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Tuesday 09 December, 2008

Civil Aviation Auth.


RNS Number : 7571J
Civil Aviation Authority
09 December 2008

  News Release

9 December 2008


·         CAA proposes price cap that will encourage competition between airports for the benefit of passengers
·         CAA’s price control proposals based on the total revenue recommended by the Competition Commission (CC) – but adjust price caps down to take account of revenue from non-passenger (mainly cargo) flights
·         Service quality incentive scheme introduced to penalise BAA for poor service to passengers and airlines


The Civil Aviation Authority (CAA) published today its proposals for Stansted Airport's Price Controls for 2009-14, which are designed to enable competition to develop over time between airports in South East England and further afield, and encourage airport development in the right place and at the right time for passengers. 

The CAA's proposed price caps are lower than those suggested by the CC to reflect an adjustment to take account of airport charge revenues from cargo and other non-passenger flights. Price caps will be set at £6.34 per passenger for the first two years, and will then rise to £6.65* by 2013/14 (consistent with annual increases of RPI +1.63 per cent for the final three years of the control), to ensure that both Stansted and other competing airports can take forward efficient plans for expansion to meet demand from passengers and that competition in the airport market is encouraged.

In the light of the CC's recommendation that the costs of building the second runway should be excluded from the price control announced today, the CAA will set in hand work towards an improved regulatory approach to enable efficient expansion to meet demand in a more competitive market. 

*Figures in 2008/09 prices

The CAA's Group Director of Economic Regulation, Harry Bush, said:

 'Our proposed price controls protect passengers and airlines whilst maintaining good levels of service. They also look to the long-term potential expansion of airports. 

'The price control, which allows the same revenue for BAA as put forward by the Competition Commission, will enable charges to increase in coming years to allow Stansted or competing airports to build new capacity as and when warranted to meet passenger demand.'

The CAA is also putting in place a financial incentive regime for the delivery of consistently good service quality to passengers and airlines. BAA Stansted would pay rebates (to airlines) of up to seven per cent of its total airport charge revenue from passenger flights if it lets customers down with poor service. The CAA's proposals here are along similar lines to the service quality and rebates schemes which are already helping to improve passenger experience at Heathrow and Gatwick. 

For further media information, please contact Mark Wiltsher on 020 7453 6026 or Nic Stevenson 020 7453 6024.

Notes to Editors

How the CAA's price control compares with the proposals put forward by the CC

The CAA's proposals are derived from both the CC's analysis of cost 'building blocks' and its estimate of the airport's Regulated Asset Base, and from the CAA's own assessment of the resulting price profile against its statutory duties. In reaching its proposals, the CAA has had regard to the CC's recommendations. It has also considered carefully the impact of economic regulation of Stansted airport on the development of competition, investment and capacity at Stansted and at other competing airports across the UK.

In the CAA's view, there is strong evidence that prices charged at Stansted have an impact on other airports, notably Luton. Setting the price caps too low would harm investment to meet passenger demand at both Stansted and other competing airports. Against this, the CAA has weighed the risk that if the price cap were too high, and Stansted were to develop and exploit more market power than is currently in prospect, the resulting levels of charges would penalise passengers and airlines.

The CAA believes that its proposals (issued today for consultation, until early February) strike the right balance in protecting passengers and airlines while allowing price caps to rise in coming years to enable investment.

  Price control proposals

CC recommended profiled price cap on total airport charges
revenue yield £ per passenger
2007/08 prices
2008/09 prices

CAA proposals for price cap on airport charges from passenger flights

revenue yield £ per passenger
2007/08 prices
2008/09 prices
2009/10 prices
CAA proposal for price cap on airport charges for non-passenger flights:
landing and parking charges should be no higher than those for comparable passenger aircraft

Note: Inflating the cap of £6.05 per passenger in 2007/08 prices by the CC's assumptions for RPI inflation in 2008/09 (4.8%) corresponds to the cap of £6.34 in 2009/10 in 2008/09 prices and £6.53 per passenger in 2009/10 prices (RPI 3%). 

* 2008/09 figures based on CC estimates for yield per passenger from passenger flights in the current financial year.

Service quality incentive scheme

In response to the CC's finding that Stansted Airport's service performance has been at times unacceptably low during the past five years, the CAA is proposing to introduce a system of service standards with financial incentives, in the form of rebates from the airport to the airlines when standards are not met. This would put at risk up to 7 per cent of Stansted's airport charge revenue from passenger flights, if it were to fail to deliver on all of the service measures. 

The incentive scheme is proposed to cover a range of areas, such as:

·     Passenger security queues;
·     Measures of passenger service from terminal facilities: cleanliness, availability of seating,
 wayfinding and flight information;
·     Baggage reclaim; and
·     Services delivered directly to airlines, such as the availability of power supplies, pier-served


Similar schemes at Heathrow and Gatwick have seen overall performance improve, but BAA still incurred some £4.3m and £3.6m respectively in rebate payments in the first seven months of 2008/09 for areas where it was falling short of the standards set by the CAA.

Consultation on CAA proposals

The CAA is consulting on these proposals until early February 2009. It will then issue, in the first half of March 2009, its final decisions for the economic regulation of Stansted Airport for the five years commencing 1 April 2009.

Planning application for a second runway at Stansted Airport

The CAA's economic regulation of Stansted Airport under the Airports Act 1986 is entirely distinct and separate from the statutory processes, under the Town & Country Planning Act 1990, by which BAA has applied for planning permission to develop a second runway, terminal and associated infrastructure at the airport. Aspects of the CAA's economic regulation may be relevant to the planning inquiry, and the CAA will therefore be providing the Inspector with its price control proposals and previous analysis as supporting evidence. In line with the CC's recommendation that investment in a second runway at Stansted is an issue to be considered at a later stage, the CAA has not examined the case as part of this price control review. Nor do its statutory functions give it the locus to comment on the wider economic appraisals of such a development conducted by the Government.  

CAA Stansted Price Control Proposals Document 

Copies of the price control document are available from the CAA website 


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