Today the UK Civil Aviation Authority (CAA) published its proposals for the economic regulation of London's airports to ensure passengers are protected after April 2014.
At Heathrow, the CAA found "clear evidence of substantial market power" and is proposing a traditional price control mechanism, 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.
Simon Buck, Chief Executive of the
British Air Transport Association(
BATA), said:
"While we welcome the CAA’s recognition that Heathrow and Gatwick airports enjoy substantial market power, we are disappointed that further increases in charges will be permitted at both airports for the five years from April 2014.
“Prices at Heathrow are triple the level they were ten years ago and Heathrow is already the most expensive hub airport in the world. Clearly this is a concern for passengers and all airlines operating there. Any further price rises at Heathrow are simply unacceptable.
“Gatwick's charges to airlines have increased by around 50% over the past 5 years and further real term increases will be permitted over the regulated period.
“In the current economic climate, other businesses in both the private and public sectors - and especially airlines - are making savings and delivering on less money. Airports should not be exempt from that and we call upon the CAA to use its regulatory powers to ensure there is a real terms reduction in charges applied to each passenger.”
At Gatwick, the CAA wants 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.
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.