COMPETITION
COMMISSION News Release (11/09) issued by COI News Distribution
Service. 19 March 2009
CC publishes final
decisions in BAA market inquiry
The Competition Commission (CC) will require BAA to sell both
Gatwick and Stansted as well as either Edinburgh or Glasgow.
In its final report on BAA's ownership of seven UK airports,
published today at http://www.competition-commission.org.uk,
the CC also stipulates that BAA must sell all three airports
within two years. They are to be sold in sequence, beginning with
Gatwick, then Stansted, followed by either Edinburgh or Glasgow.
The sale of Gatwick was initiated by BAA in September 2008 and the
sales process is already under way.
The CC is also requiring BAA at Aberdeen to improve consultation
with airlines as well as publish certain financial and other
information. In addition, the CC is recommending to the
airports' regulator, the Civil Aviation Authority (CAA), that
it should take certain specified action at Heathrow, the UK's
only hub airport, where BAA will continue to have substantial
market power even after the sale of Gatwick and Stansted.
Further, the CC is making recommendations to the Government on
aspects of government airports' policy, as well as on matters
arising from the inquiry on the shortcomings of the current
airports' regulatory system to be taken into account in their
current review of the need for, and design of, a more effective
and more flexible regulatory system.
The CC's final report takes into account the substantial
evidence received from BAA, the airlines, the CAA and many other
parties over almost two years, including the further evidence
since the publication in August 2008 of the provisional findings
and proposals on possible remedies. The report finds competition
problems with adverse effects for both passengers and airlines at
all seven of BAA's UK airports (Heathrow, Gatwick, Stansted
and Southampton in the South of England, and Edinburgh, Glasgow
and Aberdeen in Scotland). A key problem at BAA's airports in
the South-East and in lowland Scotland is common ownership which
precludes any competition between them. There are additional
problems at the London airports arising from the current system of
regulation, planning and aspects of Government policy. The
problems at Aberdeen derive from its isolated geographical
position giving it the characteristics of a local monopoly.
Christopher Clarke, Chairman of the BAA Airports inquiry, said:
We have decided that the only way to address comprehensively the
detriment to passengers and airlines from the complete absence of
competition between BAA's south-east airports and between
Edinburgh and Glasgow is to require BAA to sell both Gatwick and
Stansted as well as either Edinburgh or Glasgow. They will each
then operate under separate ownership from BAA's other
airports. We recognize that in using our powers in this way, we
will have a significant impact on BAA's business. However,
given the nature and scale of the competition problems we have
found, we do not consider that alternative measures, such as the
sale of only one of the London airports or greater regulation,
will suffice.
We are confident that the sale of these airports will bring
substantial benefits to passengers and airlines. We expect that
the new airport owners, with the operating capabilities and
financial resources to develop them as effective competitors, will
have a much greater incentive than BAA to be more responsive to
their customers. We also expect further benefits from BAA's
own response to the action taken by these new competitors.
Such action can take a number of forms, including lower prices,
improved levels of service and more efficient investment in
response to customers' needs. As a result, airlines and their
passengers, as well as freight companies, will benefit from
airport operators being more customer focused. Some of these
benefits can be expected from the outset of these airports being
under separate ownership, others may take longer. Indeed, some,
such as those resulting from competition in delivering new runway
capacity at Stansted and Heathrow, may be some years away.
Competition is a dynamic process which derives from the rivalry
between different companies. The sale of these airports will,
therefore, kick-start a process of competitive rivalry from a
standing start where today there is no competition at all. The
precise pace and the precise ways in which the benefits from such
competition will emerge may be uncertain but we are confident that
the benefits will build over time, driven by the momentum of the
development of competition, and will be significant, as has proved
to be the case at other airports in the UK where there is already competition.
We are requiring BAA to sell all three airports within two years.
