CAA proposes 20% cut in air traffic control charges

A 20 per cent reduction in the charges that airlines pay the UK's air traffic control service was proposed yesterday by the industry regulator.

A 20 per cent reduction in the charges that airlines pay the UK's air traffic control service was proposed yesterday by the industry regulator.

The Civil Aviation Authority also said that the penalties paid by National Air Traffic Services for flight delays should be trebled to as much as £27m and linked more closely to the time of day to avoid hold-ups in the morning peak period.

A consultation document published by the CAA goes on to recommend a 20 per cent cut in Nats' £520m investment programme and a reduction in its allowed return on investment from 7.75 per cent to 6.5 per cent to reflect the low-risk nature of the business.

The proposals are the CAA's first stab at setting a new price control for Nats covering the five-year period from 2006 to 2011. It will publish final proposals next May following further consultation, and then introduce the new charging regime from 2006.

The initial proposal is for a cut of 7.8 per cent in air traffic control charges in 2006 and then further reductions of 3 per cent or just over in the following four years. There will, however, be very little impact on air fares. CAA officials calculated that the saving might amount to as little as 10p per passenger. On average, airlines pay Nats £200 per flight.

Harry Bush, group director of economic regulation at the CAA, acknowledged that the price curbs represented a "stretching target" for Nats but said the organisation would benefit from an expected growth in air traffic. The regulator is forecasting 2.8 per cent annual growth in flights over the period, while Nats puts the figure at 2.3 per cent.

Although Nats will be allowed to maintain its operating expenditure at about £350m a year to meet increased staff and pension costs and a rise in the number of air traffic controllers, the CAA said it would achieve underlying efficiency improvements of 2 per cent in the first two years and 3 per cent thereafter.

Nats, which is part-owned by a group of UK airlines and the airports operator BAA, expressed surprise at the "over-ambitious" nature of the CAA's proposals and warned that they could affect service performance and investment in new capacity.

Paul Barron, the chief executive of Nats, said: "Its initial proposals for the next five-year period look complex and appear to be a good deal tougher than we expected." He added that they did not seem to take into account the considerable progress that Nats had made to close the efficiency gap with its European counterparts. "Over the coming months we intend to consult with our customers and engage with the CAA to influence the outcome of this review."