Aviation and competition: the BAA Airports market investigation

Under the UK competition law the Competition Commission (CC) is an independent public body which conducts investigations into mergers, markets and regulated industries under the Enterprise Act 2002. In such a capacity the CC has started an investigation into the market for the supply of airport services, following a referral from the Office of Fair Trading in March 2007. The market for airport services is dominated by BAA, which owns 7 airports: Heathrow (LHR), Gatwick (LGW), Stansted (STN), Southampton (SOU), Edinburgh (EDI), Glasgow (GLA) and Aberdeen (ABZ). All of them are strategically located in well developed areas in the South-East of England and in lowland Scotland. That results in the concentration of considerable market power in the hands of BAA to the detriment of the correct working of competition as well as of the interests of airlines and passengers too.

The weak competitive structure of the market is also emerged from the interim report the CC has recently issued on its investigation on BAA ( BAA Market Investigation, Emerging Thinking, available at http://www.competition-commission.org.uk).

To the accusations of lack of competition between the BAA’s London airports, BAA has since long replicated that these competition problems are due the shortage of capacity that affect these airports.

The CC, instead, argues that the fact that BAA owns seven airport as well as the way according to which it carries out its business may explain the absence of competition. In particular, BAA appears to be unresponsive to the needs of airlines and passengers, which may have negative consequences on levels and quality of service. The way BAA plans airport development is also of relevance. Because of its common ownership of many airports and the ensuing constraint on the availability of resources, BAA concentrates its efforts and resources on one major project at a time at the expense of the development of the other sites.

However, the uncompetitive conditions of the market cannot be only imputed to BAA.

The Government policy should be taken into consideration too, as it may causes uncertainty, especially as for the timing of the development of capacity at STN and LHR. The regulatory regime for airports may also strengthen some anticompetitive factors, while the BAA common ownerships may also magnify problems with economic regulation of airports. For example, the Civil Aviation Authority (CAA), while setting price caps for airports service, has to consider the interests of airport users and to promote efficient operation of airports. However, to this end the CAA has only limited regulatory powers.

At this point of the investigation, the CC is able to anticipate some views concerning the competition structure of the market. As for Scottish airports, the CC claims there is potential for competition between EDI and GLA, on one hand, and between ABZ and EDI and GLA, on the other hand. In the South-East there exist a strong potential for competition between the three London airports and between the former and SOU, notwithstanding the lack of capacity. However, a separate ownership would lead to a strong incentive to increase capacity at the three London airports.

All interested parties can submit their views to the CC on the report by 30 May 2008. In late summer the CC will publish the final report with its ultimate findings and proposals on the issue.