BAA airports

Launched: June 2006

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Purpose of the study

1. To examine the scope for benefits to arise from enhanced competition between airports (for example, via divestment of airports) or from enhanced competition within airports (for example, via divestment or long term lease of terminals or runways within an airport).

2. To look at constraints which may limit increased competition, such as short-term capacity constraints, longer-term planning restrictions, price regulation and the restrictions on trading of landing/take-off slots.

(Geographic scope: South East of England and Scotland, in respect of BAA, and the North of England in respect of Manchester Airport).

(Study followed in-house work)

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Findings

The findings showed:

BAA owns airports through which over 60 per cent of UK air passengers travelled in 2005.

The following features prevent, restrict or distort competition:

• joint ownership of airports in the South East and Scotland by BAA, with high regional market shares
• the system of economic regulation of airports, and
• capacity constraints.

In the short term the lack of competition between BAA's airports in the South East and Lowland Scotland leads to higher charges than would be the case if these airports were owned by separate firms. This raises cost to air travellers.

Heathrow and Gatwick have performed poorly in international surveys of the quality of service at airports. Weak competition could be a contributory factor. By contrast Manchester airport appears to be subject to greater competition from separately owned airports.

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Recommendations

Market investigation reference of the supply of airport services by BAA within the UK to the CC.
Recommendations to Government in relation to airports in the North of England that:

• Government publish criteria for dedesignation of airports
• Civil Aviation Authority (CAA) advises the Department for Transport (DfT) whether to dedesignate Manchester airport before the statutory price control reference to the CC is due, and
• Government consider transferring decisions on designation to the CAA.

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Action following market study

Government accepted two out of the three recommendations from the market study:

• Issued a consultation document February 2007 setting out the preferred criteria for designation and de-designation and decided on new criteria in May 2007.
  
  
• Formal consultation on possible de-designation of Manchester and Stansted airports issued by DfT July 2007. Decided to de-designate Manchester airport but not Stansted January 2008.

On the third recommendation:

• Deferred consideration of the recommendation to transfer decisions on designation to the CAA. It would be premature to consider this recommendation in advance of the CC investigation and the inquiry into sectoral regulation by the House of Lords and the inquiry into the work of the CAA by the Transport Select Committee.

The Government said that it would be premature to consider this until the CC had reported since the airports market could be altered significantly by the outcome of the reference. The DfT would consult at the appropriate time on the wider regulatory role of the CAA, including the way in which airport regulation operates. The DfT has now taken this forward as part of its wider consultation on reforming the framework for the economic regulation of airports.

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Market study details and report

Market investigation reference made in March 2007. See press release OFT refers BAA to the Competiton Comission 30 March 2007 
Download BAA - The OFT's reference to the CC April 2007 (pdf 924 kb)
Download the executive summary April 2007 (pdf 93 kb)

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Background information

Download UK airports - reasons for the market study June 2006 (pdf 108 kb)
See press release OFT launch market study into UK airports 30 June 2006
Download UK airports - consultation on proposed reference (pdf 2.87 Mb) December 2006
See press release OFT proposes to refer BAA airports to the Competition Commission 12 December 2006

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