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Investment at Heathrow will have to be reviewed following new economic regulation by the Civil Aviation Authority, the airport warned today.
The new rules will see airport charges cut by RPI-1.5% from 2014-2019.
Heathrow claimed that this will see per passenger airline charges fall in real terms from £20.71 in 2013/14 to £19.10 in 2018/19.
The CAA’s decision in April 2013 of RPI-1.3% was revised up to RPI+0% in October and has now been revised down again to RPI-1.5%.
Heathrow had already described the October decision as the “toughest price review” it had faced.
Chief executive Colin Matthews said: “We are concerned by the degree of change since the CAA’s final proposals just a short while ago.
“In October the CAA accepted the need for changes to their April proposals, but has now reverted to a draconian position.
“We want to continue to improve Heathrow for passengers.
“We will review our investment plan to see whether it is still financeable in light of the CAA’s settlement.”
Heathrow’s rate of return on capital investment was set by the CAA at 5.35% in its initial proposal, increased to 5.6% in its October final proposal, and has now been reduced again to an unsustainable level of 5.35%.
The CAA’s final decision includes “aggressive operational, commercial and passenger forecasts,” Heathrow argued.
It requires Heathrow to reduce operational expenditure by more than £600 million, stretches commercial revenue targets by in excess of £100 million, which includes revenues from retail and car park charges, and assumes significant passenger volume growth.
“The settlement leaves little spare resource available to manage the consequences of potential disruption at Heathrow,” the airport warned.
Heathrow has invested £11 billion in the airport over the last ten years.
Gatwick chief executive Stewart Wingate said: “I am delighted in the progress that the airport is making to bring more competition to the London aviation market through the commercial arrangements currently being negotiated with its airlines.
“These discussions have only been possible under our contracts and commitments framework, which has latterly been supported by the CAA.
“However, I am disappointed that the CAA’s final decision appears not to acknowledge the importance of these groundbreaking commercial negotiations and has concluded, under its new definition, that the airport does have market power and requires an economic licence.
“We are also disappointed at the CAA’s view of a fair price, as well as the intrusive nature of their monitoring requirements. The airport will need to review the detail of the CAA’s final decision and consider its position.”
Charlie Cornish, chief executive of Stansted owner Manchester Airports Group, said:
“The CAA’s decision today to step back from regulating Stansted is a welcome endorsement of the changes we’ve made, and a positive recognition by the CAA that in Stansted’s case competition rather than regulation will deliver the best outcomes for passengers and airlines.
“Stansted is flourishing in a competitive environment, as we build long-lasting commercial partnerships with airlines and deliver excellent service to our customers.”