Post by Humberside on Aug 20, 2008 10:34:46 GMT
Key ABZ related quotes from the report
From the possihle remedies report
5. The main concerns we received about the performance of the BAA Scottish airports, which we currently share, were of a much slower development of routes at all three Scottish airports than at other regional airports up to 2002 until the involvement of the Scottish Government in its Air Route Development Fund (RDF); and of a lack of ambition in the development of Aberdeen, through underinvestment, poor facilities, and use of cash generated there elsewhere in BAA. We have also noted that BAA’s Scottish airports, particularly Aberdeen, are more profitable than its designated airports, and that their prices are relatively high, even though BAA’s policy has been to increase prices below changes in the RPI to reduce the risk that they might be designated for formal price cap regulation.
11. However, there is very little overlap in the catchment areas of Aberdeen and either of the other two BAA airports in Scotland and little scope for potential competition between Aberdeen and either of them. Aberdeen’s comparatively isolated geographical position relative to other centres of population combined with other general factors that make it unattractive to serve a catchment of Aberdeen’s size with more than one airport and deter entry are features that restrict airport competition. The concerns about the level of prices and profitability at Aberdeen reflect its strong local monopoly position, rather than the consequence of joint ownership with other BAA airports.
2.88 We did, however, receive a number of criticisms of capital expenditure at Aberdeen:
(a) The Aberdeen and Grampian Chamber of Commerce said that in the period from 1967 to 2002 the airport had suffered from a lack of investment and committed local leadership, although this had changed recently with the creation of the Airport Business Development Forum whose work had led to better marketing, active route development and the 24-hour opening of the airport. The leadership provided by the airport’s Chief Executive at the time had left a lasting legacy. The Chamber of Commerce also referred to the airport being discriminated against within BAA in terms of investment.
(b) The Chamber of Commerce suggested that whereas the airport had generated nearly £90 million profit over the previous ten years, up to 2006 only £30 million had been invested at the airport, a point we consider further below.
(c) Oil and Gas UK—which represents a significant proportion of the oil and gas sector—said that it believed Aberdeen needed considerable investment to improve its facilities and services. It said that the airport suffered from long security queues, and unconscionably long waiting times for baggage despite the short distance from aircraft to baggage reclaim; that in response to the increased security requirements introduced in August 2006 the search area had been reconfigured and an additional third line opened, but this was not enough at peak times; and that while there had been a fair amount of commercial and retail development in the terminal, the amenities for passengers were not particularly good and there had been little done to improve them: it regarded it as intolerable that there were no piers and covered walkways at the airport.
(d) One airline said that it had to drive hard to secure any changes, and that BAA was slow to react to suggestions. 30
2.89 In its comment on the Emerging Thinking, BAA argued that its own passenger survey showed good ratings for security queuing and for baggage reclaim. But the performance of Aberdeen in international surveys we have seen did not seem particularly good: the ratings were 60th out of 101 airports compared on overall airport experience and 63/101 for speed of delivery. BAA also said demand had been largely static at Aberdeen; it had invested over £35 million in 1990s, three times depreciation; and it had been instrumental in driving forward 24-hour opening and runway lengthening. It argued that reliance solely on third-party views was not warranted. The Aberdeen Airport Consultative Committee (ACC) also argued that while the impression that there had been a lack of ambition may well have plenty of historical resonance, it was much less justified now. Although it concurred with the concern about the historical use by BAA of cash generated by Aberdeen for developments at its other airports (which we also refer to in paragraph 2.109), this too may have more of a historic resonance than a current validity. However, the ACC also asked us to note that the nature of the original design of the airport building by the nationalized
BAA back in the 1970s prevented any radical development plans.
30 - Summary of hearing with Eastern Airways can be found on the inquiry website.
