The UK Civil Aviation Authority (CAA) has published its final decisions on economic regulation at Heathrow, Gatwick and Stansted airports after April 2014.

The decisions announced today have been made using powers set out in the Civil Aviation Act 2012, which requires that regulation reflects the circumstances of individual airports. The CAA has therefore assessed the market power of Heathrow, Gatwick and Stansted airports (passenger market only for Stansted). It has decided passengers would not benefit from further regulation of Stansted, but that Heathrow and Gatwick will both require airport licences from April 2014 onwards.

Heathrow

At Heathrow, the CAA’s price control decision will see prices fall in real terms by 1.5% per year between 2014 and 2019 (RPI-1.5%). This has changed from the CAA’s Final Proposals published in October, which suggested prices rising in line with inflation. The changes have been made as passenger traffic forecasts have strengthened since October, and the cost of capital has been revised.

Gatwick

The CAA has based regulation on the airport operator’s own commitments to its airline customers. These and various airport-airline contracts cover price, service quality, investment and other issues normally covered by a regulatory settlement, and the CAA states that this should enable a more ‘flexible and commercial approach’.

The CAA is backing the commitments with a licence, to allow the CAA to step in if there are reductions in service quality that are against what it believes are the passenger interest. The CAA will monitor the application of the new framework to ensure that prices remain competitive and that service quality is sustained. The licence will also provide for CAA scrutiny of most second runway costs before they can be passed on to airlines and passengers.

The airport licences will ensure that issues like cleanliness, queuing times, seating availability and information provision are addressed appropriately. There will be a requirement for Heathrow and Gatwick airports to put in place plans to ensure they are better prepared for disruption and can manage it effectively when it does occur.

Stansted

The CAA has completed its assessment for Stansted Airport’s passenger market, taking into account the long-term contracts the airport now has in place with its main airline customers, and determined that the airport does not have substantial market power. This means the airport will not be economically regulated by the CAA from April 2014 onwards. The CAA will publish our decision on Stansted’s cargo market power before the end of March 2014.

  • An overview of the CAA’s decisions for the airports can be seen here, with links through to the separate documents.
  • The decision document for each airport along with several associated documents can be found here.
  • A briefing about airport economic regulation, setting out why regulation is necessary and the CAA’s approach is available here.