BAA reports strong year despite tough climate

Tina Milton

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UK airports group BAA has reported a strong performance in 2005 despite tough market conditions

BAA has reported strong results for the year ended 31 March despite "difficult" operating conditions. The UK airport's net retail income increased by 4.8% in the year to £616m ($1.157bn) and net retail income per passenger grew by 2.9% to £4.28. A focus on improving standards contributed to the strong growth in income from airside specialist shops and catering, as did the opening of the Heathrow terminal one international departure lounge extension, which added a number of new shops, bars and restaurants.

Word Duty Free delivered £26m ($48m) operating profit and contributed £126m ($236m) in concession fees to the UK airports. This performance was underpinned by good seasonal trading at Christmas, sustained into the New Year by successful promotional programmes.

BAA retail director Stephen Nelson commented: "This strong performance, especially in the second half of the year, was driven by an ever-increasing focus on serving the customer across the retail and food and beverage offer and developing the right choice of brands. 'Retail is detail', as they say, and our approach has helped us to withstand the kind of pressures that have hit the high street."

He continued: "Knowing our customers is crucial and our research shows that customers are prepared to come to the airport earlier if offered retail entertainment and also if there is quality and choice in catering. With these needs in mind we have developed new approaches in store layout and invested in initiatives to reduce queuing, and we have announced a deal with Gordon Ramsay to open a restaurant at terminal 5. That's just the latest example of the higher ambition I have for BAA Retail."

The group reported that worldwide revenue was up 7.4% to £2.23bn ($4.19bn) while operating profit increased by 8.1% to £710m ($1.3bn). UK airports' passenger traffic grew by 2% to 144.6m and Budapest airport passenger traffic grew by 9% to 1.6m during the first three months of BAA's ownership.

BAA chief executive officer Mike Clasper said: "We have again converted passenger growth into stronger underlying operating profit, thanks to our ability to drive retail income, our diligence in controlling costs and rising tariffs at our three London airports. This achievement is despite difficult operating conditions--the London bombings in July, the Gate Gourmet dispute in August and the slowing economy in the UK."

He added: "These results are a reminder of BAA's core strengths that enable us to consistently generate shareholder value: a unique portfolio in a dynamic sector; strong growth of our London airports; and even stronger results from our other business; and a first rate management team creating value. These strengths gave us the confidence to acquire Budapest airport, a fast growing, commercially under-developed airport that is a perfect fit for our management skills. In our short tenure of Budapest we have already made significant progress towards running the airport to the BAA model and integrating it within BAA's portfolio.

"Looking forward this year we are forecasting a 3.5% rise in passenger numbers and I am confident that we will convert this growth into another good financial performance," concluded Clasper.