Examination of Witnesses (Questions 440-459)
MR KEITH
MANS, PROFESSOR
CALLUM THOMAS,
MR DAVID
STARKIE AND
DR GRAHAM
BRAITHWAITE
25 JANUARY 2006
Q440 Clive Efford: In terms of the
employees of the CAA, we have had witnesses who have been concerned
about the scope and the abilities of those employees, and you
yourself have just made reference to one example where they were
not able to inspect a new piece of technology. Do you think there
are sufficient skills and knowledge within the staff of the CAA?
Dr Braithwaite: It is an answer
in two parts. First of all, the CAA does some things extremely
well, and around the world the CAA is renowned for its quality
of regulation and its commitment to safety and it has done some
spectacularly good things, but we cannot be complacent on that.
There are other areas where people are deciding that the future
is not with the CAA in Gatwick and the future is not in Cologne
or in aviation. They are leaving and we are losing some of the
expertise that the CAA has.
Q441 Clive Efford: More specifically,
do you feel that there are skills shortages in the Safety Regulation
Group?
Dr Braithwaite: I could not give
you a specific example, no.
Q442 Clive Efford: Right, do you
think that there is anything the CAA could do to improve the attractiveness
of being employed by the CAA, people's career paths, et cetera?
Dr Braithwaite: I think the CAA
and perhaps at even higher levels than that needs to have a clearer
view of its future and just how quickly things are going to disappear
across to EASA, yes.
Q443 Clive Efford: Are you aware
of any areas of safety research that have been cut back by the
CAA?
Dr Braithwaite: I am certainly
aware that their research budget is shrinking fast and meanwhile
the EASA research budget has not been announced. It has been talked
about as a wish-list but we are certainly scaling back quite rapidly
in this country.
Q444 Clive Efford: Sorry, just to
be clear, the impact on EASA of cutting back here?
Dr Braithwaite: EASA has not,
as far as I know, published a research budget or a research strategy
at the moment although there is talk of a wish-list that it would
like to publish. Meanwhile the UK's capability and funding for
research is shrinking at the same time.
Q445 Clive Efford: Right. Do you
think that the CAA has sufficient powers in order to inspect aircraft
that are registered abroad?
Dr Braithwaite: To the best of
my knowledge, yes.
Q446 Clive Efford: And you think
it fulfils that role in full?
Dr Braithwaite: I think that is
getting beyond my knowledge.
Q447 Clive Efford: Just one last
one, Sir Roy suggested to us that Europe should move towards the
American system of reviewing the regulatory regimes in all countries
that have aircraft flying into the United States. Do you think
this would be the best way to ensure safety on incoming foreign-registered
aircraft?
Dr Braithwaite: I think it is
fraught with all sorts of political issues if we start to become
a little bit too suspicious of our neighbours across Europe and
across the world. It is not an easy task to do.
Chairman: Heaven forefend that we should
be suspicious of our neighbours, Dr Braithwaite! Mr Stringer?
Q448 Graham Stringer: Mr Starkie,
do we need economic regulation of the airports that are economically
regulated at all?
Mr Starkie: No, I do not think
so. We have had economic regulation now for nearly 20 years. During
that period of time the aviation market has got very much more
competitive, including in the airport industry itself, and I think
as a consequence the time has certainly come to review whether
we need to subject Manchester and Stansted, in particular, to
this. They have designated airports under the Act, which means
they are subject to a price cap, and I think the time has come
really to review that situation, particularly in relation to those
two airports.
Q449 Graham Stringer: Against what
criteria? I agree with you that there is more competition from
Schiphol and Liverpool and Birmingham and Manchester and Stansted
competing with other airports, so one could say that generally,
but how would you quantify that? What criteria would you use to
say that now we have reached a point where competition is really
there and it is a good control on prices?
Mr Starkie: Well, the CAA at the
moment are carrying out a competition review, you might say. They
are looking at market areas for different airports and seeing
to what extent these overlap. I think there is evidence in the
pricing strategies of different airports that they are now much
more competitive. As you mentioned, Liverpool is quite a ferocious
competitor of Manchester these days, and I found it interesting
at the last price cap review that Manchester set itself a very
challenging target of reducing its operating costs by, I think
the figure was, 7and a half % per annum, but it seemed willing
to do this and to go along with the regulator in this regard,
and I think it was willing to do that because of competition from
Liverpool and Leeds and so on and it knew that, in the absence
of economic regulation, it really needed to get its cost base
down, so these various bits of evidence I think lead me suggest
that we do not really need it. Manchester is also a different
animal from the other three, the other three being Stansted, Gatwick
and Heathrow, because of course it is owned by local governments,
and it is arguable in those circumstances whether we should be
subjecting Manchester in this case to price control. In many other
instances we would expect the local governments with trading organisations
to still act in the public interest and I would be expecting that
of Manchester.
Q450 Graham Stringer: You mention
Stansted which of course is in the private sector and owned by
BAA. Do you support the idea of independent regulation for the
three London airports—Stansted, Heathrow and Gatwick—or,
asking a tougher question, do you believe that BAA should be broken
up completely into different commercial units?
Mr Starkie: I am not so sure that
is a tough question actually, but to take the first—
Q451 Graham Stringer: It is for BAA,
maybe not for you Mr Starkie!
Mr Starkie: Just for BAA. To take
your point, I think the answer is, yes, there should be some—well,
if I could go back one step, the CAA have decided now to subject
the London airports to what it calls stand alone" regulation.
