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14 February 2013
Gatwick Airport has today put forward a new deal that would allow Gatwick and its airline customers to develop bilateral, tailored contracts through a legally-binding Contracts & Commitments framework. The new framework – designed to replace the current system of regulation – would deliver better outcomes for airlines and passengers in terms of quality of airport facilities, service levels and price. The new deal at Gatwick would mark a radical change from regulation to match the radical change in Gatwick’s ownership and would be the best way to promote competition between airports and further the interests of passengers. By removing wasted costs of regulation, improving incentives and speeding up investment, Gatwick can offer airlines a lower price path over a longer period of time than would be the case if it continues to operate within a regulatory framework. Under Gatwick’s new deal it has been calculated that, following a one-off price adjustment, the maximum average price level under its proposed Contracts & Commitments framework would increase by RPI+1.3% over a seven year period. This equates to an increase in the per passenger fee from £8.80 in 2014 to a maximum per passenger fee of £10.68 in 2020/21. This outcome would ensure Gatwick’s prices remain highly competitive when compared to other London airports. However, charges to airlines with contracts may well be at prices lower than these levels. (This price compares favourably with a maximum average price level increase of RPI+3.3% which would otherwise result under a five-year regulatory framework, taking the maximum per passenger fee up to £11.45 by 2018/19).The diagram below illustrates the price paths under Commitments and RAB-based price control.
Long-term certainty over the average price path combined with a legally-binding commitment to maintain and improve service standards at the airport, together with the option of entering contractual relationships tailored for individual airlines make this new deal at Gatwick the best outcome for everyone. Stewart Wingate, Gatwick’s Chief Executive Officer, said: “Competition is by far the best mechanism for promoting the interests of passengers. It is the very reason why the Competition Commission took the decision to break up the BAA monopoly and why Gatwick is now thriving under separate ownership. “Our proposed new deal for Gatwick moves that competition judgement on further and is a better deal for airlines and their passengers than a regulatory outcome. Free from regulation, we would be able to respond more quickly to the changing needs of airlines and their passengers and we would be able to step up the pace of improvement in the passenger experience. The deal means airlines and passengers win on price, service and the quality of facilities. “A decision to allow competition, rather than regulation, to protect the interests of passengers would be, in my view, the most important step the CAA could take when it considers this plan.” Competition in London and the South East is set to increase and so it is critical that Gatwick be able to continue improving the quality of its service offering. Gatwick is therefore proposing to put forward an investment of a further £1 billion in the airport between 2014 and 2019 to build on the improvements delivered to passengers over the past three years. The additional £1 billion investment would enable Gatwick to continue creating the right facilities for passengers and airlines and to deliver an improved passenger experience at every step of the airport journey. Examples of where this investment will be made include:
Gatwick’s full business plan is available at: www.gatwickairport.com/a-new-deal
The CAA invited Gatwick to propose a Contracts and Commitments Framework in October 2012. It will come to a decision on the initial proposal on 30 April 2013 and make a final decision in January 2014. The price per passenger at Gatwick today stands at £8.28. By April 2014, the price per passenger will stand at £8.80. Under Gatwick’s new deal the price per passenger (in 2013/14 prices) would rise to £10.40 by 2018/19 and £10.68 by 2020/21. Under a regulated framework we calculate that the price per passenger would rise to £11.45 by 2018/19.Investment between 2008 and 2014
Snapshot of investments made in the airport
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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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