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Government launches review of airport price caps

22/04/2008

The government is launching a review of the economic regulation of the UK airport system following the Competition Commission's report into BAA.

Department for Transport secretary Ruth Kelly said the review would address the potential shortcomings of the current economic regulatory system, which caps the prices airports can charge airlines to operate.

The system offers incentives to airports, such as the potential to charge higher fees in return for increased investment, while protecting airlines from high charges.

BAA was put in charge of seven of the UK's airports 20 years ago and was allowed to run Heathrow, Gatwick and Stansted to drive expansion and add extra capacity.

However, the Competition Commission (CC) said in its interim report that BAA's ownership of seven airports in the UK – including the three major London airports, Heathrow, Gatwick and Stansted - may not be serving the interests of either airlines or passengers.

The report suggested that the lack of competition between the three London airports may be the reason the extra capacity has not been realised.

Provisional findings are expected to be published in August, when the CC will also outline possible solutions, which may include the sale of one or more of BAA's airports, the watchdog added.

Ms Kelly said: "It has been over 20 years since the Airports Act 1986 put in place the current regime of economic regulation and as such it is one of the oldest economic regulatory systems in the country.

"Much has changed since then, and there is an urgent need to consider how the framework needs to be updated to reflect today's realities."

In March, the Civil Aviation Authority (CAA) revised the price cap upwards for Gatwick and Heathrow, allowing BAA to charge more per passenger – on the condition the airports improved the passenger experience.

However, the April opening of Terminal 5 led to missed flights, delays and baggage losses for British Airways (BA) customers, sparking widespread criticism of both BAA and BA.