25 April 2008
Should BAA be broken up?  (v2)
Patrick Crozier

This is a complete rewrite of version 1 which didn’t really cut the mustard.  Ah well.

It rather looks like BAA, Britain’s largest airports operator and owner of Heathrow, Glasgow and Stanstead, will be forcibly broken up.  It doesn’t seem to have a lot of friends right now1 and the regulator is starting to beat his “this is a monopoly” drum2.

I can’t say I am exactly thrilled at the prospect.  For two reasons.  First of all, there’s a rather nasty whiff of nationalism here.  I can’t help but notice that things were awfully quiet until a bunch of foreigners bought up BAA.  Secondly, forcibly breaking things up involves, well, force and I am against force3.

I am, of course, all in favour of things being voluntarily broken up, if that is what owners want to do.  Indeed, that is precisely what BAA itself did in the case of Prestwick a few years ago.  They reckoned they couldn’t make a go of it, sold it off to some people who thought they could and, hey Prestwick! (so to speak) within a few years the airport was booming4.

The fact that BAA’s owners (and, for that matter, its owners before that) don’t think the same experiment should be tried with its London airports tends to suggest that they think the airports will make more money if owned by just the one operator.  This argument cuts a lot of ice with me because I think profits are a good thing5.

However, it’s impossible to avoid the complaints.  Personally, I rather like airports, Heathrow included.  But lots of people don’t.  Terminal 5’s teething difficulties6 aside people complain about the queues, the lost luggage and the general state of repair of the buildings.  Airlines have their own range of complaints but I have never been quite able to pin down just what they are.

But let’s assume for argument that BAA is not doing as good as job as it could or is reasonable to expect.  Why’s that?  Because free market theory tends to run along the lines: “Well, if companies attempt to abuse their monopoly position all that will happen is that competitors will enter the market.” And there are examples of this7.  So, if BAA really is doing a crap job it is either because the theory is wrong or something else is going on.

My guess is that it is more or less impossible to enter the market.  Try getting planning permission for a new airport in the South East.  With the current planning laws you can forget it8.  Well, you can but BAA might just be able to what with all its experience and contacts.  And buying up enough contiguous land might also pose difficulties9 even if I think they can be overcome. 

But maybe it’s not.  Maybe, it would indeed be impossible to build another airport in South East England.  But then the appropriate level of competition is not airports but regions.  Maybe a better airport somewhere else would draw in the investment and the people to compete with London (and in the process take BAA down a peg or two).  Of course, to do this developers would need to be able to build the buildings and infrastructure needed which again is impossible under current conditions.  But this just re-iterates the point: as far as we know it is government force that is causing the problem.

Just as an aside one argument that gets dragged up in this debate is the one about how BAA was privatised in the first place.  The argument goes that all our woes are down to the fact that it was privatised in one go.  If only the airports had been sold off one by one… Maybe, maybe, but if it had there would have been nothing (in a free market) to stop one of those airports gobbling up all the others and creating what we see today.  The point is that markets are discovery mechanisms.  Amongst the things they discover is how many companies should exist in a given market.  My guess is that BAA is the size it is because that is the optimum size in the prevailing conditions.  If it wasn’t it would have been broken up by now.


1.  Hey, even the libertarians at Samizdata don’t have much time for it.  Or, even Jeff Randall at the Telegraph.

2.  See Gatwick and Stansted are targets as BAA break-up looms, Telegraph, 23 April 2008

3.  See What I believe, InstaPatrick.

4.  See David Farrar’s article, Freedom and Whisky, 29 May 2003.

5.  See Profits in a Market Economy, Art Carden, Ludwig von Mises Institute, 18 January 2008, in which the author makes the point that profits are good and losses bad.

6.  At least, I hope they’re teething.

7.  See Against competition regulation, InstaPatrick.  Another short one

8.  Another reason to be against planning.  For some more, see Against Planning, InstaPatrick.

9.  I am, of course, against compulsory purchase.  See Against compulsory purchase, InstaPatrick.

Post a Comment