CAA wants shake-up of regulatory powers

17.3.2008   (Telegraph)

Britain’s aviation regulator will today add its voice to those clamouring for
an overhaul of the regulatory system governing the nation’s airports.

The Civil Aviation Authority, which last week drew criticism for its decision
on maximum landing charges at Heathrow and Gatwick for the next five years, will
tell the Competition Commission that there is “a clear case for regulatory reform”.

It is making its submission as part of the commission’s investigation into whether
BAA, the owner of seven UK airports, including Heathrow, Gatwick and Stansted,
should be broken up.

BAA, which was bought for £10.1bn in 2006 by a consortium led by Spanish construction
company Grupo Ferrovial, also owns Edinburgh, Glasgow, Aberdeen and Southampton

The CAA argues that, despite major changes in the aviation market, the regulatory
framework has remained largely unchanged for 20 years, leaving the regulator with
far too little flexibility.

Calling for a new framework that puts consumer interests first, the CAA argues
that the current system of regulation – based on setting price caps every five
years – is too blunt a tool for a “continually changing market environment”.

Harry Bush, the CAA’s director of economic regulation, said: “There is now widespread
agreement – between airlines, BAA and the regulator – that the current regulatory
framework needs modernising. But there is likely to be considerable debate about
the best way to do this.”

Mr Bush found himself vilified by airlines last week for allowing BAA to raise
landing charges at Heathrow by 23.5% this year but also infuriated the airports
operator by cutting its cost of capital from 7.75% to 6.2% at Heathrow and 6.5%
at Gatwick, effectively reducing the profit it makes on investment.

Mr Bush said: “Investment in airports does not neatly fall into five-year periods.  
I would like to see a framework where we are not committed to five-year price
caps, where we could vary the period if that encouraged appropriate investment.
It would give a lot more regulatory certainty.”

He would also like to regulate the three London airports differently to suit
their individual circumstances. In addition, Mr Bush wants to build on the latest
five-year review where penalties for poor operational performance, such as lengthy
security queues, were raised from 3pc to 7pc of landing charges.

He said he wanted to place consumer interests “at the heart of the CAA’s duties”,
stressing that their interests should not be confused with the airlines’. “Passengers
and airlines could well have conflicting interests,” he said.


CAA wants shake-up of regulatory powers