Memorandum submitted by BAA plc
BAA plc owns and operates seven airports in
the UK, all of which are subject to regulation by the CAA to a
greater or lesser extent. BAA also has interests in airports in
Australia, Italy and the United States, and the following comments
are informed by our experience of regulation in those jurisdictions.
The CAA is a well-established organisation,
with a huge amount of experience, and a well-justified international
reputation for its knowledge, professionalism and objectivity.
Its activities bear on airports in the following main areas:
— It regulates safety at airports,
through the provisions of the Civil Aviation Act 1982, the Air
Navigation Order and Civil Aviation Authority Regulations. These
are implemented through the airport operating licences, and through
an extensive process of standard setting, inspection and contact
with airport management. This function is exercised through the
CAA's Safety Regulation Group (SRG).
— Under the provisions of the Civil
Aviation Act 1982, it advises the Government on airport and airline
policy, as a consultee in major policy development processes (such
as for SERAS, prior to the Future of Air Transport White
Paper); as an advisor on critical specific issues, such as open
skies, slot allocation and ground handling; and as a source of
expertise on miscellaneous issues, such as the designation or
dedesignation of airports for price control. In this role the
CAA can have major indirect impacts on airport operations.
— It regulates the economic activities
of airports directly through the provision of part IV of the Airports
Act 1986. Specifically, it sets the maximum levels of charges
which may be set at airports designated for price control by the
Secretary of State (currently Heathrow, Gatwick and Stansted,
owned by BAA plc and Manchester, owned by The Manchester Airport
Group plc). This function is exercised through the Economic Regulation
Group (ERG).
While BAA believes that there are relevant live
issues concerning the CAA, four general points should be made
at the outset.
Firstly, the CAA'S remit, and the limitations
to its power, are set out in the statutes under which it exercises
power. These provide an important safeguard to those bodies which
the CAA regulates, since they allow redress through the courts
when the CAA disregards or exceeds its duties.
The statutory remit of the CAA is appropriate
overall to its skills and structure. For instance the CAA has
no duty to consider environmental issues, which are better dealt
with through other regulators, such as the Planning Inspectorate
and the Environmental Agency. (It does however have to take account
of the costs incurred by airports for environmental work in its
price determinations).
Secondly, the CAA's enabling statutes render
it independent of Government intervention in its decision making.
This insulation of individual decisions is another important safeguard.
However, it is also right that the CAA, as a creation of Government,
is subject to democratic oversight, and the power of Government
to remove the directors, or legislate to alter the CAA's duties,
is an important protection against systematic abuse of authority
by the CAA itself.
Thirdly, over the last few years the proactive
approach to safety regulation that CAA SRG has taken is one that
we welcome. The increasing involvement of airports in the development
of standards and the willingness to look at the requirements from
a different perspective has led to the development of more realistic
solutions in a number of areas. This approach combined with an
increasing involvement of airports at the earliest stage in the
development of regulation is essential to the continuing success
of the aviation business.
Of equal importance is the continuing involvement
of SRG in the European and global development of standards. The
CAA currently has considerable involvement in both of these arenas
and is well respected for the work that it does. Given the global
nature of standards in this area it is essential that this level
of proactive involvement continues. A good example of where positive
results have been achieved has been in the development of requirements
for the integration of the A380 into airports. The development
of a European approach to aerodrome regulation will bring a number
of challenges during the next few years and maintaining a strong
UK voice during this debate will be essential.
Finally, the CAA's record is possibly the best
measure of its remit and performance. The Committee may be re-assured
by the fact that the CAA regulates an industry which has:
— a safety culture and record which
is internationally respected; and
— a record of accommodating innovation
in air travel, and consumer choice, which leads Europe (the growth
of domestic competition, and the emergence of low-cost airline
operations in Europe have both been led by the regulatory and
policy climate in the UK).
Specifically in relation to airports, the CAA's
regulatory decisions at Heathrow have provided the framework for
the construction of Terminal Five, Europe's largest building project,
on budget and programme to date.
Within this generally-supportive climate, we
believe there are four areas where the Committee may wish to reflect
on the scope for more clarity in the CAA's remit, and improved
performance in the economic regulation of airports.
