CAP1876 consults on our approach to developing the regulatory framework for Heathrow Airport Limited (HAL) to support the efficient delivery of capacity expansion at Heathrow airport.

It outlines and consults on our approach to incentives for efficiency, allowed returns and other financial issues.

This consultation follows on from the March 2019 consultation on the regulatory framework for HAL (CAP1782).

Consultancy studies published alongside this consultation

CAP1876A is a report that we commissioned by Grant Thornton on the regulatory treatment of allowances for HAL's corporation tax costs. 

CAP1871 provides further information on costs that Heathrow Airport Limited (HAL) expects to incur in advance of receiving a development consent order (DCO) under the Planning Act 2008 for the expansion of Heathrow airport.

It outlines the approach to this early spending that we consider is in the best interest of consumers and the regulatory arrangements that should apply.

This consultation follows on from our July 2019 consultation on early costs and the regulatory timetable (CAP1819).

Consultancy studies published alongside this consultation

CAP1871A, Independent Peer Review of Recent Research on the Existence of Scarcity Rents at Heathrow, Institute for Transport Studies, August 2019.

CAP1852 gives notice under section 22(6) of the Civil Aviation Act 2012 ('CAA12') of the CAA's decision to modify Heathrow Airport Limited's (HAL) Licence granted under section 15 CAA12. The modifications that the CAA has decided to make are to:

• extend the current price control by a two year interim period, up to 31 December 2021, taking account of the commercial arrangements between HAL and certain airlines for this period;
• include a new licence condition to promote economy and efficiency by HAL in the operation, maintenance and development of Heathrow airport; and
• make minor changes to update the price control arrangements, remove obsolete terms and make a change to HAL's regulatory audit requirements to reflect current auditing guidelines.

The decision on these licence modifications follows on from the notice issued by the CAA under section 22(2) of CAA12 in August 2019 ('the August 2019 Consultation'), which built on the CAA's consultations on interim price control arrangements in February 2019 ('the February 2019 Consultation') and April 2018 ('the April 2018 Consultation') and its consultation on the regulatory framework to support capacity expansion at Heathrow in March 2019 ('the March 2019 Consultation').

CAP1847 follows on from the consultations that we published on the regulatory framework to support capacity expansion at Heathrow airport in January, June and December 2017 and April and October 2018. It provides an update of our policy on the surface access costs that Heathrow Airport Limited (“HAL”) should be allowed to recover from airport charges. 

As noted above we have consulted a number of times on surface access policy and now regard the high-level policy as set out in this paper as settled. Nonetheless, we will consult where appropriate on the application of this policy to projects or groups of projects that HAL brings forward for funding under these arrangements (and if the application of this policy were to reveal unexpected difficulties we do not rule out consulting further on the underlying policy).

CAP1832 focuses on options the CAA is considering to provide further assurance that Heathrow Airport Limited (“HAL”) operates in a financially resilient manner and that risks to consumers arising from financial distress are appropriately mitigated while not cutting across the financing arrangements HAL already has in place to support its regulated business. It considers options for possible changes to the financial resilience and ring fencing provisions in HAL's licence that may be appropriate, in particular, given the scale and challenges of the development of new capacity at Heathrow airport. It develops further the thinking we set out in our consultations on the regulatory framework to support capacity expansion at Heathrow in June and December 2017.

Responses to CAP1832

• Elizabeth Balsom
• Fiona Cunningham-Reid
• Heathrow Airport Limited (HAL)
• Heathrow West
• International Airlines Group (IAG)
• John Bushby
• Mike Urwin
• Nigel Godfrey
• No 3rd Runway Coalition
• Paul Groves No 3rd Runway
• Richmond and Twickenham Friends of the Earth
• Richmond Heathrow Campaign
• Spelthorne Borough Council (SBC)
• Tim Wacher
• Virgin Atlantic Airlines (VAA)

CAP1825 gives formal notice under section 22(2) of the Civil Aviation Act 2012 (CAA12) of our proposal to modify Heathrow Airport Limited's (HAL) economic licence to: 

•  extend the current price control by a two year interim period, up to 31 December 2021, taking account of the commercial arrangement between HAL and certain airlines for this period;
•  include a new licence condition to promote economy and efficiency; and 
•  make minor changes to update the price control arrangements, remove obsolete terms and make a change to HAL's regulatory audit requirements to reflect current auditing guidelines. 

This statutory consultation follows on from our consultation on interim price control arrangements in February 2019 (see CAP1769) and our consultation on the regulatory framework to support capacity expansion at Heathrow in March 2019 (see CAP1782).

