Mixed reaction greets London airports proposals

Bill Lumley

30-Apr-2013

Economic regulation of London Gatwick, Heathrow and Stansted proposes cap on airport fee rises

UK flagThe publication of the UK Civil Aviation Authority’s (CAA) proposed airport regulations has provoked mixed initial reactions from the industry. The regulations cover the proposed new economic regulatory scheme at London's three major airports, Heathrow, Gatwick and Stansted.

The CAA consultation document includes a proposed five-year cap on airport fees until 2019 at retail price index (RPI) minus 1.3% at Heathrow and RPI plus 1% at Gatwick.

Easyjet said it welcomed the CAA's announcement that it views Gatwick as a monopoly airport. But it added: “Easyjet is disappointed with the proposed charges of RPI plus 1%, which appears to be driven by capital expenditure that doesn't provide value for money for passengers and an unreasonably high cost of capital.”

A Heathrow spokesman said: “We will examine the CAA’s proposals for Heathrow’s Q6 regulatory settlement carefully over the coming weeks before responding fully. As the UK’s only hub airport Heathrow is a strategically important national asset. To stay competitive with overseas hubs like Amsterdam, Paris, Frankfurt and Dubai, Heathrow has invested £11bn [$17bn] over the last 10 years in new facilities such as terminal five and the new terminal two and passengers say they notice the difference. Over the same period returns to shareholders have fallen well below the level anticipated by the regulator.

“Our first impression is that a 5.35% return on capital will put passenger service at risk by not attracting the necessary investment in Heathrow for the short, medium and long term. We, and everyone interested in the health of our country's transportation infrastructure, must consider whether this is a risk worth taking.”

The UK Board of Airline Representatives welcomed publication of the proposed new economic regulatory scheme at London's three major airports. CEO Dale Keller said: “Whilst we believe that the pricing caps do not go far enough to drive the level of efficiency gains at airports that airlines and their passengers are seeking, the proposals are a step in the right direction.”

A statement from London Gatwick airport said the CAA should follow through on the conclusions of the Competition Commission and market investigations into the BAA monopoly and “seek to promote a truly competitive market amongst airports in the southeast”. It added: “[The CAA] should be removing the regulatory barriers to growth, better services and more choice, not impose more of them.”

The airport said it would be contesting the CAA finding that the airport has substantial market power and is therefore likely to introduce a licence. “We have already provided evidence to the regulator, using the CAA’s own methodologies, to prove why our 25% market share across the London airport market does not meet their substantial market power test.

“We also believe that the CAA’s suggested regulated price control level of RPI plus 1% over five years is too demanding on the airport and would reduce our ability to invest. We believe this price level is based on unrealistic CAA assumptions, including on traffic growth, efficiency gains and financing,” the statement continued

Chief executive Stewart Wingate added: “London Gatwick’s transformation over the last three years has shown that separate ownership, and the competition that this has brought, has been good for passengers and airlines. The CAA must not hold us back through imposing heavy handed regulation, red-tape in the form of a licence and an inflexible price control, but should allow us to build on this success.

“We look forward to continuing to engage further with the CAA and airlines on a solution which protects airline interests, whilst accelerating Gatwick’s drive for passenger service and excellence,” he concluded.

Airports and airlines will now have three months to respond to the proposed regulations, following which the CAA will draft a new set of proposals, due to be released around October. Any new economic regulation should not come into force before the start of 2014. Representatives from Gatwick and Heathrow told DFNIonline it is too soon to assess any potential impact on retail and other non-aeronautical revenue at this stage.

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