Air fares could rise under new CAA proposals

The CAA has retained plans for changes in the way airports charge airlines for landing and parking fees, which airlines argue would lead to higher airline ticket prices.

The plans come as part of published advice given by the CAA to the Competition Commission, calling for a change to the so-called ‘single till’ approach, which currently ensures that profits from airport retail activities are used to reduce airport charges.

In a statement released on Wednesday, the CAA said it considers the single till approach “involves excessive regulation and fails to promote effective airport operation and development”. The CAA has proposed to the Competition Commission that regulation should focus on only the monopoly services provided by the airports to users.

The policies recommended by the CAA would result in a significant rise in landing fees. The recommendations would see real increases in the maximum allowed charges to airlines by the end of 2003/08 of £2 per passenger at Heathrow (current charge £5.23), £1 at Gatwick (£4.06), and £1.70 at Stansted (£4.36). Manchester Airport’s maximum charge would remain at about £6.60 in real terms.

In a statement released from BAA, the UK airport operator said that it “broadly welcomes the CAA recommendations, in particular that airport charges at Heathrow should rise.”

The CAA said the price cap increase at Heathrow “reflects the costs of Terminal 5” and that “strong incentives are proposed to encourage the timely opening of the terminal”.

FT.com reports that Steve Ridgway, chief executive of Virgin Atlantic, was “surprised and dismayed” that the CAA had chosen to scrap the single till and labelled the decision “perverse”. FT.com also reports that Andrew Sentance, chief economist at British Airways, accused the regulator of ignoring the concerns of users and disputed many of its findings. “They are based too much on economic theory and not on the practicality of the situation at London airports that we find ourselves in,” he said.

Doug Andrew, Group Director Economic Regulation CAA, said: “We recommend to the Competition Commission that these phased increases in the price caps are necessary to encourage better use of scarce runway capacity and allow for desired improvements in service quality and investment.

“We would expect the airports to use the greater flexibility offered by these proposals to deliver to their customers the desired improved service quality and increased investment in infrastructure.”

After considering the Competition Commission’s report, due in August, the CAA will make the final determination on the price caps by the end of November.

Notes

The CAA is required by the Airports Act 1986 to set limits on user charges at designated airports every five years. The designated airports are the three BAA-owned London airports – Heathrow, Gatwick and Stansted – and Manchester Airport which is owned by a consortium of local authorities. The CAA sets the maximum charges at the airports following recommendations from the Competition Commission.

The Airports Act requires the CAA to set the price cap most likely to further reasonable user interests, to promote efficient and profitable airport operation, and to encourage timely investment while imposing minimum restrictions.

The review timetable is now as follows:

End August – Competition Commission reports to the CAA

End September – CAA publishes Competition Commission reports and its own proposals on charges and any public interest matters

October – CAA considers written representations and holds hearings with main parties

End November – CAA announces final decision on price caps and public interest matters

April 2003 – New price caps take effect.

New price caps will be set for the five years for each of the four airports from 1 April 2003 to 31 March 2008.