CAA Publishes Competition Commission Report on Quinquennial Review of Price Controls for Heathrow and Gatwick Airports

Date: 03 October 2007

The Civil Aviation Authority (CAA) is today publishing the Competition Commission’s report on the recent inquiry by the Commission into the price controls for Heathrow and Gatwick airports. The Commission’s report follows a six-month inquiry, which was initiated by the CAA’s own reference to the Commission in respect of these airports in March this year, as required under the Airports Act 1986.

The CAA welcomes the work the Commission has undertaken, and the evidence and analysis on which it has been based. It notes that the Commission’s own recommendations are, in general, closely aligned with the regulatory approach which the CAA has itself been developing during the price control review for Heathrow and Gatwick, and on which the CAA’s reference and recommendations to the Commission earlier this year were based.

The Commission recommends that maximum airport charges at Heathrow rise to £10.96 in 2008/09, with charges subsequently increasing by no more than retail price index (RPI) inflation plus 7.5 per cent each year. For Gatwick, the Commission recommends maximum airport charges rise to £5.48 in 2008/09, with charges subsequently increasing annually by no more than RPI inflation minus 0.5 per cent. This compares with projected charges for 2007/08 of £9.28 per passenger at Heathrow and £4.91 at Gatwick, and the CAA’s central case recommendations to the Commission in March 2007 for maximum Heathrow charges of £10.29 in 2008/09 and annual increases of RPI plus 5.8 per cent thereafter, and maximum Gatwick charges of £5.19 in 2008/09 and annual increases of RPI plus 1.0 per cent thereafter.

The main reasons for the differences between the Commission’s and the CAA’s price cap projections are the larger capital investment programmes now in prospect at each airport and the costs of delivering more stringent security processing and improving service quality in this area.

The Commission’s report is advisory with respect to price controls rather than binding on the CAA: under the Airports Act 1986, the CAA is required to have regard to the Commission’s recommendations in respect of price controls for the coming five-year price control period. However, the CAA’s final proposals are its own responsibility and must be made within the statutory powers and duties given to the CAA.

The CAA also notes that the Commission has found that Heathrow and Gatwick airports, in failing to manage security queuing and queue times to avoid unacceptable delays to passengers, crew and flights, have acted against the public interest, and that the Commission proposes that these effects can be remedied through a broadening and strengthening of existing service quality regulations. The CAA cannot reject a public interest finding made by the Commission and will be making proposals that remedy the adverse effects of the airports’ conduct.

The CAA intends to continue with its own consideration of the Commission’s report in the coming weeks, and then to issue, for consultation, its own firm price control proposals for Heathrow and Gatwick airports as previously planned, by Tuesday 20 November. Thereafter, all parties will be able to submit further written evidence to the CAA during a two-month consultation period. There will also be an opportunity for those with most direct interest to make any further representations at oral hearings, which the CAA plans to convene at the end of January 2008. The CAA remains on track to make its final price control decisions in respect of Heathrow and Gatwick in February/March 2008, in order to allow for new price controls to come into effect at each airport for the five-year period starting 1 April 2008.

The Competition Commission’s report is available here: www.caa.co.uk/default.aspx?catid=5&pagetype=90&pageid=8779

For further media information telephone the CAA Press Office on 020 7453 6030.

Notes to Editors

1. All figures are in 2007/08 prices.

2. The Competition Commission issued its full report to the CAA on 28 September 2007, following its six-month inquiry, which was initiated by the CAA’s mandatory price control reference on 30 March 2007. The Commission’s report, which the CAA is publishing today, has been excised of commercially confidential information.

3. The CAA will not comment on the Competition Commission’s report in advance of publication of the CAA’s own firm price control proposals in November. It will take into account any relevant new information which may emerge (from any written submissions or more generally) between now and then in framing these proposals. Beyond that, it will treat any written submissions alongside other consultation responses to its firm proposals, and consider them as part of the consultation leading to the CAA’s final price control decisions in the first quarter of 2008.

4. The Competition Commission’s price control inquiry (under the Airports Act 1986) is separate from its continuing market investigation into BAA’s airports (under the Enterprise Act 2002). The Commission is required to report by the end of March 2009, but aims to do so earlier – any enquiries regarding this investigation should be addressed directly to the Competition Commission itself. The Commission’s market inquiry website is:
www.competition-commission.org.uk/inquiries/ref2007/airports/index.htm

5. Two other UK airports are currently subject to price control by the CAA: Manchester and Stansted. The price controls currently applying at these airports have been extended by 12 months to run until end March 2009. The Government is currently conducting a policy review on whether these airports should remain designated for price control. If either or both were to remain so, then the CAA expects to bring forward price control proposals, for consultation, by the end of December 2007, before making a mandatory reference to the Commission in respect of the relevant airport(s) in Spring 2008.