BAA Bounces Back

2 September 2009 (Last Updated September 2nd, 2009 18:30)

BAA is experiencing a transformation, under chairman Sir Nigel Rudd, who took the helm two years ago. He talks to Lucy Schwerdtfeger about competition, Heathrow's controversial third runway plans and putting the passenger first.

BAA Bounces Back

Lucy Schwerdtfeger: Why did you become chairman of BAA; what did you think you would bring to the role?

Nigel Rudd: I've been involved in industry and my own business; I've done lots of things in my life. I began as a chartered accountant, started my own business, and from the age of 50 I began to develop a career as a chairman of various companies. I was then approached by a head hunter who asked me to meet some Spanish people that would like me to become chairman of BAA.

My initial response was: "Why would I want to do that? It's probably one of the most loathed companies in the country." But I was quite intrigued because I'd never had anything to do with government or regulation before. Their instruction was to look at the management, the strategy, and deal with relationships at the highest level; with government. In all honesty I have no regrets. There have obviously been some bumps along the road, but no regrets at all, because I find the whole thing quite fascinating.

LS: Presumably the main effort was to improve BAA's public image as there was a long standing issues in the company as a whole, how did you over come this? What were your first steps?

"There have obviously been some bumps along the road, but no regrets at all."

NR: The first thing I did was to assess the senior management. I think it was felt that the company needed a change of leadership. There was a certain arrogance: we do what we do and that's that. BAA was acting like a monopoly, which by definition it is; Heathrow is the only hub airport in the UK. But it shouldn't act like a monopoly. We needed management that was going to focus on the customer, then I realised that there was some confusion over who the customer was.

Financially it was the airlines, but we needed to pay equal attention to the person coming though the door, the fact that the airlines pay you is only part of the story.

So I interviewed Colin Matthews and realised he had the kind of skill set that I thought was required. Unfortunately for him, his first week as CEO was when we opened Terminal 5, a baptism of fire to say the least. But it's superb now, it's better than any other terminal because it works for people, and they are delighted with the experience.

The company's problem was a combination of small issues that became one big issue. We tried not to get into the blame game, but many, including Willie Walsh, CEO of British Airways, admitted accountability. Historically we would have had a slanging match with BA, but we thought the best thing to do was to get things back up and running as quickly as possible. Everyone used to get very defensive at BAA, but now the attitude is one of accountability and attention to detail.

We can talk to the Home Office about immigration queues, to the airlines to help solve problems, and we would like to provide a door-to-door service to the customer, so there has definitely been a change in attitude.

LS: How are the airlines responding? Have they been cooperative?

NR: Well they want a better product don't they. They want their customers to have a better feeling about that, certainly as far as BA is concerned, it's their major hub airport. Now they've got this fantastic terminal they hope that people will choose them because of that terminal.

"Heathrow needs a third runway to remain competitive."

What we now have to do is to make sure is that terminal 3 and the eastern campus, which is terminal 1 and 2 which is being refurbished now, provides a similar opportunity for the airlines that are there. That's why we have to continue to invest, the issue that's rather strange with airports is that the capital expenditure is effectively paid by the landing charges today, and airlines instinctively don't like that, they will have to pay for something that they won't see for 5 years time. And it's even more grotesque for the last 5/6 years, the other airlines have been paying for terminal 5 and won't have a chance to use it all, so no wonder the airlines feel that it doesn't work very well and there's total misconceptions with airports and regulation.

LS: What would be the ideal regulatory system?

NR: I think the key issue is that there has to be incentive for us to improve; that's what I'm looking for, real incentive for us to make extra profit by providing a good service for the customer. I have no problem with the government saying that BAA should be subject to fines if it doesn't perform, but I think it should get bonuses if it over-performs. Working in fear of getting fined isn't conducive to a happy working environment.

When I first came in I realised the regulatory just wasn't fit for purpose; it wasn't pleasing anybody, not the airlines, not us. It really needed a grass-roots revival. There are obviously things that we like and there are things that we don't like, but as long as it works and as long as everybody knows what they're trying to do, then it will be great.

LS: What do you think the reasons are behind the Competition Commission's decision to force the sale of BAA airports?

NR: Well I think to break up BAA for competition reasons is a load of nonsense, but there are lots of other reasons why you might want to break it up. Essentially Heathrow doesn't compete with Gatwick, and neither of them competes with Stansted. If you want to go on holiday in Tenerife then you're going to go to Gatwick not Heathrow. If you live if Essex you go to Stansted. If you live in Sussex you go to Gatwick. If you live where I do in the East Midlands you go to Birmingham.

"BAA's's problem was a combination of small issues that became one big issue."

The competition element is a load of nonsense, and people don't really understand the role of a hub airport. This is why Heathrow is unique. Of course it is a monopoly, and as such it must be regulated. I understand that, but why Gatwick and Stansted are regulated and Luton and Manchester aren't is a mystery to me.

