Official Record Series 1 - Part 4

Official Record Series 1 - Part 4

PART 4:  SCARCE CAPACITY ALLOCATION CERTIFICATES


INTRODUCTION

1. An air carrier's ability to operate between the UK and another country outside the single European aviation market can in some cases be constrained by government-imposed restrictions in the bilateral Air Services Agreement.  These restrictions may limit the traffic rights available in terms of the number of carriers that each side can designate, the routes those carriers can operate, and the frequency or capacity they can offer.  Where there are competing bids from qualifying European Community air carriers for the traffic rights available to UK-designated carriers, and those rights are insufficient to meet the demands of all carriers that want to serve the route, the CAA must decide how to allocate the scarce capacity.

2. In the UK, a system of scarce capacity allocation certificates (SCACs) administered by the CAA determines which airlines are permitted to operate services on a capacity-constrained route.  For this purpose, a capacity-constrained route is one where the Secretary of State has notified the CAA that the relevant traffic rights are insufficient to enable all qualifying carriers  who would wish to operate services on the route to provide all the services they would wish to provide.

LEGAL FRAMEWORK

3. The provisions relating to the grant, refusal, revocation and variation of SCACs are contained in The Civil Aviation (Allocation of Scarce Capacity) Regulations 2007 (“the Regulations”). 

4. The Regulations make provision to comply with Article 5 of Regulation 847/2004 of the European Parliament and Council on the negotiation and implementation of Air Services Agreements between Member States and third countries.  Article 5 provides that a Member State shall ensure a distribution of traffic rights among eligible Community air carriers on the basis of a non-discriminatory and transparent procedure.

5. The CAA is required to allocate scarce capacity in accordance with Regulation 9 of the Regulations.  Section 4 (general objectives of the CAA) of the Civil Aviation Act 1982 does not apply to the allocation of scarce capacity.

PROCEDURES

6. A route becomes a capacity-constrained route for the purposes of the Regulations when the Secretary of State notifies the CAA under Regulation 4 that within six months the traffic rights on a particular route or to a particular country will be insufficient to meet the demands of qualifying carriers.  The CAA will invite applications from qualifying carriers for the allocation of that scarce capacity. 

7. A carrier may also apply to the CAA for the grant of a SCAC (or variation of its SCAC) in order to operate all or some of the services already operated on a capacity constrained route by another qualifying carrier (ie challenging an incumbent operator).

8. The CAA will publish applications and, where applicants, objectors and others have exercised a right to be heard, the CAA will hold a hearing to determine how the available capacity can best be allocated between the applicant airlines.  Procedures relating to SCACs are set out in more detail in Annex 8 to this document.

ALLOCATION POLICY

9. The CAA must allocate scarce capacity in accordance with Regulation 9 of the Regulations (reproduced below).  The manner in which the CAA will set about allocating scarce capacity in accordance with Regulation 9 is to assess how best to maximise economic efficiency.  The most comprehensive approach would be to conduct a full economic analysis of the costs and benefits that would accrue to airlines and users, with capacity being awarded to the airline that provided the highest level of net benefit. In conducting this analysis, the CAA will take into account the effect on competition of the proposed services. This will include considering to what extent an award of scarce capacity would affect rivalry in all the relevant markets, using standard competition analysis and having regard to the Office of Fair Trading’s relevant published guidance and guidelines. Any detrimental impact on competition will then be weighed against the benefits which would arise from awarding the scarce capacity to the relevant carrier.

10. In a limited number of cases competition may be precluded, or unattainable on acceptable terms, because of bilateral constraints. In these circumstances, the CAA will be ready to consider substituting one carrier for another, in whole or in part, so as to safeguard or further the interests of users. It will expect to do so sparingly, and only when to do so would manifestly enhance the achievement of the objectives of the Regulations. It will take into account the length of time the incumbent has had to establish itself on the route and the degree of commitment it has shown in serving it. It will pay particular attention to the quality of service (capacity, seat availability, frequency, timings and price) offered by the newcomer relative to the incumbent’s established standard.

11. The CAA will reach its decisions on the basis of the facts and circumstances of each particular case. It may need occasionally to depart from its policies in unforeseen circumstances or where the Regulations require.

CHARGES

12. With effect from 1 April 2009 the CAA has introduced a charge of £15,000 for SCAC applications.  This charge forms part of the CAA Scheme of Charges and the CAA expects to review it annually.

EXTRACT FROM THE CIVIL AVIATION (ALLOCATION OF SCARCE CAPACITY) REGULATIONS 2007

Regulation 9
   (1) The CAA must allocate scarce capacity in accordance with this regulation.
(2) Section 4 of the Act (general objectives of the CAA) does not apply to the allocation of scarce capacity.
(3) The CAA must allocate scarce capacity in a manner which it considers is best calculated—
(a) to secure that qualifying carriers provide air transport services which satisfy all substantial categories of public demand at the lowest charges consistent with a high standard of safety in operating the services, whilst giving an economic return to efficient qualifying carriers on the sums invested in providing the services;
(b) to further the reasonable interests of users of air transport services;
(c) to secure the effective provision of civil air transport to and from the United Kingdom;
(d) to ensure that qualifying carriers compete as effectively as possible with other airlines in providing air transport services on international routes; and
(e) to ensure the most effective use of airports within the United Kingdom.
(4) When allocating scarce capacity the CAA must have regard—
(a) to the effect on existing air transport services provided by qualifying carriers; and
(b) in any case—
(i) where the existing services are similar (in terms of route) to the proposed new service; or
(ii) where two or more applicants have applied for a scarce capacity allocation certificate, indicating that they propose to provide a new but similar service,
to any benefits which may arise from enabling two or more airlines to provide the service in question.
(5) In exercising its functions under paragraphs (3) and (4), the CAA must have regard to the need to minimise so far as reasonably practicable—
(a) any adverse effects on the environment; and
(b) any disturbance to the public;
from noise, vibration, atmospheric pollution or any other cause attributable to the use of the aircraft for the purposes of civil aviation.
(6) In performing the function of allocating scarce capacity, the CAA must have regard to any advice received from the Secretary of State.

PDF version of this part

See also Annex 9: CAA Guidance on the Economic Framework for Considering Cases Relating to the Allocation of Scarce Bilateral Capacity