We have powers under the Civil Aviation Act 2012 for the economic regulation of airport operators that pass the market power test in the Act. In February 2014 we granted a licence to Heathrow Airport Limited (HAL). The licence includes a price control on airport charges for the period 1 April 2014 to 31 December 2018. In December 2016 we have extended, upon consultation, the current price control period for one year, such that it will expire on 31 December 2019.
The licence, an operator determination, our notice granting the licence and supporting documentation, and documents relating to our licensing of HAL are below:
- Licence granted to Heathrow Airport Limited (latest version, September 2024)
- Economic regulation at Heathrow from April 2014 - notice granting the licence (February 2014)
- Heathrow Airport Limited operator determination (January 2014)
- Market power determination in relation to Heathrow Airport - statement of reasons (January 2014)
More information on the market power assessment and the initial licence conditions (including the price control condition) are on the market power assessment and price control pages accordingly. More information on our on-going review of the price control at Heathrow can be found on the Heathrow H7 page.
Guidance on constructive engagement
Following the publication of our lessons learnt review findings in August 2024, we are now setting out draft guidance, for consultation, on the Constructive Engagement process for the next Heathrow price control review. We welcome views from stakeholders on this draft guidance.
Setting future price controls – review of approach
Setting future price controls – review of approach
Review of approach findings
Consistent with best practice and the recommendations of Public Body Review of the CAA, we have reviewed our approach to setting price controls to identify opportunities to improve the efficiency, timeliness and effectiveness of the processes and outcomes. These documents set out the findings from our review of our approach to setting price controls (including the lessons learnt from H7 and NR23), which will inform our overall approach to future price controls.
Setting future price controls – lessons learnt from the review of approach (CAP3000)
Appendix C: Setting future price controls – lessons learnt from the review of approach (CAP3000a)
External reports
International approaches to airport and air traffic control regulation, MKmetric
Future regulatory approach – cost assessment, Grant Thornton
Consultation on review of approach
We are carrying out a review of our approach to setting price controls (including the lessons learnt from H7 and NR23) to inform our overall approach to future price controls. CAP2618 sets out our initial views on the scope of this lessons learnt review and on the key issues we should consider for the next price control reviews for HAL and NERL. We welcome views from stakeholders on these issues.
Responses
- Aer Lingus
- Airlines for America
- Airports Council International (ACI) Europe
- Arora
- British Airways
- easyJet
-
Heathrow Airport and community
- NATS (En Route) plc (NERL)
- Pandox
- Prospect
- Virgin Atlantic
Modifications to the licence
Licence conditions can be modified in two ways:
- using a statutory process to modify set out in the Civil Aviation Act 2012
- using a self-modification process in which HAL and its airline community can modify certain specified parts of the service quality statement of standards and rebates in Schedule 1 of the licence
Public register of modifications to the Heathrow licence
| Date of modification | Effective date of modification | Type of modification | Modified condition(s) | Effect of modification | Links |
|---|---|---|---|---|---|
| 22 December 2021 | 2 February 2022 | Section 22 of Civil Aviation Act 2012 |
Conditions A3.1(f) and (g); and C2.1, C2.2, C2.3, C2.5, C4.1, E1.3, E1.5(a)&(b), E2.2, E3.1, E3.5, Schedule 1: paragraphs 2.1(e),(f) &(j), 2.4, 2.28(a)&(b), 3.2, 3.4, 3.4(a)&(b), 3.5, 3.7, 3.11, 3.13, 3.15, 4.2, 4.4, 4.5, 5.2(b) 6.2, 6.3(c) and 6.6; a new Condition C1; Conditions C2.5, 2.6 Schedule 1 paragraphs 4.1, 4.2,4.3,4.4,4.5 and 4.6 and Table 9. |
|
Responses to CAP2265 2022 Charges |
| 5 November 2019 | 17 December 2019 | Section 22 of Civil Aviation Act 2012 | Conditions A3.1(g); new B3.1, B3.2 & B3.3; C1.2; C1.4 including Table C1 & Table C2; C1.9 (Table C3); C1.11 including Table C4; C1.12; new C1.13, C1.14 & C1.15; C1.16 ((d), (h), (j), (p) & (q)); C2.5; 2.6; C4.1; D1.10; E1.5; new E1.6 and subsequent renumbering; new E1.8; Paragraphs 2.2, 4.5, 4.6, 4.7, Table 1a, 1b, 1c, 1d, 9, in Schedule 1 |
|
|
| 23 December 2016 | Amendment: Paragraph 5 of the notice to allow for an annual recovery of £10m of Category B costs for a new northwest runway reported that the CAA had received a representation to its consultation proposing the modification from “the AOC representing the airline community”. The paragraph should have said that the CAA had received a joint representation to its consultation from “the LACC and the AOC representing the airline community". | ||||
