CAA decides on no further price regulation at Stansted, but only RPI -1.5% charges at Heathrow and more controls on Gatwick

Date added: 11 January, 2014

The CAA has published its final decisions on economic regulation at Heathrow, Gatwick and Stansted after April 2014. They say the new situation, with each airport having a different owner, reflects the unique circumstances of individual airports. Considering the market power of each airport means passengers would not benefit from further regulation of Stansted, but that Heathrow and Gatwick will both need further airport licences from April 2014 onwards. Current landing charges are £20.71 per passenger at Heathrow and £8.80 (2014 prices) at Gatwick. CAA says: “At Heathrow, the CAA’s price control decision will see prices fall in real terms by 1.5% per year between 2014 and 2019 (RPI-1.5%). This has changed from the CAA’s Final Proposals published in October, which suggested prices rising in line with inflation. The changes have been made as passenger traffic forecasts have strengthened since October, and the cost of capital has been revised. The CAA supports more diversity in what Gatwick offers to its various airlines, so passengers receive a tailored service. It has therefore based regulation on the airport operator’s own commitments to its airline customers.” Heathrow is deeply displeased. Gatwick is mildly displeased. Stansted is happy. Ryanair’s share value fell.
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“Good news for air passengers as prices set to fall at UK’s largest airports”

10 January 2014 (CAA press release)

The UK Civil Aviation Authority has today published its final decisions on economic regulation at Heathrow, Gatwick and Stansted after April 2014 – with passengers benefiting from lower prices and high service standards.

The decisions announced today have been made using powers set out in the Civil Aviation Act 2012, which requires a more flexible approach so regulation reflects the unique circumstances of individual airports. The CAA has therefore assessed the market power of Heathrow, Gatwick and Stansted (passenger market only for Stansted). It has decided passengers would not benefit from further regulation of Stansted, but that Heathrow and Gatwick will both require airport licences from April 2014 onwards. More details about today’s decisions are set out below:

Heathrow
At Heathrow, the CAA’s price control decision will see prices fall in real terms by 1.5% per year between 2014 and 2019 (RPI-1.5%). This has changed from the CAA’s Final Proposals published in October, which suggested prices rising in line with inflation. The changes have been made as passenger traffic forecasts have strengthened since October, and the cost of capital has been revised.

This decision places affordability centre-stage, while ensuring there is still a supportive environment for capital expenditure (with provision for nearly £3bn of investment).

Gatwick
The CAA supports more diversity in what Gatwick offers to its various airlines, so passengers receive a tailored service. It has therefore based regulation on the airport operator’s own commitments to its airline customers. These and various airport-airline contracts cover price, service quality, investment and other issues normally covered by a regulatory settlement, and should enable a more flexible and commercial approach.

The CAA is backing the commitments with a licence, to allow the CAA to step in to protect users, for instance if there are reductions in service quality that are against the passenger interest. The CAA will monitor the application of the new framework to ensure that prices are fair and that service quality is sustained. The licence will also provide for CAA scrutiny of most second runway costs before they can be passed on to airlines and passengers.

The airport licences will ensure that issues like cleanliness, queuing times, seating availability and information provision are addressed in the passenger interest. For the first time, there will be a requirement for Heathrow and Gatwick airports to put in place robust plans to ensure they are better prepared for disruption and can manage it effectively when it does occur.

Stansted
The CAA has completed its assessment for Stansted’s passenger market, taking into account the long-term contracts the airport now has in place with its main airline customers, and determined that the airport does not have substantial market power. This means the airport will not be economically regulated by the CAA from April 2014 onwards. We will publish our decision on Stansted’s cargo market power before the end of March 2014.

Commenting on the decisions, Dame Deirdre Hutton, Chair of the CAA said:
“Today’s decisions are good news for air passengers. They will see prices fall, whilst still being able to look forward to high service standards, thanks to a robust licensing regime. London’s airports have benefited from substantial investment over the past decade, which has created world-class facilities for passengers. But prices have risen substantially in that time, with service quality sometimes failing to match the standards passengers have every right to expect.

“We have focused on putting the passengers’ interest at the heart of our decisions and today’s announcement means passengers can look forward to lower prices and high service quality from London’s busiest airports.”

• An overview of the CAA’s decisions for the airports can be seen here, with links through to the separate documents:
• The decision document for each airport along with several associated documents can be found here:
• A briefing about airport economic regulation, setting out why regulation is necessary and the CAA’s approach is available here:

For more information contact the CAA press office on 020 7453 6030.