To ensure an orderly sales process and in recognition of current
market conditions, we consider it sensible for them to be sold in
sequence, beginning with Gatwick, then Stansted, followed by
either Edinburgh or Glasgow. Although we consulted on the basis
that there might be competition factors which favoured the sale of
Edinburgh over that of Glasgow, we have concluded that the case is
not sufficiently strong to favour one over the other, so we have
decided that it is appropriate for BAA to have the choice.
There are certain competition problems we have identified where
we have decided that responsibility for the remedy best lies with
parties other than the CC.
At Heathrow, the UK's only hub airport, BAA will continue to
have substantial market power even after it no longer owns either
Gatwick or Stansted. To address the shortcomings in appropriate
investment, there is a need for improved consultation between BAA
and the airlines, including the provision of necessary information
and better processes of consultation. We recognize that there have
already been some improvements but there is further to go. We
could impose obligations on BAA ourselves, but given that the
airport is already regulated by the CAA, this would add another
layer of regulation and could raise practical difficulties.
Accordingly, we are recommending that the CAA should take the
lead. Given the enhanced role for the CAA envisaged by the
Government in the new regulatory regime in facilitating dialogue
and resolving disagreements, we consider that this is particularly
apt. We are making similar recommendations to the CAA to take
additional measures to encourage further improvements in the
quality of service.
There are two other areas where responsibility for action
properly lies elsewhere than with ourselves, in this case with the
Government. First, we are recommending that the Government should
consider the impact of policy on the aviation market, particularly
in the South-East in the light of the divestitures of Gatwick and
Stansted. It should ensure that in developing the National Policy
Statement (NPS) on airports, it does not unduly constrain the
market. Second, our inquiry has provided significant evidence on
lessons for improvements to the system of airport regulation. We
are, therefore, making specific recommendations to the Government,
particularly in the areas of the objectives and duties of the
regulator, and of appeals against decisions by the regulator. In
both cases, we are drawing on our long experience of airport
regulation and of appeals against decisions by regulators in other
sectors. In addition, and very important, we have addressed how
the new regulatory system can ensure that regulation is relaxed or
even removed as competition develops. We have already contributed
to the work the Department for Transport (DfT) has been doing in
its consultation on regulatory reform and we envisage that it will
take into account the detailed views in our report today,
obviously setting them alongside those of others.
The main remedies set out in our report are as follows:
* We will require the sale of both Gatwick (although BAA has
already started the sales process) and Stansted airports to
different purchasers, as well as one of Edinburgh or Glasgow
airports. A monitoring trustee will oversee the sales processes.
* With the Gatwick sales process already under way, BAA will next
be required to sell Stansted, followed by either Edinburgh or
Glasgow, at its discretion. The dates by which each of the sales
has to be completed is not being published so as not to prejudice
an effective sales process; but the end date is less than two
years from the date of our report. If the sales are not completed
by the specified dates, the CC reserves the right, in each case,
to appoint an independent divestiture trustee to carry out the
sales. The timetable may be subject to revision should a material
change in circumstances make this appropriate.
* BAA will be required to sell the divestiture airports to
suitable purchasers approved by the CC. They should be independent
of BAA, should have the intention, appropriate expertise and
financial resources to operate and develop the airports as
effective competitors and should not create further competitive
concerns as a result of divestiture.
* At Aberdeen, BAA must improve consultation with airlines as
well as publish certain financial and other information.
Ahead of any longer-term changes to airport regulation introduced
by the DfT, we are recommending to the CAA that:
* It should strengthen the consultation process at Heathrow
through the provision of necessary information and better
processes of consultation between BAA and the airlines, as well as
introducing annual independent audits of the existing service
quality regime.
In relation to airport regulation, we fully support a licensing
regime of the kind proposed by the DfT, as it would introduce more
flexibility to the regulation of airports; for example, the
regulator would be able to relax the intensity of regulatory
scrutiny, where it saw opportunities for increased competition. We
have also recommended to the DfT that:
* The regulator's primary objective should be the promotion
of the consumer interest wherever possible through the promotion
of competition. There should be an ancillary duty to consult and
pay due regard to the views of airlines as well as to consult
designated passenger groups and airport operators.