Previously they were regulated as a combined system which in effect
allowed Heathrow to cross-subsidise Stansted. It was not in a
direct sense but indirectly the systems approach allowed for that.
The CAA have set the systems approach aside and are now approaching
it on a stand-alone basis. I totally agree with that because I
think the systems approach led to a lot of problems for other
airports, particularly Luton, which suffered as a consequence
from the competitive effects of Stansted being cross-subsidised,
particularly in the past. I think stand-alone regulation is very
important indeed. In terms of breaking up BAA, I have long been
an advocate of that. I was 20 years ago when the whole system
was set up and I have seen nothing to change my views on it. At
the time that BAA was privatised in its entirety, the Secretary
of State, Nicholas Ridley at that time, said it was a very fine
decision as to whether they should have been separated, and I
think now the time has come to review that issue again.
Q452 Graham Stringer: The airlines
complain quite a lot that regulation is not tough enough, particularly
around Stansted, but generally. Do you think their criticism is
unfair? Who do you see as the customer of the airports; is it
the airlines or is it the passenger because you get a different
outcome with the regulation in terms of price impact on airlines
than you do on passengers?
Mr Starkie: Are you referring
to the Stansted airlines?
Q453 Graham Stringer: Well, I mention
Stansted because there has been quite a lot of criticism, but
Stansted and more generally?
Mr Starkie: I think certainly
there have been problems at Stansted in terms of the BAA reaching
a view with the airlines there on a forward investment programme.
I think to a very large extent that is a consequence of two very
different cultures. Of course, the BAA really came out of the
nationalised industry, and my view is that it still has a great
deal of that culture about it, whilst the low-cost airlines using
Stansted are driven by a totally different commercial culture,
and therefore I would have anticipated that it would be very difficult
for the Stansted airlines to agree with the BAA on a forward investment
programme. I think that is less true of the airlines using Heathrow
and less true of British Airways which is the principal airline
at Heathrow. The problem at Heathrow is the issue of trying to
expand runway capacity.
Q454 Graham Stringer: Do you believe
that the constructive engagement process, which is now the precursor
to decisions on economic regulation, is a good thing or are you
critical of it?
Mr Starkie: On the whole I think
it is a good thing. I anticipated that there would be difficulties
with it because the airlines are not necessarily skilled in airport
matters. They do not necessarily have the resources that they
would need to fully engage with the BAA. Again, I would have expected
that to be less the case with large companies like British Airways.
On the other hand, the low-cost airlines will have problems, and
I anticipated those problems, but nevertheless I think it is a
desirable direction to move in and it is the sort of approach
adopted in other competitive industries.
Q455 Graham Stringer: You think that
is an improvement but you would prefer the regulation to disappear?
Mr Starkie: The regulation not
to disappear entirely but to stand more in the background and
be more of, if you like, a threat to the airports that if they
did abuse their dominance (if they do have dominance) then a stiffer
form of economic regulation will come back into the picture, so
I think there are opportunities for withdrawing.
Q456 Graham Stringer: I do not think
you answered my point, unless I missed it, about who is the real
customer, is it the airlines or is it the passengers?
Mr Starkie: My own view is that
the real customer for the airport is in some ways the airlines.
Q457 Chairman: Not the passenger;
the airlines?
Mr Starkie: Not the passenger
directly. My reasoning on that would be that the airline market
is very competitive in many sectors (although not totally because
there are some flights to some parts of the world which are not
competitive) and as a consequence the airlines will tend themselves
to reflect what the passenger wants and will convey that on to
the airport, but I see the airlines being the principal customer
of the airport.
Q458 Graham Stringer: One final question
if I may. Uniquely amongst regulators there is a referral to the
Competition Commission after the CAA have looked at economic regulation.
Is that a useful device or is it double regulation and expensive
and bureaucratic? Is it necessary?
Mr Starkie: I do not think it
is done in the right way. The airport industry in terms of its
economic regulation differs from the other regulated utilities
because the Competition Commission only comes into the picture
with the other regulated utilities in terms of an appeal. That
is to say, if the regulated industries cannot agree with their
regulator, at the end of the day they can go to the Commission
on appeal. With the airports the approach is very different because
the Competition Commission is drawn into the picture almost from
the very start. There is a mandatory reference to the Competition
Commission and to my mind this does lead to duplication. It can
lead and did lead last time round to a lot of conflict between,
if you like, the two regulators, and that has quite a high cost
to the industry, I believe. Regulatory uncertainty is very undesirable;
it pushes up the cost of capital. Although the decision rests
at the end of the day with the CAA and there is no appeal to the
Competition Commission after that final decision, nevertheless
the CAA acts very cautiously in circumstances where it is in conflict
with the Competition Commission, and generally I find it leads
to a muddying of the waters. It would be very desirable if they
reverted to the standard model.
Q459 Chairman: I want to release
you quite soon, gentlemen, but I am just going to ask one thing
of Dr Braithwaite really. You have given us a lot of detailed
evidence. Do you think it is true that the CAA's approach to flight
training means that there has been a huge transfer to overseas
providers?
Dr Braithwaite: No, I do not think
that is solely the result of the CAA. There are some that will
go overseas because of costs and so on but there are other more
practical reasons such as the strength of the pound and the weakness
of the dollar and where you can fly in rather better weather so
it is not a simple picture of regulation.
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