I’ve been digesting the UK Competition Commission’s provisional findings on BAA, and I’ll have more to say on the proposed remedies later. Here, in summary form, is what the Commission has found.
BAA was privatized with control of London’s three main airports in 1987 primarily to increase airport efficiency and provide a solid financial base for future expansion. It has not done this. “More than 20 years later, there is inadequate capacity, particularly runway capacity, in the South-East.” Furthermore, BAA’s airports are widely criticized by airlines, travelers, and other stakeholders. The Commission acknowledges that BAA is not entirely to blame — they do not oversee air traffic control, immigration and HM Customs, or airline operations. But BAA is not blameless. They are unresponsive to “the interests of airlines and passengers,” reports the Commission.
Is the lack of competition between BAA’s airports inevitable? Evidence suggests not. The Commission points out strong competition between Belfast’s airports, Birmingham and East Midlands, Cardiff and Bristol, and Liverpool-Manchester-Leeds Bradford. And BAA’s airports are easily substitutable, especially for leisure travelers — there is no natural monopoly in airport services in the Capital or Edinburgh-Glasgow as there is in, say, Aberdeen (where BAA ownership has been OK’d by the Commission).
BAA argues that competition is restricted not by common ownership but by capacity constraints. The Commission agrees, and it also fingers three other culprits in capacity constraints: the planning process, which slows up capacity development; government policy, which shapes future runway investments; and price regulation of airports. But this, the Commission argues, does not absolve BAA: “We acknowledge that to some extent BAA’s actions can be attributed to Government policy and/or the planning system and we have noted the interdependences between them. But in our view, as the owner and operator of the three major airports in the London area, BAA has to be regarded as responsible for their achievements and shortcomings.”
Because of capacity constraints, even if BAA were broken up today, there would be limited competition between airports in the short run. But the Competition found that “under separate ownership . . . we would expect the market structure to be sufficiently competitive so as to incentivize airport operators to overcome the current constraints on expanding capacity and to expand capacity to facilitate competition with one another, increasing competition in the longer term.” In other words, even though external forces impede airport expansion, BAA had little reason to seek out competitive expansion.