Notes to Editors
1. Airport licences for Gatwick and Heathrow are currently due to be published on 14 February 2014 and would then come into effect from 1 April 2014 (subject to appeal).
2. The CAA is the UK’s specialist aviation regulator. Its activities include: making sure that the aviation industry meets the highest technical and operational safety standards; preventing holidaymakers from being stranded abroad or losing money because of tour operator insolvency; planning and regulating all UK airspace; and regulating airports, air traffic services and airlines and providing advice on aviation policy.

http://www.caa.co.uk/application.aspx?catid=14&pagetype=65&appid=7&newstype=n&mode=detail&nid=2328

Heathrow’s response to CAA’s Q6 price control decision

10 January, 2014 (Heathrow airport press release)

Today the Civil Aviation Authority (CAA) has published its decision on the economic regulation of Heathrow, cutting airport charges by RPI -1.5% from 2014-2019. This will see Heathrow’s per passenger airline charges fall in real terms from £20.71 in 2013/14 to £19.10 in 2018/19.

The CAA’s decision in April 2013 of RPI -1.3% was revised up to RPI +0% in October and has now been revised down again to RPI -1.5%. Heathrow had already described the October decision as the toughest price review it had faced.

Heathrow Chief Executive Colin Matthews said:

“We are concerned by the degree of change since the CAA’s final proposals just a short while ago. In October the CAA accepted the need for changes to their April proposals, but has now reverted to a draconian position.”

“We want to continue to improve Heathrow for passengers. We will review our investment plan to see whether it is still financeable in light of the CAA’s settlement.”

Heathrow’s rate of return on capital investment (or WACC), was set by the CAA at 5.35% in its initial proposal, increased to 5.6% in its October final proposal, and has now been reduced again to an unsustainable level of 5.35%.

The CAA’s final decision includes aggressive operational, commercial and passenger forecasts. It requires Heathrow to reduce operational expenditure by more than £600 million, stretches commercial revenue targets by in excess of £100 million, which includes revenues from retail and car park charges, and assumes significant passenger volume growth over Q6. The settlement leaves little spare resource available to manage the consequences of potential disruption at Heathrow.

Heathrow has invested £11 billion in the airport over the last ten years and passengers say they have noticed the difference. In 2013, Heathrow was named the best large airport in Europe and passengers voted Terminal 5 the ‘world’s best terminal’. This year the new £2.5bn Terminal 2 will open, continuing the transformation of Heathrow.

<<Ends>>

Notes to editors

The CAA’s proposal for RPI -1.5% compares to RPI +4.6% in Heathrow’s Alternative Business Plan and to RPI +0% in the CAA’s final proposals. The annual tariff increase during Q5 was RPI +7.5%.
The CAA’s cost of capital (WACC) of 5.35% compares to 6.7% in Heathrow’s Alternative Business Plan and 5.6% in the CAA’s final proposals.
The current price per passenger of Heathrow’s charges is £20.71 (for 2013/14). Heathrow’s Alternative Business Plan would have seen charges rise to £25.72 in 2018/2019.
http://mediacentre.heathrowairport.com/Press-releases/Heathrow-s-response-to-CAA-s-Q6-price-control-decision-7a2.aspx

Heathrow hits out at CAA for ‘draconian’ cut to landing charges

Airport says it will review its investment plans after regulator’s surprise move, but CAA says passengers should benefit

Gwyn Topham, transport correspondent
The Guardian, Friday 10 January 2014

British Airways planes at Heathrow. The CAA is limiting price rises below inflation for the next five years at Britain’s biggest airport. Photograph: Matt Dunham/AP

Heathrow has said it will review its investment plans after the regulator made a surprise cut to the landing charges proposed at the airport, a move the airport describes as “draconian”.

The Civil Aviation Authority (CAA) decided to limit price rises below inflation for the next five years at Britain’s biggest airport, allowing an annual increase of RPI minus 1.5%, saying passengers should benefit.

The final decision comes three months after the CAA said it intended to raise the cap in line with inflation – a proposal Heathrow then described as the toughest it had faced.

Heathrow chief executive Colin Matthews said the CAA had taken a “draconian position”. He said: “We are concerned by the degree of change since the CAA’s final proposals just a short while ago.

“We want to continue to improve Heathrow for passengers. We will review our investment plan to see whether it is still financeable in light of the CAA’s settlement.”

Heathrow said the decision greatly stretched targets and left few resources spare to manage the consequences of potential disruption.

But Iain Osborne, director of regulatory policy at the CAA, said the settlement allowed for nearly £3bn of expenditure to increase resilience and improve facilities and the passenger experience. “We don’t accept that they can’t carry out their investments and make money. If they don’t build things passengers need, then we will put obligations in their licence we can enforce.”