Responses to CAP1825

• Airline Operator's Committee (AOC)
• American Airlines
• Heathrow Airport
• Heathrow Hub Limited response and worksheet
• Heathrow West
• International Airlines Group (AIG)

CAP1819 document focuses on the costs of expansion incurred by Heathrow Airport Limited (“HAL”) in advance of receiving a development consent order (“DCO”) under the Planning Act 2008 for the expansion of Heathrow airport. It deals with the new information that has emerged on these costs and notes that there could be significant implications for the wider programme timetable, depending on the levels of this spending and how we propose to treat the expenditure in the regulatory framework.

It also deals with issues relating to the regulatory timetable and updates the guidance we provided previously to HAL on the scope and content of its price control business plans.

Responses to CAP1819

• Airline Operator's Committee (AOC) and London Airlines Consultative Committee (LACC)
• Buckingham County Council (BCC)
• Colne Valley Regional Park Community Interest Company (CVRP)
• Heathrow Airport
• Heathrow Community Engagement Board (HCEB)
• Heathrow Hub Limited response and worksheet
• Heathrow Strategic Planning Group
• Heathrow West
• Highways England
• International Airline Group (IAG)
• Mr John Savery 
• Lakeside EFW Ltd
• No 3 ^rd Runway Coalition Group
• Spelthorne Borough Council
• Mr Stephen Clark
• Teddington Action Group
• Virgin Atlantic Airlines (VAA)

CAP1812 sets out our updated assessment of the affordability and financeability of the development of new runway capacity at Heathrow. It follows on from the initial assessment of affordability and financeability included within our consultation in April 2018, updating that assessment to take account of developments in HAL's masterplanning process for the expansion of Heathrow Airport.

Responses to CAP1812

• Airline Operators' Committee (AOC) and the London Airline Consultative Committee (LACC)
• Heathrow Airport Limited
• Heathrow West Limited
• International Airlines Group (IAG)
• Michael W McKersie
• Richmond Heathrow Campaign (RHC)

CAP1782 follows on from the consultations that we published on the regulatory framework to support capacity expansion at Heathrow airport in January, June and December 2017 and April and October 2018. It consults further on the development of the regulatory framework and includes:

• our proposed approach to taking into account the financeability of Heathrow Airport Limited's (HAL's) activities over the period of capacity expansion
• our latest thinking on the development of capital efficiency incentives;
• the proposed next steps for introducing a new licence condition to further promote economy and efficiency on the part of HAL; and
• further thinking on the issues that may be raised by alternative arrangements for delivering new capacity. 

Consultancy studies published alongside this consultation

CAP1782A, Arcadis high-level assessment of the Arora scheme proposal, by Arcadis, March 2019

CAP1782B, Possible ways of implementing ex-ante efficiency incentives for Heathrow's capital expediture, by CEPA, April 2019

CAP1782C, report on gearing sharing mechanisms and application to LHR, by EY, April 2019

Responses to CAP1782

• Airline Operator's Committee (AOC) and London Airlines' Consultative Committee (LACC)
• Arora
• Heathrow and Frontier report
• International Consolidated Airlines Group (IAG)
• Richmond Heathrow Campaign (RHC)
• Spelthorne Borough Council (SBC)
• Virgin Atlantic Airways

We asked Arcadis to carry out an assessment of how Heathrow Airport Limited (HAL) had reflected the consumer interest in developing its expansion masterplan. This was an opportunity to gather information on HAL's masterplanning process, as well as evidence of how HAL was considering consumer views.

• The Arcadis report, March 2019
• CAA observations, March 2019

The CAA is consulting on the interim arrangement to apply after the end of the Q6 price control for Heathrow Airport Ltd. 

CAP1769 seeks views from stakeholders on the commercial arrangements which are proposed to put in place and whether they are in the interests of consumers. The consultation also outlines proposed changes to the Heathrow licence.

The report follows on from our recent consultations CAP1610 and CAP1658.

• CAP1769, Economic regulation at Heathrow from January 2020: Interim H7 price control proposals
• CAP1769A, review of Heathrow Airport Limited's (HAL's) initial business plan submission for the Heathrow interim H7 price control (iH7), by CEPA, February 2019

Responses to CAP1769

• AOC & LACC
• Heathrow Airport Limited
• Heathrow Community Engagement Board, Passenger Service Group (PSG)
• International Consolidated Airlines Group (IAG)
• Richmond Heathrow Campaign (RHC)
• Three airlines operating at Heathrow (redacted response)
• Virgin Atlantic Airways

We asked Arcadis to carry out an initial assessment of Heathrow Airport Limited's (HAL's) procurement strategy for capacity expansion at Heathrow airport.  This was primarily an information gathering exercise but presented Arcadis with the opportunity to comment on the appropriateness of HAL's procurement strategy and activities.  

