Call for the Competition & Markets Authority to investigate Heathrow

Date added: 5 June, 2018

The No 3rd Runway Coalition has written to Lord Andrew Tyrie, the new chair of the Competition and Markets Authority (CMA), asking why the proposed expansion of Heathrow has not been scrutinised by the competition authorities. Heathrow is, by far, already the largest and busiest airport in the country. And with even proponents of the scheme accepting that Heathrow expansion would impact significantly on the smaller regional airports in the market, the letter suggests that competition authorities have been inactive. This is particularly surprising because the Competition Commission (the antecedent authority of the CMA) had stated that Heathrow already enjoyed such “substantial market power” that it would require further review and regulation, in future – even without a third runway. That situation would be far worse with a 50% larger Heathrow.  Back in 2008, the then BAA had to sell off airports because it was seen to have too much market power – it sold Gatwick in October 2009, Edinburgh April 2012 and Stansted in January 2013 . The current government proposal to expand Heathrow would simply recreate that monopoly position, perhaps in an even worse form.

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CALL FOR COMPETITION & MARKETS AUTHORITY TO INVESTIGATE HEATHROW

5.6.2018  (No 3rd Runway Coalition)

The No 3rd Runway Coalition has today written to Lord (Andrew) Tyrie, the new chair of the Competition and Markets Authority (CMA), asking why the proposed expansion of Heathrow has not been scrutinised by the competition authorities (1).

Heathrow is, by far, already the largest and busiest airport in the country. And with even proponents of the scheme accepting that Heathrow expansion would impact significantly on the smaller regional airports in the market, the letter suggests that competition authorities have found themselves exposed as inert.

The letter suggests this is particularly surprising, considering that the Competition Commission (the antecedent authority of the CMA) had stated that Heathrow already enjoyed such “substantial market power” that it would require further review and regulation, in future – even without a third runway.

Paul McGuinness, Chair of the No 3rd Runway Coalition, said:

“In the recent past, competition authorities have claimed Heathrow has substantial market power that ought to be kept in check. So it would be interesting to learn how Lord Tyrie thinks building a third runway will keep Heathrow in check. And how, even when the government accepts that an expanded Heathrow will mean less traffic at the UK’s regional airports, Heathrow expansion will create a fairer and more competitive market”.

ENDS.

Notes

1. Letter copied below, and Pdf here Letter to Ld Tyrie 05.06.18
2. The Competition and Markets Authority, which superseded the Competition Commission, and came into existence in 2013, is a non-ministerial government department whose aim is “to make markets work well for consumers, businesses and the economy.
3. Andrew Tyrie was ennobled. Previously he had been MP for Chichister (1997 – 2017), most notably serving as Chair of the Treasury Select Committee (2010 – 2015). He was ennobled in 2017, sits as a crossbencher, and his appointment as Chair of the Competition and Markets Authority was confirmed in April 2018.
4. The No 3rd Runway Coalition represents those leading the fight against a 3rd Runway, incl. Residents Groups from across and beyond London, environmental and aviation organisations, GLA members, councillors, MPs, and Borough Councils (incl. those taking legal action – Hillingdon, Richmond,  Wandsworth,  Windsor & Maidenhead).

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The letter    5.6.2018:

“Dear Lord Tyrie,

Re: Heathrow’s “substantial market power”

I write to express the concerns of the No 3rd Runway Coalition that neither the Competition and Markets Authority (CMA), nor the Civil Aviation Authority (CAA), are properly exercising their powers under Chapters I and II of the Competition Act 1998 in relation to the proposed third runway at Heathrow.

In 2008, even after the recommendation that BAA (Heathrow’s previous owner) should divest itself of its monopoly position, through the enforced sales of Gatwick and Stansted airports, the Competition Commission (your antecedent authority) expressed serious concerns that Heathrow would still continue to enjoy substantial market power, and that this would require further regulation and ongoing review. I quote from their report (August 2008 – para 3.130):

“… even in the absence of BAA’s common ownership, Heathrow has substantial market power as a result of the difficulty of switching services to other airports, network effects and locational advantage. We consider that Heathrow is likely to retain this market power for a considerable period, even if other London airports were under separate ownership. … Heathrow can be expected to enjoy a sustained period of substantial market power—by virtue of its location, surface access infrastructure and hub status—that is likely to warrant detailed economic regulation for the foreseeable future”.

