Memorandum submitted by Virgin Atlantic
Virgin Atlantic has split its evidence to the
House of Commons Transport Committee's inquiry into three main
sections, covering three important aspects of the CAA's responsibility:
Safety Regulation; Economic Regulation; and the Consumer Protection
Group.
It is worth remembering that the UK's Civil
Aviation Authority (CAA) is relatively unusual, in that it is
paid for entirely by industry. This means that UK air transport
faces additional costs that its competitors, based in other countries,
do not have to meet. This makes it even more important that the
efficiency of the CAA is regularly reviewed, with detailed data
made available to industry and effective consultation with all
stakeholders. We have found that, on the whole, this happens.
SAFETY REGULATION
With the part privatisation of National Air
Traffic Services, the Safety Regulation Group is now the largest
division of the CAA in terms of manpower and turnover. Virgin
Atlantic does not in any way question the need for ongoing safety
regulation of the air transport industry and acknowledges the
CAA's deserved reputation for high quality safety regulation.
The CAA has contributed substantially to the UK's high level of
air safety. Virgin Atlantic works closely with the Safety Regulation
Group to ensure that high standards are maintained and has an
excellent relationship with the relevant CAA staff.
Safety standards are paramount and should not
be unduly influenced by costs. Nevertheless, it is not unreasonable
to expect that high safety standards should be regulated as cost-effectively
and efficiently as possible. This is a challenge to the CAA, which
inevitably is a monopolist and, quite rightly, therefore not subject
to competitive cost pressures. In the past the industry has been
critical of the efficiency and cost levels of the Safety Regulation
Group and its reluctance to respond to industry proposals. Consultative
procedures have not been as effective as they should have been.
In addition, the CAA has earned a reputation for gold plating"
regulations and going beyond the standards that other countries
find sufficient, with no discernable improvement in safety levels.
Fortunately, there has recently been a significant
improvement in the CAA's approach to industry consultation. Following
pressure from a number of airlines, the CAA agreed to a joint
exercise with the industry to examine cost allocation and related
matters within the Safety Regulation Group. Of particular concern
to airlines such as Virgin Atlantic was the long-standing substantial
cross-subsidy from the larger UK airlines to other parts of the
aviation industry and the uncertainty about the role of the European
Aviation Safety Agency in Europe. It is evident that as it becomes
established, EASA will increasingly take over responsibility for
many of the tasks currently preformed by the CAA. Virgin Atlantic
welcomes this move. In theory it should result in common safety
standards throughout Europe and reduced regulatory costs for individual
airlines. However, it is important not only that the UK's current
high levels of safety are not reduced as a result, but also that
UK airlines do not find themselves paying for the new EASA regulation
while still being subject to the same CAA charges.
The outcome of the joint CAA/industry exercise
was excellent. The CAA should be congratulated on its willingness
to consider difficult issues and work with the industry to find
solutions. The recommendations arising from the exercise are now
being implemented. It is hoped that the same cooperative approach
can be carried forward in the regular CAA/industry consultation
fora. The Safety Regulation Group faces a difficult period ahead
as it adjusts to the creation of EASA. Its future role and size
is still uncertain. It is important that the CAA works as closely
as possible with the industry to facilitate the extent to which
regulatory responsibility and implementation are eventually transferred
to EASA. Of particular concern to Virgin Atlantic is the possibility
that the CAA will incur substantial additional costs, for example
if staff redundancies become necessary. The creation of EASA was
a political decision. It seems only reasonable, therefore, that
any additional costs incurred by the CAA as a result should fall
to the Government rather than the industry.
Aviation Health Unit
Falling under the remit of Safety Regulation,
the Aviation Health Unit was established in 2003, at the request
of the Secretary of State for Transport, in reaction to political
pressure following press stories about the dangers of deep vein
thrombosis and with little consultation with industry. The Aviation
Health Unit exists to provide advice on aviation-related health
issues to the Secretary of State and is funded by the CAA's regulatees,
the airlines. This is made clear in Clause 7 (Subsection 4) of
the Civil Aviation Bill, which states that the Secretary of State
can require the CAA to provide advice and assistance in connection
with his civil aviation functions on a continuing basis, and precludes
the CAA from recovering from the Secretary of State the costs
of providing that advice.
