British Airways Calls for Stricter Regulation of BAA's Profit Margins

Strategic Insights -

British Airways has pressed the industry regulator to curb the profits earned by the UK's largest airports operator, BAA. The airline claims that BAA's high rate of return on its asset base forces the airline to compensate with higher charges and reduced services for passengers. BA's economic regulation manager, Andrew Cunningham, stated that BAA's current rate of return of 7.75% should be reduced to around 5.6% for the next five-year pricing period. The airline argues that this would encourage BAA to invest more efficiently in airport facilities and maintain high standards of service.

Key Takeaways:

  • British Airways is calling for the Civil Aviation Authority (CAA) to reduce BAA's rate of return to around 5.6% for the next five-year pricing period, citing high charges and reduced services for passengers.
  • The airline claims that BAA's current rate of return of 7.75% is too high and should be reduced to enable efficient investment in airport facilities.
  • BA wants the CAA to ensure that airport operators keep down costs and maintain high standards of service, urging the regulator to "keep monopoly airports like BAA in check".
  • The CAA is currently consulting on airport charges for Heathrow, Gatwick, and Stansted, with the current charging period expiring in March 2008.
  • BAA has defended its investment record, citing the development of Terminal 5 at Heathrow as an example of efficient project management.
  • The airline also called for airlines to have seats on the boards of major airport infrastructure projects, suggesting that this would increase transparency and accountability.

Statistics:

  • BAA's current rate of return is 7.75%.
  • BA is calling for a reduction to around 5.6% for the next five-year pricing period.
  • The CAA is consulting on airport charges to be levied on airlines using Heathrow, Gatwick, and Stansted.
  • Airport charges at Heathrow are expected to rise by more than 50% during the current charging period.
  • BAA has invested £10.3bn in its UK airports following a buyout by the Spanish firm Ferrovial.

Sources:

  • guardian.co.uk/airlines
  • Office of Fair Trading
  • Civil Aviation Authority