Recommendations from the Competition Commission”s report have been published today (3 October), by the Civil Aviation Authority concerning charges at Heathrow and Gatwick airports for the five years starting, 1 April, 2008.
The Commission is recommending an increase in the maximum level of airport charges at Heathrow of RPI+7.5 (that is 7.5% a year above the increase in Retail Price Index) and a small reduction below RPI at Gatwick (0.5 % below the increase in RPI). The current inflation rate (for August) is 4.1%, which would mean airport charges rising by 11.6% from next April.
These figures compare with the indicative ranges put to the Commission by the CAA for review of between RPI+4 and RPI+8 at Heathrow, and between RPI”2 and RPI+2 at Gatwick.
BAA, the owner of Heathrow and Gatwick, regarded the CAA”s proposals as being unacceptably low, and proposed a much larger increase. Among the proposals from other parties, British Airways argued for a reduction in charges at both airports, with a formula of RPI”1.5 at Heathrow and RPI”4.4 at Gatwick.
The airlines are now bound to react angrily at these increases which come at a time when London”s major airports are all run by BAA, have come in for intense criticism over service.
Lobbying will intensify over the coming months with a final decision due early in the New Year.
Bmi, the second largest Heathrow operator, has been quick to challenge the figures: ”The move threatens to put under further scrutiny the existence and viability of vital UK regional air links into Heathrow and has the potential of pricing them out of the market,” said deputy chief executive Tim Bye.
”We warned the Commission that sanctioning inflation-busting price rises at Heathrow could have a devastating effect on vital regional services into Heathrow. The availability of routes from key UK regions to feed into a wide range of destinations through the world”s busiest international airport sustains the lifeblood and the economic growth of many of these regions.”
He pointed out that the fees per departing passenger at Heathrow in 2007/2008 were ”18.55. Under the Commission recommendations, this could nearly double to ”35.28 in 2012 based on the current RPI.
A main issue in the Commission inquiry has been the appropriate cost of capital. The Commission”s recommended level of airport charges is based on a real pre-tax rate of return of 6.2% at Heathrow and 6.5% at Gatwick.
These figures are close to the top end of the Commission”s estimated range and take into account both the inherent uncertainties in any such estimates, and the importance of not allowing a rate of return that is insufficient to generate the necessary new investment.
The Commission also found that both Heathrow and Gatwick airports had acted against the public interest by failing to manage security queuing and queue times, so as to avoid unacceptable delays to passengers, crew and flights.
It is therefore extending the existing conditions imposed in 2003 relating to service standards and is also introducing new conditions in terms of both service processes and procedures.