Flexible Regulation to Protect Passengers

Date: 30 April 2013

The UK Civil Aviation Authority (CAA) has published for consultation its initial proposals for the economic regulation of Heathrow, Gatwick and Stansted airports to ensure passengers are protected after April 2014.

The initial proposals are set out under powers granted by the Civil Aviation Act 2012 that allow an unprecedented degree of regulatory flexibility, ensuring the CAA’s proposals reflect the unique circumstances of each airport.

The CAA is required to assess the level of market dominance at airports it proposes to regulate, explaining clearly why regulation will achieve better outcomes for consumers than the market, and then set out its proposals. To qualify for regulation, an airport must have, or be likely to get, substantial market power, and economic regulation must be likely to improve outcomes for passengers.

Andrew Haines, CAA Chief Executive, said: “Protecting consumers and improving their experience is the core focus of our regulatory decision making. Few passengers flying from Heathrow, Gatwick and Stansted fail to notice their differences, so it should be no surprise that our regulatory approach also differs at each airport. The proposals we publish today reflect their individual circumstances, ensure passengers are protected when they travel, and allow for continuing improvements in service and competition.”

At Heathrow, the CAA found clear evidence of substantial market power, and is proposing a traditional price control mechanism. After a decade when prices have risen, largely to enable major capital investments, including new terminals to enhance passenger experience, the CAA is now looking to encourage further investment whilst improving value for passengers in other ways, with charges capped at RPI minus 1.3% for the five years from April 2014.

At Gatwick, substantial market power persists, as neither low cost carriers nor full service carriers can easily switch to other airports and still serve the London market. However, because Gatwick’s market power is weaker than Heathrow’s, the CAA would like to implement a flexible regulatory approach that is based upon price and service quality commitments agreed between Gatwick and their airline customers, underpinned by a licence from the CAA. This approach would require effective airport-airline collaboration, and so far the airport has not yet made acceptable proposals along these lines. The CAA has set out the price cap that would apply if this remains the case, with prices capped at RPI plus 1% for the five years from April 2014.

As the CAA set out in December, Stansted shows the weakest evidence of market power today, but the CAA believes that as of today it may have substantial market power, and this is likely to grow stronger between 2014 and 2019 as capacity around London becomes even more constrained. Regulation at Stansted will take the form of the CAA monitoring price and service quality – this will ensure that users are protected while minimising the regulatory burden on airport and airlines. However, the CAA may impose more detailed regulation unless prices at Stansted reduce over time.

An overview of the CAA’s consultations for all three airports is available, with links through to the separate documents:

Consultation documents for each airport along with several associated documents.

This briefing about airport economic regulation, sets out why regulation is necessary and the CAA's approach.

Notes to Editors
1. The CAA’s final proposals for regulation and draft licences for each airport will be published in October 2013.

2. Final decisions on market power, economic regulation and final licences for each airport will be published in early 2014.

3. The CAA is the UK's specialist aviation regulator. Its activities include: making sure that the aviation industry meets the highest technical and operational safety standards; preventing holidaymakers from being stranded abroad or losing money because of tour operator insolvency; planning and regulating all UK airspace; and regulating airports, air traffic services and airlines and providing advice on aviation policy from an economic standpoint.