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CAA prepares for a more competitive airports market

05-Nov-2009 The Civil Aviation Authority (CAA) has today begun a consultation on two projects designed to support the development of a more competitive airport market, following the sale of Gatwick Airport and the conclusion of the Competition Commission’s inquiry into BAA’s ownership of airports.

The first project involves the development of the CAA’s approach to the analysis of the level of competitive pressures facing airports. The second will seek to identify alternative methods of regulating airports that reduce the risk that competition and investment are distorted.

These projects are being run simultaneously, and today’s paper, ‘Preparing for a more competitive airports sector’, requests views from stakeholders on the objectives of both pieces of work and the process the CAA plans to complete them.

The work follows a series of developments in the airport industry which have shown that competition between airports occurs, and that where it does occur, it can act to constrain market power, sometimes negating the need for regulation. In the case of Manchester Airport, the development of competition led the Secretary of State for Transport to remove price cap regulation from the airport in March 2008.

Commenting on the start of the projects, the CAA’s Director of Economic Regulation, Harry Bush, said, “There have been few times since the privatisation of BAA twenty years ago when there has been such change in the UK airports market. In addition to the impact of the economic downturn, there is uncertainty around future ownership given BAA’s appeal of the Competition Commission’s divestment instructions. However, the announcement of the sale of Gatwick represents a significant potential injection of competition into the airport market around London and there is the clear possibility of more to follow in the South East and Scotland.

“Alongside this, the Government’s forthcoming decision on its Review of Economic Regulation is expected to propose a more flexible set of regulatory powers for the CAA and extended powers to apply competition law. This all means that now is the right time for us to start the necessary preparatory work, in consultation with stakeholders, to consider how we regulate airports and how we judge whether, and to what extent, they need to be regulated, so that the right incentives are created for efficient investment and that passengers benefit from increased competition.”

The intention to take forward the two projects announced today was originally stated in the CAA’s price control decision for Stansted airport, in March 2009.

The two projects are expected to run for approximately 18 months. Any decisions flowing from these projects would be made against the then existing statutory duties, based on evidence available at that time and following appropriate consultation.