BAA plans pounds 1.4bn spending spree: Three-year programme to expand and improve airports and retail space and build Heathrow rail link

BAA is planning to spend pounds 1.4bn over the next three years on expanding and improving its seven airports and building the pounds 300m express rail link to Heathrow from London's Paddington station.

Sir John Egan, chief executive of the former airports authority, said the investment - double that of the past three years - was vital for BAA and the health of the UK economy. More than 140 projects are planned, mainly accelerating the expansion of retailing space, but including new baggage transfer systems at Heathrow and an extension of the southern terminal check-in and international departure lounge at Gatwick.

Sir John said: 'A quarter of Britain's trade overseas, in value terms, is exported by air, with over pounds 40bn of goods and services going through Heathrow alone. More than 18 million tourists come to Britain every year, 70 per cent of them by air, giving us a tourism industry worth over pounds 10bn.'

Sir John was speaking as BAA announced a 13 per cent increase in pre-tax profits to pounds 322m last year. BAA shares rose 11p to 949p on the results, largely because of a higher-than-expected 15.4 per cent increase in the final dividend to 11.25p, lifting the full-year total by 12.5 per cent to 18p a share.

Dealers also liked the company's proposal to split the shares into two in August to make them more marketable.

Profits were helped by a drop in property provisions from pounds 24.4m to pounds 2m. BAA has provided pounds 120m in recent years but this may be written back on future disposals, according to Gordon Coddington, BAA's property director.

Dr Brian Smith, BAA's chairman, said that the 'excellent results' reflected growth in UK air travel as well as increased passenger spending in airport shops and continuing control of costs.

Revenues rose 15.3 per cent to pounds 1.098bn. A 45 per cent rise in retail income to pounds 468m, largely reflecting a change in duty-free sales onto BAA management contracts, more than offset a slight fall in income from traffic charges to pounds 368m.

A cap limiting aircraft landing charges at London airports to inflation minus eight percentage points cancelled out higher passenger volume.

More than 80 million people travelled through BAA's airports, an increase of 5.6 per cent over the previous year, and for the first time since the recession began, BAA achieved passenger growth in all sectors.

The company expects 4 per cent annual growth on average until the end of the decade. Sir John said the Channel tunnel would have a very limited impact on BAA, causing the loss of between 2 and 3 per cent of total traffic in its first full year of operation.

Passenger traffic at Heathrow rose 6.3 per cent, but Gatwick rose less than 2 per cent as more airlines moved flights to the more popular Heathrow. Stansted's traffic rose 18.6 per cent and the Scottish airports and Southampton also saw good growth.

Income from retailing and other commercial operations rose by 7.6 and 1.8 per cent. BAA said retail sales were held back by building works at airport shopping malls that are now near completion.

The company added 50,000 square feet of retailing space last year, with the biggest rise in spending from specialist shops, bookshops, car rentals and bureaux de change.

New retail outlets include Lillywhites, Dixons and Liberty at Heathrow and Next at Gatwick. At Heathrow's Terminal Four, wine sales have trebled since the opening of an Allders specialist store last year, selling 300 different wines including a Chateau d'Yquem at just under pounds 400 a bottle - a pounds 150 saving on the high street price, according to Sir John. Another specialist wine merchant, Berry Brothers & Rudd, has now opened an outlet at Terminal Three.

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