Dismembering BAA should make it possible to develop a second hub airport for the capital and its region

AFTER years of being shamed by ever shabbier and more overcrowded airports, Britain is at last getting around to doing the right thing. On August 20th the Competition Commission, which investigates whether markets are working properly, released the damning findings of a 17-month study into the country’s airports. The report envisages the dismembering of BAA, the country’s dominant airports operator, as well as other proposals that amount to a wholesale rewrite of the government’s cherished aviation policy.

The commission blamed long delays, overcrowding and a shortage of capacity that has long bedevilled Heathrow, the world’s busiest international airport, on a flawed regulatory regime, poor policy and, most important of all, BAA’s ownership of the three main London airports—Heathrow, Gatwick and Stansted. It plans to force BAA to sell two of the three as well as another airport in Scotland.

The prescription may seem harsh, but so too were the findings that since BAA’s privatisation in 1987 the company has dragged its heels in building new terminals and runways. Last year for instance, Heathrow crammed some 68m hot and bothered passengers through terminals designed to accommodate 45m. Long queues, scruffy lounges and overpriced snack shops do little to endear it to passengers, who rate it far below international rivals, according to Skytrax, a research firm.

So overstretched are Heathrow’s runways, which operate at 99% of capacity compared with about 70% at most other large airports, that even the slightest hitch—a spot of fog, say, or a plane having to turn back with engine trouble—causes a cascade of delays to ripple through its flight schedules. Because of this a third of all flights at Heathrow are delayed by at least 15 minutes, a poor record compared with other large European hubs such as Amsterdam, where 21% of flights are delayed, and Frankfurt, where 24% are.

The hope is that once BAA’s monopoly around London is broken up, competition will force improvements at all three airports. Christopher Clarke, the commission’s deputy chairman, reckons that under separate owners each airport would press hard to get planning permission to build new runways and terminals. They would pay more attention to the needs of airlines and travellers, he thinks. The expectation is plausible. A queue of buyers has already lined up hoping to bid for Gatwick and Stansted, the two airports most likely to be sold. They are understood to be drawing up creative plans ranging from cheap and basic warehouses for low-cost carriers such as easyJet to luxurious lounges aimed at winning the hearts of frequent-flying businessmen.

The biggest loser from a shake-up will be BAA’s current owner, Ferrovial. The Spanish firm bought BAA for £10.1 billion ($18.8 billion) two years ago in a deal that seemed expensive at the time, although cunningly financed, since it spent barely £580m of its own money for BAA. But crunching credit markets have meant that BAA has struggled to refinance £13.3 billion of loans. It won support from its bondholders only when it agreed to ring-fence its London airports and to use their assets and income to back new bonds.

Air travellers will have to wait a while to see the benefits of BAA’s break-up. New facilities take time to build and London is unlikely to have any new runways before 2015, limiting the scope for competition between the three airports. Meanwhile some quick fixes could help. Paradoxically, one would be to reduce the number of flights at Heathrow. A study for London First, a group representing big businesses in the capital, found that cutting about 5% of Heathrow’s flights could lead to a 15% reduction in delayed flights.

Over the longer term, the real impediment to competition between London’s airports is Heathrow’s power as a hub. Because of its size, it benefits from “network effects” in that it can match incoming passengers with outgoing flights to hundreds of different cities. This makes it by far the most profitable of London’s three airports for airlines and explains why peak-time take-off and landing slots are traded for some £25m-30m a pair.

Given the huge demand for flights at Heathrow, it is tempting to think that it is the most sensible place to add new runways. This is precisely the case made by BAA, which along with the airlines like British Airways that have the biggest stake at the airport because of the slots they control, has been lobbying fiercely to add a third runway. But the argument is flawed.

There is little reason to think that an economy as large as London and its surrounding region cannot support two competing hub airports. If allowed to build a second runway, Gatwick could well become a second hub, and another runway there would bother fewer residents than at Heathrow. A decision to favour expansion at Gatwick would permit real competition, whereas at Heathrow it would entrench the airport’s dominance further.

Price regulators could play their part too by gradually easing their grip. Allowing Heathrow to raise its prices could well be the spur needed to encourage a group of airlines to move to Gatwick. Then Heathrow could concentrate on serving the business market, which prizes frequency and convenience over price. After the failure of two decades’ worth of government tinkering and ham-fisted regulation, it is time to see if markets can do a better job.

From The Economist print edition
Copyright © 2008 The Economist Newspaper and The Economist Group. All rights reserved.

Jet Airways, will connect Thiruvananthapuram and Muscat, with daily, direct flights, effective September 15, 2008.

Jet Airways will operate these services with its internationally-configured Boeing 737-800 aircraft with a two-class configuration: Première and Economy.

The new flight will complement Jet Airways’ existing daily service on the Mumbai-Muscat sector.

Jet 9W 530 (Thiruvananthapuram-Muscat) will depart Thiruvananthapuram at 0755 hrs and arrive Muscat at 1030 hrs. On the return leg, flight 9W 529 (Muscat-Thiruvananthapuram) will depart Muscat at 0030 hrs and arrive Thiruvananthapuram at 0535 hrs.

Announcing the launch of these services, Mr. Wolfgang Prock-Schauer, CEO, Jet Airways said, “In a remarkably short span of time, Jet Airways has established a dominant presence on the important Kerala-West Asia sector, on the strength of its superior in-flight product and service standards. In a bid to further enhance its connectivity on this sector, and in line with passenger demand, the airline is proud to be the first private Indian airline to connect Muscat and Thiruvananthapuram.”

With the launch of this new flight, Jet Airways will fly to six destinations in the Gulf (Kuwait, Bahrain, Muscat, Doha, Abu Dhabi and Dubai) from five gateway points in India: Kozhikode, Kochi, Thiruvananthapuram, Mumbai and Delhi.

Congratulations to the entire team at Bengaluru International Airport Limited for achieving 100 days of operations. I also acknowledge the hard work put in the two cargo terminal operators Menzies Aviation-Bobba and Air India-Singapore Airport Terminal Services, and all the other stake-holders at the BIAL airport. Most of the initial teething troubles have been addressed and rectified and the engagement of the management teams with industry is very encouraging and will be reciprocated.

BMTC has put in their wonderful Vayu Vajra service, and both BIAL and Bangaloreans should encourage their efforts with patronage.

There is no doubt that the new airport was desperately required, and it is a welcome addition to Bangalore’s infrastructure.

In the time that BIAL was being constructed i.e. 2005 – 2008, the air traffic in Bangalore grew 255%. No infrastructure project anywhere in the world can plan, let alone cater for, such explosive growth. Despite the slowdown in domestic air travel, international travel is on the upswing with airlines are making a beeline to Bangalore. Kingfisher, which commences its international operations on September 3rd, is only the latest entrant. Jet will commence very soon as well. The future is bright.

BIAL is, and should continue to remain, the primary airport of Bangalore. It is encouraging to hear that BIAL is expanding its capacity to cater for the constant growth.

Brazil is part of the BRIC economic classification along with India, and its major cities like Brasilia and Rio De Janeiro have air traffic patterns very similar to Bangalore. These cities have two airports. A small in-city domestic airport and a large out of town domestic and international airport. Both airports are operating as commercial successes.

In my opinion, it will behove BIAL management to consider extending its partnership with AAI and jointly run the terminal at HAL airport. The existing infrastructure is ready to be put to use, without any wait, and provides a means to bringing back to the skies, passengers lost to trains and buses.