BAA profits fall 18% as recession bites

By Administrator |

BAA has reported that its profits fell by 18% to ?582m ($825m) in calendar year 2008, even though overall revenues rose by 16% to ?2.2bn ($3.1bn). At the same time, overall passenger numbers fell by

2.7%, but retail income per passenger faired better with a 2.9% increase.

The airports company blamed the tough economic conditions for the downturn, although its pre-tax loss of ?1.32bn ($1.87bn) was attributable to a hefty one-off change to its tax-relief status on property interests. As a result, BAA's total debt now stands at some ?9.4bn ($13.3bn) according to the company.

Total passenger numbers using BAA airports fell by 2.7%, although long-haul passenger numbers rose by 3.5% and BAA said that that the fall in passenger numbers had been most marked in the last quarter of 2008. Heathrow's passenger numbers fell by 1.4%, while Gatwick's decrease was double that, although Gatwick's fall was largely attributable to a transfer of transatlantic traffic to Heathrow following the March opening last year of Heathrow Terminal 5. The collapse of three carriers using Gatwick – XL Leisure, Zoom and Sterling – also didn't help Gatwick.

Similarly, Stansted Airport saw its traffic fall by 6%, with reduced operations and the collapse of airlines Maxjet and Eos. In hard numbers, overall passenger traffic across all eight of BAA's airports [including Naples in Italy-Ed] declined 2.7% in 2008 to 151.4m. In the same period, passenger traffic at BAA's seven UK airports declined 2.8% to 145.8m, whilst at its three London airports there was a 2.6% reduction in passengers to 123.4m.

At Heathrow, long haul passenger numbers increased by 3.5% to 35m, reflecting both the transfer of some US traffic from Gatwick due to the EU-US Open Skies Agreement and growth on other long haul routes. Transfer traffic increased to 36% of Heathrow's total traffic. Long haul growth partially offset weaker domestic and other short haul services with Heathrow's total passenger traffic declining 1.4% to 66.9m.

Gatwick saw passenger numbers decline 2.8% to 34.2m. Across BAA's three London airports, long haul traffic declined by 1.5% to 43.3m passengers, with North Atlantic routes seeing a 1.7% reduction and other long haul destinations performing slightly better, with a 1.3% decline. The strongest growing regional markets were the Middle East and South America which were up 4.0% and 5.1% respectively on 2007.

European passenger traffic declined 2.9% to 68.5m, with particular weakness in the charter market and domestic traffic declined 5.6% to 11.7m passengers.

Of BAA's other four UK airports, Edinburgh saw the most resilient performance with broadly unchanged passenger numbers, whilst Glasgow performed weakest reflecting its exposure to the charter market. By market served, European passenger traffic at these airports was robust, increasing 1.4% to 8.1m, with growing penetration of low cost scheduled services more than offsetting weakness in the charter market. Long haul passenger traffic of 1.3m showed a 2.3% decline on 2007, whilst domestic traffic reduced 6.2% to 13m passengers.

Overall, total passenger numbers across these four airports declined 3.4% to 22.4m passengers. At Naples, passenger traffic also declined 2.3% to 5.6m with the instability at Alitalia contributing to its traffic trends as the year progressed.

BAA's retail activities proved more resilient however and the airports company puts this down to the significant recent expansion and upgrading of BAA's retail facilities. Last year, Heathrow Terminal 5 added a further 23,000sq m of retail space at Heathrow out of the airport's total of 66,000sq m.

Significantly, BAA said that it was only by October 2008 that Terminal 5 was able to welcome its first full complement of passengers as British Airways completed its planned moves from the other terminals.

But other factors in other terminals also helped the retail performance, such as the launch of Terminal 1's common user lounge in June 2008 – providing domestic passengers with access to the same retail offer as international passengers. Other improvements in retail facilities across BAA's airports included the South Terminal departure lounge extension at Gatwick, the new arrivals area at Stansted and the first phase of the new Skyhub facility at Glasgow which opened in October 2008.

BAA added that improvements to the end-to-end passenger experience (including security queuing) have also led to a better propensity to spend and recent exchange rate movements have increased the attractiveness of product pricing to non-UK based passengers. In addition, BAA points to a passenger mix that has continued to evolve towards more high spending and profitable long haul passengers. [BAA reports that World Duty Free (Europe), which was included in Discontinued in 2007, was disposed of in April 2008 realising a profit on disposal of ?226m/$320m-Ed].

Within its outlook for 2009, BAA says it is expecting a challenging year, with the economic environment expected to have a continued impact on passenger traffic. Despite the forecast fall in passenger numbers in 2009, BAA's financial performance is expected to improve relative to 2008, as it earns a return on the substantial agreed investments it continues to make in its airports on behalf of its airline customers.

In particular, aeronautical charges per passenger at Heathrow, Gatwick and Stansted are expected to average over 10% higher than in 2008. At the same time, retail performance is expected to remain resilient reflecting the full year benefits of recent significant retail space additions such as Terminal 5 and the common user lounge at Terminal 1 at Heathrow and Skyhub at Glasgow.

The airports company says it now expects to invest a total of ?1.3bn ($1.8bn) in 2009 across all its airports with ?1.2bn ($1.7bn) invested at the Designated Airports – in both cases assuming ownership of Gatwick for the first half of 2009 only.

At the same time, BAA says that within the coming weeks it is expecting a number of regulatory developments of significance to BAA's future. For example, the Department for Transport is due to publish proposals for consultation on the future economic regulation of UK airports. Its final proposals are expected to be issued in autumn 2009; at the same time the Competition Commission is publishing its Report on Remedies relating to its investigation of BAA's ownership of UK airports. The Civil Aviation Authority is also publishing its final price control determination for Stansted for the five year period ending March 31, 2014.

The sale of Gatwick will be the next important milestone in the development of the business during 2009 and this is expected to be completed in the first half of the year.

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