Select Committee on Transport Fourth Report


List of recommendations

Regulation

1.  The Competition Commission should not automatically be involved in the review of airport charges. Instead, it should be a body to which the airport operators may go if they wish to appeal. We welcome the Government's announcement of the strategic review of the CAA, and hope that Sir Joseph Pilling will take note of the consensus that has emerged around the question of the nature of the future relationship between the CAA and the Competition Commission. (Paragraph 25)

2.  We agree with the CAA that economic regulation should only apply where there is a need for it, and therefore welcome the Department's decision to de-designate Manchester airport. Although Stansted will remain a designated airport for the immediate future, we are confident that the circumstances of BAA's common ownership will change in the foreseeable future, either through the actions of the Competition Commission or BAA. (Paragraph 29)

3.  The real problem in the airports sector is that there is a need for economic regulation at all. The fact that regulatory asset base regulation brings problems of its own is another issue entirely. Piecemeal ownership of terminals by companies other than BAA is not radical enough a solution to the problem of BAA's monopoly. (Paragraph 35)

4.  It was, and remains, our view that BAA should be doing a lot of things covered by the incentives anyway. We have no issue with the principle of performance-related pay as applied through service quality rebates. We do, however, regret the apparent need for such targets. If there were no position of market power in the UK airports sector—if there was real competition for traffic—airport owners would not need incentives from an external regulator. (Paragraph 45)

5.  We believe that the percentage of revenue subject to rebates should be higher, as suggested by the Competition Commission. The comparison of the regulation of BAA to an anti-trust regime lends further weight to our view that BAA's market position is fundamentally anti-competitive. (Paragraph 47)

Challenges

6.  We believe a competitive airports sector would be better than the current state of affairs, where in our opinion competition is stifled by common ownership of several major airports. Airports under separate ownership would have to compete for traffic. This would also have positive consequences for passengers. BAA's common ownership is holding back the natural development of the market, where discrete passenger markets are less well-defined. (Paragraph 48)

7.  Heathrow is losing its popularity as a transit hub to other European airports. It is vital that Heathrow reverses this trend and retakes its place as the European hub of choice for international carriers. It is clear that a chronic shortage of capacity is hindering Heathrow's ability to provide the sort of service to which it should aspire. We therefore support the Government's proposal to add capacity at Heathrow. (Paragraph 54)

8.  There is limited competition between UK airports. With the demarcation between different types of airports becoming ever less clear, the theoretical restrictions on competition decrease and the old argument against divestment—which denied the possibility of competition altogether—loses force. We feel that there is room for more competition (especially between BAA's London airports) and that ending the current situation of common ownership would go a long way to realising this. (Paragraph 57)

9.  We have already called for the AUC's funding to be increased. It should become a proactive consumer body, going out and engaging with passengers. Its role to 'further the reasonable interests' of passengers should be interpreted as meaning more than just waiting for disgruntled passengers to make a complaint. However, if the AUC's terms of reference do need amending to allow it to become a genuinely proactive body, then the CAA and AUC should do so quickly. (Paragraph 61)

10.  BAA may feel as though it is taking a lot of the flak for things that are not part of its day to day responsibility, but this does not detract from the serious questions raised over mismanagement of resources and failure to plan adequately for contingencies which were far from unexpected, let alone inconceivable. With the ever-present possibility of extraordinary circumstances such as strikes or terrorist incidents, queues at airports are almost inevitable from time to time. Our criticism of BAA is that it should have predicted the predictable, and planned accordingly. (Paragraph 62)

11.  The main benefits arising from T5 will be for passengers and British Airways. The increase in capacity that a fifth terminal provides has given BAA the opportunity to move airlines around and improve the condition of the other terminals. This will benefit all other airlines and their passengers. It is however regrettable that BAA ever allowed the position to get as bad as it did. (Paragraph 64)

Options

12.  Competition between terminals at Heathrow could have been a radical solution to the problem of competition at Heathrow. If neither the Government nor BAA believe that inter-terminal competition is an option at Heathrow, then it makes the prospect of divestment even more likely. (Paragraph 78)

13.  There are more limitations on supply than there are on demand in the aviation sector, and there are no signs that this will change. To assume that spare capacity is necessary for competition is to deny the possibility of competition altogether. We have heard evidence from the CAA that there is indeed competition, particularly in the point-to-point and low-cost sectors. If competition is taking place without spare capacity—as the CAA say that it is—then it must be possible. (Paragraph 81)

14.  BAA's monopoly position in the UK airports sector is unnecessary. Indeed, it is bad for passengers and bad for the aviation industry. We do not agree that the status quo is a necessary condition of sustained investment and development. We are firmly of the view that increased competition is possible and could have huge benefits for both airlines and passengers. We look forward to the Competition Commission's analysis of all the issues, and hope that it undertakes detailed cost-benefit analyses of all the possible outcomes. (Paragraph 85)


 
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