(a) The Aberdeen and Grampian Chamber of Commerce said that in the period from 1967 to 2002 the airport had suffered from a lack of investment and committed local leadership, although this had changed recently with the creation of the Airport Business Development Forum whose work had led to better marketing, active route development and the 24-hour opening of the airport. The leadership provided by the airport’s Chief Executive at the time had left a lasting legacy. The Chamber of Commerce also referred to the airport being discriminated against within BAA in terms of investment.
(b) The Chamber of Commerce suggested that whereas the airport had generated nearly £90 million profit over the previous ten years, up to 2006 only £30 million had been invested at the airport, a point we consider further below.
(c) Oil and Gas UK—which represents a significant proportion of the oil and gas sector—said that it believed Aberdeen needed considerable investment to improve its facilities and services. It said that the airport suffered from long security queues, and unconscionably long waiting times for baggage despite the short distance from aircraft to baggage reclaim; that in response to the increased security requirements introduced in August 2006 the search area had been reconfigured and an additional third line opened, but this was not enough at peak times; and that while there had been a fair amount of commercial and retail development in the terminal, the amenities for passengers were not particularly good and there had been little done to improve them: it regarded it as intolerable that there were no piers and covered walkways at the airport.
(d) One airline said that it had to drive hard to secure any changes, and that BAA was slow to react to suggestions. 30
2.89 In its comment on the Emerging Thinking, BAA argued that its own passenger survey showed good ratings for security queuing and for baggage reclaim. But the performance of Aberdeen in international surveys we have seen did not seem particularly good: the ratings were 60th out of 101 airports compared on overall airport experience and 63/101 for speed of delivery. BAA also said demand had been largely static at Aberdeen; it had invested over £35 million in 1990s, three times depreciation; and it had been instrumental in driving forward 24-hour opening and runway lengthening. It argued that reliance solely on third-party views was not warranted. The Aberdeen Airport Consultative Committee (ACC) also argued that while the impression that there had been a lack of ambition may well have plenty of historical resonance, it was much less justified now. Although it concurred with the concern about the historical use by BAA of cash generated by Aberdeen for developments at its other airports (which we also refer to in paragraph 2.109), this too may have more of a historic resonance than a current validity. However, the ACC also asked us to note that the nature of the original design of the airport building by the nationalized
BAA back in the 1970s prevented any radical development plans.
30 - Summary of hearing with Eastern Airways can be found on the inquiry website.
2.90 Nonetheless, the above criticisms are in our current view indicative of an apparent lack of ambition in the development of Aberdeen. We note in paragraph 2.109 the apparent use of cash generated at Aberdeen elsewhere in BAA suggesting to us either underinvestment, compared with an alternative strategy of seeking a runway extension earlier, and developing the airport as a hub for North Sea oil and gas industries, or—given also its high profitability shown in Table 9—that the level of prices and profits are too high, despite its policy of increasing charges by no more than RPI–1.
(a) One airline said that BAA was not very positive about promoting new routes at Aberdeen. A different operator could be expected to have a more go-ahead approach to route development.
(b) Another airline said the BAA Scottish airports did not compete actively to attract its low-cost services when they were first established. Although BAA did put in an offer to attract them, it was significantly less attractive than the offers of some other regional airports.
(c) Although the Scottish airports and Southampton all provide published discounts for new services, and some individually negotiated discounts, these have not been on the same scale as those given by Prestwick to Ryanair. Other than at Stansted and recently Edinburgh, BAA has also been slow to attract Ryanair on any scale to its airports or to offer terms equivalent to those offered at least to some LCCs at other UK airports.
(b) Another airline said the BAA Scottish airports did not compete actively to attract its low-cost services when they were first established. Although BAA did put in an offer to attract them, it was significantly less attractive than the offers of some other regional airports.
(c) Although the Scottish airports and Southampton all provide published discounts for new services, and some individually negotiated discounts, these have not been on the same scale as those given by Prestwick to Ryanair. Other than at Stansted and recently Edinburgh, BAA has also been slow to attract Ryanair on any scale to its airports or to offer terms equivalent to those offered at least to some LCCs at other UK airports.