• The Arcadis report on HAL's procurement strategy, February 2019
• CAP1764, CAA observations, February 2019

CAP1762, working paper on the cost of capital: the implications of the RP3 draft performance plan for Heathrow Airport Limited (HAL), February 2019

Responses to CAP1762

• Heathrow Airport Limited
• International Airlines Group (IAG)
• Virgin Atlantic Airways

We have published a review of the planning costs incurred by Heathrow Airport Limited (HAL) as part of its bid to build a third runway.

• CAP1750 Independent planning cost review Heathrow Expansion Programme Covering the period 2016 and 2017 - January 2019
• CAP1751 Independent planning cost review Heathrow Expansion Programme Covering the period 2016 and 2017 Supplementary report  - January 2019

This independent review carried out by PwC is intended to increase transparency and allow interested parties to comment on the process so far. The review also looks at the level of efficiency associated with the planning costs.

Consultation document

This short consultation document sets out our initial views on the planning costs incurred by HAL during the period of the review.

• CAP1752 CAA Consultation document: Independent Planning Cost Review on costs relating to the Heathrow Expansion Programme covering the period 2016 and 2017 - January 2019

Responses to CAP1752

• AOC
• IAG
  
• Virgin Atlantic Airways
• Heathrow Airport Limited

CAP1722 follows on from the consultations on the regulatory framework to support capacity expansion at Heathrow airport that we published in January, June and December 2017 and April 2018. It consults further on the development of the regulatory framework and includes:

•  an update on our latest thinking in relation to coordinating the regulatory timetable with the overall timetable for the development of capacity expansion;
• detailed consideration of a possible new licence condition to promote economy and efficiency on the part of Heathrow Airport Limited (“HAL”);
• details of our approach to addressing the issues that may be raised by alternative mechanisms for delivering new capacity;
• addresses consultees comments on our surface access policy.

It also complements our letter to the Department for Transport of September 2018 on the progress of the “Enhanced Engagement” process under section 16 of the Civil Aviation Act 1982 reporting on airport-airline engagement.

We have also published an FTI report on scarcity rents at Heathrow Airport (CAP1722b)

Responses to CAP1722

• Highways England
• Arora
• Buckinghamshire County Council (BCC)
• Heathrow Strategic Planning Group (HSPG)
• Heathrow and Frontier Report
• Airline Operator's Committee (AOC) & London Airlines' Consultative Committee (LACC)
• Richmond Heathrow Campaign (RHC)
• Transport for London (TfL)
• Spelthorne
• Virgin Atlantic Airways
• International Consolidated Airlines Group (IAG) and consultant's report

We have published this Technical information note in the context of the possibility, raised by stakeholders, that capacity expansion at Heathrow may be developed by more than one party. Alternative means of delivering new capacity (or elements of it) have been suggested by respondents to our recent consultations (CAP1610 and CAP1658). The note also addresses issues raised by the Arora Group and HAL.

Responses to the Technical information note

• Heathrow Airport Limited
• CAA

CAP1674 focuses on technical issues relating to the cost of capital and incentives for the next main H7 price control review of HAL.

CAP1658 follows on from our consultations on the regulatory framework to support capacity expansion at Heathrow in June and December 2017. It consults further on the development of the regulatory framework and includes:

• updates on the development of our thinking in relation to the overall regulatory framework and our initial and early assessment of the overall affordability and financeability of capacity expansion;
• more information on the process we are undertaking to establish the cost of capital for Heathrow Airport Limited (“HAL”) and an explanation of our initial work to integrate our preliminary work on incentives with our approach to assessing the cost of capital and shareholder returns;
• our decisions in relation to a new interim price control that will facilitate the alignment of the regulatory processes for setting price controls with the wider timetable for capacity expansion and better protect the interests of consumers; and
• discussion and further consultation on the regulatory treatment of surface access costs.

Our final report to the Secretary of State under section 16 of the Civil Aviation Act 1982 reporting on airport-airline engagement will be published shortly.

