OREANDA-NEWS. July 27, 2011. Ryanair, the world’s favourite airline, today (Wed 27th July) confirmed that it had instructed its lawyers to file a complaint with the CAA and Competition Commission, demanding that they revise the current price cap at Stansted to eliminate what Ryanair believes are monopoly abuses and overcharging of Stansted’s airlines over the past five years (2007-2011) during which:
 

•         Stansted’s traffic has fallen 24% from 24m to 18.3m (from 2007-2010).

•         Airport charges have doubled from ˆ3.30 per pax to ˆ6.60 per pax.

•         Stansted’s costs have risen 16% from GBP155m to GBP180m, despite a 24% fall in traffic.
 

Ryanair’s case will highlight what Ryanair believes are examples of monopoly abuse by BAA Stansted against airlines and passengers using London’s third airport over the past five years as follows:
 

1.      Stansted’s RAB (Regulatory Asset Base) of GBP1,250m is overstated by GBP270m of inflation adjustments. While non regulated companies depreciate their fixed assets, BAA Stansted inflates them by RPI each year.


2.      Stansted’s RAB is further over-stated by at least GBP194.2m, being the vast sums wasted by BAA Stansted on its (now abandoned) second runway project, including unnecessary blight costs, Head Office fees and charges. These were costs which BAA Stansted was not obliged to incur, and which the Stansted airlines opposed. If BAA Stansted chose to waste GBP200m on a second runway project that doesn’t proceed, then Ferrovial and the BAA Head Office should write off these losses and not pass them on to Stansted’s airlines and passengers.


3.      Any company that has suffered a 30% decline in business over the past five years would respond by cutting its prices. Instead, BAA Stansted monopoly’s response has been to double its passenger charges, making Stansted Airport uncompetitive, but generating monopoly profits for the BAA. So far in 2011 the following airlines have announced further route and traffic cuts at Stansted, when faced with higher airport charges:


•         Air Berlin (Hannover and Nuremburg)

•         Astreus (Reykjavik)

•         Air Asia X (Kuala Lumpur)

•         Cyprus Airways (Larnaca & Paphos)

•         Easyjet (a 3 based aircraft switched to Southend)

•         Ryanair (winter schedule cut by 20%)

•         Star One (Vilnius)

•         Thomas Cook (Larnaca & Monastere)

•         Thomson (Bodrum, Monastere & Reus)
 

Ryanair expects Stansted’s 2012 traffic to fall again to just over 17m passengers, a 30% decline from its 2007 24m peak.


4.      BAA Stansted’s regulatory accounts show numerous examples of unexplained costs being transferred to Stansted by BAA HQ and Heathrow which inflates Stansted’s costs and understates Stansted’s profits, while boosting those of the BAA Group and Heathrow. Examples of this include:

•         In 2008 a GBP28.4m “intra-group cost” was charged to BAA Stansted. These unexplained “ intra-group costs” have exceeded GBP70m over the past four years, despite the fact that BAA Stansted is managed and run from Stansted Airport.

•         “Other costs” at Stansted trebled from GBP7.7m in 2008 to GBP25.3m in 2009 without any explanation.  In 2010 these costs were explained as “a combination of supply chain initiatives and cost bundling, less marketing spend and reduced insurance premiums”.

•         Stansted Airport’s “utility costs” increased 80% from GBP13m in 2009 to GBP23.4m in 2010 due to a “revised allocation” of electricity charges between Heathrow and Stansted. The BAA has failed to explain why Stansted’s electricity bill increased by 80% in 2010, even as Stansted’s traffic declined by 9%.


•         In 2010 Stansted Airport suffered a GBP39m “exceptional charge” which was referred to as “Stansted’s share of the actuarial deficit in the BAA Groups defined pension benefit scheme”. Clearly Stansted airlines and passengers should not be paying for the mismanagement and deficit of BAA Group’s pension scheme deficit. How was this deficit “shared” between the five BAA airports? What exceptional change did Heathrow suffer?


•         If Stansted’s expenditure of GBP155m in 2007 had mirrored its traffic decline, and fallen by 24%, to 2011, then Stansted’s total costs in 2011 would be GBP116m and not GBP180m. This indicates that Stansted’s current profitability equates to approx. GBP100m p.a., but the profits are being understated with these unexplained inter group charges, revised cost allocations and exceptional charges from BAA Group and Heathrow.
 

Properly regulated Stansted’s airport charges should be reduced by at least GBP50m from GBP122m in 2011 to the GBP72m charged in 2006 prior to the BAA Stansted’s 2007 decision to double airport charges which led to five years of traffic declines after 15 consecutive years of low fares growth.


5.      Ryanair believes that the Stansted Airport’s regulatory accounts clearly show that airlines and passengers are being overcharged by at least GBP50m per year, or GBP1m per week. Since Ryanair accounts for 70% of Stansted’s traffic, Ryanair is being over charged by at least GBP35m p.a. or approx GBP3 per passenger for each of its 12 million passengers at Stansted.

Ryanair’s Michael O’Leary said:
 

“Stansted’s regulatory accounts, in our opinion, clearly show the BAA gaming the regulatory system, and abusing its monopoly power to inflate its RAB and inflate its costs in order to overcharge airlines and passengers at Stansted. BAA Stansted has inflated their regulatory asset base by over GBP270m in inflation adjustments, and by GBP200m in second runway costs, for which there is no justification.
 

BAA Stansted’s regulatory accounts also show a myriad of unexplained intra-group costs, reallocation of Heathrow costs and an 80% increase in Stansted’s electricity bill in 2010, due to a “revised allocation” of Heathrow’s electricity costs in a blatant attempt to understate the enormous profits being exploited by BAA Stansted monopoly.
 

This overcharging of airlines and passengers is an abuse of the BAA’s monopoly power at Stansted, which proves again that the UK Competition Commission was right when in 2008 they recommended that the BAA be forced to sell Gatwick and Stansted airports because it found that:


(a).  “The BAA’s monopoly ownership of Heathrow, Gatwick and Stansted airports has adversely affected competition.”


(b)   “The way the BAA has conducted its business has adversely affected competition.


(c) “The inadequate regulatory regime operated by the CAA has adversely affected competition”.


It is a matter of great regret to the airlines at Stansted that three years after the Competition Commission first recommended the sale of Stansted, the BAA continues to delay and frustrate this sale, so that it can continue to inflict long queues and atrocious customer service, while doubling the airport charges and monopoly profits of BAA Stansted.
 

“The sooner Stansted is sold, the sooner it will be run efficiently to meet the needs of its low fare airlines and enable them to stimulate traffic and tourism growth, to promote choice and competition. Competition can provide Stansted’s airlines and passengers with better service, at a fair price, whereas in recent years we have suffered atrocious service at rapacious prices, because in our opinion the BAA is an abusive monopoly and the CAA has been an incompetent regulator.”