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TRANSPORTATION INFRASTRUCTURE
58 ■ NOVEMBER 2007
constraints. Although the U.K. Aviation White
Paper “The Future of Air Transport” (the White
Paper), published in December 2003, proposes the
construction of a third runway at Heathrow and
additional terminal capacity, this is only expected
by 2015-2020 if environmental conditions are
met and the planning process runs smoothly.
Aeronautical activity
BAA is forecasting average passenger traffic
growth for its three designated airports of 2.8%
per year over the 2007-2018 period. This is below
the expected natural growth rate in England of
4.5% to 5.0%, reflecting capacity constraints at
the London airports. Industry events, erosion of
passenger confidence, and a weak economic
climate, could result in lower-than-expected
passenger growth. Our long-term scenario is
annual passenger growth of about 2%.
Historical trends have demonstrated the
stability of aeronautical activity at BAA’s airports
and the increasing resilience of passenger demand
behavior to external shocks. This supports BAA’s
business profile. BAA has a record of more than
40 years of almost continual traffic growth.
During this period, only the years following the
first oil crisis in 1974, the 1991 Gulf War, and the
events of Sept. 11, 2001 showed traffic decreases.
Nevertheless, with the exception of 1991, when
traffic decreased by 7%, the rate of passenger
volume decline was in the low single digits and
was short lived.
Since the beginning of the 2003-2008
regulatory period, traffic performance at the
designated airports has been mixed. BAA’s
designated airports underperformed the
regulatory assumptions in the fiscal years ended
March 31, 2006, and Dec. 31, 2006 (the
company’s fiscal year-end was changed during
2006; see “Accounting” section), and
outperformed the U.K. Civil Aviation Authority’s
(CAA) assumptions in 2005. Based on first-half
traffic figures, 2007 is likely to be below the
CAA’s assumptions.
In the first six months of fiscal 2007, traffic at
BAA’s regulated airports was stable compared
with the same period of the previous year, after a
decline of 0.6% in June 2006. Performance at
group level was stronger, with passenger growth
at 0.5% (below the 1.1% increase in the 12
month rolling period to June 2007), thanks to the
STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK
performance of Southampton and the Scottish
airports, which saw growth of 3.2% and 3.5%,
respectively, over the period. The recent attempted
terrorist attack at Glasgow airport contributed to
a fall of 2.4% in June 2007, as more than 60% of
flights were cancelled or diverted when the airport
was temporarily closed in the immediate
aftermath of the incident. Less than 24 hours
after the incident the airport was reopened and
operating a full flight schedule.
A diversified airline, destination, and passenger
mix supports traffic stability at BAA’s airports.
Customer concentration and dependence on the
lower rated airline sector are perceived as
weaknesses for airports in general, when
compared with gas and water utilities.
Nevertheless, airports with strong competitive
positions are partially insulated from this risk, as
the strength of routes is key for traffic stability. If
there is sufficient demand for a particular
destination, it is expected that a failing airline
serving that route would be substituted. Although
BAA’s four largest customers contribute about
one-half of its designated airports’ passenger
traffic (the revenue contribution is lower),
customer concentration is not perceived as a
credit risk, particularly at Heathrow, where
demand for slots exceeds supply. Of the hub
airport operators rated by Standard & Poor’s,
BAA has the lowest exposure to its flag carrier.
For the nine months ended December 2006, 27%
of total passenger traffic came from British
Airways PLC (BBB-/Stable/--) (Heathrow 41%,
Gatwick 21%). In comparison, Air France-KLM
represented more than 50% of passengers at
Aeroports de Paris (AA-/Stable/--) and more than
60% at Schiphol (N.V. Luchthaven Schiphol and
Schiphol Nederland B.V.; AA-/Negative/--).
Each of BAA’s larger airports caters for different
segments of the aviation market. This
diversification is supportive of BAA’s business
profile because the negative effects of a downturn
in one segment can be offset by strong
performance in others. Heathrow is the largest
hub in Europe, and almost all carriers are
scheduled rather than charter, while Gatwick is
the main U.K. charter airport, with a growing
low-cost carrier presence. Stansted is an origin
and destination airport and the U.K. center for
the low-cost airline business. Stansted’s rapid
growth rates over the past 10 years result from