Civil Aviation Auth.

CAA Announcement

Civil Aviation Authority
25 January 2008


News Release

CAA PUBLISHES STANSTED PRICE CONTROL OPTIONS

25 January 2008


Following the Secretary of State's decision that Stansted Airport remain
designated for price control purposes, the Civil Aviation Authority (CAA) is
today publishing a consultation on the framework and options for price
regulation of Stansted Airport.  The review will lead to new price caps on
Stansted Airport charges from 1 April 2009.

The CAA is consulting on a wide range of options for price caps.  One option is
an adaptation of the existing building block method; two options have evolved
from ideas put to the CAA by airlines; and two options represent 'safeguard'
caps designed to recognise the competitive circumstances in which Stansted
operates, and to enable funding of new investment in additional airport
capacity, whilst still providing an additional safeguard for users against
unreasonably high prices.

The CAA's role is to set a price control for the five years from 1 April 2009 in
accordance with its statutory duties under the Airports Act 1986, against a
background which includes the possibility of major investment at the airport in
a second runway and associated infrastructure; disagreement between the airport
and its users about the nature, timing, scale and cost of that investment; and
the scope the CAA sees for regulation of Stansted to affect other airports and
their users.

In setting price caps it will be important for the CAA to take full account of
the market circumstances that apply at Stansted, including the possibility that
Stansted, although it does not currently enjoy a position of substantial market
power, could acquire such a position in future; the extent to which competition
law could address any abuse of such market power; and the potential for
regulation to distort the behaviour (including investment) of Stansted Airport
and that of its competitors.  The CAA has therefore presented an initial
assessment of the relevant arguments presented by the DfT in its decision to
retain designation of Stansted.

In order to allow respondents to the consultation to compare and contrast the
options presented, the CAA has included in the document a number of illustrative
calculations of the price caps that might be generated by these different
options.  The CAA would be very interested to hear how the current options for
price caps might be improved, refined or applied in practice; whether there are
any additional options; and, for all of these options, their advantages and
disadvantages with reference to the CAA's statutory duties under the Airports
Act 1986.

Speaking today, Dr Harry Bush, the CAA's Group Director of Economic Regulation,
said:

'We fully accept the Secretary of State's decision that Stansted airport should
continue to be price-regulated, and welcome her acknowledgement that the
decision to continue to designate Stansted airport was not intended to constrain
the CAA from adopting new approaches that meet its statutory duties while
avoiding some of the costs of the current system.

'Against this background, our job is now to develop proposals that are
proportionate, taking into account the market power held by Stansted Airport; do
not prejudice the commercial position of other, competing airports; and
encourage the efficient investment in capacity that passengers in the market
want.  The consultation we have begun today represents a first step in the
process of developing an appropriate framework and price cap proposals for
Stansted.  We welcome views on them.'

The document, 'Price Control Review - Consultation on the Framework and Options
for the Economic Regulation of Stansted Airport' is available at:

www.caa.co.uk/docs/5/ergdocs/stanstedconsultation_jan08.pdf


Further information is also available in the CAA's In Focus briefing document
at:

www.caa.co.uk/docs/5/ergdocs/stansted_infocus_jan08.pdf


For further information contact Chris Mason on: 0207 453 6026.


Notes to editors
     
1.   On 15 January 2007, the Secretary of State for Transport announced her 
     decision that Stansted should remain designated under Part IV of the 
     Airports Act for price control purposes.  As a consequence, the CAA is 
     today embarking on a price control review, with a view to setting revised 
     maximum limits on airport charges from 1 April 2009.

2.   The CAA has identified five broad options for consultation: Option 1- 
     Augmented Building Block; Option Two - Legacy Price Cap; Option 3 -
     Terminal Development Tendering; Option 4 - Market-led Price Cap; Option 5 -
     Precautionary Price Cap.

3.   The CAA intends to consult on the options contained in the document 
     published today for just under 2 months, i.e. until Monday 17 March. The 
     CAA would then make its mandatory price control reference to the 
     Competition Commission, towards the end of April. The Commission typically 
     takes some six months to conduct its own inquiry before reporting back to 
     the CAA in autumn 2008. Thereafter, the CAA would consider the Commission's 
     recommendations and then issue its own firm proposals in late autumn for a 
     final round of consultation, before making price control decisions in March 
     2009, for the five year period starting April 2009.  The full timetable is 
     set out below:


Date                     Review stage

25 January 2008          CAA consultation on framework and options

6 February 2008          Industry seminar

17 March 2008            Deadline for responses

April 2008               CAA refer to Competition Commission

October 2008             Competition Commission reports

December 2008            CAA publish firm proposals

February 2009            Deadline for responses

February  2009           Oral hearings

March 2009               CAA publish decision
                         
1 April 2009             New control comes into effect

4.   In performing its functions under the Airports Act, including setting price 
     controls, the CAA has to act in a manner best calculated to meet its duties 
     set out in section 39(2) of the Airports Act.  These are:

     a.   to further the reasonable interests of users of airports within the
          United Kingdom;
          
     b.   to promote the efficient, economic and profitable operation of such
          airports;
          
     c.   to encourage investment in new facilities at airports in time to 
          satisfy anticipated demand by the users of such airports; and
          
     d.   to impose the minimum restrictions that are consistent with the
          performance by the CAA of its functions.
     
5.   The CAA also has to take account of the international obligations of the 
     United Kingdom as may be notified to it by the Secretary of State.  The CAA 
     also applies the Better Regulation Commission's principles of good 
     regulation.  These are to act in a way that is proportionate, consistent,
     accountable, transparent and targeted only at cases where action is needed. 
     A fuller description of the legal framework within which the CAA conducts 
     its price control functions is set out in chapter 3 of the CAA's initial 
     price control proposals of December 2006.


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