Select Committee on Transport Fourth Report

1 Introduction

Our inquiry

1. BAA Limited (BAA) owns and operates seven of the UK's airports at Heathrow, Gatwick, Stansted, Southampton, Glasgow, Edinburgh and Aberdeen. Its dominant market position has for some time led to calls for it to be broken up, both by the airlines and this Committee. In March 2007, the Office of Fair Trading instructed the Competition Commission to investigate whether BAA's market position was limiting competition in the UK aviation sector.

2. In October 2007, we announced our own inquiry into the future of BAA. We explained our reasons for holding an inquiry thus:

BAA airports are a vital part of the country's transport infrastructure, serving nearly 150 million passengers each year between them. The company is facing a number of unique challenges in addition to those faced by the aviation sector as a whole. We want to find out how the company, the government and other stakeholders will respond to the current situation.[1]

3. We particularly wanted to consider:

  • the regulatory framework;
  • the quality of service provided;
  • the size and quality of investment;
  • any consequences following from the acquisition of BAA by Ferrovial;
  • the implications of further runway and terminal capacity; and
  • how more competition could be introduced into the market.

4. In response to our call for evidence, we received written memoranda from 30 organisations and individuals. As well as BAA, we invited the regulators, unions, airlines and the Department for Transport to give oral evidence. A full list of witnesses is provided on page 41.

5. Our inquiry has taken place over a period in which BAA has rarely been out of the headlines. The publication by the Civil Aviation Authority's (CAA) of its final price control proposals on 20 November came the day before representatives from the regulator gave evidence to the Committee. The Financial Times reported the claim made by airlines that the rise in fees represented a "reward for failure".[2] Meanwhile, The Guardian reported that the reduction in the return on capital investment from 7.75% to 6.2% at Heathrow and 6.5% at Gatwick that BAA's owners Ferrovial would receive meant that under the CAA's proposals the refinancing was "thrown into doubt".[3] This has been disputed by BAA.[4]

6. In November, the Secretary of State for Transport (Rt Hon Ruth Kelly MP) announced a public consultation on the construction of a third runway and sixth terminal at Heathrow airport.[5] The consultation document, Adding capacity at Heathrow airport, invites members of the public to comment on the Government's proposals.

7. In December, members of the Unite union threatened strike action over the proposed closure of the final salary pension scheme to new employees. This brought adverse publicity over the Christmas and New Year period, with media predictions of delays and the possible closure of BAA's seven UK airports. In January, the strikes were averted after discussions between BAA and the union.[6] Also in December unusually poor weather on a significant number of days led to cancellations and delays and brought even more adverse publicity.

8. On 27 February, BAA announced that Colin Matthews—formerly Chief Executive of Severn Trent plc and Director of Technical Operations at British Airways—would replace Stephen Nelson as Chief Executive from April. In a press release BAA's Chairman, Sir Nigel Rudd, said that BAA was entering a new era in which "new demands for quality service and environmental responsibility" needed to be met. He explained that Mr Matthews had "the right background and experience to take BAA into that new era".[7]

1   'The future of BAA', Transport Committee press release, Press Notice 57 Session 2006-07, 17 October 2007 Back

2   'Prospect of higher fares as Heathrow charges rise 15%', The Financial Times, 21 November 2007, p 3 Back

3   'BAA told to cut queues or face £75m fine', The Guardian, 21 November 2007, p 27 Back

4   Q 245 Back

5   'Public invited to have their say on the future of Heathrow', Department for Transport press release PN-166, 22 November 2007 Back

6   'Air chaos threat recedes after negotiations', The Guardian, 1 January 2008, p 6 Back

7   BAA, 'BAA has announced a change of Chief Executive to take effect from 1 April 2008', 27 February 2008,  Back

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