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BAA plc

BAA plc

130 Wilton Road
London SW1V 1LQ
United Kingdom
Telephone: (44) 171-834-9449
Fax: (44) 171-932-6699
Web site: http://www.baa.co.uk

Public Company
Incorporated: 1987
Employees: 12,724
Sales: £2.01 billion ($3.16 billion) (1999)
Stock Exchanges: London
Ticker Symbol: BAAPY
NAIC: 488119 Other Airport Operations; 23311 Land Subdivision and Land Development; 485112 Commuter Rail Systems; 45322 Gift, Novelty, and Souvenir Stores

BAA plc is a holding company for the worlds largest organization of airports. BAA owns and operates seven major airports in the United KingdomHeathrow, Gatwick, Stansted, Glasgow, Edinburgh, Aberdeen, and Southampton. Originating as a government-owned enterprise known as the British Airports Authority, BAA became a private company in 1987 and has achieved a position of preeminence in airport development in the United Kingdom and around the world. BAA also provides management services for eight airports around the globe, including airports in the United States, Australia, Italy, and Mauritius. The companys retail services division, which includes restaurants and stores in airports, contributes more than half of BAAs annual revenues. BAA also is involved in property development.

Government Control: 1919-87

Great Britains commercial airline industry began in 1919, when the Department of Civil Aviation was established as a division of the governments Air Ministry. When foreign competition nearly forced most British airlines out of business in 1921, the government provided temporary financial relief, and two years later, the Civil Air Transport Subsidies Committee was established to investigate long-term solutions to the airlines economic struggles. The result was the 1924 formation of the government-owned and operated Imperial Airways, the first in a long line of British airlines under state ownership.

Although World War II brought a halt to commercial aviation, wartime aeronautical developments left the industry poised for advancement when hostilities ceased. Under the postwar Labour government, the expanding industry consisted of three state-run airways corporations: British Overseas Airways Corporation (serving the Commonwealth, North America, and the Far East), British European Airways (covering domestic and short European flights), and British South American Airways. Air traffic control facilities and the airports under development at this time also were run by the state.

Expansion in the industry was inevitable and remarkably swift during the 1950s, as air travel became a popular means of transportation. Faced with increasing numbers of passengers and technological developments in commercial aircraft, British airports strove to provide efficient, smoothly running, and attractive facilities that would lure the business of the countrys most successful airlines.

As the boom in air transport continued into the 1960s, the burden of maintaining a network of state-of-the-art airports proved too complex and cumbersome a task for the government, and British airports began losing money. In 1965, the British government passed the Airports Authority Bill, which created a single statutory body to own and oversee operations of the countrys airports while remaining answerable to Parliament. The following year, the new British Airports Authority officially took control of Heathrow, Gatwick, Stansted, and Prest-wick. Under the direction of Chairperson Peter Masefield, the British Airports Authority transformed the industry from a bureaucratic operation, similar to that of a public utility, into a profitable semi-independent business.

Rapid Growth and New Challenges Following Privatization: Early 1990s

During the 1970s and early 1980s, airport profits rose dramatically and a program of expansion and refurbishment was undertaken. In fact, the industrys increasing success prompted the Conservative government to consider the Authority a prime candidate for a privatization program it was planning for some of the countrys industries. Toward this end, the Airports Act of 1986 permitted the creation of a new company, BAA plc, a public holding company for airports. The ensuing advertising campaign for BAA stock was designed to appeal to a wide variety of investors. In one publicity stunt, the company hired people to dress up as Harry Heathrowa teddy bear character created especially for the promotionand carry placards around airport terminals advertising BAAs initial stock offering price of 245 pence per share. With nearly two and a half million applications, the stock was oversubscribed ten times and the flotationon July 16, 1987was a resounding success. BAA fared well since its public offering. From 1987 to 1993, passenger numbers increased by 42 percent, BAAs share price more than tripled, and profits increased by 130 percent.