Proposed charges were curbed due to lower borrowing costs and higher passenger forecasts, calculated through actual baseline figures for 2012-13 that outstripped predictions, as well as improved Treasury GDP forecasts. Current landing charges stand at £20.71 per passenger at Heathrow.

Airlines, which had sought deep cuts to charges, claimed to be disappointed by the ruling. A British Airways spokesman said it was “a step in the right direction” but added: “The fact remains that our customers will still be paying more than is warranted and there is plenty of scope for further efficiencies to be made.”

Virgin Atlantic’s chief executive, Craig Kreeger, said: “Today’s decision is a far cry from the reduction needed to mitigate the incredibly steep price rises customers have seen in Heathrow airport charges in the last few years.” He said the airline would be considering its right to appeal.

The CAA infuriated Ryanair by deciding that price regulation will no longer be required from April at Stansted airport, where the low-cost airline is by far the biggest customer. Ryanair said the regulator had “put the fox in charge of the chicken coop”. The airline’s director of regulatory affairs, Juliusz Komorek, said it regretted the “unsupported claim by the CAA that Stansted does not have substantial market power”.

But Osborne of the CAA said the recent deals struck with its major airline customers showed the weakness of the airport’s position. “The fact is that Ryanair and EasyJet together have over 90% of the traffic at the airport and have both signed 10-year deals. Price and volumes are locked in there for the next decade. We’ve concluded that Stansted doesn’t have market power.” Luton and Southend airport both provided alternative bases for low-cost carriers, he said.

Stansted’s owner, MAG, which bought the airport from Heathrow last February, welcomed the move. Chief executive Charlie Cornish said: “The CAA’s decision today to step back from regulating Stansted is a welcome endorsement of the changes we’ve made, and a positive recognition that in Stansted’s case competition rather than regulation will deliver the best outcomes for passengers and airlines.”

Meanwhile, Gatwick will continue to be regulated but without price caps , as the CAA accepted the airport’s commitment to reach individual agreements with airlines while restraining overall average charges. But Gatwick chief executive Stewart Wingate said he was disappointed that the airport was still to be regulated, and he hit out at the CAA for having lowered its benchmark for average charges, which it judged as a cut in real terms by 1.6% annually until 2019. Wingate said: “We are also disappointed at the CAA’s view of a fair price, as well as the intrusive nature of their monitoring requirements. The airport will need to review the detail of the CAA final decision and consider its position.”

Gatwick will be handed new statutory obligations to maintain resilience. The airport was the scene of chaos on Christmas Eve after flooding caused power failures.

EasyJet, which has accused Gatwick of lacking sufficient contingency plans, said it welcomed the news that “robust plans to deliver operational resilience in major disruption will also be under CAA regulatory oversight”.

http://www.theguardian.com/travel/2014/jan/10/heathrow-caa-cut-landing-charges

London Gatwick responds to the Civil Aviation Authority’s final decision on economic regulation from April 2014

10 January 2014 (Gatwick airport press release)

London Gatwick acknowledges that the CAA has continued to accept its Contracts and Commitments framework as the best way forward for regulation and we are pleased that the CAA has recognised the significant progress the airport has made under new ownership.

However, Gatwick is very disappointed with key elements of the CAA’s final decision, including the over-optimistic long term passenger forecasts, the reduction in the cost of capital, and the more onerous monitoring regime. We are surprised by these major changes, which have been made since the CAA published its final proposals just three months ago.

With the progress London Gatwick has made in negotiating commercial agreements with our airlines we continue to disagree with the CAA that the airport has Substantial Market Power (SMP), and as a result requires an economic licence. We are also concerned that the CAA has changed, yet again, the definition of the Gatwick airport market.

Stewart Wingate, CEO of London Gatwick, said:

“I am delighted in the progress that the airport is making to bring more competition to the London aviation market through the commercial arrangements currently being negotiated with its airlines. These discussions have only been possible under our Contracts and Commitments framework, which has latterly been supported by the CAA.

“However, I am disappointed that the CAA’s final decision appears not to acknowledge the importance of these ground-breaking commercial negotiations and has concluded, under its new definition, that the airport does have market power and requires an economic licence. We are also disappointed at the CAA’s view of a fair price, as well as the intrusive nature of their monitoring requirements. The airport will need to review the detail of the CAA final decision and consider its position.”

Notes to Editors

Airport charges per passenger at Gatwick are currently £8.80 (2014 prices) and would remain unchanged (2014 prices) for seven years under Gatwick’s Contract and Commitments framework.

