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Last Updated: Thursday, 25 May 2006, 07:42 GMT 08:42 UK
UK airports in competition probe
Heathrow airport
BAA dominates the UK airports market
Regulators are to examine competition in the UK airport industry, at a time when leading operator BAA is the target of a fierce takeover battle.

The Office of Fair Trading (OFT) is set to look into whether the market, which is dominated by BAA, is competitive.

If the OFT finds any evidence of anti-competitive behaviour, it could refer the industry to the Competition Commission for a full investigation.

BAA has rejected a 8.7bn bid from a consortium headed by Spain's Ferrovial.

BAA revealed plans on Thursday to return 750m in capital to shareholders should Ferrovial's takeover bid lapse.

Consumer impact

BAA operates Heathrow, Gatwick and Stansted airports, handling more than 90% of all passengers in the London area and 63% nationally.

The OFT said it was considering launching a "market study" into the industry's structure, including BAA's position in the market.

Competition in air transport is an extremely important part of the UK economy
John Fingleton, Office of Fair Trading

The decision on whether to go ahead is due next month, and experts consider such a move likely.

The study - which would be the first undertaken by regulators - could potentially lead to a full competition inquiry.

The OFT's announcement only days after the European Commission said it would not object to Ferrovial acquiring BAA.

"Competition in air transport is an extremely important part of the UK economy, with a significant impact on UK consumers and business alike," said John Fingleton, the OFT's chief executive.

"We have decided to look more closely at how the airport markets work with the aim of establishing whether the current market structure delivers best value for air travellers."

BAA reaction

BAA said the regulator's move came as a "complete surprise" but said it would co-operate with any enquiry.

"BAA's major businesses are already price regulated by the CAA and the Competition Commission in the interest of airport users," it said in a statement.

BAA is mounting a vigorous defence as it tries to fight off the Spanish-led bid, planning to raise its dividend by 40% in the current financial year.

Ferrovial has yet to decide whether to up its offer after BAA rejected its original proposal.

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