Crucial airport debate is not about job cuts, but genuine competition

The big news is that BAA is looking to cut jobs from its 13,000 British workforce, possibly as many as 2,000. Close behind that is speculation that the company may have to sell London Gatwick airport, and perhaps even one of its Scottish airports, as a result of the current inquiry by the Competition Commission into whether BAA's near monopoly of airport provision in both London and Scotland is bad for passengers.

Since it seems that corporate Scotland reckons that an airport monopoly is a good thing, this is why I presume that executives must have been upset yesterday. If they were, I hope they don't mind me suggesting that they are wrong.

The big picture here is that BAA, which owns Heathrow, Gatwick, Stansted and Southampton airports in the south, plus Glasgow, Edinburgh and Aberdeen airports here in the north, was taken over by Ferrovial, a Spanish company, last year. A major concern was that in addition to taking over BAA's existing debts of just over 5 billion, Ferrovial was financing the deal with additional debt of about 7bn.

Although Rafael del Pino, Ferrovial's executive chairman, has developed a good reputation for reducing the costs of debt servicing by balance sheet re-structuring, this debt must still be a hefty burden. Del Pino will have known this, just as he knew that BAA, for all its corporate glossiness, was an inefficient company that could be made leaner and more profitable, thus quite able to service and repay the debt. Let's remember that Ferrovial was nearly outbid by Goldman Sachs, no slouches at spotting where there is a few quid to be made.

And indeed, del Pino made no secret of the fact that he would be out to cut costs, which means cutting jobs. Why this means that the airlines and passengers that use BAA airports would suffer a consequent reduction in service levels is beyond me. The biggest source of passenger complaints at airports these days is about delays at security, where BAA has said that not only will there be no staff cuts, they are also looking to recruit more people. The key to fixing the lost baggage problems at Heathrow is not to employ more people, but in better management, new handling systems and better computer systems.

A second pressure for improvement is competition from other European hub airports such as Amsterdam, Frankfurt, Paris, and even Dublin. For passengers outside the London area going on any international journey, these airports have become more attractive options for inter-lining then enduring the horrors of Heathrow. Thus Ferrovial's task is to both cuts costs and improve services, otherwise it will lose custom.

Comments also that BAA's cost-cutting is aimed at turning the company into a cash cow for the Madrid boardroom are also wide of the mark. The profits that BAA can make out of airlines and passengers at Heathrow and Gatwick are regulated by the Civil Aviation Authority. Indeed, BAA awaits a decision next month which will set the prices it can charge at the two airports for the next five years. Thus the only route for improving profits is to get more airlines and more passengers to use the airports, which means improving the services that both get.

Lurking in the background here is the Competition Commission inquiry. As far as Scotland is concerned, the initial reports from the Office of Fair Trading and the Commission have found that there is reason to suspect that airlines and passengers would get better service from Edinburgh, Glasgow and Aberdeen if there was more competition between them.

Corporate Scotland, however, in the shape of the Scottish Council Development and Industry and Scottish Chambers of Commerce, has challenged this view. Their submissions, the only two major private sector submissions so far to the Commission inquiry, argue that everything is fine as it is.

Their arguments have one big feature in common - a worry that if BAA was forced to sell either Glasgow or Edinburgh then planned investment (290 million at Glasgow over 20 years and 240m at Edinburgh over ten years) would not happen. The Chambers' submission says: "The system appears to be working at present and there is confidence that BAA's future investment plans will help to deliver in terms of Scotland's international connectivity. A break-up of Scotland's lowlands airports could create uncertainty over investment in the development of the airports themselves and in wider capital projects such as the proposed Glasgow Airport Rail Link - a project which has wider implications in terms of the creating of additional capacity in the west of Scotland rail network."

I think this is nonsense. I cannot see why a new owner of either Edinburgh or Glasgow would want to stop investing. The new owner would be competing against BAA which, because of an enforced sale, would have money to spend. A failure to match that investment would result in BAA gaining a competitive lead. OK, I know that assumes that lowland Scotland passengers would be happy to switch between airports, an assumption which many people think is unfounded. People firmly believe that Edinburgh and Glasgow airports serve distinct, non-overlapping markets.

But I suspect that has only come about because BAA owns both and has had a strong interest in making them separate markets. If they were forced to compete, I cannot accept that the airport managements would be so unenterprising that they could not find ways to lure away passengers from each other. Like offering people a much better service, for example.

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