Good news for air passengers as prices set to fall at UK’s largest airports

The UK Civil Aviation Authority has today published its final decisions on economic regulation at Heathrow, Gatwick and Stansted after April 2014 – with passengers benefiting from lower prices and high service standards.

The decisions announced today have been made using powers set out in the Civil Aviation Act 2012, which requires a more flexible approach so regulation reflects the unique circumstances of individual airports. The CAA has therefore assessed the market power of Heathrow, Gatwick and Stansted (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. More details about today’s decisions are set out below:

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.

This decision places affordability centre-stage, while ensuring there is still a supportive environment for capital expenditure (with provision for nearly £3bn of investment).

Gatwick

The CAA supports more diversity in what Gatwick offers to its various airlines, so passengers receive a tailored service. It has therefore 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 should enable a more flexible and commercial approach.

The CAA is backing the commitments with a licence, to allow the CAA to step in to protect users, for instance if there are reductions in service quality that are against the passenger interest. The CAA will monitor the application of the new framework to ensure that prices are fair 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 in the passenger interest. For the first time, there will be a requirement for Heathrow and Gatwick airports to put in place robust 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’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. We will publish our decision on Stansted’s cargo market power before the end of March 2014.

Commenting on the decisions, Dame Deirdre Hutton, Chair of the CAA said:

“Today’s decisions are good news for air passengers. They will see prices fall, whilst still being able to look forward to high service standards, thanks to a robust licensing regime. London’s airports have benefited from substantial investment over the past decade, which has created world-class facilities for passengers. But prices have risen substantially in that time, with service quality sometimes failing to match the standards passengers have every right to expect.

“We have focused on putting the passengers’ interest at the heart of our decisions and today’s announcement means passengers can look forward to lower prices and high service quality from London’s busiest airports.”

• 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: