BAA's Matthews Says Rising U.K. Airport Taxes May Damage Heathrow Status

BAA Ltd.’s London Heathrow airport may become less competitive against other European hubs and demand for long-haul leisure flights to the city may be hurt because of rising U.K. tax, Chief Executive Officer Colin Matthews said.

Passengers travelling from the U.K. to destinations more than 6,000 miles away will pay as much as 170 pounds ($269) in air passenger duty, or APD, from Nov. 1, an increase of 55 percent from the current rate of 110 pounds. That compares with a maximum tax of 40 euros ($55) levied in France, and as much as 45 euros starting on Jan. 1 in Germany.

“Our APD is in place already and it is high,” Matthews, told reporters on conference call today in London. “The assumption that you can just tax and tax and tax is mistaken and it’s unhelpful.”

Heathrow, Europe’s biggest airport, competes with other hubs such as Paris’s Charles de Gaulle and Frankfurt for international traffic. Matthews estimated that a Chinese tourist would pay three times as much in visa charges and taxes if traveling through the U.K. compared with France.

BAA, a unit of Spain’s Ferrovial SA, said Oct. 11 that Heathrow handled 6.2 million passengers in September, an increase of 7.6 percent and a record for that month. Traffic at the airport is increasing as airlines add routes and reinstate services removed as the global recession caused a slump in air travel.

Loss Narrows

The nine-month loss at BAA’s Heathrow and Stansted airports narrowed to 158.3 million pounds ($251 million) from 636.3 million pounds a year earlier, after charges for its pension deficit and the sale of Gatwick weren’t repeated, the company said today in a statement.

Sales fell 16 percent to 1.54 billion pounds after the company sold Gatwick airport to New York-based Global Infrastructure Partners.

BAA last year had an exceptional pension cost of 261.7 million pounds and an impairment charge on the sale of Gatwick of 225 million pounds.

BAA sold Gatwick to GIP for 1.5 billion pounds under pressure from the U.K. Competition Commission, which ordered a breakup of the business. Stansted and either Glasgow or Edinburgh airport may also have to be disposed of as part of the process. The company is selling a terminal in Naples, Italy.

BAA also said in a separate statement today that it planned to sell as much as 325 million pounds of bonds maturing in 2017 to refinance existing debt. BAA hired Morgan Stanley, the Royal Bank of Scotland Group Plc, Barclays Capital, BNP Paribas, ING Groep NV and Banco Santander S.A. to organize the sale.

Ferrovial, which bought BAA for 10 billion pounds in 2006, said Oct. 22 it planned to sell a 10 percent stake in the company to pay down debt and fund other projects. Ferrovial currently holds a 55.9 percent stake in the airport operator.

To contact the reporters on this story: Steve Rothwell in London at srothwell@bloomberg.net.

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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