Select Committee on Transport Minutes of Evidence

Examination of Witnesses (Questions 240-259)


18 JANUARY 2006

  Q240  Chairman: Are you sure of that?

  Mr Toms: We saw none, Madam Chairman.

  Q241  Chairman: Not quite the same thing. I will take your word for it.

  Mr Toms: We saw none and we have asked to see it.

  Q242  Chairman: You asked to see it?

  Mr Toms: Yes.

  Q243  Chairman: Were you told no or was there a policy of omission in place?

  Mr Toms: What we were told at the time was this was a first principles decision based upon a theoretical analysis, a first principles analysis of how the market should function. What was important to us was there was a clear understanding in the end of what the on the ground consequences would be for the amount of capacity, air fares and choice. That was what we missed and what we hope the CAA will address when it looks at this issue again in this review. It started, and we are very pleased to see they are doing market analysis, but we think they have a way to go before they know what the position is.

  Q244  Graham Stringer: I find that answer extraordinary. What you are saying is you not only have no view about the way new runways should be, that should be left to the Government, but you have no view about how you should be regulated, either collectively or individually as airports. I find that extraordinary for a business to say that. Can you explain why you do not have a view between those two positions?

  Mr Toms: I do not recollect having said that we have no view of where new runways should be provided.

  Q245  Graham Stringer: This is not something I have made up. You will find BAA representatives, at various inquiries by this Committee, saying that it was the view of the Government as to where runways should be put.

  Mr Toms: I was the person who gave that evidence at your last investigation.

  Q246  Chairman: We remember, Mr Toms.

  Mr Toms: I am sure you do. The position has changed substantially since then. We have a clear policy framework which says the next runway should be at Stansted and we are very happy with that policy framework. The Government says it should be at Stansted, we will adopt that policy and we will promote it energetically. You can see from the investment we have undertaken since then we are promoting Stansted development but we are determined upon the early delivery of Stansted runway. I think we have a very clear policy on that. I am not saying we have no view on system and stand alone pricing, what I am saying is that is an issue which is an issue for the next regulatory review. It is an extremely complex issue. We think it should be determined on the ultimate test of what is best for passengers. The evidence we have so far is that what has been best for passengers has been the early production of capacity at Stansted to generate competition between airlines. We do not care whether this is called system pricing, stand alone pricing, any other kind of pricing, what we want is a regulatory structure which allows us, and incentivises us, to deliver Stansted as early as possible. The language is not important.

  Q247  Graham Stringer: Answering the question is important as to whether you want Stansted regulated separately and from your answer I still do not understand whether you do want it regulated separately. I might interpret what you are saying—and you can correct me if I am wrong—that behind all those words is what you want is cross-subsidy from the other BAA airports for Stansted. Is that what you are saying?

  Mr Toms: I am going to try and answer that in the context of the remit of this investigation, if I may, which is the purpose, performance and function of the CAA. What we are saying in this relation, and we want to say a little more than this because we have a lot of separate discussions with the regulator, is that the CAA needs to organise itself to properly address what the benefits are of different ways of pricing. There are not just two ways, there is not just stand alone and system pricing. There are different ways of doing stand alone, there are different timing processes. This is a cat which can probably be skinned many different ways and we do not want to play now what we think the right way is because I expect within the next year a number of different ways will emerge. I can tell you that what we do want is an outcome which delivers the runway as soon as possible because that is in the best interests of passengers.

  Q248  Graham Stringer: Can I ask that question again but in a different way: do you want a pricing system which gives you subsidy from Heathrow and Gatwick to Stansted?

  Mr Toms: I do not recognise the concept of subsidy as you have described it, I have to say. All the issues are subsidised to the extent that the drinkers and smokers and car parkers at the airports are meeting the cost of airline operations.

  Q249  Graham Stringer: Mr Toms, that is slightly disingenuous, is it not? I did not intend to go along this line of questioning but you understand apportioning costs to particular airports that are associated with those airports, apportioning costs associated with Heathrow to Heathrow, those associated with Gatwick to Gatwick and those associated with Stansted to Stansted. If when you look at the income against those costs you are taking the surplus from Gatwick and Heathrow then you are cross-subsidising. I think, and there is no point beating about the bush, you are trying to not tell this Committee that what you want is subsidy for that extra runway at Stansted. Is that what you are telling us?

  Mr Toms: I am not conducting a negotiation with the regulator with this Committee.

  Q250  Graham Stringer: So you are not going to tell us?

  Mr Toms: No, I think it is an issue which is properly the subject for the regulatory review. For us to deal with it in short form, in a session such as this, is not doing justice to the complexity of the issues.

