Page last updated at 08:41 GMT, Wednesday, 17 December 2008

Q&A: Future of British airports

Stansted airport
Stansted airport, along with Gatwick and Edinburgh, is up for grabs

The Competition Commission has said it will require BAA to sell Gatwick, Stansted and Edinburgh airports.

The decision is subject to a final consultation, with the final decision due in February or March.

Why are regulators unhappy with BAA?

BAA has controlled Heathrow, Gatwick and Stansted airports for more than 40 years and has owned Edinburgh and Glasgow airports since the early 1970s.

The Competition Commission is concerned about a lack of competition between airports in the south-east of England and central Scotland, and says BAA's common ownership of airports there is largely to blame.

It believes this has contributed to a poor level of service to passengers and airlines as it reduces incentives for improvements.

BAA, it says, has been slow to develop new routes at some airports and has been sluggish in its approach to investing in new terminals and pushing for extra runways.

It contrasts this with the performance of other airports, such as Manchester and London City, which it says have been more responsive to customers' needs and have managed to both expand and lower charges.

What are they proposing to do about it?

Regulators believe BAA should have to sell two of its three airports in the south-east of England and one of its airports in central Scotland.

BAA has already ruled out selling Heathrow, by far the largest and most profitable airport in its portfolio.

On Wednesday, the Competition Commission said that BAA would be forced to sell Gatwick and Stansted in the southeast and Edinburgh in Scotland.

"Under separate ownership, the airport operators including BAA, will have a much greater incentive to be far more responsive to their customers, both airlines and passengers," the Competition Commission says.

It also said it would introduce measures to ensure that levels of service at Heathrow met the needs of passengers more effectively.

Does anyone want to buy these airports?

The queue to buy these prized assets is likely to be as long.

Departure board at Heathrow
Heathrow: 67.8 million
Gatwick: 35.1 million
Stansted: 23.7 million
Edinburgh: 9.0 million
Glasgow: 8.7 million
Aberdeen: 3.4 million
Southampton: 1.9 million
Source: BAA

Virgin Atlantic says it is planning a bid for Gatwick airport, in conjunction with other parties.

Other companies linked with the airports include German firms Fraport and Hochtief, Australia's Macquarie, and Manchester Airports Group (MAG), which already owns Manchester and Bournemouth airports.

Global Infrastructure Partners, part-owner of London City, is known to want to expand, while Ryanair boss Michael O'Leary has claimed he would jump at the chance of buying Stansted, the airline's UK base.

Gatwick's attractiveness to potential bidders is slightly reduced by the fact that no new runway can be built there until at least 2019.

However, the airport is still very lucrative, making a 98m profit in the last nine months of 2006, while a new owner would have the scope to lure some airlines from Heathrow.

The value of Stansted - which made a 42m profit over the same period - is likely to depend on whether planning permission for a second runway there is granted.

Nevertheless, experts believe both airports are likely to fetch more than 1bn were they to be sold.

What does BAA say about all this?

BAA had resisted being forced to sell any of its airports and has disagreed with the Commission's decision on which airports should find new owners.

It says that the Commission does not have "compelling evidence" that Stansted should be sold, adding that there was "no justification" for specifying which Scottish airport should be sold.

"We do not believe that it has set out compelling evidence to support its view that selling Stansted as well as Gatwick will increase competition and we remain concerned that its proposed remedies may actually delay the introduction of new runway capacity," BAA says.

People protesting over the building of a new runway at Heathrow
Regulators can do little about the controversial issue of capacity

Plus BAA's Spanish owner Ferrovial has wider issues to consider.

It amassed a huge debt when it bought BAA in 2006 - its debt stood at 30bn euros at the end of 2007 - and this has weighed on its share price.

BAA recently refinanced its own existing debt obligations, generating 3bn to fund immediate investment in its UK airports.

But with an expensive and complex project to rebuild Heathrow's Terminal 2 on the horizon, some analysts have suggested it may welcome selling some other airports to help fund future plans.

Is this all good news for passengers?

In theory, a situation in which Heathrow, Gatwick and Stansted compete directly for business and new routes could be good news for passengers.

People may have more options for where they fly from and airlines seeking to trump up business could choose to do so by cutting fares.

Some people have little choice in where they travel from while, whatever happens to Gatwick, Stansted and Edinburgh, the bulk of transatlantic and Far East flights will still depart from Heathrow.

The Competition Commission says the break-up of BAA would be a "first step" in liberalising the market but acknowledges that current problems will not be "solved overnight".

It can do little about capacity constraints, with many of the UK's airports already at bursting point.

The amount that airports charge airlines will remain highly regulated, although the Competition Commission says the Civil Aviation Authority (CAA) should be given enhanced powers to protect consumers and hold airport owners to account.

It also says the government's aviation expansion policy has partly contributed to market distortions and needs to be reviewed.

Some airlines believe changes in the industry should not stop with BAA and that individual terminals at big airports should be separately owned.

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