Select Committee on Transport Minutes of Evidence

Memorandum submitted by Ryanair

  Ryanair welcomes the opportunity to submit comments to the Transport Committee on the performance of the CAA in relation to its statutory objectives.

  Although Ryanair is not a UK registered airline, we are nevertheless affected by the decisions of the CAA given our substantial operations in the UK. In the current year Ryanair will carry more passengers (over 35million) than any other British airline, including British Airways. However, we are becoming increasingly concerned over the inability of the CAA to regulate monopolies such as NATS and BAA. These regulatory failures are having a seriously negative effect on the competitiveness of the UK air transport industry. The CAA is also contributing to over-regulation of the industry and increasing costs for consumers, for example, in its failed proposals to include scheduled airlines in the ATOL system.

  We highlight below some of these failures and recommend that the UK Parliament strongly consider the break up of the BAA monopoly in order to introduce real competition and efficiency in the provision of airport services in London, and opening up the provision of air traffic control services in the UK to competition from other ATC providers. We also recommend disbanding the Consumer Protection division of the CAA as it is unnecessary in the current competitive airline environment and only contributes to needless bureaucracy and over regulation.


  Ryanair has for years been calling on the CAA and the UK government to break up the strangle hold of the BAA monopoly on the three major airports in the London area. The UK government should never have allowed a situation whereby one company controls the vast bulk of airport capacity in London, the most significant market in the UK. However, having done so, it is incumbent on the CAA to ensure that this monopoly does not abuse its dominance to the detriment of airport users and consumers. Indeed, Section 39 of the Airports Act requires the CAA to:

    (a)  further the reasonable interests of users of airports within the UK;

    (b)  promote efficient, economic and profitable operation of such airports;

    (c)  encourage investment in new facilities at airports in time to satisfy anticipated demands by the users of such airports; and

    (d)  impose the minimum restrictions that are consistent with the performance by the CAA of its functions under these sections.

  We contend that the CAA has failed on all requirements and has allowed the BAA to abuse its dominance by building gold plated facilities in Stansted, that completely ignore the stated requirements of users. The latest example of this abuse is the proposed £4 billion spend on a new runway and terminal facilities at Stansted, against the unanimous opposition of users. The recent announcement by Luton Airport of plans to build similar facilities for roughly one third the costs of what the BAA plan to spend is graphic evidence of the BAA's regulatory gaming and the failure of the CAA to prevent these abuses.

  We are aware that the Stansted Airlines Consultation Committee (ACC) have made a separate submission to the Transport Committee regarding in particular the CAA's now revoked decision to allow the BAA to recover £105 million in preliminary expenditure on the new runway. The CAA initially ignored comments submitted by Stansted users and it was only following the threat of legal action that the CAA revoked its decision and re-initiated consultation. We are concerned that the CAA will reissue the same decision, despite the fact that BAA has refused to consult with users on the overall cost of the project or on the extent of the preliminary expenditure.

  The CAA have also failed to prevent other abuses by BAA. Ryanair was forced to take legal action in the High Court against the BAA over an abusive fuel levy when the CAA failed to intervene. The BAA had been imposing an inflated levy on Stansted airlines claiming that it was for the purpose of recovering its costs of constructing a fuel hydrant system. However, Ryanair demonstrated that the BAA had recouped these costs three times over and yet still refused to remove or reduce the levy. The BAA only agreed to reduce this abusive levy after proceedings were brought.

  Ryanair recommends that the BAA monopoly be broken up as it has seriously undermined the competitiveness of the air transport industry in the UK and the CAA has failed to regulate this monopoly.


  The CAA has also been an abysmal failure at regulating the privatised air traffic control service provider—NATS. Although the initial privatisation of NATS was admittedly a shambles, with NATS being strapped with high levels of debt, the CAA has nevertheless failed to encourage or force NATS to improve its efficiency and lower its costs. As of this year, NATS is now the most expensive ATS provider in Europe a poor reflection on privatisation but more so on the CAA's inability to regulate this monopoly.

  In addition to being the most expensive supplier in Europe, the CAA has allowed NATS to shift the majority of the risk for traffic shortfalls onto the users. Thus, not only are users paying too much for the service but they are forced to bear a substantial portion of the company's risk. This risk shifting was characterised by the CAA back in 2003 as a one off", exceptional" measure to relieve NATS from a financing crisis following the events of 9/11. However, the CAA has maintained this one off" measure in the current price review and has indicated that it is now a permanent fixture.

  A further complication with the regulatory oversight in this area is that the majority of major UK airlines are shareholders in NATS, which effectively stymies any criticism of the CAA's five decisions on NATS. Only Ryanair has been a vocal opponent of the CAA's handling of the NATS monopoly. However, the CAA have ignored calls from Ryanair to impose more stringent efficiency targets on NATS and to impose stronger penalties for its repeated service failures. Under EU Regulation 261, airlines are now forced to pay compensation in the form of assistance" to passengers for ATC delays and failures and yet the CAA continues to shield the monopoly from any responsibility for these shortcomings.

  Ryanair recommends that ATC services in the UK be immediately opened up to competition in order to improve service levels and reduce costs. The UK was at the forefront of liberalising air transport and has hugely benefited from increased competition and lower prices and should take the lead in this area also.


  We were very grateful that the Department for Transport recently rejected the CAA's proposals for including scheduled airline services in the ATOL system, which would have involved the levying of £1 per departing passenger from the UK to cover some notional risk that UK consumers might get stranded abroad. This levy would have exceeded the airfare paid by around 25% of Ryanair's passengers last year—many of whom flew at an air fare of just £0.01! This kind of—tax the consumer—nonsense is typical of the kind of bureaucratic approach in Brussels. We suspect that the CAA's proposals had more to do with preserving jobs within the CAA Consumer Protection division than any genuine need for regulation in this area. The ATOL system has run its course and UK consumers are more than capable of repatriating themselves in the event of an airline failure given the proliferation of low fares services to and from the UK. The recent failure of EUJet clearly demonstrated this.

  Ryanair recommends that the Consumer Protection division of the CAA be disbanded as the air transport industry is now highly competitive, with dramatically reduced prices and improved services.

  We sincerely hope that Parliament's review will lead to the opening up of the London airport market and the UK ATC market to competition. The CAA has failed to regulate either the BAA or NATS and this failure has damaged the competitiveness of the UK air transport industry and has increased prices to consumers. The Consumer Protection division of the CAA is no longer necessary now that the UK air transport industry is highly competitive. Its continued existence is leading to over regulation and is detrimental to the competitiveness of the industry and does nothing for consumers. It should therefore be disbanded.

14 November 2005

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