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Published on Tuesday, March 11, 2008

BA demands airport regulation shake-up

British Airways has called for a “root and branch” review of UK airport regulation after charges were allowed to be hiked significantly.

The Civil Aviation Authority today publishing its decisions for price controls for Heathrow and Gatwick for the five years from April 1.

The maximum charges at Heathrow are £12.80 per passenger in 2008/09, an increase of £2.44 on a like-for-like basis, representing a 23.5% rise in real terms from the current (2007/08) price cap, with allowed charges subsequently increasing in each of the following four years by no more than retail price index (RPI) inflation plus 7.5% each year.

At Gatwick the rate will be £6.79 per passenger in 2008/09, an increase of £1.18 on a like-for-like basis, representing a 21% increase, with charges subsequently increasing in each of the following four years by no more than RPI inflation plus 2%. 

At both airports, the difference from the CAA’s November proposals is in the first year increase, which is £0.83 per passenger or 7 percentage points greater at Heathrow and £0.72 per passenger or 12 percentage points greater at Gatwick.

The CAA said its package of price caps and incentives “will enable and encourage BAA to deliver genuine service quality improvements and to invest to raise the level of facilities and service that can be delivered to passengers and airlines

“The outcome for passengers should be decently modern airports and consistently high service standards.”

The CAA admitted that the resulting increases in airport charges are “significant”. 

But it said they are “essentially paying for the modernisation of Heathrow and Gatwick, in terms of both facilities and service, for the direct benefit of the passenger”.

At Heathrow, this entails paying for the full capital and operating costs of Terminal 5 as it comes into service on March 27, the construction of the Heathrow East Terminal by 2013, and bringing the rest of the airport up to comparable modern standards.

At Gatwick, the next quinquennium will see the construction of a major new pier, the redevelopment of the South Terminal check-in area and forecourt access, and a new baggage system, according to the authority.

The CAA claimed its decision provides for shorter security queuing times, enhanced levels of service across the airports (such as more reliable equipment and cleaner terminals), and greater and more immediate information to passengers from BAA (including displayed in the terminals themselves) of how it is performing against the standards it has been set.

“It is important that airlines and passengers receive the services that they are paying for in airport charges.  The CAA therefore confirms its earlier proposals for stronger incentives on each airport in the coming five-year period to deliver higher and consistent service quality and improved infrastructure,” the authority said.

But condemning the new price rises, BA airport policy and infrastructure general manager Paul Ellis said: “When BAA’s new owners, Ferrovial, bought them, the CAA said they would not be influenced by Ferrovial’s high debt levels.

“In practice, they have ignored their own policy and caved in to intense pressure from BAA by setting excessive price increases. Heathrow passengers will pay, on average, 17% more than the Competition Commission recommended in September 2007.”

The airline called for urgent changes to UK airport regulation and has made its views known to the Competition Commission and a review on the future of the CAA.

Ellis said: “We suffer from very poor regulation and the whole process needs a root and branch review.

“The objective of the regulator should be to ensure that BAA provides the infrastructure and services that customers require but in a cost effective and efficient way that does not over compensate the airport operator financially.


“These overly generous charges far exceed what is required to upgrade facilities across Heathrow through investment in infrastructure and improved service quality levels.

“The CAA must hold BAA to account throughout the five year period to ensure the airport operator delivers improvements and does not divert funds to pay off Ferrovial’s debts”.

Dr Harry Bush, CAA group director, economic regulation, said: “These decisions build on the enduring themes of the CAA’s previous regulatory proposals in this review.

“Passengers and airlines deserve better than they have been provided with at Heathrow and Gatwick in recent years.

“However, the resulting improvements in airport facilities and service standards - some £5 billion of investment over the next five years and a halving of security queuing times - have to be paid for in increased charges.

“But airlines and passengers need to be sure that they are getting the enhanced facilities and services that they are paying for.  Hence, the CAA’s emphasis on greater financial incentives – with BAA being penalised a lot more if it fails service standards and earning bonuses if it exceeds them (but only if passengers in every terminal benefit).

“The price caps have been carefully based on investment programmes emerging from airport–airline discussions and also on a shared airline-airport desire to improve quality of service, in particular for passengers at security. 

“The CAA hopes that the constructive engagement between airports and airlines that underlies much of this pricing decision will continue in the future to the benefit of their shared customers.”

by Phil Davies 

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