The Competition Commission stressed that it had not yet reached any conclusions but added that it would set out its remedies to any competition problems in August, "whether requiring the sale of one or more of BAA's airports or otherwise".
"We are particularly concerned by its (BAA's) apparent lack of responsiveness to the differing needs of its airline customers, and hence passengers," said Christopher Clarke, chairman of the BAA airports inquiry.
Mr Clarke was also worried that having so many airports owned by BAA meant that big development projects were being carried out one at a time.
BAA welcomed the Competition Commission's report.
But its chief executive Colin Matthews, who took over on 1 April, disputed the suggestion that the sale of some of BAA's airports would improve capacity.
"The case that they need to make is that some different ownership structure is going to deliver that new capacity and new investment more effectively," he told the BBC.
"I'm not convinced that's the case," he added.
Mr Matthews yesterday restructured his management team to concentrate more on the operational performance of Heathrow.
"We can improve Heathrow operations and we must improve Heathrow operations, and that's exactly why I've restructured the business to focus on exactly that issue being our top priority," he said.
"My own view is that if we don't operate Heathrow effectively then, as it were, we won't have a leg to stand on in these important strategic long-term issues."
The Competition Commission said that the point of giving BAA ownership of Heathrow, Gatwick and Stansted after privatisation in 1987 was to make sure there would be adequate airport capacity in the south-east of England, but that there was still a shortage of capacity.
The regulator conceded that competition in the south-east of England was unlikely in the short term because of the lack of capacity, but suggested that having airports separately owned could help to encourage growth in capacity.
It also said that there was potential for competition between Heathrow and Gatwick airports and Southampton.
In Scotland, the report said there was potential for competition between Edinburgh and Glasgow airports, although the ownership of Aberdeen airport was less of an issue.
Problem or solution?
"The case for breaking up BAA gets stronger by the day," said Shadow Transport Secretary Theresa Villiers.
It seems the Competition Commission has seen the light
"BAA's monopolistic grip on so many of the UK's major airports has not been serving passengers or airlines well - as can be seen from the debacle at Terminal 5 and the yearly Heathrow hassle during the summer months," she added.
Liberal Democrat transport spokesman Norman Baker said: "BAA is part of the problem not part of solution."
"It has become complacent and concentrated on lobbying the Government rather than serving the needs of passengers. BAA should be required to sell some of its airports."
A British Airways spokeswoman said: "We believe that the current regulatory framework governing BAA London airports needs to be strengthened."
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