Spitoon, with regard to BAA retailing I think you'll find that the increase in this activity was to "beat the regulator". As a company with a requirement to satisfy shareholders ( with dividend payments and a growth in share price ), the company had to find new ways to fund these payments, over and above the "allowed" rate of return and there are only two ways to improve profit margins and they are to increase income and to cut costs - every company knows and does this. If BAA hadn't done this, it would be accused of lack lustre management and sitting back, content to take the regulated return which in turn would impact it's share price, management and financial credibility and borrowing credit rating. (Bear in mind that these credibility issues come from short term city boys). The Regulator kick started this also by imposing a fairly hefty RPI minus 8 formula in the early years.
As each 5 year period was reviewed, and forecasts made for the following 5 years, it became a bit of a game really, BAA had to put in a forecast that looked reasonable, but beatable internally. In a way it became a circular argument, BAA input forecast retail income of £x, but needed to do £x+y to beat the eventual settlement. They would achieve this, so next time the forecast was £x+y, so reality needed to be £x+y+z.....hence, more shops.
If you read the CC report you'll see that they, and the CAA, now explicitly remark on both retail income and general cost forecasts, in the vein that they are under and over stated respectively. Mind you, it's about time someone understood this regulatory game......it would appear that the airlines haven't for the last 15 years, and the new owners and their advisors certainly didn't when they took over last year ( it says as much in one of the analyst briefing notes on the Ferrovial web site ! ).
As for cash flow, I'm afraid you are very wrong. From an operational point of view, it's positive, but after investing in Terminal 5 year on year, the bank balance is very much negative. The 2005/06 BAA accounts show cash in from operations of £977m but an outflow on investment of £1,517m, that's an outflow of over £500m, with debt up to £5.3bn.
Only Gatwick makes a significant positive cash flow. Which is interesting because that's the airport touted as 'for sale'. In the event of BAA break up, would they get rid of the "cash cow" (LGW) or the future earner (STN) ? If it's a competition issue, which one is the Heathrow competitor ? Now, or in the future ?
Red Top - I don't think it's that simple. Dft set the security requirements, BAA have to respond accordingly (eventually) and they would love to speed up the process NOW to get people through the search area and into the lounge where the shops are. It must be costing a fortune in overtime and temporary staff right now.