BAA’s monopoly grip on the airport sector is identified by the report as the principal reason why service levels for both airlines and passengers are so abysmal. Complaints about poor service, lost baggage and smelly loos have escalated in recent years, culminating in the debacle of the Terminal 5 opening at Heathrow. Following the classic behaviour of a dominant monopolist, BAA has been slow to develop new runway capacity in the South East. As the main player in the market, it has benefited from restricting capacity – as the Commission’s deputy chairman, Christopher Clarke, reminded reporters when the report was launched.
The Competition Commission is to be commended for its radical package of remedies. It proposes that both Gatwick and Stansted are sold off as separate businesses in competition with Heathrow. This will probably require an independent trustee to ensure that BAA does not shun rivals that could attract airlines away from Heathrow.
In implementing a set of remedies the Commission could learn from the suggestion made in the IEA study, A Market in Airport Slots, which urged that over a period of ten years 10% of slots (landing and take-off rights) at Heathrow, Gatwick and Stansted should be randomly auctioned to the highest bidder. This would inject some much needed competition into the circumscribed world of slots at congested airports and identify the true value of these scarce resources.
What is more, if a third runway at Heathrow is given the go-ahead by government, all slots should be auctioned off to the highest bidder. A proportion of the proceeds could be reinvested in improved facilities and a substantial slug could be earmarked to address the external costs, such as noise and pollution, linked to such a step-change in capacity. Accordingly, local residents would benefit from better double-glazing, landscape initiatives aimed at minimising noise and improved mass transportation links.
A similar strategy has been advocated by the Federal Aviation Authority (FAA) for La Guardia, the grossly congested airport serving the domestic market in New York. Such an approach would introduce a welcome market-based rationality into the Byzantine world of civil aviation. And nowhere is it more Byzantine than Heathrow.
Keith Boyfield is a Senior Fellow at the ASI and chairman of REG – our regulatory evaluation group.