New deal for London Gatwick better for passengers and airlines

The new deal at Gatwick would mark a radical change from regulation to match the radical change in Gatwick's ownership and would be the best way to promote competition between airports and further the interests of passengers.

By removing wasted costs of regulation, improving incentives and speeding up investment, Gatwick can offer airlines a lower price path over a longer period of time than would be the case if it continues to operate within a regulatory framework.

Under Gatwick's new deal it has been calculated that, following a one-off price adjustment, the maximum average price level under its proposed Contracts & Commitments framework would increase by RPI+1.3% over a seven year period. This equates to an increase in the per passenger fee from £8.80 in 2014 to a maximum per passenger fee of £10.68 in 2020/21. This outcome would ensure Gatwick's prices remain highly competitive when compared to other London airports. However, charges to airlines with contracts may well be at prices lower than these levels.

(This price compares favourably with a maximum average price level increase of RPI+3.3% which would otherwise result under a five-year regulatory framework, taking the maximum per passenger fee up to £11.45 by 2018/19).

The diagram below illustrates the price paths under Commitments and RAB-based price control.

Long-term certainty over the average price path combined with a legally-binding commitment to maintain and improve service standards at the airport, together with the option of entering contractual relationships tailored for individual airlines make this new deal at Gatwick the best outcome for everyone.

Stewart Wingate, Gatwick's Chief Executive Officer, said: "Competition is by far the best mechanism for promoting the interests of passengers. It is the very reason why the Competition Commission took the decision to break up the BAA monopoly and why Gatwick is now thriving under separate ownership.

"Our proposed new deal for Gatwick moves that competition judgement on further and is a better deal for airlines and their passengers than a regulatory outcome. Free from regulation, we would be able to respond more quickly to the changing needs of airlines and their passengers and we would be able to step up the pace of improvement in the passenger experience. The deal means airlines and passengers win on price, service and the quality of facilities.

"A decision to allow competition, rather than regulation, to protect the interests of passengers would be, in my view, the most important step the CAA could take when it considers this plan."

Competition in London and the South East is set to increase and so it is critical that Gatwick be able to continue improving the quality of its service offering. Gatwick is therefore proposing to put forward an investment of a further £1 billion in the airport between 2014 and 2019 to build on the improvements delivered to passengers over the past three years.

The additional £1 billion investment would enable Gatwick to continue creating the right facilities for passengers and airlines and to deliver an improved passenger experience at every step of the airport journey. Examples of where this investment will be made include:

• Continued transformation of our check-in areas in partnership with our airlines to reduce queues and deliver a smoother experience.
• A new state-of-the-art security area in North Terminal which will make use of the same award-winning technology processes and customer service introduced in Gatwick's £45 million South Terminal security area opened in 2011.
• Redevelopment of Pier 1 - the UK's oldest pier - will see the existing pier demolished and a two-storey replacement built. Facilities will include a new baggage system, allowing passengers to use automated fast-bag drops, and new gate rooms linked to five new aircraft stands by air bridges. Airlines will also have the option to offer 'day before' check-in, through a new automated bag store system.
• Extension of Pier 6 to provide a world-class, 95% pier service - a key requirement for passengers. The project will also increase the number of A380 stands.
• Continued partnering with UKBF to improve immigration queues and the overall passenger experience following work already progressed to make facilities in South Terminal lighter, brighter and with an improved layout.

Gatwick's full business plan is available at: www.gatwickairport.com/a-new-deal