Among BAAs established operations during this time, none rivaled the rapid growth and success of Londons premier airport, Heathrow. Originally envisioned as a ring of city airports, the London AirportHeath Row was planned during the war and opened in 1946. At that time, tents served as Heathrows terminals, while its offices were set up in vans. Eventually a more substantial terminal, the North Side Terminal, was established and remained in use through the 1950s, when it was replaced by the Europa terminal, later known as Terminal 2. The Heathrow Oceanic terminal (which became Terminal 3) opened in 1961, followed by two more terminals in 1968 and 1986.

By the 1990s, Heathrow was the worlds busiest international airport. During this time, BAA proposed construction of a third runway at Heathrow. Whereas airlines welcomed the idea of expanded facilities, local residents and environmental groups, including the Federation of Heathrow Anti-Noise Groups, were strongly opposed to the plan, which would have involved the demolition of some 3,500 homes in surrounding villages. In the face of such protests, BAA withdrew the proposal in May 1994. Similarly, BAAs plan to build a fifth terminal at Heathrow met with opposition. The terminal, expected to increase Heathrows annual passenger capacity from 50 million in the early 1990s to 80 million by 2013, was criticized as involving further noise pollution and traffic jams in the area. BAA argued, however, that new aircraft technology, including the development of larger aircraft, would allow more passengers without necessitating more planes and increased noise levels.

Although some remained skeptical of BAAs promises, the company maintained that it was simply planning to ensure that Londons airports remained adequately equipped to keep up with increasing demand. With 30 percent of Heathrows business consisting of connecting flights, rather than final destinations, BAA faced the potential threat of competition in this sector from airports in Amsterdam, Brussels, Paris, and Frankfurt, which were poised to accommodate customers. Public inquiry into the feasibility of BAAs fifth terminal was set to begin at the end of 1994; construction was not expected to be completed before the 21st century if at all. Nevertheless, BAA continued to expand services at Heathrow and worked on the construction of a new flight connection center in the mid-1990s.

The second largest BAA airport servicing the London area was Gatwick, located 27 miles south of the city. During the late 1940s and early 1950s, Gatwick was known primarily as an airport for charter flights or as an alternative in the event of bad weather at Heathrow. Major reconstruction completed in 1956, however, helped Gatwick develop into a popular international flight destination. Plans to purchase more land and add a second runway to Gatwick stalled in 1979, when the British Airports Authority agreed with the West Sussex County Council that it would not pursue expansion for 40 years.

When Stansted Airport, established in the London area in the 1940s, was designated for expansion in 1967, strong local opposition forced the Authority to relocate Stansted off the Essex coast, in Maplin Sands. In the early 1970s, plans for expansion at this site also were abandoned, when the oil crises and economic recession prompted predictions of declines in passenger volume. By the late 1970s, however, increasing air traffic was inevitable and the expansion of Stansted seemed imminent, particularly since competition from nearby foreign airports, especially in Amsterdam, had intensified.

Again, the Authority found itself embroiled in a lengthy public debate of the issue. In addition to environmentalist objections to the expansion, several airlines, including British Airways, protested the move, preferring their existing arrangements at Heathrow and Gatwick. Moreover, another interest group, the North of England Regional Consortium, representing northern regional airports and local authorities, lobbied to fill the growing market by developing provincial facilities rather than expanding Stansted. In 1985, a compromise was reached under which Stansted would undergo development in phases monitored by Parliament.

Despite its ambitious $400 million redevelopment program, which garnered numerous awards for architecture, environmental sensitivity, and marketing, Stansted did not meet expectations for increased capacity and profits. In fact, in 1993, American Airlines withdrew its services from Stansted, and the airport reported heavy losses. During this time, Stansteds direct competitor, Luton, claimed that BAA was unfairly subsidizing Stansted from profits derived from Heathrow, creating artificially low prices in an effort to attract customers.

Company Perspectives:

Our mission is to make BAA the most successful airport group in the world. This means: Always focusing on our customers needs and safety; Achieving continuous improvements in the profitability, costs and quality of all our processes and services; Enabling us all to give of our best; Growing with the support and trust of our neighbours.

