Select Committee on Transport Minutes of Evidence

Examination of Witnesses (Questions 260-279)


18 JANUARY 2006

  Q260  Clive Efford: Have any of your members expressed any concerns about the position of any particular organisation, for instance BAA in its position, that without competition the concept of constructive engagement will not operate efficiently?

  Mr Jowett: No, Madam Chairman, certainly that has not been raised by any of my members who are airport bodies. We operate in the UK, as you know, in a very diverse market, very largely privatised and very competitive between the number of major groups and independently owned airports and operated airports across the UK. None of them has raised an issue concerning BAA.

  Q261  Clive Efford: Mr Toms, is it correct to say there has been little progress in terms of constructive engagement at Stansted and, if so, can you give us a reason?

  Mr Toms: I will just set it in its context very quickly. The CAA embarked on a process of encouraging airlines and airports to try and agree the major issues for regulation in advance of a review in the aftermath of the last review. I think it is fair to say a lot of airlines were very bruised by the outcome. Actually we welcomed it in principle because we needed to find ways to get together to talk to our customers better, more clearly, and with less confusion and less ill-will, although we always have a realistic expectation that the outcome might not always work. I think it is fair to say that we have worked very hard at constructive engagement over the last year. We have invested a very large amount of money in it. At all three South East airports we have adopted the same approach, the same culture, the same information base for constructive engagement. The CAA's current thinking, as we understand it, is that process is working at Heathrow with the Heathrow airlines, at Gatwick with the Gatwick airlines but it is not working at Stansted with the Stansted airlines.

  Q262  Clive Efford: Is it true to say that at Stansted, as suggested, the BAA, because of its position, will not engage constructively in this process?

  Mr Toms: No, it is not true. If I can give you some examples of the way we have engaged in the process. We have provided the airlines with our capital expenditure programme in great detail. We have provided the airlines with our traffic forecasts in considerable detail. We have provided airlines with an analysis of our operating costs. We have held a long series of meetings to discuss these issues with airlines. We have given them the same information as we have given the Heathrow and Gatwick airlines, which is information which Heathrow and Gatwick airlines have been able to work on. For reasons which you are probably better asking Stansted airlines about, the Stansted airlines have found it difficult to respond with the same degree of engagement as the Heathrow and Gatwick airlines have.

  Mr Jowett: If I can just add to that, the regulator, the CAA themselves, have commented that the additional information being sought by the airlines is not pertinent to the process of constructive engagement that they have proposed.

  Q263  Clive Efford: It has been suggested to us that Stansted are saying that the power is skewed against airlines and that there is no incentive for BAA to engage constructively. Has anyone got any comment on that?

  Mr Toms: Stansted Airport is regulated and any power we have in the market is regulated upon us. In that respect we are not in a position of unconstrained ability to do what we want, the regulator has told us he wants to engage constructively and we have gone step by step through the process the regulator has expected us to produce. We know that if we perform badly or if we perform in an unreasonable way, at the next regulatory review the CAA or the Competition Commission will come along and make us pay the price. There is every incentive for us to do this. Apart from anything else, it is a good idea to talk to your customers and we do try and do that as far as possible; it has just not been as productive at Stansted.

  Ms Burns: Can I come in on that point, if I may. I think the constructive engagement process is the application of common sense.

  Q264  Chairman: You find a lot of common sense in the aviation industry do you, Ms Burns?

  Ms Burns: Perhaps patchy at times. It must be in the interests of airports to engage with their customers. I believe that the approach the CAA have taken in attempting to foster a dialogue between us is one which makes it relatively simple for airports to respond and does not impose obligations which are more onerous than those we would impose upon ourselves. It is early days yet at Manchester to see how the process will work because we are a year behind the BAA in respect of the commencement of the next quinquennial review but the early indications are that there is considerable appetite amongst our airline customers for engaging with us in that process.