1. THE RELATIONSHIP
BETWEEN THE
CAA AND GOVERNMENT
POLICY
The CAA's statutory duties do not include the
formulation of Government aviation policy; this has been reserved
by the Secretary of State for Transport and the DfT. Indeed the
CM has made it clear that it is not its duty to implement the
2003 Future of Air Transport White Paper to the timescale
defined by the Government, and that it may take an independent
view. This has created a situation in which the CAA's policies,
and its interpretation of its duties can conflict with Government
policy.
BAA can live with either the Government's or
the CAA's policies, but we cannot comply with both, if they imply
different development programmes. While the CAA's independence
is important and a degree of tension with Government is probably
healthy, the organisation needs to incorporate in its activities
mechanisms for resolving its differences with Government. Failure
to do would create a degree of policy confusion which simply makes
it more difficult for airports and airlines to make timely investment
decisions, to the detriment ultimately of airport capacity, airline
competition and passenger choice.
2. CAA INPUT
INTO GOVERNMENT
POLICY
One opportunity for this tension to be minimised
is in the role the CAA takes in contributing to the formulation
and implementation of Government airports and aviation policy.
The CAA is uniquely placed to help to frame Government policy
through its technical knowledge and independence. The tension
between Government and CAA on airport policy is, in part, a reflection
of the fact that in the SERAS studies, leading up to the White
Paper, the CAA stood back from full engagement in the analytical
work. The problem could be minimised if the CAA engaged in building
the analytical foundations of Government policy. In particular,
the CAA should participate fully in the forecasting of demand
for air travel, so that the Government's forecasts incorporate
the CAA's authoritative and independent perspective.
3. THE INTERESTS
OF PASSENGERS
The CAA's decisions must ultimately further
the interests of consumers, in this case air passengers. The regulation
of relationships between airlines and airports without regard
to passengers would simply be an exercise in the allocation of
profits between companies. Indeed the CAA's remit, in terms of
its duties set out in Section 39 of the Airports Act 1986, specifically
includes furthering the reasonable interests of airport users,
defined to include passengers as well as airlines.
In practice, it is not clear that this duty
towards passengers is fully incorporated in the CAA's work in
a structured way. The proposition, sometimes advanced, that the
interests of airlines will tend to coincide with the interests
of passengers may not always be clear to regular air travellers.
However, the CAA has established no process for the proper evaluation
of how passenger interests are best met in airport development.
No guidance is given as to whether the CAA places greater weight
on passenger or airline interests, and the tests for whether passenger
interests are met are not set out.
To assist in understanding the passengers interests,
the CAA sponsors the Air Transport Users Council (AUC), but it
is not clear that this body is resourced adequately, or indeed
drawn into regulatory determinations sufficiently, to give full
coverage to the needs of passengers.
4. LIGHT TOUCH
REGULATION
One of the benefits of the CAA's approach to
airports regulation has been the low level of bureaucracy, or
regulatory costs which it imposes on the industry. This is to
be welcomed, since over-regulation can distract the management
of a regulated company from its prime purpose of delivering the
products its customers want at the right price.
However, since the privatisation of BAA's airports,
the regulatory burden has progressively increased, with no obvious
benefit. The first five yearly price review of the South-East
airports in 1991 took 12 months; the second in 1996 took 21 months;
the third in 2002 took 32 months. (In the last review BAA submitted
more than 800 information, policy and position papers.) The next
review, already underway is not scheduled to finish until February
2008.
Although the process has been characterised
as light touch" regulation, the CAA is now in constant, daily
interaction with airports, airlines and others, seeking information,
influencing the parties and managing the process on a continuous
basis. This gives rise to the danger that the CAA will find itself
participating in decisions and discussions which would be better
left to airlines and airports themselves.
Regulated companies have to accept that regulation
imposes a burden on them, but it is at least open to debate that
the CAA's process is disproportionate, given that it has effectively
extended the price review to four sequential reviews: the first
with airlines, the second with the CAA, the third with the Competition
Commission and the last with the CAA again. The CAA might also
consider how consistent this is with the risk assessed approach
to regulation advocated by the Hampton Report.
11 November 2005
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