In addition to its London airports, BAA also acquired facilities in Scotland, including airports at Prestwick, Edinburgh, Glasgow, and Aberdeen, during the 1960s and 1970s. Until 1990, Prestwick was the only Scottish airport allowed to accommodate transatlantic flights. Then, under the governments new open skies policy, several airlines began gravitating toward the more popular sites of Glasgow and Edinburgh, boosting profits at these airports and prompting BAA to sell the relatively unprofitable Prestwick airport. Although BAAs Scottish airports service significantly fewer passengers than its London airports, the growth rate for Scotlands air travel industry surpassed that of London in 1993. Thus BAA expected its Scottish airports to play an increasingly more prominent role in U.K. commercial aviation.

Although a healthy percentage of BAAs profits reflected fees levied on the airlines that used its airports, the bulk of BAAs profits during the early 1990s was generated from an auxiliary enterprise: retail sales. Attracting many large retailers and caterers, BAA established vast shopping complexes at its airports, which featured outlets for Harrods, Yves St. Laurent, Burberrys, The Body Shop, Cartier, McDonalds, Burger King, and several others. Retail profits also were bolstered by companies providing car rental and parking lot operations.

Unlike most commercial operations, BAAs retail sales were unaffected, in large part, by the economic recession of the early 1990s. In fact, while retail chains across the nation suffered losses, their airport branches reported healthy profits. Analysts suggested two reasons for this surprising statistic: many shoppers at airport stores were from foreign countries mostly unaffected by the recession, and air travelers on the whole were likely to have more disposable income than the average consumer. To offset expected retail losses beginning in 1999, when Europeans would no longer be able to purchase duty-free goods, BAA increased retail space in its London airports by 50 percent between 1992 and 1994. Restaurant operations at the airports also were expanded and diversified. The phenomenal success of BAAs airport shopping facilities prompted its mid-1990s joint venture with the U.S.-based Me Arthur Glen Realty to develop and operate outlet mallswhere manufacturers sell directly to the publicin the United Kingdom and Europe.

An acknowledged expert in the industry, BAA increasingly put its experience to use in a variety of consultancy roles. In 1992 the company won a contract from the Greater Pittsburgh International Airport to develop and operate that airports shops and restaurants. Moreover, as a designer of modern facilities known for their efficiency as well as their aesthetic merit, BAA secured several consulting contracts throughout the United Kingdom, Australia, Japan, Mexico, Hungary, St. Lucia, and the Bahamas and played a prominent role in the planning of new airports in Hong Kong and Kuala Lumpur. Forecasting, engineering, computing, and market research were among the other skills that BAA offered its clients.

In response to increasing public concern for the environment, BAA created an Environment Department to address issues surrounding the airline industrys role in noise pollution, air quality, water quality, and wildlife preservation. The company published a policy statement, affirming its commitment to environmental conservation, and began the annual publication of a report on its performance in these areas. In the mid-1990s, BAA explored options to acquire equity stakes in airports around the world. Despite the strength of its retail and consultancy operations, BAAs commitment to this core business was evidenced by its plans to continue refurbishing and upgrading its airport facilities.

International Expansion and a Changing European Climate: Late 1990s

To prepare for the impending end of duty-free shopping in Europe, BAA focused on expanding its international retail operations in the late 1990s. In 1996 the company acquired Allders International, the international duty- and tax-free business of Allders plc, for about £130 million. Allders International operated stores in the United States, Europe, Canada, and Australia. The majority of its shops were located at airports, on cruise ships and ferries, at border crossings, and in city centers. BAA added to its duty-free holdings in 1997 with the acquisition of Duty Free International, based in the United States. A year later the company integrated its international duty-free operations and formed World Duty Free plc, a holding company. Duty Free International was renamed World Duty Free Americas Inc., and the U.K. operations were renamed World Duty Free Europe Limited. A new World Duty Free flagship store was opened in Heathrow Airports Terminal 3 in 1998, and the company continued to open new stores and introduce new concepts, including a specialty wine store, cigar store, and watch store. By the late 1990s World Duty Free was the global leader of the $20 billion duty-free market, with a five percent share. European operations consisted of more than 70 airport stores, U.S. operations had more than 160 stores at airports and border crossings, and World Duty Free Inflight offered duty-free products on 28 airlines.