The Competition Commission says we've under-invested in Gatwick, they're looking into our actions and seeing things that aren't there at all. Gatwick is a very large, single-runway, holiday, domestic, cheap and cheerful airport, that's what it is and that's what it always will be.

Why do people pay huge sums of money for a slot at Heathrow when they can pay for one at Gatwick for next to nothing, or Stansted or anywhere else? Any international airline has to be at Heathrow because of load factors. If you fly into Heathrow, you can go off to Frankfurt or anywhere else for that matter. If you fly in to Gatwick you're going to have to go across town to another airport to get a flight, that's why you can only have one hub, and it doesn't and can't compete with
Heathrow.

We argued this with the Commission but public opinion, this wonderful court of public opinion that means the mob, instinctively believes they are in competition with each other. So when this came out the BAA board accepted the facts of life are such, no one's going to believe us anyway so we might as well get on with selling it.

LS: It's obviously not entirely public opinion that has made this decision so what do you think the reasons are?

NR: They think we've starved some of the other airports of capital expenditure, we've been slow in trying to get extra airport capacity in the South East, but if you read the report, you will find that their main criticism is that we've not made enough effort to build another runway at Gatwick.

LS: How essential is the third runway for Heathrow's development?

"UK airport regulation needs to be standardised."

NR: London Heathrow is starting to lose ground now to Schiphol and Paris. They have runway capacity and they're upping the number of international destinations, so Heathrow is gradually losing due to runway capacity. The issue for me on the third runway is that it's a clear choice, you either accept that Heathrow is going to go into long decline, which the environmentalists would want, or you acknowledge the fact that London is a premier city in the world and should have an airport to match. If not customers will go to the continent to get their connecting flights to wherever they are going. It's pure and simple: in order to compete we have to have a third runway.

There is a legitimate argument for people who don't want extension at Heathrow or any major airport, and those are people with a vested interest, either they are under the flight path, or they are so green that they actually don't agree with flying. But that's hypocritical as well. All you're doing is shifting the flights, moving the CO2 to Schiphol or Paris, and as far as I understand it, CO2 doesn't recognise boundaries, that's why the environmental argument is really dishonest.

The killer argument is that the government would insist on very strict environment standards for noise and pollution. Now there is a real opportunity here. What drives technology? What drives technological change? It's driven by the commercial interests of the people and companies involved. Politicians can say anything they like about what they would like to happen, but it's only going to happen when it's of commercial interest to people.

If Heathrow has a third runway where aircraft aren't allowed to land unless they meet certain standards, guess what? Investment in engine technology will be ploughed into driving down the noise and the pollution because they have to fly to Heathrow. You can't build an airline that can fly everywhere else and not Heathrow, so it's a real opportunity.

LS: There may be a real chance to make changes, but is it about making the right changes?

NR: There's no argument to counter those who don't want people to fly. So we make the assumption that people will fly and use that to drive a change in conditions. With the third runway, we have the opportunity to say: 'Well actually you can't land here unless you meet these criteria'. If we do that, I think you'll find that things will change. It's happening already, just look at the A380.

"The competition element is a load of nonsense, and people don't really understand the role of a hub airport."

LS: But realistically the third runway won't be operational until 2027, will it?

NR: One thing's for sure, it will be built, whether the Conservatives win the next election or not.

LS: Do you think they'll develop an economic conscience and realise what they would be losing?

NR: Well if there's no runway, Heathrow will become a franchise and flights will go from Heathrow to France and Amsterdam, and people will fly internationally from there. If that's what you want then that's fine but it's not doing anything for the environment, and it's doing nothing for the city of London.

LS: Will there be a change in perception by then?

NR: We just have to keep lobbying and putting the right point across, it has to be a political decision. The thing about being in government is that you have to make difficult decisions based on advice. The reason that the Labour government has come out in support of the third runway is because of the overwhelming advice. I don't think Gordon Brown, or anyone else for that matter, would be picking a fight on this of all things unless they were absolutely convinced by informed opinion that on an economic basis, we absolutely have to have this third runway. The Conservatives can say all they want, but they're not in power, and we'll see what happens if that changes.

LS: Are you planning on staying?

NR: I did a deal for three years, and I'll have done two in September, I'll make the decision when the time comes.

LS: Well you clearly seem to be enjoying it, however frustrating it may be, or is enjoy too strong a word?

NR: Well I think you have to have some enthusiasm. I'll know I've given it my best shot, and I'll probably be dead by the time everyone realises what a mistake I've made anyway!

But, as I said, if the runway's not going to be built until 2020 then I certainly won't be chairman when it's there. I'm doing something I feel passionately about in terms of London and the position of London in the world, what frustrates me is the short-term views of certain politicians.