  Q265  Clive Efford: We have received evidence, also, that the CAA does not take full account or properly understand the economics of low cost air services when it is undertaking its regulatory role. The evidence we have had suggests that is not applied in the case of Stansted. Would you agree that the CAA regulates according to one size fits all rather than taking it by the particular organisation it is regulating?

  Ms Burns: The current structure of economic regulation, as you say, applies in the same way to all of the economically regulated airports. I think there must be a question as to whether that is sensible going forward. The process of constructive engagement does allow sufficient flexibility I believe for airports and airlines to adapt their approach to individual circumstances pertaining at particular airports and, to that extent, it does pave the way for an approach which is more particularised than it has been in the past.

  Mr Toms: It is interesting that in the consultation paper recently published by the CAA on the policy issues for the regulatory review the paper is very heavily weighted towards the discussion of issues which are particularly relevant to the low frills or low cost sectors of the market. Indeed, they are clearly very much in the CAA's mind. I think it is fair to say the CAA is struggling towards a full understanding of how this sector of the market works and the challenge for the next year is for us and the airlines themselves to inform the CAA so they do understand it before they make their pricing decisions.

  Q266  Mr Scott: Mr Jowett, you stated in your written evidence that some CAA employees were too specialised and there are skill shortages in the safety regulation group. Do you believe the CAA has sufficient resources to recruit and retain appropriately skilled individuals?

  Mr Jowett: The challenge for the Civil Aviation Authority at the moment is the continental model being adopted through EASA means that in the ultimate long-term there will be not the need for the number of experts that they currently employ today, let alone additional ones. Therefore, attracting and retaining appropriately skilled staff within the organisation is always going to be a challenge for them in this context and setting. There have been examples, which we could provide outside of this occasion today, of where in our view there has been insufficient ability to respond to questions and queries. I think the airlines, who you are seeing later in the day may also have their own examples pertinent to that.

  Q267  Mr Scott: We heard from the CAA that EASA is not yet fit for the purpose. Would you agree with that view?

  Mr Jowett: It is not a matter of direct consequence to us at the moment because, as you are aware, they currently do not have a remit for regulating airports.

  Q268  Chairman: It will be, Mr Jowett. If there is a Europe-wide authority you will not escape their attention for very long, will you?

  Mr Jowett: Madam Chairman, no, I was going to concur that we are very concerned about the way the future may develop. We look at what is happening with the regulation of certification and maintenance standards and as we detect, both from what our peers in the airlines and aerospace industries say, and indeed from what was said at this table last week by the CAA themselves, all is not happy in that setting. Certainly EASA have taken on, it would appear, more than they are able to properly address at the moment and their ambitions to extend those responsibilities to air traffic services and airports do concern us. We do not believe that they should even consider or plan for the adoption of airport regulation until they are well on top of, and demonstrably so, their existing remit and responsibilities.

  Q269  Mr Scott: Do you believe the creation of EASA was a good idea in principle?

  Mr Jowett: There are certain benefits from having a single authority, a single set of standards that apply throughout Europe. Having said that, of course, airports are already determined and regulated by ICAO standards under annex 14. We hope that if and when EASA begin to determine such matters, or have the responsibility for airport regulation, they will pay very, very close attention to ICAO standards which have been universally adopted worldwide and not seek to double regulate. The CAA have been generally careful not to burden us with additional regulation, although there have been occasions; we would certainly be very worried if there were yet more examples of that coming from EASA.

  Q270  Mr Scott: Is their creation a good idea or not?

  Mr Jowett: I believe it remains to be determined. I think I would have to adopt the same line as the Chairman of the CAA who himself last week spoke to this Committee and said at this moment it has not yet got there, if it carries on as it is we will become increasingly concerned. We hope the CAA will exercise increasing influence in Brussels over the role and future direction of EASA and over its policies and standards.

  Chairman: We get the general idea, Mr Jowett.

  Q271  Mr Wilshire: Could I follow that by saying that last week Sir Roy said to me in this Committee that my constituents, right next door to Heathrow, would be less safe in the future if something was not done about EASA. Can I ask all of you what would you do to make my constituents safer rather than at risk?

