BAA Squeezes More Growth Out Of Heathrow

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Published: April 25, 2012

British airports operator BAA posted a 15 percent rise in quarterly profit on Wednesday, squeezing more growth from its busy London Heathrow hub but repeating its plea for permission to add capacity there.

The business, owned by Spanish group Ferrovial, reported earnings of GBP£231 million (USD$ 373 million) in the three months to March with revenue up 11.5 percent, boosted by higher tariffs and retail income.

Heathrow – Europe’s busiest airport – handled 15.7 million passengers in the quarter, up 4.4 percent on the same period last year but BAA’s chief financial officer Jose Leo warned that growth at the hub, which is operating at almost full capacity, was not finite.

“For the next five years we can deliver modest growth at Heathrow but after that it will be tough to grow,” Leo said in an interview.

BAA, prevented by the government from building a third runway at Heathrow because of environmental concerns, has seen traffic to emerging markets rise in recent years and believes it is now falling behind rival European airports in the battle for these lucrative routes because of constraints on growth.

“We do not have the ability to add new rotes to emerging markets such as China to drive growth. Heathrow cannot generate the levels of growth that some of our European peers in places such as Amsterdam and Frankfurt will deliver,” said Leo.

Rival London airport, Gatwick, aims to take advantage of Heathrow’s capacity constraints by adding more long-haul routes to emerging markets, which it expects to boost traffic by a third in the next decade, its CEO said.

“BAA’s argument about capacity shortage is undeniably correct but there is little chance of the problem being resolved in the short to medium term,” said Wheeldon Strategic Advisory analyst Howard Wheeldon.

“My guess is that eventually the argument for another runway at Heathrow will be won but that it may yet take eight to ten years before BAA enjoys any real benefit.”

BAA on Monday agreed a USD$ 1.3 billion deal to sell Edinburgh Airport to Global Infrastructure Partners. The sale was forced on it by Britain’s Competition Commission last year as part of a drive to loosen the firm’s grip on the British airport market.

BAA has also been ordered to sell London Stansted, leaving it with the capital’s main Heathrow hub, Southampton in the south of England, and Glasgow and Aberdeen airports in Scotland.

“We are not preparing to sell Stansted just yet because we are seeking leave to appeal the sale of Stansted from the court of appeal,” said Leo.

Traffic at Stansted, which is a predominantly low-cost leisure travel airport, fell 5.3 percent to 3.5 million passengers, hit by the continued impact of tough economic conditions, BAA said.

The company, which plans to invest GBP£1 billion updating Heathrow this year, said it had completed the transition to a long-term capital markets financing platform and had raised GBP£2.2 billion in new financing since the start of 2012.

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