The duty-free operations made up only a portion of BAAs retail activities, however, and the company strove to grow its commercial businesses around the world. In 1998 the company secured a new contract to operate the retail, food, and beverage operations in two terminals at Newark Airport in the United States. In March 1999 BAA signed a 15-year contract with Eurotunnel to operate the retail facilities in terminals at Folkestone and Calais/Coquelles. In 1998 about 13 million people traveled through these two terminals.

Key Dates:

1924:
British government forms its first government-owned and operated airlineImperial Airways.
1965:
British government passes the Airports Authority Bill.
1966:
The newly formed British Airports Authority takes control of Heathrow, Gatwick, Stansted, and Prest-wick airports.
1986:
Airports Act paves the way for the formation of BAA plc, a public holding company for airports.
1987:
British Airports Authority is privatized and carries out an initial stock offering.
1990:
BAA acquires Southampton airport.
1998:
The Heathrow Express rail link to Londons Pad-dington Station opens.
1999:
Duty-free shopping in the European Union ends.

Not only did BAA operate retail concessions and duty-free shops, but the company also, through joint venture BAA McAr-thurGlen, developed and operated designer outlet centers in Europe. In fiscal 1999, which ended March 31, 1999, BAA opened four new centers to push its total number to seven. Plans to open an additional four centers in 2000 and 2001 were under way as well. The partnership also sold interests in three centers in 1998 and 1999. Total retail revenue, including duty-free operations and concession and retail elements, reached £1,033 million in fiscal 1999, an impressive 17.8 percent increase over 1998 sales, which were £877 million. Of the total, 43 percent came from airport retail operations and 47 percent from duty-free businesses.

First and foremost, BAA was known for its airports, and the company continued to strengthen its airport operations in the late 1990s. According to BAA, 112.5 million travelers passed through its U.K. airports during fiscal 1999, a 7.6 percent increase over the previous year. With traffic projected to continue increasing, BAA invested time and money into developing efficient, safe, and exciting facilities. During fiscal 1999 alone the company spent £512 million to improve and expand current facilities. Traffic at Stansted increased by 35.4 percent, making it the fourth busiest airport in Britain. BAA opened a new international satellite building at Stansted in early 1999 and planned to invest more than £200 million over a five-year period to increase the airports capacity. BAAs other airports enjoyed increased traffic as well. Gatwick saw about 30 million passengers, an 8.1 percent rise over 1998, and BAAs three Scottish airports enjoyed an increase in traffic of six percent, to 13.8 million travelers. Heathrow also served more passengers61 million, a rise of 4.9 percent. To accommodate more travelers, BAA sought to expand capacity at Heathrow. Its plans for Terminal 5 met with opposition from the middle to late 1990s, and in March 1999 the public inquiry ended. The fate of Terminal 5 then went into the hands of the British government, which was expected to provide a decision in 2000 or 2001.

BAAs airport operations were given a significant boost in June 1998 when the Heathrow Express was unveiled. Owned and operated by BAA, the Express provided rail service from Londons Paddington Station to Heathrow Airport, offering a convenient alternative to road travel to Heathrow. The trains traveled at speeds of up to 100 miles per hour. In other airport matters, BAAs property development arm, BAA Lynton, chose to focus more closely on airport-related properties and thus planned to sell its nonairport-related investments by the end of fiscal 2000. BAA Lynton worked on three developments at Heathrow in 1998, constructed an office building at Stansted, and finished a cargo warehouse at Glasgow.

Despite healthy revenues and continued growth, BAA hit a snag when duty- and tax-free sales in the European Union ended on June 30, 1999. Although BAA was committed to maintaining the duty- and tax-free prices for European travelers, sales dropped more severely than expected; BAA attributed the decline to confusion about the new rulesalthough only tobacco and alcohol sales were affected, many travelers believed the rules applied to other products as well, thus impacting their shopping decisions. In addition, BAAs duty-free operations in the United States continued to underperform. BAA blamed the poor performance on major renovations of several large U.S. airports and the decline in the number of border crossings in North America. For the first half of fiscal 2000, BAAs duty-free operations reported a £1 million operating loss. The company also announced that overall pretax profit before exceptional items for fiscal 2000 would probably be at least £30 million below the market forecast of £505 million. As a result of the October 1999 announcement, BAA shares fell more than 17 percent.