* Appeals against price control and service quality licence
modifications made by the regulator should be made to the CC. The
right to appeal should lie with the relevant airport, individual
airlines and designated passenger groups.
* Legislation should be amended to allow for terminals to be
developed or redeveloped and operated separately from runway facilities.
In relation to airports policy, we are recommending to the DfT that:
* It should, in the context of the development of the forthcoming
NPS on airports, consider the impact of the White Paper on the
aviation market, particularly in the South-East in the light of
the divestment of Gatwick and Stansted. It should ensure that the
NPS on airports does not unduly constrain this market and should
give consideration to the ambitions of the new owner of Gatwick
Airport, including the possibility of a second runway after 2019.
The main competition problems identified in our report are as follows:
* Common ownership of Edinburgh and Glasgow airports is a feature
which prevents competition between them.
* Common ownership of the three BAA London airports is a feature
of the market which prevents competition between them; the
intensity of price competition may initially be limited by current
capacity constraints and price controls, but these constraints are
themselves at least in part the result of common ownership.
* Common ownership of Southampton with Heathrow and Gatwick is a
feature of the market which prevents competition between them;
there is scope for competition from Heathrow and Gatwick to have
an impact on Southampton, although the potential for competition
to have an impact on Southampton is greater from Gatwick than Heathrow.
* Common ownership of the BAA London airports is also a feature
of the market that, inter alia, restricts or distorts competition
between airports in relation to capacity development.
* Common ownership of the BAA London airports also exacerbates
the inadequacies of the regulatory system, reducing the benefits
of regulation and distorting competition between airlines.
* Aberdeen's comparatively isolated geographical position
relative to other centres of population combined with other
factors that make it unattractive to serve a catchment of
Aberdeen's size with more than one airport and that deter
entry are features that restrict airport competition.
* Heathrow's position as the only significant hub airport in
the South-East, and indeed the UK, is itself a feature that
restricts competition between airports.
* Aspects of the planning system are a feature which restricts
and/or distorts competition by acting as a barrier to entry of new
airports and expansion of existing ones.
* Aspects of government policy are features which restrict or
distort competition between airports.
* The current regulatory system for airports is also a feature
which distorts competition between airlines.
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 was asked to determine whether there are
any features of the market that prevent, restrict or distort
competition and, if so, what remedial action might be taken.
3. On 20 August 2008, the CC published its provisional findings
report, which found competition problems at each of BAA's
seven UK airports (Heathrow, Gatwick, Stansted and Southampton in
England, and Edinburgh, Glasgow and Aberdeen in Scotland) with
adverse consequences for passengers and airlines. It stated that a
principal cause is their common ownership by BAA but that there
are also competition problems arising from the planning system,
aspects of government policy and the system of regulation.
4. Also on 20 August 2008, the CC published a notice of proposed
remedies and following discussions with all interested parties
including BAA, the airlines, the CAA and the DfT, on 17 December
2008, the CC published its decision on which measures it proposed
to enforce or recommend.
5. 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 (until 3 March 2009).
6. In 2006 BAA was acquired by Airport Development and Investment
Ltd (ADI), a wholly-owned subsidiary of FGP Topco Ltd, in which,
as of 6 June 2008, Grupo Ferrovial, SA held 55.87 per cent of the
ordinary shares. The other two shareholders in FGP Topco Ltd are
Britannia Airport Partners LP (26.47 per cent), which is managed
by Caisse de depot et placement du Quebec, and Baker Street
Investment Pte Ltd (17.65 per cent), a subsidiary of GIC Special
Investments Pte Ltd.
7. 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.
8. Enquiries should be directed to Rory Taylor on 020 7271 0242