The Competition Commission (CC) has published its final report on BAA’s ownership of seven UK airports. BAA will be required to sell three of its airports: Gatwick and Stansted, as well as either Edinburgh or Glasgow. The report follows a referral by the OFT in relation to their market investigation of 2007. The CC hopes that the sale of these airports will kick-start a much needed process of competitive rivalry and bring substantial benefits to passengers and airlines.
The report indicates that the three airports must be sold within two years and in accordance with a predetermined sequence: firstly Gatwick, then Stansted, followed by either Edinburgh or Glasgow, although the precise dates have not been published to avoid impeding the sale process. The sale of Gatwick, which was initiated by BAA in September 2008, is already under way. In addition to the three divestitures, the CC is also requiring BAA at Aberdeen to improve consultation with airlines, and to publish certain financial and other information.
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. The CC has therefore made a series of recommendations to the Civil Aviation Authority (CAA). The CAA must improve the consultation process at Heathrow between BAA and competing airlines. They must also introduce an annual independent audit of the existing service quality regime. The CC has also made recommendations to the UK Government on aspects of the 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 the Government’s current review of the need for, and design of, a more effective and flexible regulatory system.
The CC’s enquiry found that there are competition problems that adversely effect 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). The CC found the key problem at BAA’s airports in the Southeast and in lowland Scotland to be common ownership as this precludes any competition between the airports. According to the report, there are also 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.
Although the CC has recognised that the divestitures will have a significant impact on BAA’s business, the CC did not believe alternative measures, such as the sale of only one of the London airports or greater regulation, would be adequate, given the nature and scale of the competition problems uncovered by the investigation. According to the report, the CC anticipates that the sale of the three airports to different purchasers will bring substantial benefits to passengers and airlines, partly because the new airport owners will have a much greater incentive than BAA to be more responsive to their customers, but also because BAA will need to respond to whatever action is taken by its new competitors, such as lowering prices, improving levels of service and more efficient investment in response to customers’ needs.
Under the Enterprise Act, the OFT has the power to refer markets to the CC for further investigation. They will do this when they have reasonable grounds for suspecting that any feature, or combination of features, of a market is preventing, restricting or distorting competition. Following a reference, as was the case here, the CC will decide whether competition is indeed restricted and what, if any, action should be taken to remedy the adverse effect on competition.