In October 1999 Sir John Egan, chief executive since 1990, retired and Mike Hodgkinson became the new CEO. Though BAA faced new challenges and difficult conditions, Hodgkinson remained optimistic about BAAs future. To educate travelers about the new duty-free rules, BAA launched a marketing campaign, coupled with sales campaigns at airports. Passenger traffic at BAAs airports increased 5.1 percent during the first half of fiscal 2000, and duty-free sales seemed to have slowed and reversed its downward spiral.

At the turn of the century, BAA remained committed as ever to the business of operating airports and specializing in travel retail operations. The company planned to continue growing its international presence and perhaps exploring new venturestalk of privatizing Britains air traffic control services led many to speculate on whether BAA would become involved. As a dominant force in worldwide airport operations, BAA worked to realize its avowed goal of becoming the most successful airport company in the world.

Principal Subsidiaries

Heathrow Airport Limited; Aberdeen Airport Limited; Southampton International Airport Limited; Edinburgh Airport Limited; Gatwick Airport Limited; Glasgow Airport Limited; Stansted Airport Limited; World Duty Free plc; World Duty Free Europe Limited; World Duty Free Americas, Inc.; BAA Lynton; BAA McArthurGlen Europe Limited (50%); BAA McArthurGlen UK Holdings Limited (50%); Cheshire Oaks Limited (12.5%); BAA McArthurGlen Europe S.A. (50%; Belgium).

Principal Competitors

Lockheed Martin Corporation; National Express Group PLC; Serco Group plc.

Further Reading

BAA Shares Dive 17% on Profit Warning, Wall Street Journal Europe, October 4, 1999, p. 7.

Blue Skies Ahead for BAA, Investors Chronicle, March 12,1993.

Boschat, Nathalie, BAA Shares Rise as Sales Stop Sliding, Wall Street Journal Europe, November 2, 1999, p. 8.

Davies, Peter, Letter to the Editor, The Times, May 19, 1994, p. 17.

Donne, Michael, Above Us the Skies: The Story of BAA, London: BAA plc, 1991.

Duty Free Heads for the Stratosphere, Evening Standard, March 1, 1994.

Elliott, Harvey, BAA Abandons Third Runway for Heathrow, The Times, May 16, 1994, pp. 1-2.

Gribben, Roland, BAA Warns of Further Hit on Duty-Free, Daily Telegraph, November 2, 1999.

Harper, Keith, The Man of His People: Mike Hodgkinson, Chief Executive, BAA, Guardian, October 30, 1999.

Kay, William, Ground Control Charts Way for Airport Boss (interview with Sir John Egan), Independent on Sunday, November 21, 1993.

King, John, and Geoffrey Tait, Golden Gatwick: 50 Years of Aviation, London: The Royal Aeronautical Society Gatwick Branch and the British Airports Authority, 1980.

Luton Accuses BAA of Predatory Airport Pricing, Financial Times, June 5, 1993.

Nowhere To Land, Economist, August 14, 1993.

Protests Greet Heathrow Scheme for Fifth Terminal, Independent, February 18, 1993.

Special Report on Airports UK: Can the Plane Take the Strain?, Evening Standard, March 14, 1994.

Special Report on Airports UK: Shops Strike it Rich, Evening Standard, March 14, 1994.

Special Report on Airports UK: Why We Must Have Terminal Five, Evening Standard, March 14, 1994.

The Terminal?, Evening Standard, June 21, 1993.

Robin DuBlanc

updated by Mariko Fujinaka

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BAA plc

BAA plc

130 Wilton Road
London SW1V 1LQ
United Kingdom
(071) 834-9449
Fax: (071) 932-6699

Public Company
Incorporated: 1987
Employees: 8,417
Sales: £2.85 billion
Stock Exchanges: London
SICs: 6711 Holding Companies; 4582 Airports & Airfields; 6799 Investors, Nee; 6552 Real EstateSubdividers and Developers

Celebrated by Margaret Thatcher as a continuing British success story, BAA plc is a holding company for the worlds largest organization of airports. BAAs seven airports Heathrow, Gatwick, Stansted, Glasgow, Edinburgh, Aberdeen, and Southamptonservice 73 percent of the passenger traffic and 84 percent of air cargo transportation in the United Kingdom. Originating as a government-owned enterprise known as the British Airports Authority, BAA became a private company in 1987 and has achieved a position of preeminence in airport development in the United Kingdom and around the world.