Identifying the public interest, the fourth estate seemed to enjoin this appraisal at the time, arguing that the dismantling of BAA, although necessary, was insufficient of itself to create a competitive aviation market in the UK. For example, the following was written in London’s Evening Standard (20 August, 2008):

“It’s all very well hiving off the other airports in the expectation that the washrooms will be cleaner and the conveyor belts will run more smoothly, but that doesn’t address the heart of the problem. While Heathrow continues to be so much bigger – and may even be allowed to expand – London’s air transport will still be dominated by one airport. Gatwick and Stansted must be encouraged to match Heathrow in terms of size and usage. Unless that happens, Heathrow will carry on being the centre of choice for the major scheduled airlines and will remain the international hub, while Gatwick and Stansted will still be also-rans – better run and managed but little more than air charter terminals. In effect, Heathrow’s pre-eminence will be assured.

That cannot be the result that the commission envisages. But on its own, the break-up of BAA is not enough. What is required is a wholesale restructuring of London’s air services … Without further change, the pro-Heathrow lobby will be able to cling to the argument that the airport is the only one capable of serving the needs of the economy, the UK airport that any airline worth its salt wants to use. That isn’t competition – so, welcome as it is, the decision of the commission can only be regarded as a first step.”

How prescient. Here we are, ten years later; the government is proposing to expand Heathrow, and we and others have been left wondering whether the competition authorities are doing their job.

For were expansion to proceed, it is difficult to see how that already “substantial market power” of Heathrow will not be further increased (and substantially at that); assisted by both the new dynamic that expansion will unleash within the UK aviation sector, and the preferential support that is likely to be required from the public purse to facilitate it.

Even the government’s Airports National Policy Statement (which seeks to propagate the scheme) anticipates that Heathrow expansion will mean a restriction of growth at regional airports and acknowledges that some of an expanded Heathrow’s “new” routes are likely to be pre-existing routes currently operated from other UK airports. And one does not to read too many aviation journals to appreciate the ineluctable dynamic, with the likes of Easyjet affirming that it will seek to move its fleet to Heathrow, and away from Gatwick, in the event of Heathrow expansion.

While the government expects surface access infrastructure upgrades (to facilitate Heathrow expansion) will cost at least £5Bn, and TfL estimates costs of £15Bn, Heathrow has committed itself to providing just £1Bn (exclusively, in respect of M25 alterations). So, whatever the final bill, at least some things are certain: that whether it be through London’s or the Treasury’s budget, significant public financial support will be bestowed on surface access, to buttress Heathrow’s aggrandisement of its already “substantial market power”, while no such tax payer largesse will be made available to any other airport in the market.

And that is notwithstanding the very real possibility that wider state contributions will be required. In recent years, Heathrow’s investors have taken large dividends, while displaying no inclination to raise new equity for the scheme, leaving Heathrow already highly leveraged (at 87%) and unable to fund a third runway corporately. There is doubt that bond markets can support the requisite bond issuances, and the extent to which Heathrow may need to rely on RAB incentives, to pay the financing costs, and guaranteed dividends to investors, could well transmogrify into a scandal of governance.

It is certainly true that the CAA have conducted work on the deliverability of a third runway at Heathrow. But, as far as statutory duties relating to competition issues are concerned, it would seem that neither your authority (the Competition and Markets Authority) nor the CAA have produced an audit, examining the threat to competition; or detailing the costs and establishing the risks to consumers, taxpayers and the aviation industry – let alone proposing measures to counter those risks.

It seems to us that the proposed expansion of Heathrow should be attracting the keenest attention of the competition authorities. But that – unless an executive decision has been taken to treat Heathrow’s investors with an unprecedented leniency – the competition authorities have exposed themselves as being inert on this critical matter.

Yours sincerely

Paul McGuinness

Chair

No Third Runway Coalition

info@no3rdrunwaycoalition.co.uk

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See much earlier:  April  2008

Posted: Tuesday, June 5th, 2018. Filed in General News, News about Airports, Recent News.