Virgin Atlantic, as do other carriers, makes
the health and safety of our passengers our top priority. We employ
in-house medical experts who offer advice to our passengers and
crew and organise any necessary assistance. We also distribute
further health advice to passengers through a variety of media.
This advice and assistance is paid for by us; we do not expect
subsidies from the Government. It would appear reasonable, therefore,
that if the Secretary of State requires advice on health issues,
he too should pay for it.
Given the ongoing establishment of the new aviation
safety regulatory body, EASA, it would also seem sensible that
the responsibility for aviation health advice be transferred from
the CAA to this Europe-wide body. All European airlines could
then contribute to its financing, just as they will all benefit,
along with governments and the travelling public, from its output.
CONSUMER PROTECTION
GROUP
One of the primary responsibilities of the Consumer
Protection Group is to manage Air Travel Organisers' Licensing
(ATOL), the mechanism which protects package-holidaymakers in
the event that their airline or tour operator fails, and provides
for refund and repatriation assistance for those passengers. The
ATOL system costs the CAA an average of £0.16 per protected
passenger,[2]
in addition to the estimated £100 million it costs the industry
to maintain their bonds. The CAA has recognised that, as the travel
industry has changed and people are becoming increasingly likely
to create their own quasi packages" on the internet, the
number of passengers covered by the ATOL mechanism is falling
dramatically.
In 2003 the CAA launched a consultation and
undertook, under the aegis of the Department for Transport, detailed
analysis of the current system with a view to finding alternative
more targeted, equitable and perhaps cheaper"[3]
solutions. In October 2004 the Secretary of State for Transport
asked the CAA to carry out an economic assessment (the major part
of which was provided by an independent consultancy) of a range
of regulatory options, at a cost of £400,000.
When the CAA presented its findings to the Government
and the air travel industry in autumn 2005, the advice was dismissed
by the Department for Transport, despite significant support from
consumer groups and a large proportion of industry. This has meant
that the ATOL system, which covers fewer people each year and
sets bonded tour operators at a competitive disadvantage vis-a-vis
flight only" carriers, remains in place whilst the CAA carries
out yet further analysis. Virgin Atlantic has supported the CAA's
proposals and is disappointed with the Government's reaction.
In the circumstances, it seems only fair that the Government,
rather than the industry (and therefore ultimately the travelling
public) should meet the costs of the CAA's work. We would urge
the CAA to move forwards, as soon as possible, with the Government's
commitment (set out in the Aviation Minister's statement to the
Commons of October 2005) to re-examine the ATOL bonding scheme
with a view to making it fairer and less costly for tour operators
to maintain.
The Consumer Protection Group also has responsibility
for enforcing certain other consumer protection legislation. When
the EU Denied Boarding and Delay Compensation Regulation (EC No
261/2004) entered into force in February 2005, the AUC (and ultimately
the CAA's CPG) became responsible for ensuring that airlines complied
with its provisions. The CAA has taken a very even-handed and
realistic stance on this poorly drafted Regulation. They recognise
that many UK carriers, not least Virgin Atlantic, already had
in place high levels of customer service and long-standing procedures
for assisting passengers facing delays or cancellations. They
also understood that, in some cases, this Regulation has led to
a decrease in the levels of assistance provided to passengers.
The CAA has sensibly concentrated its efforts on repeat offenders"
who habitually contravene the Regulation, an approach that is
welcomed by Virgin Atlantic.
ECONOMIC REGULATION
Scarce Capacity
The Civil Aviation Bill, currently in the House
of Lords, includes a clause (6) on removing airline's right of
appeal to the Secretary of State for Transport against a decision
made by the CAA in an aviation route licence case. Instead, the
only appeal mechanism available to airlines would be a Judicial
Review via the courts. Virgin Atlantic welcomes the proposed reform
for a variety of reasons, not least that as the independent regulator
of the UK aviation industry, the CAA should be allowed to perform
its role without political intervention. We believe that the CAA's
current administrative procedures for the conduct of hearings
provide applicants with a fair opportunity to put their case and
to have it examined rigorously and that these procedures, coupled
with the possibility of seeking Judicial Review of the CAA's decisions,
render an alternative point of appeal unnecessary. In addition,
the number of appeals would certainly be reduced, saving airlines
money. At present there is really little reason why an airline
that did not get everything it wanted from the CAA would not appeal
as a matter of course and irrespective of the strength or otherwise
of its case. There would also be more certainty for airlines in
that unless an airline could persuade a judge to suspend a CAA
decision pending final judgment, which seems unlikely, the decision
would come into effect shortly after publication. Airlines would
not be waiting for weeks for the Secretary of State to reach his
own decision, as has been the case in recent instances.
