephen Nelson, the chief executive of BAA, said: “We see little in the Competition Commission’s report which delivers the incentives to transform the airports.”
Reducing investment in Heathrow and Gatwick will mean the already cramped conditions at both airports will get worse.
Heathrow’s crumbling infrastructure was criticised over the summer by numerous people including Ken Livingstone, the Mayor of London, who said that the airport “shamed” the capital.
There was little sympathy for BAA among the airlines that use its facilities.
One said that Ferrovial had loaded itself with debt expecting to enjoy bumper profits but had bitten off more than it can chew.
BAA’s claims for higher charges were also questioned on the grounds of its poor service standards.
The Competition Commission said that BAA was acting against the public interest by failing to deal with agonisingly long security queues at its airports.
The commission’s report revealed that during certain months last year nearly half of all passengers travelling through Heathrow’s Terminal 4 security gates were delayed.
In its report the commission has proposed that passenger charges should be capped at £10.96 at Heathrow, up from £9.26, and £5.48 at Gatwick, up from £4.91.
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At the end of the day if they won't invest and take it to an acceptable service, revoke their contract and sell it on tender.
Steve, London, England
So BAA have a subprime mortgage on our airports... Ok Alistair time for you to empty my pockets again, I'd consider fleeing the country, but that might involve the torture of BAA service.
Matt, London, UK
Heathrow has always been like that. It´s just getting worse because of controls set up by antiterrorism act and increased air traffic. But if the government wanted huge amounts of cash by selling airports all thoroughout the UK, who's to blame now? Why did they privatize them? They should have known that all the companies want to get profits, not losses. So, for everyone who is complaining and whining, you get what you give. I haven´t seen the same reaction after we knew that BA and Virgin ripped off hundreds of thousands of longhaul flights passengers, just because they are british companies, and what they've done is illegal.
Mela Comes, Barnet, UK
Nathan - Nothing is as bad as Heathrow
Chris - BAA has been terrible for many years and I think most realise this. Matters not that Ferrovial now own it, it is simply that investment decisions etc. are now being discussed that all this is coming out.
ab, quimper, france
Great so yet again a foreign company will come in and take take take.
Why do we let this happen. Does the UK govt not have in place an investment company like the Singapore govt or the Dubai govt then maybe we could run our own services. We will end up paying and not get the return..
The monopolies commission is investigating BAA.. (To Ian HK)
And There was investment in a majority of the airports when it was owned by the Brits, look at Edinburgh, T5, the skybridge at Gatwick. (To Chris London)
Garry, Lon,
Heathrow is a disgrace. Run down services and the agro of extra security. I have virtually given up using it. It is far easier to travel into an international like Manchester. Or a semi international like Birmingham or Bristol via a European city.
Steve, Adelaide, Australia
I think this is part of the prosecution of Spanish interest in the UK.
They just can't stand that Alonso is better than Hamilton, that Santander buys Abbey, that Iberdrola buys Scottish Power and that O2 belongs to Telefonica. So they are making things hard for all of them.
But this time the elements are not as severe as to prevent the new invincible army to take the country.
Julio Ruiz, Madrid,
An 18% increase is an absolute disgrace. The maximum increase should be 4% and that is more than generous.
If BAA don't like that then they can always sell Heathrow.
Thomas Maxwell, Redhill,
After queuing for 1 and a half hours at Gatwick's South Terminal on Monday night to go through security (nearly causing me to miss my flight), I applaud and echo the Competition Commission's views. I was appalled that only 4 of the 9 or 10 security gates were operational at this peak time on a Monday evening - why was this BAA?
BAA / Ferrovial frankly do not deserve a penny more in passenger fees which are already too high.
Tom, Jersey, Channel Islands
Steven Nelson is whining about not being able to afford improvements at Heathrow and Gatwick, yet is still planning to spend over £2 billion on a second runway at Stansted which nobody (airlines, local councils, National Trust etc, etc) wants - why don't BAA scrap their plans of expanding Stansted, which incidentally adds massively to UK PLC's negative balance of trade figures, and spend the money where it is needed?
Gary White, Bishops Stortford, Herts
Ferrovial must pay the price for leveraging the company to the hilt to fund the purchase. If that means a distressed sale of airports or facilities to more capable operators then so be it.