Great Britains commercial airline industry began in 1919, when the Department of Civil Aviation was established as a division of the governments Air Ministry. When foreign competition nearly forced most British airlines out of business in 1921, the government provided temporary financial relief, and two years later, the Civil Air Transport Subsidies Committee was established to investigate long-term solutions to the airlines economic struggles. The result was the 1924 formation of the government-owned and operated Imperial Airways, the first in a long line of British airlines under state ownership.

While World War II brought a halt to commercial aviation, wartime aeronautical developments left the industry poised for advancement when hostilities ceased. Under the postwar Labour government, the expanding industry consisted of three state-run airways corporations: British Overseas Airways Corporation (serving the Commonwealth, North America, and the Far East), British European Airways (covering domestic and short European flights), and British South American Airways. Air traffic control facilities and the airports under development at this time were also run by the state.

Expansion in the industry was inevitable and remarkably swift during the 1950s, as air travel became a popular means of transportation. Faced with increasing numbers of passengers and technological developments in commercial aircraft, British airports strove to provide efficient, smoothly running, and attractive facilities that would lure the business of the countrys most successful airlines.

As the boom in air transport continued into the 1960s, the burden of maintaining a network of state-of-the-art airports proved too complex and cumbersome a task for the government, and British airports began losing money. In 1965, the British government passed the Airports Authority Bill, which created a single statutory body to own and oversee operations of the countrys airports while remaining answerable to Parliament. The following year, the new British Airports Authority officially took control of Heathrow, Gatwick, Stansted, and Prestwick. Under the direction of chairperson Peter Masefield, the British Airports Authority transformed the industry from a bureaucratic operation, similar to that of a public utility, into a profitable semi-independent business.

During the 1970s and early 1980s, airport profits rose dramatically, and a program of expansion and refurbishment was undertaken. In fact, the industrys increasing success prompted the Conservative government to consider the Authority a prime candidate for a privatization program it was planning for some of the countrys industries. Towards this end, the Airports Act of 1986 permitted the creation of a new company, BAA plc, a public holding company for airports. The ensuing advertising campaign for BAA stock was designed to appeal to a wide variety of investors. In one publicity stunt, the company hired people to dress up as Harry Heathrowa teddy bear character created especially for the promotionand carry placards around airport terminals advertising BAAs initial stock offering price of 245 pence per share. With nearly two and a half million applications, the stock was oversubscribed ten times and the flotationon July 16, 1987was a resounding success. BAA fared well since its public offering. From 1987 to 1993, passenger numbers increased by 42 percent, BAAs share price more than tripled, and profits increased by 130 percent.

Among BAAs established operations during this time, none rivalled the rapid growth and success of Londons premier airport, Heathrow. Originally envisioned as a ring of city airports, the London AirportHeath Row was planned during the war and opened in 1946. At that time, tents served as Heathrows terminals, while its offices were set up in vans. Eventually a more substantial terminal, the North Side Terminal, was established and remained in use through the 1950s, when it was replaced by the Europa terminal, later known as Terminal 2. The Heathrow Oceanic terminal (which became Terminal 3) opened in 1961, followed by two more terminals in 1968 and 1986.

By the 1990s, Heathrow was the worlds busiest international airport. During this time, BAA proposed construction of a third runway at Heathrow. While airlines welcomed the idea of expanded facilities, local residents and environmental groups, including the Federation of Heathrow Anti-Noise Groups, were strongly opposed to the plan, which would have involved the demolition of some 3,500 homes in surrounding villages. In the face of such protests, BAA withdrew the proposal in May 1994. Similarly, BAAs plan to build a fifth terminal at Heathrow met with opposition. The terminal, expected to increase Heathrows annual passenger capacity from 50 million in the early 1990s to 80 million by 2013, was criticized as involving further noise pollution and traffic jams in the area. However, BAA argued that new aircraft technology, including the development of larger aircraft, would allow more passengers without necessitating more planes and increased noise levels.

