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OFT proposes to refer BAA airports to the Competition Commission

175/06    12 December 2006

The OFT has today signalled its intention to refer the supply of airport services by BAA to the Competition Commission (CC) for more detailed investigation. It has also made a recommendation that the airports regulator advise the Government on the case for the de-regulation of Manchester airport.

Download UK airports report (pdf 2.8mb).

BAA owns Heathrow, Gatwick, Stansted and Southampton in South East England, and Edinburgh, Glasgow and Aberdeen in Scotland. These airports have an annual turnover of £2 billion and handle over 60 per cent of all air passengers in the UK.

The OFT market study has found:

• in the South East, BAA's airports handle ninety per cent of passenger trips, and these airports could under separate ownership compete to attract air passengers
• evidence of poor customer satisfaction
• significant investment at airports in the South East of England is planned. Without competition - investment could be inefficient - costly for air passengers and for the UK
• BAA's Scottish airports which carry over 80 per cent of Scottish air passengers, are not price regulated, and charges to airlines are higher than Gatwick and Stansted
• Glasgow, which faces some competition from Prestwick, has had the largest price decreases of BAA's airports in Scotland, and
• the study also found further evidence that competition between independently owned airports - such as Liverpool and Manchester - leads to improved value for air travellers.

The conclusion on referring BAA to the CC is provisional - the OFT now invites comments before reaching a final conclusion.

John Fingleton, OFT Chief Executive, said:

'We believe that the current market structure does not deliver best value for air travellers in the UK, and that greater competition within the industry could bring significant benefits for passengers. There is evidence of poor quality and high charges - BAA's investment plans, which are of great importance to the UK, have raised significant concerns among its customers. These are signs of a market not working well for consumers and we believe that a full inquiry into BAA's structure is justified.'

The consultation will last for eight weeks and end on 8 February 2007.

NOTES

1. Of the 180 daily destinations served by Heathrow, 86 were served from Gatwick and over 40 from Stansted.

2. Heathrow airport came 56 out of 58 airports in a survey, Gatwick 49 and Stansted 43.

3. In June, the OFT announced that it was conducting a market study into the UK airport sector to see whether enhanced competition between airports would lead to greater benefits to consumers. The range of issues explored included the level of aeronautical charges to airlines, the quality of services to passengers at airports, and the prospect for adequate investment at airports to meet the anticipated growth in passenger numbers.

4. The Enterprise Act 2002 (EA02) allows the OFT to investigate markets in which it appears competition is weak. BAA's persistently high share of the market for air passengers (over 60 per cent of all UK air passengers) led to the launch of a market study in June 2006.

5. The air passenger survey was carried out by Airports Council International, the trade association for airports. It is based on a random sample of passengers on a quarterly basis. The figures reported are for Q1 2006.

6. The price comparison survey was carried out in 2005 by Transport Research Laboratory (an internationally recognised centre providing research, consultancy and advice for all aspects of transport).

7. During the course of the study BAA has been purchased by a consortium led by Grupo Ferrovial S.A.

8. Before reaching a final decision the OFT will take account of any undertakings in lieu of a reference that are offered by BAA to address the competition concerns raised within the report.

9. Under section 131 of the EA02, the OFT may make a market investigation reference to the CC where it has reasonable grounds for suspecting that any feature, or combination of features, of a market in the United Kingdom for goods or services, prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom.

10. Under section 169 of the EA02, where the OFT is proposing to decide to make a reference to the CC it must first consult, so far as practicable, any person on whose interests the reference is likely to have a substantial impact. The paper published today sets out our proposed decision and invites comments by 8 February 2007.

11. Section 7 of the EA02 empowers the OFT to make recommendations to Government and public bodies. Government has indicated that it will publish its response to such recommendations within 90 days.

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