Sunday, March 30, 2008

Regulated Asset Base

I'm so worried about what's happenin' today, in the middle east, you know
And I'm worried about the baggage retrieval system they've got at Heathrow

(Monty Python)

Many people think the letters "BAA" stand for "British Airports Authority", but this hasn't been true for a long time. The company owns three London airports (Heathrow, Gatwick and Stansted) and four Scottish ones, and therefore controls a large slice of UK civilian aviation, but it was sold off by the Conservative Government in 1986 and is now owned by Spanish firm Grupo Ferrovial.

BAA gains its revenues from landing fees charged to airlines, and from retail operations. Landing fees are regulated to prevent BAA abusing its near-monopoly position: as a result, landing fees at Heathrow are considerably lower than at rival airports in Europe (Paris Charles de Gaulle, Amsterdam Schiphol, Frankfurt). BAA has to make up the difference through retail.

So is that the purpose of Terminal Five - more shops, more delays, more pointless duty-free purchases? Not entirely.

BAA is regulated according to a formula that depends on its asset base - so-called RAB. As Michael Ryan (boss of RyanAir) complains to anyone who will listen, this means BAA can make higher profits from investing in white elephants new assets than from running the existing assets properly.

Bear that in mind when you hear them talking up Terminal Five in terms of passenger convenience.

Oh, and a third runway at Heathrow? Ha, ha, bloody ha.

Further comment

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