While some remained skeptical of BAAs promises, the company maintained that it was simply planning to ensure that Londons airports remained adequately equipped to keep up with increasing demand. With 30 percent of Heathrows business consisting of connecting flights, rather than final destinations, BAA faced the potential threat of competition in this sector from airports in Amsterdam, Brussels, Paris, and Frankfurt, which were poised to accommodate customers. Public inquiry into the feasibility of BAAs fifth terminal was set to begin at the end of 1994 and would likely continue for years; construction was not expected to be completed before the twenty-first century if at all. Nevertheless, BAA continued to expand services at Heathrow. Construction of a new flight connection center was expected to be completed in 1995, and, in an agreement with British Rail, the company was developing a Heathrow Express rail link to Paddington Station, due to open in 1997.

The second largest BAA airport servicing the London area was Gatwick, located 27 miles south of the city. During the late 1940s and early 1950s, Gatwick was known primarily as an airport for charter flights or as an alternative in the event of bad weather at Heathrow. Major reconstruction completed in 1956, however, helped Gatwick develop into a popular international flight destination. Plans to purchase more land and add a second runway to Gatwick stalled in 1979, when the British Airports Authority agreed with the West Sussex County Council that it would not pursue expansion for 40 years.

When Stansted Airport, established in the London area in the 1940s, was designated for expansion in 1967, strong local opposition forced the Authority to relocate Stansted off the Essex coast, in Maplin Sands. In the early 1970s, plans for expansion at this site were also abandoned, when the oil crises and economic recession prompted predictions of declines passenger volume. By the late 1970s, however, increasing air traffic was inevitable, and the expansion of Stansted seemed imminent, particularly since competition from nearby foreign airports, particularly in Amsterdam, had intensified.

Again, the Authority found itself embroiled in a lengthy public debate of the issue. In addition to environmentalist objections to the expansion, several airlines, including British Airways, protested the move, preferring their existing arrangements at Heathrow and Gatwick. Moreover, another interest group, the North of England Regional Consortium, representing northern regional airports and local authorities, lobbied to fill the growing market by developing provincial facilities rather than expanding Stansted. In 1985, a compromise was reached under which Stansted would undergo development in phases monitored by Parliament.

Despite its ambitious $400 million redevelopment program, which garnered numerous awards for architecture, environmental sensitivity, and marketing, Stansted did not meet expectations for increased capacity and profits. In fact, in 1993, American Airlines withdrew its services from Stansted, and the airport reported heavy losses. During this time, Stansteds direct competitor, Luton, claimed that BAA was unfairly subsidizing Stansted from profits derived from Heathrow, creating artificially low prices in an effort to attract customers.

In addition to its London airports, BAA also acquired facilities in Scotland, including airports at Prestwick, Edinburgh, Glasgow, and Aberdeen, during the 1960s and 1970s. Until 1990, Prestwick was the only Scottish airport allowed to accommodate transatlantic flights. Then, under the governments new open skies policy, several airlines began gravitating toward the more popular sites of Glasgow and Edinburgh, boosting profits at these airports and prompting BAA to sell the relatively unprofitable Prestwick airport. Although BAAs Scottish airports service significantly fewer passengers than its London airports, the growth rate for Scotlands air travel industry surpassed that of London in 1993. Thus, BAA expected its Scottish airports to play an increasingly more prominent role in U.K. commercial aviation.

While a healthy percentage of BAAs profits reflected fees levied on the airlines that used its airports, the bulk of BAAs profits during the early 1990s were generated from an auxiliary enterprise: retail sales. Attracting many large retailers and caterers, BAA established vast shopping complexes at its airports, which featured outlets for Harrods, Yves St. Laurent, Burberrys, The Body Shop, Cartier, McDonalds, Burger King, and several others. Retail profits were also bolstered by companies providing car rental and parking lot operations.

