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Profits crash at BAA
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October 1, 1999: 5:59 a.m. ET
Airport operator's stock tumbles 17%; warns of loss of duty-free earnings
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LONDON (CNNfn) - Shares of British airports operator BAA tumbled more than 17 percent Friday in London after the company warned the abolition of duty-free sales within the European Union is likely to significantly reduce its profits.
BAA (BAA), which operates seven British airports, including the world's busiest international air hub, London's Heathrow, shed 17 percent to 510 pence after warning of a worse-than-expected impact from the loss of intra-EU duty-free sales at its airports.
A company spokesman told CNNfn.com BAA will undershoot market expectations for the financial year to the end of March 2000. Analysts had predicted pretax profits of 505 million pounds ($833 million), and the company is likely come up short by between 30 and 45 million pounds ($49.4 million to $74.1 million).
The nose-dive sent BAA shares to their lowest level since Feb. 2, 1998, when the stock hit 485 pence. Prior to Friday's retreat, BAA shares had underperformed the blue-chip FTSE 100 index by around 17 percent in the year to date.
The company attributed the decline in part to customer confusion over the new rules.
In July by the European Union banned duty-free sales to travelers moving between the EU's 15 member countries. The ban on sales of alcohol, tobacco and fragrances was hotly disputed by the travel industry.
Aviation services company Alpha Airports (AAP) said earlier this week that a downturn in its airport sales was spurred in part by international passengers traveling outside the EU who didn't realize the duty-free ban doesn't apply to them.
"There's a lot of information that people have to get to grips with," Olivant said. He expressed concern that some people have only a vague conception of what the EU is. Others, he suggested, may have misinterpreted the intra-EU interdiction on duty-free sales as a blanket ban that applies worldwide.
Olivant called BAA's prices "extremely competitive", and claimed that perfume products sell on average at a 40 percent discount to retail prices found outside its airports in the U.K.
To minimize confusion, BAA said it had begun to color-code products, using blue tags for EU products and green tags for non-EU products.
BAA is already facing calls for a review by U.K. competition authorities after a number of airlines demanded an end to BAA's monopoly control of London's three main airports.
More than 50 percent of BAA's revenues come from non-flying activities, such as retail.
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BAA
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