The government must take some responsibility for allowing an acquisition with such a debt structure to proceed. BAA has an effective monopoly on what is an essential piece of Britain's infrastructure. It should not be allowed to hold customers and the tax payers to ransom.
RM, London, UK
If Spanish Ferrovial is in too deep, why should the British taxpayer throw them a lifeline. They should sell to somebody who knows what they are doing. If they lose money - GOOD. Perhaps it will be a lesson to other big companies who think they can pay too much for businesses they do not understand..
Raymond, Haslemere, England
Can BAA really be allowed to hold London to ransom? Irresponsible threats such as Mr Nelson's are grist to the anti-business mill, but will hopefully speed up the break-up of the monopoly.
Peter Smith, Bangkok,
Ferrovial doubtless feel they are safe with the olympics on the horizon, Britain needs a smart and efficient gateway for that event alone let alone day to day use. I am sure their calculations are that we as a country will cough up just for prides sake. Will we?
Heathrow has long been an absolute disgrace as Britains front door, outclassed by many, even small, holiday destinations and in the realms of primative when compared with most other national portals. Unfortunately our leaders have a mindset that denies the importance of transport in all its forms and I am not hopeful that Heathrow will receive the attention it so desperately needs.
mike gee, bournemouth, uk
18% increase in charges in anyones view, except BAA and the CAA, is a massive increase in real terms. Could you imagine Tesco raising prices by this amount? Once again, with the support of government agencies, it is rip-off Britain.
Barry Samways, London, UK
It is outrageous that BAA were allowed to cream money out of passenegers and return it to shareholders/investment funds, whilst allowing the airports to descend into filthy chaos.
There needs to be a public petition/action against them to make the government sit up and listen.
ab, quimper, france
JFK, Cde Gaulle, Schipol, Frankfurt??? Are you insane. Possibly the only worse major airports in the Western world.
Nathan Lyon, Penang, Malaysia
Funny, how they all crawl out of the woodwork to criticize BAA now it's owned by a Spanish company. London airports together with all the other infrastructure here have been mismanaged for decades - by Brits, with nobody batting an eyelid.
Xenophobic? Us?
Chris, London,
The English have a passive-reactive airports policy - passively allow the assets to fall into foreign private hands, then stamp their feet in reaction. Has anyone wondered why JFK, Cde Gaulle, Schipol, Frankfurt et al are NOT in private hands? Its so that they can be managed actively for the public good, not used as retail milk-cows.
Its time they were re-nationalised and owned by a public trust on the same lines as JFK. Its also time for a new London airport on the estuary.
Gorgy, Leningrad, USSR
BAA have an obligation to deliver services, if they can't/don't/won't then the govt should step in and force the owners to auction Heathrow and Gatwick to qualified owners who will meet their obligations, end of story.
Michael, London,
I, for one, have stopped using London, as Manchester and/or Glasgow are far more convenient - and user-friendly.
Bill Peter, Kuala Lumpur, Malaysia
The City was widely criticised for having under valued a business with supposedly predictable long term secure cash flow and investment requirements at the time Ferrovial bought BAA last year. Rather inevitably, it now looks like Ferrovial were the ones who got it all wrong.
The regulating authorities now have little alternative but to move rapidly to break up this monopoly before Ferrovial's problems massively damage the economies of the English south east and of Scotland.
In the meantime it is essential that Ferrovial cut the all the unnecesary ostentation from their capital investment at Stansted back to something appropriate to the low cost carriers and their customers and put resources back into the appropriate level of operating expenditure at all their airports.
Philip, Malta, Malta
Why not ask the Monopolies and Mergers Commission to investigate BAA? They charge ridiculous prices for frankly a rubbish service which makes our airports the butt of jokes across South East Asia.
Iain, Hong Kong,
How about this? BAA cuts investment, UK government cuts their licences?
AG, London, UK
Why should the passengers pay if the owner overextended itself when buying the BAA, what was the Government doing at the time? What will happen is that the passengers and the airlines will go elsewhere, the problem is that all the main airports around London are owned by BAA, the government should never have allowed this monopoly in the first place.
Nick, Camberley, UK