Unlike most commercial operations, BAAs retail sales were largely unaffected by the economic recession of the early 1990s. In fact, while retail chains across the nation suffered losses, their airport branches reported healthy profits. Analysts suggested two reasons for this surprising statistic: many shoppers at airport stores were from foreign countries largely unaffected by the recession, and air travelers on the whole were likely to have more disposable income than the average consumer. To offset expected retail losses beginning in 1999, when Europeans will no longer be able to purchase duty-free goods, BAA increased retail space in its London airports by 50 percent between 1992 and 1994 and planned to double this area again by 1996. Restaurant operations at the airports were also expanded and diversified. The phenomenal success of BAAs airport shopping facilities prompted its mid-1990s joint venture with the U.S.-based McArthur Glen Realty to develop and operate outlet malls in the United Kingdom and Europe, where manufacturers will sell direct to the public.

An acknowledged expert in the industry, BAA increasingly put its experience to use in a variety of consultancy roles. In 1992, the company won a contract from the Greater Pittsburgh International Airport to develop and operate that airports shops and restaurants. Moreover, as a designer of modern facilities known for their efficiency as well as their aesthetic merit, BAA secured several consulting contracts throughout the United Kingdom, Australia, Japan, Mexico, Hungary, St. Lucia, and the Bahamas, and played a prominent role in the planning of new airports in Hong Kong and Kuala Lumpur. Forecasting, engineering, computing, and market research are among the other skills that BAA offered its clients.

In response to increasing public concern for the environment, BAA created an Environment Department to address issues surrounding the airline industrys role in noise pollution, air quality, water quality, and wildlife preservation. The company published a policy statement, affirming its commitment to environmental conservation, and began the annual publication of a report on its performance in these areas. In the mid-1990s, BAA explored options to acquire equity stakes in airports around the world. Despite the strength of its retail and consultancy operations, BAAs commitment to this core business was evidenced by its plans to continue refurbishing and upgrading its airport facilities, as it strives to realize its avowed goal of becoming the most successful airport company in the world.

Principal Subsidiaries:

Aberdeen Airport Ltd.; Airports UK (Southampton) Ltd.; BAA Pittsburgh Inc.; Edinburgh Airport Ltd.; Gatwick Airport Ltd.; Glasgow Airport Ltd.; Heathrow Airport Ltd.; Lynton Holdings Ltd.; Lynton MHA Ltd.; Lynton Properties Ltd.; Stansted Airport Ltd.

Further Reading:

Blue Skies Ahead for BAA, Investors Chronicle, March 12, 1993.

Davies, Peter, Letter to the Editor, The Times, May 19, 1994, p. 17.

Donne, Michael, Above Us the Skies: The Story of BAA, London: BAA plc, 1991.

Duty Free Heads for the Stratosphere, Evening Standard, March 1, 1994.

Elliott, Harvey, BAA Abandons Third Runway for Heathrow, The Times, May 16, 1994, pp. 1-2.

Kay, William, Ground Control Charts Way for Airport Boss (interview with Sir John Egan), Independent on Sunday, November 21, 1993.

King, John, and Geoffrey Tait, Golden Gatwick: 50 Years of Aviation, London: The Royal Aeronautical Society Gatwick Branch and the British Airports Authority, 1980.

Luton Accuses BAA of Predatory Airport Pricing, Financial Times, June 5, 1993.

Masefield, Sir Peter, Letter to the Editor, The Times, May 19, 1994, p. 17.

Nowhere to Land, Economist, August 14, 1993.

Protests Greet Heathrow Scheme for Fifth Terminal, Independent, February 18, 1993.

Special Report on Airports UK: Can the Plane Take the Strain? Evening Standard, March 14, 1994.

Special Report on Airports UK: Shops Strike it Rich, Evening Standard, March 14, 1994.

Special Report on Airports UK: Why We Must Have Terminal Five, Evening Standard, March 14, 1994.

The Terminal? Evening Standard, June 21, 1993.

Robin DuBlanc

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"BAA plc." International Directory of Company Histories. . Encyclopedia.com. 11 Dec. 2017 <http://www.encyclopedia.com>.

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