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UK CAA publishes initial proposal on economic regulation of Heathrow, Gatwick and Stansted airports

1-May-2013 7:57 AM

UK Civil Aviation Authority (CAA) published (30-Apr-2013) for consultation its initial proposals for the economic regulation of Heathrow, Gatwick and Stansted airports to ensure passengers are protected after Apr-2014. The initial proposals are set out under powers granted by the Civil Aviation Act 2012 that allow an unprecedented degree of regulatory flexibility, ensuring the CAA’s proposals reflect the unique circumstances of each airport. CAA CEO Andrew Haines said: “Protecting consumers and improving their experience is the core focus of our regulatory decision making. Few passengers flying from Heathrow, Gatwick and Stansted fail to notice their differences, so it should be no surprise that our regulatory approach also differs at each airport. The proposals we publish today reflect their individual circumstances, ensure passengers are protected when they travel, and allow for continuing improvements in service and competition.” The CAA said it found the following in its investigation of the three airports:

  • Heathrow: At Heathrow, the CAA said it "found clear evidence of substantial market power, and is proposing a traditional price control mechanism". The CAA continued, "After a decade when prices have risen, largely to enable major capital investments, including new terminals to enhance passenger experience, the CAA is now looking to encourage further investment whilst improving value for passengers in other ways, with charges capped at RPI minus 1.3% for the five years from April 2014";
  • Gatwick: UK CAA said "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". UK CAA continued to note that "because Gatwick’s market power is weaker than Heathrow’s, the CAA would like to implement 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: As the CAA set out in Dec-2012, UK CAA said 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". UK CAA noted that "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". [more - original PR] [more - original PR - II] [more - original PR - III]