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Charges in focus: UK government to continue charges ceiling at Stansted; removes Manchester

  • Charges ceiling maintained at London Stansted – Britain’s third largest;
  • Low cost airlines welcome the decision, put Ryanair continues downsizing Stansted operation;
  • Manchester Airport, the fourth busiest, may now set its own charges;
  • Manchester Airport Group (MAG) the last remaining municipally-owned airport group;
  • MAG should keep charges low to regain competitiveness;
  • Ryanair announces significant expansion at Birmingham;

After a year of deliberation, the UK Government, through recently installed Transport Secretary Ruth Kelly, finally decided on Tuesday 15-Jan to maintain the designation of London Stansted airport so that it will continue to have charges ceiling set by the UK’s Civil Aviation Authority (CAA). The charge-capping procedure originated in 1986 with five-year reviews to a formula governed by the retail price index (one of a number of ways of judging inflation) and continues to apply to the country’s biggest airports at Heathrow and Gatwick – they were not included in the deliberation. Stansted is Britain’s third busiest airport.

At the same time, Manchester Airport, the fourth busiest, will be de-designated, so that it will have complete freedom in setting its own charges. These four airports were the only ones in the country governed in this manner.

The reasons for the Stansted decision appear to be that the government believes this remains the best way of protecting the passengers who use the airport from ‘monopolistic’ price rises. Heathrow, Gatwick and Stansted between them handle over 120 million passengers annually and are, for now, all owned by BAA, part of Ferrovial (Spain). In contrast, the other two main London region airports, Luton (TBI [Abertis]) and London City (AGI/Global Infrastructure Partners), handle less than 12 million combined, one-tenth the BAA total. Moreover, the southeast of England is currently ‘full’ for aircraft movements and airport capacity with enhancements such as a second runway at Stansted and third at Heathrow many years in the future so there is little opportunity to find more choice presently. Previously the CAA had recommended that Stansted be de-designated so that it could charge what it liked, on the basis there was adequate competition in its catchment area. This may not be the final word as the issue of de-designation can be reviewed in the future.

Low cost airlines like Ryanair and easyJet welcomed the decision. EasyJet regards BAA as “a highly indebted infrastructure owner seeking short-term profit maximisation at the expense of the air traveller.” The airline called on the Department for Transport and CAA to use the opportunity to rethink the whole basis of airport regulation in the UK. Ryanair, a long-time adversary of BAA, renewed its call on the Government to break up “the BAA monopoly” accusing it of allowing BAA to “double” its charges this year at Stansted, the world’s leading budget airline airport while the CAA “poodles”, having proposed de-designation, “stood by.”

The position at Manchester is somewhat different. While the Manchester Airport Group (MAG) wholly, or partly, owns three other airports, one is outside its own catchment area and the other two are marginal. The last remaining municipally owned airport group in the country, Manchester itself has more direct competition from privately owned airports at Liverpool, Leeds-Bradford, Doncaster-Sheffield and Blackpool, all of which have negatively affected its business recently. There is certainly no monopoly in northern England. When the capping regime was introduced two decades ago it was the UK’s primary gateway outside London but that is no longer the case to and from many destinations. Furthermore it was expanded in the 1980s and 90s on the assumption its status would remain, so it is now left with spare capacity, a factor taken into account by Ms Kelly when she decided to remove “the costs of excessive regulation” there.

The decision would permit Manchester Airport to raise its airline fees as it sees fit. But what it really needs to continue to do in the short-term at least is to keep them under control, perhaps to reduce them further, to attract more airlines or increased frequencies to fill the excess capacity. Having already lost millions of passengers annually to the neighbouring ‘low cost’ airports, it now finds long-haul carriers being attracted to them as well and the only real success story right now at Manchester is airfreight – when it (MAG) already owns the country’s premier cargo airport at Nottingham East Midlands.

The whole issue of airport charges has been complicated by the rise in status of the UK’s secondary airports during the last decade, to the extent that regulations set over two decades ago now seem somewhat incongruous. Only this week Ryanair suddenly and unexpectedly announced a huge increase in service at Birmingham Airport, the UK’s sixth largest, basing two aircraft there, to be supplemented by a further eight. Birmingham has never been a designated airport but was once one of the UK’s most expensive. Only a radical shift in pricing policy would have attracted Ryanair on this scale. Two weeks earlier, Ryanair had declared that its 24th European base (Birmingham is the 25th) would be located at Bournemouth, a wholly owned MAG airport on Britain’s south coast, while its expansion at Manchester itself, announced in Dec-07, is much more modest.

Meanwhile, Ryanair has been downsizing at Stansted, even grounding seven aircraft based there this winter and blaming the charging regime. Doubtless this has been a major factor in the 8.6% reduction in passengers and 8.1% in movements at Stansted in Dec-07, figures not seen for many years.

Contributed by: David J Bentley, UK Associate of the Centre for Asia Pacific Aviation and editor of Airport Investor Monthly.

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