COMPETITION
COMMISSION News Release (12/08) issued by The Government News
Network on 22 April 2008
CC sees potential
for competition at all BAA airports in England and Scotland and
calls for further evidence
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.
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.
The full emerging
thinking document is available on the CC website at http://www.competition-commission.org.uk.
A number of working papers addressing some of the issues in the
document in greater detail will be published shortly.
Christopher Clarke, Chairman of the BAA Airports inquiry,
said:
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).
One of the principal reasons for structuring the privatized 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
timescales, 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. However, two of the questions we
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.
Particular features which we have identified as potentially
limiting competition include the common ownership by BAA of each
of its seven airports and the way it conducts its business. We are
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.
We are 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. 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. 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. First, against the background of uncertainty over at
least the timing of expansion at both Stansted and Heathrow, it
arguably raises the risks of delay to much-needed new capacity
becoming available in the South-East on a timely basis. Second, it
may make it more difficult for other projects which have not
received explicit government support in the White Paper to obtain
planning consent even though they can be expected to be considered
on their merits.
We are also concerned that the system of economic regulation and
the way it is conducted by the CAA may adversely affect
competition though it is not yet clear to us whether it is a
feature in itself or whether it facilitates or exacerbates other
features of the airport services market which themselves limit
competition. We recognize that the legal framework for the
economic regulation of airports differs significantly from those
in other regulated sectors. In setting a five-year price cap, the
CAA is obliged to further the reasonable interests of airport
users and to promote the efficient operation of airports; however,
it has only limited powers to intervene in an airport's
business between price caps. Also BAA is not subject to a licence
and there are no provisions to ring-fence the assets of any
airport or for a special administration regime in the event that
BAA were to get into financial difficulties. However, it may also
be that the CAA's 'light touch' approach to
economic regulation impacts on the levels, quality, scope and
timing of BAA's investment as well as on the levels and
quality of service, thereby impacting competition.
Overall, our current view is that there is potential for
competition at all BAA's airports. Under separate ownership
there would be potential for competition between Edinburgh and
Glasgow, and between Aberdeen and the other two BAA airports in
Scotland, although the evidence on Aberdeen is less strong. We
therefore need to consider further the scope for potential
competition between Aberdeen and either of the other two airports.
On the south-east airports, there is a very real prospect of
competition between the three London airports, and from the BAA
London airports to Southampton subject to capacity constraints and
regulation. Given the current shortage of capacity, competition in
the short term between the London airports, were they separately
owned, is unlikely, at least in the near future, to be as intense
or effective as competition between regional airports at least for
some airlines; but nonetheless there is scope for a degree of
competition between them despite capacity constraints. But
separate ownership would itself create a greater incentive to
expand capacity at the three airports.
While we are purposely setting out our current thinking in some
detail, we have reached no conclusions. By being as explicit as
possible at this stage, however, we are providing all interested
parties with the opportunity to respond and provide further
evidence which we will consider before we reach our provisional
findings in the late summer. It is quite possible, therefore, that
our lines of argument set out in today's report may change
between now and then.
The main points in the document are as follows.
The CC is inclined to the view that common ownership of the BAA
airports is a feature of the market that adversely affects
competition between airports and/or airlines. It is also inclined
to the view that shortage of airport capacity, government policy
and the regulatory system for airports might also be features that
adversely affect competition or exacerbate other features which do so.
The CC has considered each of BAA's airports individually
and it is currently inclined to the view that:
(a) There is potential for competition between Edinburgh and
Glasgow airports, hence common ownership adversely affects
competition between them, although it is currently less clear to
us whether there is a competition problem deriving from BAA's
common ownership of Aberdeen together with its other airports.
(b) There is a real possibility of competition between the BAA
London airports given the willingness of passengers to switch
between them, although the scope for that competition is also
restricted in the short term by capacity constraints. Common
ownership therefore adversely effects competition between them. We
also currently see the potential for competition from Heathrow and
Gatwick to Southampton, if not vice versa; hence competition
problems also derive from BAA's ownership of Southampton.
(c) The capacity constraints adversely affect competition; but
nonetheless may well result from aspects of planning restrictions
and of government policy which may well also therefore adversely
affect competition, and from the way BAA has conducted its
business taking account of planning considerations.
(d) The regulatory system applied to the BAA London airports
and/or the way it operates may also reinforce or exacerbate other
features which adversely affect competition; but BAA's own
ownership of the designated airports in turn exacerbates the
inadequacies of the regulatory system, reducing the benefit of regulation.
The CC also expresses concern that BAA has a financial structure
with a dependence on a single group parent balance sheet that
could constrain the ability of the airports adequately to invest
or maintain service standards.
The CC will now consider responses to this document and hold
further hearings during the summer with a view to publishing its
provisional findings report in August.
The CC would like to hear views on the issues statement from all
interested parties, in writing, by 30 May 2008. To submit
evidence, please email airports@cc.gsi.gov.uk or write to:
The Inquiry Secretary (Airports market inquiry)
Competition
Commission
Victoria House
Southampton
Row
LONDON
WC1B 4AD
Notes for editors
1. The CC is an independent public body, which carries out
investigations into mergers, markets and the regulated industries.
2. The Office of Fair Trading (OFT) made the reference to the CC
on 29 March 2007. The CC is now determining whether there are any
features of the market that prevent, restrict or distort
competition and, if so, what remedial action might be taken. When
the OFT referred the BAA airports to the CC for investigation, it
identified potential adverse effects on competition relating to a
combination of features: joint ownership of airports (with very
high regional market shares), regulation, development restrictions
and capacity constraints
3. The members of the Airports inquiry group are Christopher
Clarke (Group Chairman and CC Deputy Chairman), Laura Carstensen,
Dr John Collings, Professor Jonathan Haskel, Richard Holroyd and
Professor Peter Moizer.
4. In 2006 BAA was acquired by Airport Development and Investment
Ltd (ADI), a wholly-owned subsidiary of FGP Topco Ltd, in which
Grupo Ferrovial, SA (Ferrovial) has a holding of 61.06 per cent
[of the ordinary shares]. The other two shareholders in FGP Topco
Ltd are Airport Infrastructure Fund LP (28.94 per cent), which is
managed by Caisse de depot et placement du Quebec and Baker Street
Investment Pte Ltd (10 per cent), a subsidiary of GIC Special
Investments Pte Ltd. In the UK, Ferrovial owns Belfast City
Airport, which is not subject to this reference by the OFT.
5. Under the Enterprise Act 2002 the OFT can make a market
investigation reference to the CC if it has reasonable grounds for
suspecting that competition is not working effectively in that market.