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CAA Publishes Advice to Competition Commission On Airport Charge Controls.

Business Editors

LONDON--(BUSINESS WIRE)--March 6, 2002

The Civil Aviation Authority today published its advice to the Competition Commission on how charges to airlines levied by the BAA London Airports and Manchester Airport should be regulated for the five years from 1 April 2003.

The CAA's proposals would strengthen incentives for increased infrastructure investment and introduce measures to improve service quality, while lightening the regulatory burden.

On the basis of latest market information, the policies recommended to the Competition Commission would result in the price caps increasing on average by RPI+6 per annum for Heathrow, RPI+5 at Gatwick and RPI+6 at Stansted. At Manchester Airport the price cap would be broadly maintained in real terms.

This implies real increases in the maximum allowed charges to airlines by the end of 2003/08 of (pound)2 per passenger at Heathrow (current charge (pound)5.23), (pound)1 at Gatwick ((pound)4.06), and (pound)1.70 at Stansted ((pound)4.36). Manchester Airport's maximum charge would remain at about (pound)6.60 in real terms. The recommended price caps could change as newer information becomes available following the September 11 terrorist attacks and the economic slowdown.

The CAA recommends an end to the so-called 'single till' approach to regulation where profits from airport retail activities are used to reduce airport charges. It considers the single till approach involves excessive regulation and fails to promote effective airport operation and development. The CAA has proposed to the Competition Commission that regulation should focus on only the monopoly services provided by the airports to users.

The Competition Commission, which received the recommendations from the CAA at the end of last month, will report to the CAA later this year. The recommendations are based on an extensive process of consultation with interested parties and a detailed investigation into the benefits and costs including practicalities of alternative regulatory approaches.

Doug Andrew, Group Director Economic Regulation CAA, said: "We recommend to the Competition Commission that these phased increases in the price caps are necessary to encourage better use of scarce runway capacity and allow for desired improvements in service quality and investment.

"We would expect the airports to use the greater flexibility offered by these proposals to deliver to their customers the desired improved service quality and increased investment in infrastructure."

The proposed regulatory policies and price projections also include enhanced information disclosure and consultation requirements on the airports.

The price cap increase at Heathrow reflects the costs of Terminal 5 and strong incentives are proposed to encourage the timely opening of the terminal. At Stansted the proposals will continue the current situation where actual charges are below the price cap, reflecting market conditions.

The CAA reiterates that regulated airport charges make up a small percentage of airline costs. The airport charges caps that the CAA recommendations imply should have a minimal impact on air fares.

After considering the Competition Commission's report, due in August, the CAA will make the final determination on the price caps by the end of November.

The CAA recommendations to the Competition Commission, entitled Heathrow, Gatwick and Stansted Airports' Price Caps 2003-2008, CAA Recommendations to the Competition Commission and Manchester Airport's Price Cap 2003-2008: CAA Recommendations to the Competition Commission, are available on the CAA website: www.caaerg.co.uk (click on 'News').

Notes to Editors

The CAA is required by the Airports Act 1986 to set limits on user charges at designated airports every five years. The designated airports are the three BAA-owned London airports - Heathrow, Gatwick and Stansted - and Manchester Airport which is owned by a consortium of local authorities. The CAA sets the maximum charges at the airports following recommendations from the Competition Commission.

The Airports Act requires the CAA to set the price cap most likely to further reasonable user interests, to promote efficient and profitable airport operation, and to encourage timely investment while imposing minimum restrictions.

The review timetable is now as follows:

End August - Competition Commission reports to the CAA

End September - CAA publishes Competition Commission reports and its own proposals on charges and any public interest matters

October - CAA considers written representations and holds hearings with main parties

End November - CAA announces final decision on price caps and public interest matters

April 2003 - New price caps take effect.

New price caps will be set for the five years for each of the four airports from 1 April 2003 to 31 March 2008.

The present charging formula for Heathrow and Gatwick taken together is RPI-3 per cent and for Stansted, RPI+1 per cent. For Manchester it is currently RPI-5 per cent. Charges per passenger for 2000-01 were: Heathrow (pound)5.23, Gatwick (pound)4.06, Stansted (pound)4.36, Manchester (pound)6.73.
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Publication:Business Wire
Geographic Code:6LIBY
Date:Mar 6, 2002
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