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30 April 2013
London Gatwick believes that the Civil Aviation Authority (CAA) should follow through on the conclusions of the Competition Commission and market investigations into the BAA monopoly and, in line with the CAA’s new statutory duties, seek to promote a truly competitive market amongst airports in the South East. It should be removing the regulatory barriers to growth, better services and more choice, not impose more of them.
We believe economic regulation is bad for passengers, airlines and the airport. It adds significant cost, which in turn gets passed onto our passengers through higher charges. It also focuses too much on what buildings should be constructed rather than concentrating on creating a better passenger experience. Crucially, it does not sufficiently reward innovation and growth by airlines at the airport.
We are encouraged by the fact that the CAA would like to implement our Contracts & Commitments framework. Our framework offers clear commitments to airlines on the quality of airport facilities, passenger service levels, consultation and price. It would allow the airport to reward airlines who want to grow at the airport. It will also allow us to attract new airlines more easily, specifically long haul carriers, increasing the connectivity of London and the UK. However we are concerned by the significant layers of additional conditions the CAA appears to want to place onto the framework. In the coming months we will continue to work with the CAA and airlines on our Contracts and Commitments framework to ensure the best solution is found.
London Gatwick is very disappointed that the CAA, in its ‘minded to’ statements, has concluded that the airport has substantial market power and is therefore likely to introduce a licence. We have already provided evidence to the regulator, using the CAA’s own methodologies, to prove why our 25% market share across the London airport market does not meet their substantial market power test. We will be contesting this initial finding.
We also believe that the CAA’s suggested regulated price control level of RPI +1% over five years is too demanding on the airport and would reduce our ability to invest. We believe this price level is based on unrealistic CAA assumptions, including on traffic growth, efficiency gains and financing.
Stewart Wingate, Chief Executive said:
“London Gatwick’s transformation over the last three years has shown that separate ownership and the competition that this has brought, has been good for passengers and airlines. The CAA must not hold us back through imposing heavy handed regulation, red-tape in the form of a licence and an inflexible price control, but should allow us to build on this success.
“Our Contracts and Commitments framework gives a clear legally-binding pathway from economic regulation at Gatwick. It will remove the costs of regulation, improve incentives and speed up investment. It will also allow us to incentivise those airlines who choose to grow at the airport. The deal means airlines and passengers win on price, service and the quality of facilities.
“We look forward to continuing to engage further with the CAA and airlines on a solution which protects airline interests, whilst accelerating Gatwick’s drive for passenger service and excellence.”
This morning, the CAA issued its assessment of Gatwick and Heathrow’s market power; together with its Initial Proposals for regulation beyond 2013/14. These documents proposed that Gatwick had sufficient market power to justify on-going regulation, together with the introduction of a licence, at a price level which increases by RPI+1% for 5 years.
The CAA’s final proposals for regulation and draft licences for each airport will be published in October 2013.
Final decisions on market power, economic regulation and final licences for each airport will be published in January 2014.
Gatwick has proposed a new commercial framework for operating the airport in the form of contracts with airlines to grow and commitments, which safeguard key price and service interactions with non-contracting airlines. In its recent business plan, Gatwick proposed a price level which increases by RPI+1.3% for 7 years following a price correction in April 2014. This proposal has the support of a number of Gatwick’s airlines and the airport is currently discussing the framework with other airlines.
Gatwick’s revised Business Plan was published on the 31st January and is available at: www.gatwickairport.com/a-new-deal
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About London Gatwick
Gatwick Airport is the UK’s second largest airport and the most efficient single-runway airport in the world. It serves more than 200 destinations in 90 countries for around 38 million passengers a year on short and long-haul point-to-point services. It is also a major economic driver for the South-East region, generating around 21,000 on-airport jobs and a further 10,000 jobs through related activities. The airport is 28 miles south of London with excellent public transport links, including the Gatwick Express. Gatwick Airport is owned by a group of international investment funds, of which Global Infrastructure Partners is the largest shareholder.
In its December 2013 interim report, the Airports Commission included London Gatwick and Heathrow on its shortlist of potential locations for a new runway in the UK. Expansion at Gatwick will best meet the UK’s aviation needs for the future, can provide the greatest economic boost with the least environmental impact, and a new runway can be operational by 2025. For further information, see: www.gatwickobviously.com
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