| 21 December 2016 | 1 February 2017 | Section 22 of Civil Aviation Act 2012 | Conditions C1.2, C1.12 | To allow for an annual recovery of £10m of Category B costs for a new northwest runway. | |
| 21 December 2016 | 1 February 2017 | Section 22 of Civil Aviation Act 2012 | Conditions A3.1g, C1.2, C1.4, C1.9, C1.11, C2.5, C2.6, C2.7, C4.1; Table 9 in Schedule 1 | Extension of the Q6 price control by one year to 31 December 2019. |
|
| 29 July 2016 | 29 July 2016 | Self-modification | Paragraphs 2.8a, 2.15, 2.18, 2.20; Tables 10a, 10b, 10c, 10d, 10e in Schedule 1 | Remove the question regarding overall cleanliness so the licence condition correctly captures the method used. Update the names of the Q6 governance bodies where agreement on some service quality issues can be taken. Remove references to audited rebates and bonuses and replace with references to rebates and bonuses reviewed and agreed by the CAA. | Notice |
| 30 March 2015 | 30 March 2015 | Self-modification | Tables 2b, 3b, 4b, 5b, 10b in Schedule 1 | Change the delivery date of the automated security queue measurement from 1 April 2015 to a date agreed by HAL and the airline community. | Notice |
| 24 March 2015 | 5 May 2015 | Section 22 of Civil Aviation Act 2012 | Table C.3 in Condition C1.6 | Correct an error made to the inflation adjustment of development capex. | |
| 1 August 2014 | 1 August 2014 | Self-modification | Paragraph 2.3 and Table 3d in Schedule 1 | Technical changes to QSM measurement in Terminal 2 and measurement of pier served stand usage in Terminal 3. | Notice |
Notices / guidance issued under the licence
| Date | Related licence condition | Brief description | Links |
|---|---|---|---|
| 30 July 2020 | Condition C2 | CAA decision on hold baggage screening costs | CAA decision |
| 8 September 2017 | Schedule 1 | CAA determination on HAL’s updated service quality protocol | Service quality determination |
| 6 March 2015 | E1 | HAL has to produce regulatory accounts in conformity with CAA regulatory accounting guidelines | Guidelines |
| 19 November 2014 | Schedule 1 | CAA determination on HAL's service quality protocol | Service quality determination |
| 23 September 2014 | D2 | Additional guidance for operational resilience plans |
Q6 capital triggers definition sheets
HAL's licence contains triggers on the completion of capital projects. Documents relating to the triggers are below:
- Tunnels refurbishment (February 2014)
- Terminal 3 integrated baggage (February 2014)
- Terminal 4 Code F stand 410 (February 2014)
- Runway rehabilitation project (February 2014)
Service quality
HAL pays rebates to airlines if its service quality does not reach specific standards. It also receives bonuses for out-performance. Documents relating to service quality at Heathrow in recent years are below:
Q6 licence and airport price control
Consultancy reports
Consultant reports commissioned by the CAA
- Q6 review of the distribution of economic rent: a response to comments by Compass Lexecon - by SLG Economics (December 2013)
- Q6 capex review Heathrow Airport - final report by Alan Stratford (December 2013)
- Q6 capex review Heathrow Airport - report by Alan Stratford (October 2013)
- Estimating the cost of capital for designated airports - a report prepared for the CAA by PwC (October 2013)
- Review of maintenance, renewals and other operating expenditure at Heathrow Airport (phase 3) Final report - report by Steer, Davies, Gleave (September 2013)
- Review of maintenance, renewals and other operating expenditure at Gatwick Airport (phase 3) Final report - report by Steer, Davies, Gleave (September 2013)
- Assessment of commercial revenues at Gatwick Airport (stage 3) Final report - by Steer, Davies, Gleave (September 2013)
- Q6 review of the distribution of economic rent between airport, airlines and passengers and cargo users at Heathrow and Gatwick - report by SLG Economics (September 2013) data related to footnote 15
- Review of pension costs for Heathrow Airport - Government Actuary's Department (September 2013)
- Review of pension costs for Gatwick Airport - Government Actuary's Department (September 2013)
- Response to Oxera's note on scope for efficiency gains at Gatwick - TFP, LEMS and output price indices - report by CEPA (September 2013)
- Response to Oxera's note on scope for efficiency gains at Gatwick (RUOE analysis) and updated RUOE analysis - report by CEPA (September 2013)
- Assessment of commercial revenues at Heathrow Airport (stage 3) Final report - by Steer, Davies, Gleave (August 2013)
- Comparing and capping charges at regulated airports (addendum note) - report by Leigh Fisher (August 2013)
- Gatwick Airport Q6 capex review for the CAA - phase 3 report by Davis Langdon (August 2013)
- Assessment of central support costs at Heathrow & Gatwick airports - final report for Gatwick Airport - report by Helios (July 2013)
- Assessment of central support costs at Heathrow & Gatwick airports - final report for Heathrow Airport - report by Helios (July 2013)
- Estimating the cost of capital in Q6 for Heathrow, Gatwick and Stansted- report by PwC (April 2013) - terms of reference
