BAAs airport sale could open the marketing money floodgates

A Competition Commission (CC) report that calls for airports group BAA to be broken up could bring rich rewards for rival operators and airline brands. If proposals for BAA to sell three of its seven airports – two of Gatwick, Heathrow and Stansted in London and either Edinburgh or Glasgow – are pushed through, marketing money is likely to flood the sector as rival operators vie for passenger and airline loyalty.

In its provisional report published last week, the CC says the current ownership structure is having “adverse consequences” for passengers and airlines and expresses concern over BAA’s “near monopoly”.

Even though the ruling is subject to a consultation process and needs to be approved by the commission in its final report early next year, the major players in the sector are already calculating the business and marketing opportunities it brings and some are planning buy-out strategies.

The regulator’s recommendations come four months after its initial findings that BAA’s domination of markets in South-East England and Central Scotland limits competition and results in capacity shortage.

Airlines, struggling with rising fuel costs, applaud this news because they believe that competing airports will be more responsive to their needs and offer lower landing fees and improved passenger throughput. There is also a potential for closer collaboration on development plans because BAA’s current dominance provides no incentive for improvement to these players, they say.

No-frills carrier Ryanair welcomes the “break-up of BAA’s monopoly of London airports”. Lesley Kane, Ryanair head of marketing and sales in Europe, says: “This will result in Heathrow, Gatwick and Stansted being able to compete against each other to provide low-cost, efficient facilities and lower prices for passengers.”

The Association of British Travel Agents (ABTA) also welcomes the announcement that BAA should surrender its dominant position in South East England. Head of policy David Marshall says Gatwick needs “large-scale investment to provide the level of service that its customers and members expect”. “A new owner will be better placed to focus on making Gatwick an airport we can all be proud of,” he adds.

In May, ABTA recommended to the commission that BAA sells Gatwick to enable a new owner to concentrate resources on the UK’s second largest airport and the main gateway from the UK for charter flights. An Association spokesman says: “Gatwick remains our concern as BAA’s strategies revolve around Heathrow predominantly. Gatwick fails to exploit its potential and existing opportunities.”

However, BAA chief executive Colin Matthews calls the ruling “flawed” and says: “The commission risks creating uncertainty, delay and confusion at exactly the wrong time. Its remedies would be disproportionate and counter-productive.”

BAA was bought for £10bn in 2006 by a consortium led by Spanish group Ferrovial. The operator has a share of 91% of all airport passengers in South East England, where it owns Heathrow, Gatwick and Stansted in addition to Southampton Airport.

As one of the largest commercial landlords in the UK, BAA provides more than 1m sq ft of commercial space for about 900 airport retailers.

When British Airports Authority was privatised to become BAA in 1987, the idea was to retain control of all airports to ensure sufficient capacity improvements. But over the ensuing 20 years, flagship airport Heathrow’s reputation has become tarnished, and Travel Trust Association chief executive Keith Betton says passengers prefer Gatwick. He compares the Heathrow “experience” to “a visit to the dentist” and is in favour of de-monopolising the airports.

“As a brand, BAA is well known, but BAA management has an arrogant approach towards its airline customers,” Betton adds.

New owners will not only have to invest in new brand strategy for the airports but differentiate themselves from BAA at a corporate level. Even when BAA was privatised, it retained its name because of the brand strength. “New players will roll out campaigns around customer-friendly services and reduced costs to undo the tarnish,” Betton says.

Consumers continue to think that BAA is a public company and that BAA owns all airports across England, he adds. The new players are likely to roll out branding and marketing roadmap to dissociate its public sector perception and build separate target campaigns to woo the industry and airline customers.

Virgin Atlantic director of communications Paul Charles says: “Apart from better customer service for passengers, having different owners will lead to innovation and better facilities which can then be marketed.”

airline-friendly strategies
He suggests that a consortium of airlines could bid and own Gatwick and introduce airline-friendly strategies. Gatwick will then see a different level of investment and competition as monopoly hampers its ambition of individual terminals for individual airlines.

According to analysts, the owner of “Brand Gatwick” will emerge the real winner of any shake-up. BAA, which is likely to retain ownership of Heathrow, would be forced to focus all its might on developing and marketing its flagship airport, says Betton.

“As a result of passengers preferring Gatwick over Heathrow, if BAA should lose Gatwick,
it must reposition Heathrow and have aggressive communication campaigns to change its brand image.”

He suggests that Heathrow should replicate the renewed branding strategies of Terminal 5 in other terminals, and that BAA has been complacent because customers’ preference for one airport over another is irrevelant at the moment because both belong to the same operator.

However, he does not see immediate brand implications for BAA. Charles agrees: “It is too early to formulate marketing plans, but the opportunities are immense.”

While there won’t be a complete U-turn in the aviation sector immediately after the final ruling in April, in the long term airlines will have the opportunity to focus on campaigns around passenger experience and airport owners will be able to offer competitive landing charges, passenger facilities and gain from retail expansion.

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