Divestment
79. In the course of previous inquiries into the
aviation sector, we have recommended that the BAA group be broken
up.[92] BAA stated:
We consider the case for break-up to be weak,
in that it does not appear to have considered the fundamental
questions surrounding the delivery of new capacity. Genuine competition
would only be possible with that new capacity. T5 is the future.
BAA has ambitious plans for all its airports and a stable ownership
structure is a key aspect of transforming airports.[93]
In its written evidence, BAA poses several questions
to us:
- How can there be competition
between airports without spare capacity?
- How can price-controlled airports compete on
price?
- How would separate owners deliver capacity any
faster than BAA?
- How would the inevitable delays in delivering
service improvements and new capacity, caused by break-up, be
addressed?
- Would separate owners have the necessary skills
and experience?
- Would separate owners have the financial strength
of BAA?[94]
80. This gives us the opportunity to set out a few
key points in response. Any airport that were sold off would not
be price-controlled, as it would be in a position of market power,
and thus would be free to compete on price. Two of the things
BAA does not have a monopoly on are skills and experience, and
we are not persuaded that it would necessarily deliver new capacity
faster than any other potential owner. We are confident that any
new owner would have (at the very least) the financial strength
of BAA, and might well be stronger.
81. There are more limitations on supply than
there are on demand in the aviation sector, and there are no signs
that this will change. To assume that spare capacity is necessary
for competition is to deny the possibility of competition altogether.
We have heard evidence from the CAA that there is indeed competition,
particularly in the point-to-point and low-cost sectors. If competition
is taking place without spare capacity—as the CAA say that
it is—then it must be possible.
82. EasyJet's Communications Director, Toby Nicol,
argued that "what would be worse than a single monopoly controlling
Heathrow, Gatwick and Stansted would be three individual monopolies."[95]
He explained that "they all have a monopoly of their local
markets. Stansted, Gatwick and Heathrow do, and in effect what
you would do is simply create mini-monopolies rather than a big
monopoly."[96] However,
in a supplementary written submission, Mr Nicol clarified easyJet's
position: "easyJet supports the break-up of BAA, but […]
this should not be at the expense of effective regulation of BAA's
three London airports."[97]
83. We agree that breaking up BAA's monopoly would
not remove the need for effective regulation. What it would remove
though—through the removal of substantial market power—would
be the need for the kind of economic regulation in the form of
price controls. Further, and in all likelihood deliberate, 'blurring'
of the passenger markets as described by Unite would result in
increased potential competition between airports and, because
there would be separate economic interests, increased actual competition
for passengers.
Which airport?
84. There has been speculation in the media to the
effect that BAA and Ferrovial have plans to sell off either Gatwick
or Stansted.[98] As the
airport in the South East least likely to see development and
extra capacity in the next fifteen years, Gatwick is possibly
more expendable than Stansted. In August 2007, The Business
reported that there would be a 'feeding frenzy' if BAA were
forced to sell Gatwick.[99]
It will be for the Competition Commission to consider all the
options facing BAA, and we await its findings and recommendations.
85. BAA's monopoly position in the UK airports
sector is unnecessary. Indeed, it is bad for passengers and bad
for the aviation industry. We do not agree that the status quo
is a necessary condition of sustained investment and development.
We are firmly of the view that increased competition is possible
and could have huge benefits for both airlines and passengers.
We look forward to the Competition Commission's analysis of all
the issues, and hope that it undertakes detailed cost-benefit
analyses of all the possible outcomes.
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