Responses to CAP1658

• Richmond Heathrow Campaign
• Airline Operators' Committee (AOC) and London Airlines' Consultative Committee (LACC)
• The Arora Group
• Mr Blaiklock
• Heathrow Airport Limited
• Heathrow Southern Railway Ltd
• Highways England
• International Consolidated Airlines Group (IAG)
• Transport for London
• Virgin Atlantic

CAP1651, Guidance on preparation of the annual budget and statement for those costs associated with obtaining planning permission for a new northwest runway, April 2018

CAP1513,Policy Statement, February 2017 

CAP1469, Final Proposals, November 2016

Responses to CAP1469

• Heathrow
• IAG first response
• IAG second response
• LACC
• Virgin Atlantic

CAP1435, Initial Proposals, July 2016

Responses to CAP1435

• ABTA
• easyJet
• GAL
• HAL
• IAG
• LACC
• Lakeside EfW
• Star Alliance
• Thomas Cook
• Virgin Atlantic

CAP1610 follows on from the June 2017 Consultation on the core elements of the regulatory framework to support capacity expansion at Heathrow.

It confirms our approach in respect of key elements of the regulatory framework for Heathrow Airport Limited and discusses issues around the relationship between the regulatory framework and alternative delivery mechanisms, the cost of capital, financeability, financial resilience, the regulatory treatment of early construction costs and the further extension of existing Q6 price control.

 Responses to CAP1610

• AOC/LACC
• AOC/LACC - Cost of capital issues (CEPA)
• Arora
• Gatwick Airport
• Heathrow Airport
• Heathrow Airport - Setting the cost of equity for capacity expansion at Heathrow Airport (Ernst & Young)
• Heathrow Airport - Competition and choice (Frontier Economics)
• Heathrow Airport - Cost of equity for Heathrow in H7 (NERA)
• Heathrow Airport - International precedent on cost of equity (NERA)
• Heathrow Airport - A review of PwC's approach to setting cost of equity in a “lower for longer” era (NERA)
• IAG
• Mr Blaiklock
• Richmond Heathrow Campaign
• Virgin

CAP1541 follows from our January 2017 consultation CAP1510 on the priorities and timetable for our programme of work on the economic regulation of new capacity at Heathrow. It confirms our priorities and seeks views on our latest thinking on the development of core elements of the regulatory framework for Heathrow Airport Limited (HAL). These core elements also build on our CAP1383 on Strategic Themes for the review of HAL's charges. The consultation also updates our thinking on the timetable issues discussed in CAP1540, our guidance for HAL in preparing its business plans for the H7 price control review.

Responses to CAP1541

• Airlines for America
• Arora
• Mr Blaiklock
• Gatwick Airport
• Heathrow Airport
• Heathrow Airport Consultative Committee
• Heathrow LACC and AOC
• Heathrow Southern Railway
• IAG
• Lufthansa
• Richmond Heathrow Campaign
• South African Airways
• Star Alliance
• Transport for London
• Virgin
• Royal Borough of Windsor and Maidenhead

CAP1540 Guidance for Heathrow Airport Limited in preparing its business plans for the H7 price control, April 2017

Responses to CAP1540

• International Airlines Group
• Heathrow Airport Limited
• Heathrow Airport Operators Committee and London Airline Consultative Committee
• Virgin Atlantic Airways

CAP1510 Consultation on CAA priorities and timetable, January 2017

 Responses to CAP1510

• Heathrow Airport
• Gatwick Airport
• LACC/Heathrow AOC
• IAG
• Virgin
• Richmond Heathrow Campaign
• Transport for London
• Unite the Union
• Mr Blaiklok

Future of service quality regulation for Heathrow Airport Limited: Consultation on the design principles for a more outcome-based regime

CAP1476 - Consultation document  

Online survey

Responses to CAP1476

• British Airways 
• Gatwick Airport Limited 
• Heathrow Airport Consultative Committee 
• Heathrow Airport Limited 
• Heathrow Airline Operators Committee and London Airline Consultative Committee
• Virgin Atlantic Airways 

CAP1383, Discussion document

CAP1383a, Technical appendices

CAP1383b, First Economics, Report on regulatory innovations

Responses to CAP1383

• Heathrow Airline Operators Committee and London Airports Consultative Committee
• Heathrow Airport Limited
• International Air Transport Association
• International Consolidated Airlines Group
• Lufthansa Group
• Star Alliance
• Virgin Atlantic

Industry workshops

• 10 March 2016
• 17 March 2016
• Note of workshops  

The four strategic themes

• Empowering consumers -  discussion paper and  seminar notes
• Incentivising the right consumer outcomes -  discussion paper and  seminar notes
• Promoting cost efficiency and financeability -  discussion paper and  seminar notes
• Increasing airport resilience -  discussion paper and  seminar notes