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CAA Publishes Stansted Price Control Options
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Date: 25 January 2008 |
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Following the Secretary of State’s decision that Stansted Airport remain designated for price control purposes, the Civil Aviation Authority (CAA) is today publishing a consultation on the framework and options for price regulation of Stansted Airport. The review will lead to new price caps on Stansted Airport charges from 1 April 2009.
The CAA is consulting on a wide range of options for price caps. One option is an adaptation of the existing building block method; two options have evolved from ideas put to the CAA by airlines; and two options represent “safeguard” caps designed to recognise the competitive circumstances in which Stansted operates, and to enable funding of new investment in additional airport capacity, whilst still providing an additional safeguard for users against unreasonably high prices.
The CAA’s role is to set a price control for the five years from 1 April 2009 in accordance with its statutory duties under the Airports Act 1986, against a background which includes the possibility of major investment at the airport in a second runway and associated infrastructure; disagreement between the airport and its users about the nature, timing, scale and cost of that investment; and the scope the CAA sees for regulation of Stansted to affect other airports and their users.
In setting price caps it will be important for the CAA to take full account of the market circumstances that apply at Stansted, including the possibility that Stansted, although it does not currently enjoy a position of substantial market power, could acquire such a position in future; the extent to which competition law could address any abuse of such market power; and the potential for regulation to distort the behaviour (including investment) of Stansted Airport and that of its competitors. The CAA has therefore presented an initial assessment of the relevant arguments presented by the DfT in its decision to retain designation of Stansted.
In order to allow respondents to the consultation to compare and contrast the options presented, the CAA has included in the document a number of illustrative calculations of the price caps that might be generated by these different options. The CAA would be very interested to hear how the current options for price caps might be improved, refined or applied in practice; whether there are any additional options; and, for all of these options, their advantages and disadvantages with reference to the CAA’s statutory duties under the Airports Act 1986.
Speaking today, Dr Harry Bush, the CAA’s Group Director of Economic Regulation, said:
“We fully accept the Secretary of State’s decision that Stansted airport should continue to be price-regulated, and welcome her acknowledgement that the decision to continue to designate Stansted airport was not intended to constrain the CAA from adopting new approaches that meet its statutory duties while avoiding some of the costs of the current system.
“Against this background, our job is now to develop proposals that are proportionate, taking into account the market power held by Stansted Airport; do not prejudice the commercial position of other, competing airports; and encourage the efficient investment in capacity that passengers in the market want. The consultation we have begun today represents a first step in the process of developing an appropriate framework and price cap proposals for Stansted. We welcome views on them.”
The document, ‘Price Control Review – Consultation on the Framework and Options for the Economic Regulation of Stansted Airport’ is available at:
www.caa.co.uk/docs/5/ergdocs/stanstedconsultation_jan08.pdf
Further information is also available in the CAA’s In Focus briefing document at:
www.caa.co.uk/docs/5/ergdocs/stansted_infocus_jan08.pdf
For further information contact Chris Mason on: 0207 453 6026.
Notes to editors
1. On 15 January 2007, the Secretary of State for Transport announced her decision that Stansted should remain designated under Part IV of the Airports Act for price control purposes. As a consequence, the CAA is today embarking on a price control review, with a view to setting revised maximum limits on airport charges from 1 April 2009.
2. The CAA has identified five broad options for consultation:
Option 1- Augmented Building Block;
Option 2 – Legacy Price Cap;
Option 3 – Terminal Development Tendering;
Option 4 – Market-led Price Cap;
Option 5 – Precautionary Price Cap.
3. The CAA intends to consult on the options contained in the document published today for just under 2 months, i.e. until Monday 17 March. The CAA would then make its mandatory price control reference to the Competition Commission, towards the end of April. The Commission typically takes some six months to conduct its own inquiry before reporting back to the CAA in autumn 2008. Thereafter, the CAA would consider the Commission’s recommendations and then issue its own firm proposals in late autumn for a final round of consultation, before making price control decisions in March 2009, for the five year period starting April 2009. The full timetable is set out below:
Date and Review stage
25 January 2008 - CAA consultation on framework and options
6 February 2008 - Industry seminar
17 March 2008 - Deadline for responses
April 2008 - CAA refer to Competition Commission
October 2008 - Competition Commission reports
December 2008 - CAA publish firm proposals
February 2009 - Deadline for responses
February 2009 - Oral hearings
March 2009 - CAA publish decision
1 April 2009 - New control comes into effect
4. In performing its functions under the Airports Act, including setting price controls, the CAA has to act in a manner best calculated to meet its duties set out in section 39(2) of the Airports Act. These are:
a. to further the reasonable interests of users of airports within the United Kingdom;
b. to promote the efficient, economic and profitable operation of such airports;
c. to encourage investment in new facilities at airports in time to satisfy anticipated demand by the users of such airports; and
d. to impose the minimum restrictions that are consistent with the performance by the CAA of its functions.
5. The CAA also has to take account of the international obligations of the United Kingdom as may be notified to it by the Secretary of State. The CAA also applies the Better Regulation Commission's principles of good regulation. These are to act in a way that is proportionate, consistent, accountable, transparent and targeted only at cases where action is needed. A fuller description of the legal framework within which the CAA conducts its price control functions is set out in chapter 3 of the CAA’s initial price control proposals of December 2006.
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