CAA unveils plans for 15.6% rise in Heathrow price caps

The CAA is proposing to increase price caps at Heathrow by 15.6% to £11.97 per passenger in 2008/09.

Unveiling its five-year plans for Heathrow and Gatwick today, it is proposing the following:

At Heathrow – £11.97 per passenger in 2008/09, on a like-for-like basis representing a 15.6% increase in real terms from the current (2007/08) price cap, with maximum charges subsequently increasing in each of the following four years by no more than retail price index inflation (RPI) plus 7.5% each year.

At Gatwick – £6.07 per passenger in 2008/09, representing an 8.2% increase in real terms from the current price cap, with allowed charges subsequently increasing in each of the following four years by no more than RPI inflation plus 2%.

The CAA said these proposals, which are now subject to two months’ further consultation, are based on the recommendations of the Competition Commission and build on agreements reached between the airports and airlines, as well as over two years of consultation.

Acknowledging significant increases at Heathrow, the CAA said these increases reflect the “increased costs of security operations, the cost of recent capital projects and allowances for significant additional capital expenditure”.

It said the price caps and incentives “will enable and encourage BAA to deliver genuine service quality improvements and to invest to raise the standard of service that can be delivered to passengers and airlines”.

Under the proposals, the CAA is insisting that a greater proportion of the investment programme at each airport should be subject to ‘triggers’, under which penalty payments are incurred each month for late delivery of specified outputs from projects.

It is also proposing that a broader range of services should be subject to financial incentives, with enhanced targets for existing incentives, particularly for passenger security processing (average queuing no longer than five minutes).

It plans to increase the maximum level of rebates for poor service performance from 3% to 7% of total airport charge revenue (up to around £60 million at Heathrow in 2008/09, and £15 million at Gatwick).

Each airport would be able to earn bonuses of up to 3% of airport charge revenue for good passenger service performance above targets, delivered consistently across all terminals (up to around £25 million at Heathrow in 2008/09, and £6 million at Gatwick).

CAA Group director economic regulation Dr Harry Bush said: “Passengers and airlines deserve better than they have been provided with at Heathrow and Gatwick in recent years, but need to recognise that improvements have to be paid for.

“The CAA considers it only right that, as airlines and passengers face the prospect of paying more to use each airport (significantly so at Heathrow), there should be greater financial incentives on the airport operator to deliver the facilities and services that give rise to those price increases.

“The challenge for economic regulation of the airports is to send sufficiently strong and credible incentives to BAA that it recognises that it is in its own commercial interests to move in this direction. The challenge facing BAA as operator of these airports is to deliver a better service to passengers and airlines, based on refreshed and expanded infrastructure.

“These proposals go a long way to strengthening the incentives on BAA to continue to enhance facilities and service performance at each airport. The CAA recognises, though, that achieving positive results for passengers consistently over time will require a high degree of effort by BAA to manage its own resources well, but also to engage effectively with airlines, the Border and Immigration Agency, and other stakeholders.

“There needs to be greater cooperation among all organisations responsible for services at each airport, and more transparency about standards of service they are offering to passengers.”
The final decisions will be made in March 2008.

By Bev Fearis