The CAA’s price assessment at RPI – 1.6% p.a. would equate to airport charges per passenger in 2018/19 of £8.07 (2014 prices).

http://www.mediacentre.gatwickairport.com/News/London-Gatwick-responds-to-the-Civil-Aviation-Authority-s-final-decision-on-economic-regulation-from-89a.aspx

M.A.G responds to CAA economic regulation announcement

10 Jan 2014 (Stansted Airport – MAG)

The CAA has today announced its decision to remove Stansted Airport from economic regulation from April 2014 onwards. Following a two-year review, the CAA has concluded that Stansted does not have substantial market power and the airport should be free to compete with other airports without the need for price regulation.

Responding to the CAA’s announcement, M.A.G Chief Executive Charlie Cornish commented:

“Since MAG acquired Stansted in February last year we’ve focused on building strong commercial relationships with airlines and delivering a better experience for passengers.

“After just ten months, our approach to running Stansted is already yielding big benefits for passengers and airlines. The long term growth deals we’ve agreed with airlines – including Ryanair, easyJet and Thomas Cook – will see Stansted continue to grow rapidly over the next decade, offering passengers more choice in terms of destinations and frequencies.

“The CAA’s decision today to step back from regulating Stansted is a welcome endorsement of the changes we’ve made, and a positive recognition by the CAA that in Stansted’s case competition rather than regulation will deliver the best outcomes for passengers and airlines.

“Stansted is flourishing in a competitive environment, as we build long-lasting commercial partnerships with airlines and deliver excellent service to our customers.”

http://www.stanstedairport.com/about-us/media-centre/press-releases/mag-responds-to-caa-economic-regulation-announcement

CAA Final Decision on Airport Charges and Regulation – BATA Reaction

10.1.2014 (BATA)

Simon Buck, Chief Executive of the British Air Transport Association (BATA), responding to the publication today of the CAA’s final decision on airport charges and regulation for Heathrow, Gatwick and Stansted, said:

“BATA airlines remain disappointed overall with the final decision on airport charges published by the CAA today.

“BATA supports improving the passenger experience and we believe this can be done without a repeat of the incredibly steep price rises we have seen in airport charges in the last few years. Prices at Heathrow are triple the level they were ten years ago and we believe there should be far deeper cuts in charges applied to each passenger at this airport for the next five year period instead of a further hike as is being permitted.

“At Gatwick, BATA airlines welcome the CAA’s decision that the airport requires continued regulation through an airport licence and that the costs of any second runway would be included in the licence in order to allow for scrutiny by the regulator.

“CAA’s announcement that its regulatory oversight will also now extend to the development of robust plans to deliver operational resilience to major disruption should also be welcomed.”

http://www.bata.uk.com/01/bata-reaction-to-caa-decision-on-airport-charges/

Ryanair shares fall as Stansted controls altered

By JOHN MULLIGAN (Irish Times)11 JANUARY 2014

Shares in Ryanair fell yesterday as the UK’s aviation regulator paved the way for higher charges at Stansted — the airline’s biggest base.

The UK’s Civil Aviation Authority (CAA) is deregulating Stansted effective from April, releasing it from price controls. The watchdog said that Stansted lacks “substantive market power” in light of the long-term contracts it has in place with its airline customers.

Ryanair is Stansted’s biggest customer, accounting for 75pc of its annual 17.5 million passengers. Stansted has been owned since last year by Manchester Airports Group (MAG).

Last year, Ryanair signed a 10-year deal with MAG to increase its passenger traffic at Stansted from 13.2 million passengers a year to over 20 million by 2023, in return for lower costs and more efficient facilities at the airport.

Yesterday, Ryanair lashed out at the CAA’s decision to deregulate Stansted amid a review of three major London airports, also includingHeathrow and Gatwick.

DAMAGE

“Today’s deregulation decision by the CAA will allow Stansted to increase charges in future and will result inyet more damage to UK consumers and competition,” it claimed.

Ryanair shares fell 2.3pc.

But MAG said the CAA decision was “positive recognition” that competition rather than regulation will deliver the best outcome in Stansted’s case.

At Heathrow, the CAA has decided to cap fees at 1.5pc below inflation between April this year and 2019.

It said stronger passenger forecasts had informed its decision, and that there would still be a “supportive environment” for capital expenditure atEurope‘s busiest hub.

Shares in Aer Lingus, the third biggest operator at Heathrow, edged slightly higher.

“In October, the CAA accepted the need for changes to their April proposals, but has now reverted to a draconian position,” Heathrow chief executiveColin Matthews said. “We will review our investment plan to see if it is still financeable.”

Irish Independent

http://www.independent.ie/business/irish/ryanair-shares-fall-as-stansted-contols-altered-29906362.html

Also FT at

http://www.ft.com/cms/s/0/b117347a-79ca-11e3-8211-00144feabdc0.html#axzz2q1fR1nVe