  Q251  Chairman: Mr Toms, if I thought you were being asked things which were unfair I can assure you I would stop you. I would stop the questioning and I would stop the progress of the Committee. It is a legitimate line of questioning and you have come before us before and expressed a very clear view. I take it for the moment we are not going to get an answer, is that probably the best thing to accept?

  Mr Toms: You are not going to get any more answer than I have given you, Madam Chairman.

  Q252  Graham Stringer: Can I move on to Manchester Airport. This is a small question I hope you can clear up. In your written evidence you accuse the CAA of being slow to bring in new technology, and you mention particularly light emitting diodes for lights on the runway. When we asked the CAA those questions they denied any knowledge of it or that they were slow introducing new technology. Do you think you could help us by expanding on your evidence?

  Ms Burns: The example that we alluded to in our written evidence to you was a form of lighting which is in regular use, and has been for a number of years, at airports right across Europe. The technology in question is highly reliable, has been proven in practice to be highly reliable, reduces maintenance costs, and generally improves efficiency which must be in the interests of the airlines, the airports and our end users, the passengers. The CAA have yet to licence that technology for use in the UK, we do not know why.

  Q253  Chairman: Have you asked them to have it licensed? Has anyone asked to have it licensed?

  Ms Burns: Yes, indeed, Madam Chairman.

  Q254  Graham Stringer: That is very helpful. On a bigger question, in terms of economic regulation, do you believe that Manchester Airport should be economically regulated by the CAA?

  Ms Burns: Madam Chairman, the first thing I would say is that we are an airport which is driven by the demands of the market and the pricing that we propose to airlines is driven by our belief that we operate in a highly competitive environment, indeed increasingly competitive, as evidenced by the development of new airports which are on the fringes of our catchment area and sharing the ability to serve that catchment airport. We believe, also, as a business that the right way for us to proceed is in a collaborative relationship with our airline customers. We have been very active over the years—increasingly active—in forging partnerships with our airline customers. The CAA's approach to the next quinquennial review, the process of constructive engagement, is we believe a step in the right direction in that it is actively proposing that airports and airlines should seek to resolve issues between themselves, reducing the scope of the regulatory intervention, if you like, to that of the court of last resort and to deal with matters which airlines are not competent to negotiate with airports directly.

  Q255  Mr Martlew: On that point, and obviously having a constituency in the North, I am very conscious that Manchester does not only own Manchester but they own quite a few northern airports, the reality is that there would be a concern if it was just left to the markets that you could exploit that situation.

  Ms Burns: I do not believe so. Our airports in the North include Manchester Airport, obviously, and Humberside Airport to the east.

  Q256  Mr Martlew: Liverpool?

  Ms Burns: I regret to say, Madam Chairman, that Liverpool is not in our ownership. The overlap between the catchment areas of our airports is minimal and indeed there are two airports which sit between Humberside and Manchester Airport.

  Q257  Mr Martlew: None of any size in comparison with Manchester. There are four large airports in England, Manchester is one of them, it serves the north of the country.

  Ms Burns: It is one of a number of airports that serve the north of the country.

  Q258  Mr Martlew: It is the largest by far, is it not?

  Ms Burns: Madam Chairman, it is the largest by far and it is also the case that Liverpool is the fastest growing airport in the North of England.

  Mr Jowett: If I may contribute from a more independent position. The present designation of airports was introduced nearly 20 years ago now in a very different historical context. Since then, of course, we have seen radical change in airport ownership and the activity of airports across the country. If you look at the North of England today, where Manchester is located, it is in a very strongly competitive position alongside, as Ms Burns has said, a number of strongly growing competitors. Therefore it is a candidate, one would think, for the regulators to review the position of it, as I think Mr Bush said last week when he was here at this table.

  Q259  Clive Efford: Mr Jowett, perhaps you would like to start and others can come in, how has the new model of constructive engagement between airports and airlines in the airports review process gone so far? The CAA has adopted a new approach of airlines and airports working together, can you comment?

  Mr Jowett: It takes a number of angles. It is early days yet. There is the economic side and the safety side. On the economic side there have been some good attempts at constructive engagement between the parties; that has had mixed success across the UK. One or two airports represented by my colleagues here have had more difficulty with that than others. On the safety side, there has been a high degree of engagement between the safety regulator at airports, certainly in terms of some of the regulations or practices in seeing how they can become more objective-based rather than prescriptive by nature, and that has opened up new areas of discussion between us to the benefit overall of the industries and our ultimate end user, the consumer.

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Prepared 8 November 2006