Prices will fall and standards rise at Heathrow, Gatwick and Stansted under new economic regulation from April, the Civil Aviation Authority claimed today.
The regulator decided passengers would not benefit from further regulation of Stansted but Heathrow and Gatwick will both require airport licences.
The decision has been made using powers set out in the 2012 Civil Aviation Act, which requires a more “flexible approach” so regulation reflects the unique circumstances of individual airports.
There will be a requirement for the first time for Heathrow and Gatwick airports to put in place “robust plans” to ensure they are better prepared for disruption and can manage it effectively when it does occur, the regulator said.
The CAA assessed the market power of the three main London airports.
The CAA’s price control decision at Heathrow will see prices fall in real terms by 1.5% per year between 2014 and 2019 (RPI-1.5%).
This is a change from the CAA’s final proposals published in October, which suggested prices rising in line with inflation.
“The changes have been made as passenger traffic forecasts have strengthened since October, and the cost of capital has been revised,” the regulator said.
“This decision places affordability centre-stage, while ensuring there is still a supportive environment for capital expenditure (with provision for nearly £3bn of investment),” the CAA said.
The authority said it supports “more diversity” in what Gatwick offers to its various airlines, so passengers receive a more tailored service.
As a result it has based regulation on the airport operator’s own commitments to its airline customers.
“These and various airport-airline contracts cover price, service quality, investment and other issues normally covered by a regulatory settlement, and should enable a more flexible and commercial approach,” the CAA said.
However, the CAA is backing the commitments with a licence to allow it to step in to protect users if there are reductions in service quality that are against the passenger interest.
“The CAA will monitor the application of the new framework to ensure that prices are fair and that service quality is sustained,” the regulator said.
“The licence will also provide for CAA scrutiny of most second runway costs before they can be passed on to airlines and passengers.”
The CAA added: “The airport licences will ensure that issues like cleanliness, queuing times, seating availability and information provision are addressed in the passenger interest.”
The CAA determined that Stansted’s passenger market does not have substantial market power so it will not be economically regulated by the CAA from April.
Authority chairman Dame Deirdre Hutton said: “Today’s decisions are good news for air passengers.
“They will see prices fall, whilst still being able to look forward to high service standards, thanks to a robust licensing regime.
“London’s airports have benefited from substantial investment over the past decade, which has created world-class facilities for passengers.
“But prices have risen substantially in that time, with service quality sometimes failing to match the standards passengers have every right to expect.
“We have focused on putting the passengers’ interest at the heart of our decisions and today’s announcement means passengers can look forward to lower prices and high service quality from London’s busiest airports.”