Why changes planned for airport charges will be good news for London passengers
Airlines will be charged far less for using Heathrow, Gatwick and Stansted - limiting fare rises
Tuesday 30 April 2013
Air passengers received good news today after aviation regulators proposed major changes in the way airlines are charged for using London's three main airports.
The proposals from the Civil Aviation Authority (CAA) will mean airlines will be charged far less for using Heathrow, Gatwick and Stansted Airports from 2014-19 than they were for the 2009-14 period.
This will, in turn, limit the fare rises that would be imposed on passengers at these airports.
The CAA proposals, to be finalised next year, also provide cheer for the airlines which have been arguing against what they see as excessive charges.
Heathrow, Gatwick and Stansted are the only airports regulated by the CAA, which can cap the amount airport bosses can impose on airlines in take-off and landing fees.
For 2014-19, the CAA has proposed that airline charges should be capped at the RPI rate of inflation minus 1.3 per cent.
This is far less than the figure of RPI plus 7.5 per cent for Heathrow for 2009-14.
It is also far less than the 2014-19 charge figure proposed by Heathrow bosses, which would have see charges increase at the west London airport from the equivalent of £19.33 per passenger for 2012/13 to as much as £27.30 for 2018/19.
For Gatwick, where bosses had pressed for complete deregulation, the CAA today proposed a much more flexible system but still underpinned by a licence from the CAA.
The CAA said this new approach would require effective airport-airline collaboration, and that so far "the airport has not yet made acceptable proposals along these lines".
If nothing can be sorted out, the CAA said charges for 2014-19 at Gatwick would be capped at RPI plus 1 per cent which is lower than the RPI plus 2 per cent regime that has been in place at the West Sussex airport for 2009-14.
At Stansted, where Ryanair chief executive Michael O'Leary has long complained about the level of charges, the CAA's regulation will take the form of monitoring charges and service quality.
The CAA said this would ensure passengers at the Essex airport were protected while minimising the regulatory burden on airport and airlines.
But the CAA said it might impose more detailed regulation "unless prices at Stansted reduce over time".
CAA chief executive Andrew Haines said: "Protecting consumers and improving their experience is the core focus of our regulatory decision-making.
"Few passengers flying from Heathrow, Gatwick and Stansted fail to notice their differences, so it should be no surprise that our regulatory approach also differs at each airport.
"The proposals we publish today reflect their individual circumstances, ensure passengers are protected when they travel, and allow for continuing improvements in service and competition."
This is the first time that a five-year set of charges has been announced when the three London airports have been under separate management.
Before, airport operator BAA - now known as Heathrow - ran all three airports. But Gatwick is now operated by Global Infrastructure Partners, which also runs London City Airport and the former BAA-operated Edinburgh Airport, while Stansted's new owner is the Manchester Airports Group.
Neither Heathrow nor Gatwick bosses were happy with today's proposals.
Heathrow said: "We will examine the CAA's proposals carefully over the coming weeks before responding fully. As the UK's only hub airport, Heathrow is a strategically important national asset.
"To stay competitive with overseas hubs like Amsterdam, Paris, Frankfurt and Dubai, Heathrow has invested £11 billion over the last 10 years in new facilities such as Terminal 5 and the new Terminal 2 and passengers say they notice the difference. Over the same period returns to shareholders have fallen well below the level anticipated by the regulator.
"Our first impression is that a 5.35 per cent return on capital will put passenger service at risk by not attracting the necessary investment in Heathrow for the short, medium and long term. We, and everyone interested in the health of our country's transportation infrastructure, must consider whether this is a risk worth taking."
Gatwick chiefs said they did not accept the CAA's argument that there was a need for an economic licence and added that the suggested RPI plus 1 per cent formula for 2014-19 was "too demanding and based on unrealistic assumptions".
Gatwick's chief executive, Stewart Wingate, said: "Gatwick's transformation over the last three years has shown that separate ownership and the competition that this has brought, has been good for passengers and airlines.
"The CAA must not hold us back through imposing heavy-handed regulation, red tape in the form of a licence and an inflexible price control, but should allow us to build on this success."
For Stansted, the CAA said it considered the best approach was to move away from setting a five-year, fixed-price cap on charges and instead introduce a price-monitoring regime.
A Stansted spokesman said: "The CAA's initial proposals set out a new way of regulating Stansted in Q6 (2014-19), and we will need to study the details carefully and discuss them with the CAA before responding to the consultation."
The Board of Airline Representatives in the UK (BAR UK), which represents 80 airlines, gave a cautious welcome to the CAA's proposals.
BAR UK chief executive Dale Keller said: "It is encouraging that the CAA has listened to industry concerns over the need for a more-flexible, market-based approach than previous regimes and we are cautiously optimistic that the final regulation will better meet the needs of consumers and the airline industry.
"Incorporating increased collaboration between airport operators and the airlines within the regulatory framework is particularly welcome since industry agreement is always preferable to excessive regulation.
"While we believe that the pricing caps do not go far enough to drive the level of efficiency gains at airports that airlines and their passengers are seeking, the proposals are a step in the right direction."
Willie Walsh, chief executive of British Airways' parent company IAG, has spoken out strongly against the levels of charges at Heathrow.
Responding to the CAA proposals today, he said: "Heathrow airport is over-priced, over-rewarded and inefficient, and these proposals, which will result in an increase in prices, fail to address this situation.
"In the past the CAA has rewarded Heathrow for inefficiency and it is now the most expensive hub airport in the world. Its charges have tripled in the last 11 years with inflation-busting increases year on year."
Mr Walsh went on: "The Gatwick proposals, which will result in a significant increase in charges, are completely unjustifiable, totally unacceptable and directly contravene the CAA's new remit to represent customers' interests.
"The CAA must not be allowed to fail again. In line with its new remit, (CAA chairman) Dame Deirdre Hutton and the CAA board should protect customers and ensure that they get a better deal.
"We will make strong representations to Dame Deirdre and the board to reconsider this proposal."
Virgin Atlantic chief executive Craig Kreeger said: "Although today's recommendations from the CAA are a welcome step to address the incredibly steep price rises we have seen in Heathrow Airport charges in the last few years, we believe they should have gone even further.
"This move compounds the huge increases that passengers have endured in recent years with prices at Heathrow already triple the level they were 10 years ago.
"Coupled with ever-increasing Air Passenger Duty, passengers flying to and from the UK are facing some of the highest travelling charges in the world."
He went on: "Virgin Atlantic is totally committed to improving the customer experience at our airports. However, we have long argued that this is fully achievable with a significant real-terms reduction in charges.
"In the current climate most businesses are having to deliver the same level of service more efficiently and airports should not be exempt from this economic reality. This makes it all the more baffling to see the Gatwick proposals of an inflation-busting increase.
"The CAA must use this consultation period to further review its proposals and ensure there is a significant real-terms reduction in charges applied to passengers at both airports."
Low-fare airline easyJet said it agreed in principle with the CAA's new approach to regulation at Gatwick.
But the no-frills carrier added that it was disappointed with the proposed charges of RPI plus 1 per cent at Gatwick and said it would be asking for a lower charge than this.
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