Regulation of ATC and Airport Services
Virgin Atlantic strongly supports the regulatory
framework attached to the provision of air traffic control (ATC)
and airport services in the UK. As in the case of water, electricity
and gas, the provision of ATC and airport services are two areas
where usual market forces are limited and often fail to produce
outcomes which are in consumers' and the UK economy's interests.
Because the provision of such services has particular cost characteristics
which mean that they will tend to be provided by only one firm,
providers of ATC and airport services will have the ability to
ignore the wishes of airlines and passengers with impunity. They
will not lose business from so doing: airlines and passengers
are not able to vote with their feet" as no alternative service
providers exist. Providers of ATC and airport services therefore
need to be incentivised to behave as if they faced effective competition,
in order to produce low prices and high service quality.
Virgin Atlantic is one of the members of The
Airline Group and has a seat on the NATS Board. We have taken
such a hands-on" approach to NATS in order to assist in its
transition to a commercial, customer-responsive organisation,
while always remembering that safety is paramount, in a difficult
trading environment. We were pleased that the CAA took a challenging
but pragmatic approach to the setting of the price control on
NATS's en-route and Oceanic businesses, particularly in light
of the severe financial difficulties faced by NATS in the aftermath
of the tragic events of 11 September 2001.
In the case of BAA's London airports (Heathrow,
Gatwick and Stansted) we support the two-stage approach being
taken towards the Regulatory Review by the CAA this time around.
The first-stage, commonly known as Constructive Engagement",
is the new part. It requires BAA to ask its airline customers
what they want and then show how it is going to deliver these
requirements cost-effectively. While at first pass this may seem
to be micro-management" by the CAA, the fact that the CAA
has felt the need to impose this (with the support of airlines)
on BAA shows that such consultation has not been as effective
as it might have been in the past. So far Constructive Engagement
seems to be working well: for the first time, airlines are being
consulted seriously on BAA's short-, medium- and long-term plans
for Heathrow and Gatwick. However, the strains this has put on
airlines, particularly smaller airlines, in terms of resourcing
should not be under-estimated: there are at least eight Workstreams
taking place at both Heathrow and Gatwick until next June. It
is therefore important that the CAA continues to play a central
role in this initiative. It is relevant that one of the Competition
Commission's recommendations at the time of the last Airports
Review was that the CAA should examine whether it has more scope
to be involved in relationships between airports and users aside
from its formal role under Section 41 of The Airports Act 1986.
Virgin Atlantic supports the retention of the
Competition Commission's role within the two regulatory processes.
The experience of these two processes last time around showed
the importance of the regulator also being performance-reviewed,
particularly when difficult economic issues are the bones of contention.
We were concerned by the lack of transparency inherent in the
Competition Commission's deliberations during the last Airports
Review: we found it very difficult to find out anything about
what BAA was saying, and hence to respond to those statements.
We are pleased to hear that the Competition Commission is taking
steps to make its deliberations more transparent.
We are disappointed that over three years on
from the Competition Commission's recommendation that the CAA
examine whether current procedures under Section 41 of The Airports
Act 1986 can be made more effective in resolving disputes between
airports and users, this has not yet occurred. While we recognise
that the EU Modernization Regulation has created considerable
uncertainty as to the CAA's status, this has effectively taken
away one of the few sticks" airlines have at their disposal
in their negotiations with BAA. While we would always prefer not
to have to make recourse to such provisions, their existence makes
it more likely that satisfactory agreements will be reached in
the first place.
16 November 2005
2 CAA Annual Report and Accounts, 2005. Back
3
Joint CAA and DfT statement, 27 October 2004. Back
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