Interview: BAA CEO Sees Heathrow Helped By BA-American
Wall Street Journal, 8/13/01
BAA PLC (U.BAA) Chief Executive Mike Hodgkinson said Friday he's certain an alliance between British Airways PLC (BAB) and AMR Corp's (AMR) American Airlines will be good news for his company's bottom line.
Heathrow, the airport in the spotlight over the BA-American deal, is the busiest international airport in the world. It stands to gain even more passengers from an opening up of the skies between the airport and the U.S. - something which must take place before regulators rule on the BA-American alliance.
Even without this, Heathrow has been growing at two times the rate of the U.K.'s gross domestic product growth and has almost reached its full capacity. BAA's other airports like Stansted, north of London, and the company's retail operations, continue to growth strongly, said Hodgkinson. BAA owns seven airports in the U.K. and 12 globally.
But Hodgkinson warns that if the U.K. government doesn't approve plans for a fifth terminal at Heathrow in October, it risks seeing its new passengers disappear to Paris' plush new Charles de Gaulle airport.
"At Heathrow, if we get a BA and American alliance it's probably of neutral benefit to BAA. But if it comes with a full open skies agreement then it's pretty positive as there are more passengers," Hodgkinson told Dow Jones Newswires.
Open skies refers to the negotiations between the U.S. and U.K. governments over liberalizing old air treaties which govern access to airports for airlines.
"We have a very clear view on this. We have always had a view that open skies should come to the U.K. and that we should get the benefits of competition to the U.S. out of London. The fact that's going to happen though a BA and American deal is not important."
And he believes that the two airlines have a much better chance of gaining antitrust immunity for their alliance than they did last time and at less cost because of the changes which have occurred between airlines and airports in the past five years.
BA and American tried to link up five years ago but aborted the plans when regulators demanded onerous concessions. They are now seeking antitrust immunity from European and U.S. regulators to exempt them from laws which would usually prohibit collusion on pricing and other activities.
Like BA, Hodgkinson cites the rise of the Star Alliance globally and particularly its presence at Heathrow as a factor which could swing in BA and American's favor. The Star alliance consists of UAL Corp's (UAL) United Airlines, Deutsche Lufthansa AG (G.LHA) and BMI British Midland.
Hodgkinson thinks the new players in the relevant governments and regulatory bodies and particularly the arrival of the affable Rod Eddington at the BA helm will also help.
BA Chief Executive Eddington told reporters Monday that where BA's European competitors have dominant positions at their relevant hubs, BA, Europe's largest airline, has just 30% of slots at Heathrow. What's more, the Star alliance has 27% of slots.
"BA is facing the fact that Charles de Gaulle airport in Paris has always theoretically been a big threat, Hodgkinson said.
"In the past they have been saved by the complete and utter incompetence of Air France (F.AFG). Now all of sudden Air France has started to get its act together and is also part of an alliance with a major U.S. airline," he said, referring to Air France's teaming with Delta Air Lines Inc. (DAL) in the Sky Team alliance.
"Suddenly they actually have a really significant threat because both Paris and London have significant populations and are both significant destinations for both business and tourism."
Heathrow At Risk From Paris
BAA has long stressed the importance an airport plays in the shape of its city. He said London has long been a popular place for companies to place their headquarters as English has become the dominant business language, the time zone is good for doing international business and the U.K has strong knowledge-based industries like the financial sector.
Hodgkinson said that up to now, the competition between Paris and London has been swaying in London's favor.
"But it's fair to say, if we don't get approval for terminal five, London will, over time, start to lose over to Paris. At the moment Air France and Charles de Gaulle are on the ascendancy," he said.
And, what's more, the airport has plenty of capacity and is continuing to grow.
"If 'T5' didn't come off, I think a lot of companies would leave London. If you can't get into London, why would you locate here?"
The recent outbreak of foot and mouth disease in the U.K. has not helped, especially coinciding with a downturn in world economies.
Hodgkinson said it was too soon to tell whether Paris or Charles de Gaulle had seen a rise in tourism as a result of travelers canceling holidays to the U.K. to avoid foot and mouth.
"If Americans who were going to the U.K. decided not to come because of foot and mouth they could go to Paris or Rome or several other places so it's difficult to track these things," he said.
"We have not really being able to disentangle foot and mouth from recession because it happened so quickly," said Hodgkinson, but added foot and mouth is the main impact on tourism rather than recession.
As a result, BAA expects full-year passenger growth to be at least half that of last year's 6%, rising to 4% next year.
But Hodgkinson is not worried about the recession hitting his airports. Traditionally, recessions only hit the airlines. There have only been two years in the past 30 that BAA had negative growth on passenger numbers - during the oil price shock in 1974 and the Gulf War in the early 1990s.
"Airline yields are inevitably going to be under pressure. However, we expect some pickup in numbers because we are effectively trading below a normal level because of foot and mouth. Therefore there will be some pickup," he said.
"We are finding that people are spending in the shops like there's no tomorrow," he said, often buying items like sun cream and swimsuits at the airport rather than the high street.
"But I'm on the side of the Bank of England in thinking that the recession is probably a little worse than everyone is anticipating."
Away from Heathrow, Hodgkinson said BAA is thriving.
The growth of Stansted airport, northeast of London, has been fueled by the rise of low-cost airlines such as Ryanair Holdings PLC (U.RYA) and former BA subsidiary Go.
Hodgkinson takes some credit for the way the low-cost market has grown up in the U.K.
Before the budget airline phenomenon took off no one was interested in flying into Stansted because they could make much better returns flying into Heathrow and even Gatwick, BAA's airport to the south of London.
"We wanted some viable low cost airlines so we decided we didn't want them to compete with each other. There are very few routes out of Stansted where airlines are competing head-on.