The top four airlines in the UK have jointly told the CAA (Civil Aviation Authority) that "airport regulation is failing the customer and needs to be changed" (EasyJet, 11th March).

The list of complaints is huge. The ‘big four' are calling for a radical overhaul of the whole regulatory system, a restructuring of all London airports, intervention by the Secretary of State to resolve BAA's ‘failings', a moratorium on price proposals, and a public disclosure of BAA's financial problems. And this will not just affect UK airlines – it will affect everybody who flies in from worldwide countries.

EasyJet, Ryanair, bmi and Virgin Atlantic, are flying in formation on this one, to try and improve the situation in Britain. Each airline is commercially aggressive and ready for a dogfight with the BAA and CAA! The recent news that BAA is increasing its prices ‘dramatically' would mean each airline increasing its fares to cover the costs.

The regulator (CAA) is allowing increases to run over five years (unless further demands are made before the end of that period!). Heathrow costs will rise by a staggering 86%, Gatwick costs will rise by 49%. This comes after huge cost rises in the previous five years. Stansted airport costs doubled last year and will double again over the next five years. So, these extra costs are on top of what has already been charged and may not even be the last hikes.

The big-four airlines base their reputation and business on low-cost travel, so they are bound to complain… as will their customers. There is particular concern because these sky-high rises are lower than BAA actually wanted! The rises are blamed on "Grupo Ferrovial's highly-leveraged speculative acquisition". It was financed with £1.59 billion of its own capital, and £8.72 billion borrowed. But the BAA "dramatically increased the value of the company" by assuming lighter regulatory controls.

EasyJet are now accusing BAA of cynically ‘gaming' the system, aided by an outdated regulatory regime. EasyJet also accuses the CAA of "failing to fulfil its statutory duties". This is all high-octane stuff that must come to a head, especially when the big-four say the CAA has deliberately favoured BAA in its decisions, to the detriment of the airlines and customers.

Examples given by EasyJet of this favouritism by CAA towards the BAA are: price increases excessively greater than the inflation rate, anti-consumer proposals to have unlimited pricing power at Stansted, and provision of "appalling levels of service at main airports". Other sub-complaints are added to this list by EasyJet, who says "The CAA should be worried about the consequences of Grupo Ferrovial's debt mountain, which may threaten BAA's financial sustainability".

Obviously, if the ‘debt mountain' collapses, the immediate response would be utter chaos at all BAA's airports, and devastating danger of losing serious airport strength until such a collapse is put right. In the light of the very bad decision of the British government (that is – British taxpayers) to subsidise the failed Northern Rock bank, the sudden failure of BAA would likely be considered another possible acquisition by government, placing an intolerable debt on the shoulders of everyone living in the UK. Not a good prospect!

EasyJet claim The Airports Act of 1986 is no longer viable, and customers now need greater protection and competition, including a more open way of building at airports, and their operation.

The ‘big four' have put forward a solution:

1. The BAA monopoly should be broken up, with price controls put in place to protect the public.
2. The CAA should allow other companies to build and operate terminal infrastructure on airport sites.
3. Each airport must be allowed to expand independently in line with competitive fluctuations.

It is considered to be unthinkable that a very high risk financial strategy by the owners of BAA should be passed on to customers, but, say EasyJet,  the economic regulators have shown no interest in doing anything about it.  It is reasonable to ask the reason why.

The big four airlines have clout:

• Bmi has 43 routes and carried 9.3 million passengers in 2007;
• EasyJet, with 389 routes (rapidly expanding) carried 38.2 million;
• Ryanair with 645 routes carried 49.6 million, and Virgin Atlantic, with 30 routes, carried 6 million.

On March 13th, EasyJet formally requested that the reluctant CAA should make BAA's financial dealings public under the Freedom of Information Act. Chief Executive of EasyJet, Andy Harrison, asked for "the immediate release" of detailed information, so that airlines can properly and urgently assess any dangers posed to their businesses and to the London airports.

The alarm has been further fuelled by BAA CEO Stephen Nelson's suggestion that the future looks very uncertain – worse than during the ‘crisis', and that "BAA's financial position (should not be) further negatively impacted". Maybe this is akin to a doctor saying "You have a flesh-eating virus, but don't talk about it in a bad way"!

The equating of this problem with the infamously handled Northern Rock crisis is not my own. EasyJet's Andy Harrison himself hoped he was not facing a "Southern Rock" situation, in which the government, using finances it does not have, decides to take over London airports.

BAA, at least in its public statements, is more than happy with its situation, and boast of spending almost £5 billion over the next five years. Hence their massive price hikes. In a press release dated 11th March, BAA itself complains that the CAA has not reviewed its position properly. BAA says the CAA does not fully appreciate the scale of the task of expansion and maintaining good services, or the pressures of handling large infrastructure projects, the full cost of security, or the impact on business of "the credit market turmoil".

As far as BAA is concerned its actions are nothing new. It wants to "adopt a financial structure consistent with those successfully employed by other UK regulated businesses for a number of years." If this is true, then their claims may carry some weight, because of precedence.

BAA outlined an extensive financial package it wishes to put into operation that might look good to stockholders and outsiders, but EasyJet's demand to the CAA came two days after the BAA press release, so the big-four are certainly not impressed. The CAA has not yet responded to the arguments of either BAA or the big-four, so ‘watch this space'!

These dogfights should be viewed against the background of a UK government that has already shown its poor financial judgment by taking over Northern Rock, and this is why EasyJet are so uptight about what BAA is really doing. Each of the big-four airline companies is expanding, but the economic viability and security of all four is put in jeopardy if the main airports take a nose-dive, or place inexorable pressure on prices. If this mess is not sorted out, air fares will rise considerably, making an impact on vacations and travel companies. It will also affect add-on hotel costs with companies like EasyJet, whose income includes hotel bookings.

March 2008 Barry Napier Contact: barry.napier@ntlworld.com