Glasgow or Edinburgh face sell-off in airport competition crackdown
13 August 2008
By ALASTAIR DALTON
TRANSPORT CORRESPONDENT
COMPETITION watchdogs are poised to order BAA to sell off one of Scotland's two main airports.
Speculation has increased that Glasgow or Edinburgh will be put up for grabs after the Competition Commission said common ownership "adversely affects competition between them".
Other airport owners and investment groups are expected to compete forthe airport, which analysts said could be worth up to £1 billion.
A commission investigation is next week expected to order the sale of one of the airports and one of the three main London airports owned by BAA.
Glasgow is seen as the more likely Scottish target for a sale because its core charter traffic is declining, but BAA may be given the option of selling booming Edinburgh Airport instead.
The commission clearly signalled sell-offs were likely when it said in April that BAA's ownership of seven UK airports "may not be serving well the interests of either airlines or passengers".
The Spanish-owned firm accounts for nearly nine in ten air passengers in lowland Scotland. It also owns Aberdeen airport, the country's third busiest, as well as Heathrow and Gatwick – Britain's two busiest airports – and Stansted and Southampton.
However, opinion over a sell-off is divided in Scotland, with several major business groups opposed and many airlines welcoming it, while the jury is still out over whether a change of ownership would make a difference to passengers.
The Office of Fair Trading, which triggered the investigation last year, found greater discounts were being offered to airlines at Glasgow because of competition with Prestwick Airport, which is separately owned, than at Edinburgh. However, EasyJet, the biggest airline operating in Scotland, said it had not received better rates at Glasgow than at Edinburgh.
BAA said the airports served "distinct and separate markets", which made competition between them "very unlikely".
Aviation experts said airport groups such as Manchester, which also owns East Midlands, Bournemouth and Humberside, and Bristol-owners Macquarie would be interested in a sale.
They may face competition from investors using state-controlled sovereign wealth funds, such as in the Gulf, and pension funds. The Scottish Government declined to say if state-run Highlands and Islands Airports might be interested.
John Strickland, director of JLS Consulting, an independent air transport consultancy, said BAA would want to hang on to Edinburgh as the "jewel" of its Scottish airports.
He said: "It is the most lucrative, with tourism appeal and the financial sector, while Glasgow is more leisure-focused, which produces lower margins."
Laurie Price, director of aviation strategy at analyst Mott McDonald, said airport ownership remained attractive because air travel was still growing despite high fuel prices.
BACKGROUND
MANY airports are suffering a slump in passenger numbers because of high fuel prices and the economic slowdown, but analysts predict they will remain attractive purchases for investors.
• Rocketing fuel costs have forced many airlines to cut flights and ground aircraft.
• The hassle of tighter security to counter terrorist threats has prompted some passengers to switch to rail or cancel trips.
• Concern about the environmental impact of flying may have reduced demand for air travel.
• However, experts said airport investors looked to the long term. Aviation was an "inseparable part of economic life" and there would be continuing demand for both business and leisure travel.
• Fuel prices may be cut to more manageable levels once supplies increase, while aircraft are becoming more fuel-efficient.
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