Gatwick proposes revised offer to the CAA with lower fee increase on airline charges
Gatwick has proposed cutting the increases in the charges that airlines pay to use the airport, in the hope that the CAA (the regulator) will not cap the charges. The airport says this is the best deal for passengers and airlines. The CAA has proposed capping charges to just 1% above inflation. In April Gatwick initially proposed an increase of 4% above the rate of inflation for its charges. Now they are proposing an increase of 1.5% above inflation, for 4 years from 2014 to 2021. Gatwick airport earns some £274 million per year from these landing charges, and as they make so much money from them, the airport wants there to be no cap on what they can charge. They say then could then compete more effectively with Heathrow. EasyJet has said it does not support Gatwick’s proposal for a 1.5% increase, as it wants even lower charges and says the capital spending the airport is planning is not on things that their customers value.
London Gatwick submits revised offer to the CAA which presents the best deal for passengers and airlines
25 June 2013 (Gatwick Airport press release)
- Contracts & Commitments will provide a better outcome in terms of the quality of airport facilities, service levels and price than regulation could ever achieve
- Gatwick puts forward an improved offer for airlines and passengers with a price of RPI+ 1.5% over seven years
- Gatwick believes the pace of change at the airport should continue and so stands behind its initial Capital Investment Programme
- The CAA now has a real opportunity to create the conditions for a more competitive airports market
London Gatwick has today submitted to the Civil Aviation Authority (CAA) a compelling offer on a new deal for the airport between 2014 and 2021. The improved offer – which would see a future in which airline-airport relationships are increasingly defined through tailored bilateral commercial contracts – will help create the conditions in which Gatwick and other airports in the South East can compete on service quality and price to the benefit of passengers and the airline community.
Gatwick’s radical plan to replace economic regulation with a Contracts & Commitments framework reflects the recent significant changes in the airport sector – most notably the unprecedented break-up of the BAA monopoly and the emergence of a more competitive airports market.
The CAA confirmed in April they hoped that a commitments and limited licensing framework could be the preferred form of regulation for Gatwick. However, they raised a number of points of concern which Gatwick has since considered and addressed. In particular:
- Price: The CAA challenged Gatwick to table an improved offer on price. In response, Gatwick has lowered the price commitment from RPI + 4% to RPI + 1.5% over a seven year period. This equates to an increase in the per passenger fee from £8.80 in 2013/14 to a per passenger fee of £9.76 in 2020/21.
- Capital Investment Programme: Gatwick commits to continue to fully consult with airlines on Capital Investment, and commits to substantial Capital Investment continuing
- Service Quality: Gatwick has proposed more passenger-focused targets to ensure passengers continue to enjoy high service standards throughout the airport
- Enforceability of the Commitments: Gatwick will work with the CAA to ensure that its Commitments are legally binding and the interests of passengers are safeguarded
Stewart Wingate, London Gatwick CEO said: “We have listened to our airline partners and are putting forward a great deal which seeks to address the issues raised, whilst still promoting the best commercial way forward for our passengers and airlines.
“We believe this revised offer will provide a much better future for passengers, the airline community and the airport than would be the case through a continuation of the current system of regulation.
“The CAA has a window of opportunity to create the conditions for a much more competitive airport market in the South East, which will build on the Competition Commission’s landmark decision to break-up the BAA monopoly. We hope that the CAA will feel sufficiently confident to endorse our deal as the preferred way forward for Gatwick in its October final proposals.”
As part of its analysis of the way forward, Gatwick commissioned Professor Stephen Littlechild, Emeritus Professor at the University of Birmingham, Fellow at the Judge Business School, University of Cambridge and former electricity regulator, to review the issues of regulation in today’s increasingly competitive airport sector.
Professor Littlechild comments that: “The CAA might feel that continuing to regulate an airport is a safer course of action. However, in practice greater involvement of regulation in an increasingly competitive market would lead to unintended consequences that can have adverse effects on service quality and price which would not protect the interests of the passenger in the long term.
“Less, not more, regulatory involvement at this stage would be more conducive to promoting competition and protecting the longer-term interests of customers. If it is not possible to remove regulation now, when will it ever be?”
To view Professor Littlechild’s report please click here.
To view Gatwick’s full submission to the CAA please click here.
Notes to Editors
About Professor Stephen Littlechild
Professor Stephen Littlechild is an Emeritus Professor at the University of Birmingham and Fellow at the Judge Business School, University of Cambridge. He was recently appointed a panel member at the Competition Commission, and is a member of the Ofgem panel of economic advisers, Chairman of the Advisory Board of the Electricity Policy Group at the University of Cambridge, and a member of the Advisory Council of the Centre for Competition Policy at the University of East Anglia. The views expressed in his paper are personal ones and do not purport to represent the views of any of the above organisations.
Gatwick proposes to reduce fee increase it charges airlines
By Andrew Parker
25.6.2013 (Financial Times)
Gatwick has proposed cutting the increases in the charges that airlines pay for using the airport, in an attempt to persuade regulators not to cap the levies.
Full FT article at
Gatwick Airport wants freedom from regulation on prices by the CAA
February 15, 2013 With Heathrow and Stansted, Gatwick is one of only 3 UK airports that is subject to a price regime set by the CAA. It is arguing that should be allowed to negotiate landing charges directly with airlines, rather than being regulated, through entering into individual commercial agreements with airlines. Gatwick says such deals, which would be struck under a legally-binding framework, could incentivise airlines to offer more routes. Gatwick says even for airlines that didn’t strike commercial agreements, charges would still be lower, increasing by 1.3% above the RPI over the next 7 years. By comparison, under continued regulation, charges would increase 3.3% above RPI over 5 years – which would mean landing charges rising from £8.80 per passenger in 2014, to £11.45 by 2018/19. But Virgin Atlantic is not keen on the idea, and nor is easyJet. Virgin says “The CAA must continue to regulate to ensure that Gatwick delivers services our passengers need at a price which is good value for money.” Click here to view full story…
Gatwick Airport produces new Business Plan to 2024 with prices based on customer contracts
February 14, 2013 Gatwick Airport has produced its Revised Business Plan to 2024 (the last one went to 2020) which sets out their proposals for the coming years. They are putting forward a new deal that would allow Gatwick and its airline customers to develop bilateral, tailored contracts to replace the current system of regulation. The CAA invited Gatwick to propose such a framework in October 2012. Gatwick says this would give better levels of quality, price and service to airlines and passengers. Gatwick says this will promote competition between airports, and mean lower charges for airlines and passengers. Under the deal, passenger fees will rise from £8.80 in 2014 to a maximum of £10.68 in 2020/21. This means an increase of RPI+1.3% over a 7 year period rather than RPI +.3.3%. Gatwick claimed that if it stays within the current regulatory framework, the maximum per passenger fee would rise to £11.45 in 5 years. The CAA will come to a decision on the initial proposal on the airline contracts framework on 30 April 2013 and make a final decision in January 2014. Gatwick is planning to invest a further £1 billion in the airport between 2014 and 2019. Click here to view full story…
Gatwick produced its Business Plan to 2024