COMPETITION
COMMISSION News Release (58/07) issued by The Government News
Network on 3 October 2007
The Civil Aviation
Authority (CAA) has today published the Competition
Commission's (CC) report and recommendations on charges at
Heathrow and Gatwick airports for the five years from 1 April
2008. The report is available at:
http://www.caa.co.uk/default.aspx?catid=5&pagetype=90&pageid=8779
The CC is recommending an increase in the maximum level of
airport charges at Heathrow of RPI + 7.5 (that is 7.5 per cent a
year above the increase in RPI) and a small reduction below RPI at
Gatwick (0.5 per cent below the increase in RPI). These figures
compare with the indicative ranges put to the CC by the CAA for
review of between RPI+4 and RPI+8 at Heathrow, and between RPI-2
and RPI+2 at Gatwick.
BAA, the owner of Heathrow and Gatwick, regarded the CAA's
proposals as being unacceptably low, and proposed a much larger
increase. Among the proposals from other parties, British Airways
argued for a reduction in charges at both airports, with a formula
of RPI-1.5 at Heathrow and RPI-4.4 at Gatwick.
A main issue in the CC's inquiry has been the appropriate
cost of capital. The CC's recommended level of airport
charges is based on a real pre-tax rate of return of 6.2 per cent
at Heathrow and 6.5 per cent at Gatwick. These figures are close
to the top end of the CC's estimated range and take into
account both the inherent uncertainties in any such estimates, and
the importance of not allowing a rate of return that is
insufficient to generate the necessary new investment. They are
similar to the costs of capital indicated to the CC by the CAA,
but they are lower than those put forward by BAA and higher than
suggested by BA.
The CC also found that both Heathrow and Gatwick airports had
acted against the public interest by failing to manage security
queuing and queue times so as to avoid unacceptable delays to
passengers, crew and flights. The CC is therefore recommending
that the CAA extends the existing conditions imposed in 2003
relating to service standards and introduces certain new
conditions in terms of both service processes and procedures.
The CAA, having considered the CC's recommendations, and
after consultation with BAA, the airlines and others, will make
its final determination on the maximum level of airport charges in
early 2008.
CC Deputy Chairman, Christopher Clarke, Chairman of the Inquiry
and also of the BAA Airports Market Inquiry said:
"We recognise the importance of both Heathrow and Gatwick to
the UK economy and hence the need over the next five years for BAA
to undertake large capital expenditure programmes at both airports
whilst also operating them efficiently and providing enhanced
levels of service. We believe our recommendations to the CAA will
enable BAA to implement its plans in full for the benefit of
airlines and passengers and at a justifiable level of airport
charges. We consider they will also enable BAA to earn an
adequate return for its shareholders and other providers of finance.
"We are continuing our separate market inquiry into the
ownership and operation by BAA of seven airports in England and
Scotland, including Heathrow and Gatwick, and currently aim to
reach our provisional findings in the second half of next year."
For further information on the inquiry go to: http://www.competition-commission.org.uk/inquiries/ref2007/heathrow/index.htm
Notes for editors
1. The CC is an independent public body,
which carries out investigations into mergers, markets, and the
regulated industries.
2. The CC has been carring out a statutory review of the
CAA's initial price controls as well as examining whether the
airport owner has pursued any conduct during the last five years
which has operated against the public interest. The CAA will now
consider the CC's recommendations before announcing its firm
price control proposals by November 20. Following a final round of
consultation, a final decision will be announced February/March
2008. The CC is also carrying a market inquiry into the supply of
airport services by BAA.
3. The members of the inquiry group are: Christopher Clarke
(Group Chairman and CC Deputy Chairman), Laura Carstensen, Dr John
Collings, Professor Jonathan Haskel, Richard Holroyd, Professor
Peter Moizer and Professor Sudi Sudarsanam.
4. Further
information on the CC and its procedures, including its policy on
the provision of information and the disclosure of evidence, can
be obtained from its website at: http://www.competition-commission.org.uk.