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Dominant BAA put under spotlight.

BAA's dominance of the UK airports sector has come under scrutiny as part of a look into whether the market works well for travellers, writes Steve Pain.

The Office of Fair Trading yesterday said it was studying the airports sector to see if a full-blown review is required. It is likely to make an announcement by late June on the scope of any subsequent investigation.

BAA owns and operates airports which handled 63 per cent of air passengers beginning or ending their journey in the UK in 2005. In London, where BAA has Heathrow, Stansted and Gatwick, the figure rises to 92 per cent, while in Scotland the rate is 86 per cent because of Glasgow, Aberdeen and Edinburgh airports. The review comes as BAA seeks to fight off a pounds 8.75 billion takeover approach from a group led by Spanish infrastructure company Ferrovial.

OFT chief executive John Fingleton said his organisation constantly looked proactively at whether markets work well for consumers.

He added: "Competition in air transport is an extremely important part of the UK economy, with a significant impact on consumers and business alike.

"We have decided to look more closely at how the airport markets work with the aim of establishing whether the current market structure delivers best value."

BAA said the announcement had come as "a complete surprise", pointing out that its major businesses were already price-regulated by the Civil Aviation Authority and the Competition Commission.

However the review was welcomed by easyJet and Ryanair as the low-cost airlines had previously lobbied for an investigation.

Andrew Barker, easy Jet planning director, said the airline looked forward to providing "overwhelming evidence" showing that BAA was not acting in the interests of the travelling public.

He added: "BAA is a dominant player and operates in a near-monopoly environment. As a consequence, BAA can bank high profits which have to be paid for by passengers without the healthy pressure of competition.

"The fact that BAA is already regulated indicates that the Government recognises its dominant position. However, these regulations do not go far enough."

Ryanair chief executive Michael O'Leary added: "The only way to improve the lot of passengers is to break up the BAA monopoly airports and force them to compete against each other. Then airline customers would not be forced to endure the black hole of Calcutta that is Heathrow, or the unnecessary over-priced Taj Mahal palace being planned at Stansted."

By coincidence, the OFT review emerged on the day that BAA posted a document to shareholders explaining why it had rejected an 810p a share proposal from Ferrovial.

BAA said strong growth and future investment at its London airports, as well as the performance of its non-London airports business, meant its value was higher than 940p a share - equivalent to more than pounds 10 billion.

Chairman Marcus Agius said: "Over the last 15 weeks the Ferrovial consortium has failed to offer BAA shareholders anything which approaches the true value of their company."

To encourage shareholders to oppose the takeover, BAA has announced it would increase the dividend for the current year by 40 per cent to 31.5 pence per share and to 33.7 pence the following year. It reiterated it would carry out a separate pounds 750 million capital return "as soon as practicable".
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Title Annotation:Business
Publication:The Birmingham Post (England)
Geographic Code:4EUUK
Date:May 26, 2006
Words:551
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