- Cost of capital for UK designated airports - paper on the split cost of capital and skewed returns by PwC (April 2013)
- Scope for efficiency gains at Heathrow, Gatwick and Stansted airports - report by CEPA (April 2013) - terms of reference
- Gatwick Airport Q6 capex review - phase 2 report by Davis Langdon (April 2013)- terms of reference
- Assessment of maintenance and renewals costs at Heathrow - report by Steer, Davies, Gleave (April 2013) - terms of reference
- Assessment of maintenance and renewals costs at Gatwick - report by Steer Davies Gleave (April 2013)
- Assessment of commercial revenues at Heathrow - report by Steer Davies Gleave (April 2013) - terms of reference
- Assessment of commercial revenues at Gatwick - report by Steer Davies Gleave (April 2013)
- Airport price monitoring: Further insights - report by First Economics (April 2013) - terms of reference
- Advice on the calculation of long run incremental cost estimates for Gatwick and Stansted: response to comments by Gatwick Airport Limited - report by Europe Economics (April 2013) - terms of reference
- Review of other operating expenditure at Heathrow Airport - report by Steer Davies Gleave (April 2013) - terms of reference
- Review of other operating expenditure at Gatwick Airport - report by Steer Davies Gleave (April 2013)
- Central support costs - report by Helios (April 2013) - terms of reference
- Comparing and capping airport charges at regulated airports - report by Leigh Fisher (April 2013) - Emerging findings report (September 2012) -terms of reference
- Benchmarking employment costs: a research report for the CAA - Gatwick - report by IDS Thomson Reuters(April 2013) - terms of reference
- Benchmarking employment costs: a research report for the CAA - Heathrow - report by IDS Thomson Reuters (April 2013)
- Gatwick Airport report of Q5 capex - report by URS (April 2013) - terms of reference
Consultant reports commissioned by other stakeholders
- British Airways comments on Compass Lexecon response to SLG Economics report on the distribution of economic rent (January 2014)
- Gatwick Airport response to SLG Economics report on the distribution of economic rent (January 2014)
- Comments on report by SLG Economics for Gatwick Airport on the distribution of rents between airports, airlines, passengers and cargo users at Heathrow and Gatwick airports - note for Gatwick Airport by Compass Lexecon (December 2013)
- A further note on regulation of an increasingly competitive airport sector by Professor Littlechild (September 2013)
- Response to initial proposals: Cost of capital; (2nd addendum) - note prepared for Gatwick Airport by Oxera (September 2013)
- Cost of debt indexation - report for Heathrow Airport by NERA (August 2013)
- Response to initial proposals: Cost of capital (addendum) - note prepared for Gatwick Airport by Oxera (August 2013)
- Comments on recent papers by BA and CEPA - Heathrow Airport (August 2013)
- Update of PwC analysis on the risk free rate report for Heathrow Airport by Europe Economics (August 2013)
- Choice of WACC range percentile for Q6 report for Heathrow Airport by Europe Economics (August 2013)
- Review of choice of high percentile WACC from a range in its initial proposal for cost of capital for HAL and GAL - report for CEPA and British Airways by Professor Sudarsanum (June 2013)
- A review of the CAA's approach to estimating the WACC for Q6 - a report for Heathrow Airport by NERA (June 2013)
- AT Kearney's airport operating cost benchmarking report for Gatwick - full report included as part of Gatwick Airport's response to CAA initial proposals(June 2013) - meeting with CAA, presentation to CAA
- A review of the risk assessment in the CAA's initial proposals for Q6 - report for Heathrow Airport by NERA (June 2013)
- Response to PwC arguments on the cost of capital for Q6 report for Heathrow Airport by Europe Economics (May 2013)
- Regulation of an increasingly competitive airport sector by Professor Littlechild (May 2013)
- Relative risk for London Heathrow - a report for London Heathrow by NERA (April 2013)
- Setting the weighted cost of capital for Heathrow and Gatwick in Q6 - report by British Airways for CEPA(April 2013)
- Heathrow Airport's cost of capital - report on behalf of Heathrow by Europe Economics (April 2013)
- What is the cost of capital for Gatwick Airport beyond Q5 - Methodology and estimation - report for Gatwick Airport by Oxera (January 2013)
- How has the risk of Gatwick Airport changed since the start of Q5 - note prepared for Gatwick Airport by Oxera (December 2012)
- Comment on the split cost of capital proposal of Professor Helm submitted by British Airways - prepared for BAA (March 2012)
- The split cost of capital and utility regulation with particular reference to airports - paper commissioned by British Airways by Dieter Helm (December 2011)
- Adjusting Heathrow's cost of capital for skewness: Methodological and qualitative issues - report for BAA (September 2011)
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