4.68 We asked airlines which other airports were substitutes for each of the BAA airports from which they operated. Airlines did not consider that other airports were substitutes for Aberdeen.
4.85 Aberdeen is different. We see very little, if any, evidence of demand substitutability between Aberdeen and BAA’s other two Scottish airports and as a result we do not see potential for competition between Aberdeen and BAA’s other two Scottish airports even under separate ownership.
Aberdeen
4.135 Aberdeen’s geographical position is comparatively isolated relative to other centres of population, and we have no evidence that neighbouring airports (Inverness, Edinburgh, Glasgow) are good substitutes for it. The catchment analysis indicates that Aberdeen draws only 7 per cent of its passengers from Inverness’s catchment area and 6 per cent from each of Edinburgh’s and Glasgow’s. Airlines did not see other airports as substitutes for Aberdeen and considered their main airline competitors on Aberdeen routes operated from Aberdeen rather than other airports. An important aspect of Aberdeen’s position is that it is a centre for the offshore oil industry and part of Aberdeen’s business is providing a base for helicopter flights to the North Sea—we have seen no evidence that alternative airports are a good substitute for this part of Aberdeen’s business. As noted above (see paragraph 4.127), like other airports Aberdeen may face constraints from more distant airports but such constraints are quite weak and not in themselves strong enough to represent effective competition for Aberdeen.
4.136 As regards actual competition, we found no evidence of switching involving Aberdeen, and we have also noted Aberdeen’s relatively high level of prices and profits.
4.137 Taking all the evidence into account, we consider that Aberdeen has the characteristics of a local natural monopoly, deriving from its comparatively isolated geographical position relative to other centres of population combined with other general factors (referred to below in paragraph 5.8) that make it unattractive to serve a catchment of Aberdeen’s size with more than one airport and also deter entry.
4.135 Aberdeen’s geographical position is comparatively isolated relative to other centres of population, and we have no evidence that neighbouring airports (Inverness, Edinburgh, Glasgow) are good substitutes for it. The catchment analysis indicates that Aberdeen draws only 7 per cent of its passengers from Inverness’s catchment area and 6 per cent from each of Edinburgh’s and Glasgow’s. Airlines did not see other airports as substitutes for Aberdeen and considered their main airline competitors on Aberdeen routes operated from Aberdeen rather than other airports. An important aspect of Aberdeen’s position is that it is a centre for the offshore oil industry and part of Aberdeen’s business is providing a base for helicopter flights to the North Sea—we have seen no evidence that alternative airports are a good substitute for this part of Aberdeen’s business. As noted above (see paragraph 4.127), like other airports Aberdeen may face constraints from more distant airports but such constraints are quite weak and not in themselves strong enough to represent effective competition for Aberdeen.
4.136 As regards actual competition, we found no evidence of switching involving Aberdeen, and we have also noted Aberdeen’s relatively high level of prices and profits.
4.137 Taking all the evidence into account, we consider that Aberdeen has the characteristics of a local natural monopoly, deriving from its comparatively isolated geographical position relative to other centres of population combined with other general factors (referred to below in paragraph 5.8) that make it unattractive to serve a catchment of Aberdeen’s size with more than one airport and also deter entry.
From the possihle remedies report
12. Aberdeen’s comparatively isolated geographical position relative to other centres of population, combined with other general factors that make it unattractive to service a catchment of Aberdeen’s size with more than one airport, is a feature adversely affecting competition. We do not see scope for significant potential competitive constraint from either Glasgow or Edinburgh airports on Aberdeen Airport. We therefore currently consider that separating the ownership of Aberdeen from either Glasgow or Edinburgh through divestiture would not be an appropriate remedy and we are not currently minded to consider the divestiture of Aberdeen. We therefore invite views on whether other measures are appropriate to address the AEC at this airport. These might include behavioural undertakings or some degree of regulation as discussed in the ‘Changes to regulation’ section below.