  Mr Hall: I cannot be clear about the context in which Sir Roy made his remarks.

  Q272  Mr Wilshire: In the context of EASA, as it is, I specifically asked him the question that if something is not done will my constituents be less safe in the future, to which he said yes on the record.

  Mr Hall: On the broad principles, the standards which the CAA maintains in the UK, and particularly the air traffic standards, we believe are at an appropriate level and a higher level than is the standard across Europe. If his concern is that EASA ultimately will lead to lowering of standards then my response to that is as far as National Air Traffic Services is concerned we will continue to have safety as our paramount aim and we will continue to invest in order to maintain the safety standards that we do at the moment. Our concerns in terms of EASA and the relationship that the CAA has with EASA are ensuring that we have a level playing field in terms of single European sky, development of air traffic services across Europe, and no dilution of the safety standards that we have.

  Q273  Mr Wilshire: If EASA were to adopt a lower standard than the safety standards NATS currently enforces, what would NATS then do, apply new standards?

  Mr Hall: No, we would not. Even as it stands at the moment we do not apply a minimum standard to safety. We are continually working with both the CAA and in Europe, establishing improvements to safety management and air traffic systems.

  Q274  Mr Wilshire: You are entirely satisfied that whatever the CAA may say to you, or EASA may say to you, you will have the authority to disregard that if it is diluting safety standards?

  Mr Hall: The requirements to be set inside the UK, certainly underneath our economic regulatory review, allow us to agree with the customers whatever equipment and standards we think are appropriate. So long as we have an effective way of investing in the systems and being reimbursed for the investments that we make then there is no reason why safety standards should reduce. The only question would be whether EASA started to introduce and impose standards which somehow meant that we were forced to lower our standards, and I cannot see how that would happen.

  Q275  Mr Wilshire: Can I ask one other thing about safety. You are being either incentivised or penalised, depending on which way you look at it, to reduce delays in the mornings by financial arrangements, to try and put it neutrally. If you are subject to financial pressures to reduce delays, does that not compromise safety?

  Mr Hall: No, it does not and it does not have to at all. The issue around the delays in the morning simply means that where, and at the request of the airlines, they want to improve punctuality at that particular time of the day, then we will point the resource in that direction. If there is a reduction in resource at some other time of the day, then we would distribute the workload accordingly. There is no correlation at all between safety standards and the financial arrangements early in the morning.

  Q276  Mr Wilshire: There are financial penalties which are higher for delays in the morning than at other times. That is an economic pressure to change your working arrangements. How can you meet that financial pressure without compromising safety?

  Mr Hall: So long as we continue to meet the traffic growth uniformly across the system then we will not incur those penalties. Our analysis indicates that the arrangements, put in at the request of customers, would simply mean that we would prioritise those flights against flights at other times of the day but not that we would reduce safety standards in the morning.

  Q277  Chairman: Before you leave that, you say that the regulatory reviews of NATS are long, complex, time-consuming and costly, and you would like to see them shorter and simpler. How are you going to simplify a process with much complex material involved?

  Mr Hall: The regulatory review has been thorough and it has been extremely transparent. The arrangements under single European skies and the fact that we are the only service provider to have that transparency does put us in a considerably weaker position.

  Q278  Chairman: You are saying everybody else is secret so they do better than you?

  Mr Hall: It is secret which means that when it comes to openness and benchmarking, when it comes to our ability to consider what will happen under single European skies in terms of expansion, everybody else can see our books and we cannot see anybody else's books.

  Q279  Chairman: That is a minor disadvantage, I will give you that. Does the CAA say anything to you about developing methods for minimising delays without compromising safety?

  Mr Hall: The way in which the particular delay penalty was set up was a part of the extensive discussions under the CP2 review, so, yes, we did discuss it. There is no particular conversation about how in particular we are going to meet the delay penalty without reducing safety. There is an inherent assumption that is what we are going to do and that is what we are doing.

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