Belfast Telegraph

Monday 29 December 2014

Simon Calder: Profits before service – what did you expect?

To describe BAA as the "Billy No Mates" of the business world is an exaggeration. But only a slight one. The Spanish-owned company that controls almost two-thirds of the UK's airport business (by passenger numbers) won some friends in the early summer of 2006.

BAA shareholders sat back and enjoyed the sight of the value of their investment soaring in a bidding war finally won by Madrid-based Ferrovial, paying almost 50 per cent more than the shares were worth before the battle began.

The hollowness of their victory became clear a few weeks later. On 10 August, it was alleged that a plot to blow up transatlantic airliners had been uncovered, and hand luggage banned. Most airports coped adequately but Heathrow ground to a halt. Since then, scenes of chaos have reminded travellers of the shortcomings of Britain's busiest airport: the wrong kind of fog, the wrong kind of software for the Terminal 4 baggage system, and the wrong kind of £4.3bn Terminal 5.

Is BAA the wrong kind of airport operator? No, actually. It has behaved in exactly the way economic theory would predict for a dominant player in a marketplace where capacity is severely constrained: as landlord of the leading three airlines in England and Scotland it has milked the cash cow as assiduously as possible, placing profitability above customer service.

The contrast with the airlines who are obliged to use facilities that date back to the birth of rock'n'roll could not be stronger. British Airways vies with another home-grown world-class rival in the shape of Virgin Atlantic. At the budget end of the market, easyJet, Ryanair and other no-frills airlines are knocking seven bells out of each other. And the winner is ... the British traveller, who gets lower fares and more choice than anyone else in the world.

A year ago the Office of Fair Trading asked the Competition Commission to look at "whether there are any features of the market that prevent, restrict or distort competition". The only surprise is it has taken the commission so long to come up with an interim "maybe". Perhaps it is appropriate, given the delays and uncertainty that characterise Britain's long-term airport policy and the long-suffering traveller's short-term battle to get through a BAA airport.

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