Civil Aviation Bill

Memorandum submitted by the British Air Transport Association (BATA) (CA 02)

Introduction and Background

1. The British Air Transport Association (BATA) is the trade body for UK-registered airlines. Our members account for some 96% of UK airline output and represent all sectors of the industry.

2. The current legislation for regulating UK airports is widely recognised as having passed its sell-by date. BATA airlines have repeatedly drawn attention to its failings, as indeed has the Competition Commission and others. These failings have resulted in excessive price increases and poor service quality at regulated airports. We therefore broadly support the new licence-based approach incorporated in the Civil Aviation Bill.

3. Over recent months we have participated in a number of meetings with the Department for Transport, together with other stakeholders and the Civil Aviation Authority, to discuss the reform of airport regulation. These discussions have been constructive and we are pleased that the Government has listened to and accepted some of our concerns. In particular, the Government has agreed that airlines, as the principal customers of airports, should have a symmetrical right of appeal, together with the regulated airports, against CAA decisions. This is not only consistent with natural justice, but will also help to ensure that CAA decisions are more rigorous and reflect more effectively the interests of passengers and freight shippers.

4. Nevertheless, we remain concerned about certain aspects of the new legislation and urge the Committee to consider amendments. These proposed changes to the text would, we believe, improve the Bill and ensure that it is better able to meet its objectives. In many cases our suggestions mirror those also recommended in the Transport Committee Draft Civil Aviation Bill Pre-Legislative Scrutiny Report.

CAA Duties

5. The Bill will give the CAA a single Primary Duty to further the needs of passengers and freight shippers. However, it is important to remember the key role played by airlines in the regulatory process.

6. Whilst airlines operate in a highly competitive environment and therefore have objectives aligned with those of passengers in most cases, we would have preferred the CAA’s single Primary Duty to reflect the interests of both the ultimate consumers and the airports’ principal customers, the airlines. We understand that it was the need for the CAA to have a clear Primary Duty, rather than any significant concern about the alignment of airline and passenger interests, that has resulted in the present Primary Duty wording. However, we continue to believe that the CAA should at least have a Secondary Duty to take into account the needs of airlines. The draft legislation requires the CAA to consult airlines, along with other stakeholders, but this is not an adequate replacement for a Secondary Duty, which was recommended in the Transport Committee’s Report. Current legislation includes a Duty requiring the CAA to take airline interests into account.

7. This is important because the CAA’s quinquennial reviews of Heathrow, Gatwick and Stansted are technically complex, lengthy and costly for all participants. Realistically (and historically) only airlines, along with the regulated airports, are in a position to participate in detail. It is not practical for the ultimate consumers, or in practice even their representative bodies, to contribute in any significant degree to discussions about the cost of capital, baggage handling systems, terminal investment and capacity, aircraft stand requirements, etc, etc. Only airlines are able and willing to do this. Without a Secondary Duty to airlines there is a greater likelihood that appeals will be brought against CAA decisions and a greater risk that the regulator, rather than the competitive air transport market, will determine what is in the passenger’s best interests.

8. Some stakeholders have argued that the Bill should contain more direct reference to environmental issues, perhaps by means of a separate CAA Secondary Duty We fully accept the importance of the environment if aviation is to be allowed to expand to meet demand. However, the Bill under consideration deals primarily with the economic regulation of airports. It is not a suitable vehicle to address the environment in detail. Economic regulation is designed to solve a particular market failure and it is important that this objective is clearly targeted. There are many other Acts of Parliament (including the Civil Aviation Act, the Transport Act and the system of planning obligations), as well as international measures (such as EU regulations), which already address environmental issues. Because of the existence of this wider legislative framework, no environmental requirements were included in the current Airports Act. However, this has not prevented the CAA from authorising the funding of necessary environmental projects during its quinquennial reviews of regulated airports. Environmental policy is a matter for Government and we would be concerned if there was a blurring or overlap of responsibility between the DfT and CAA. Care should be taken not to produce unintended consequences from expanding the Civil Aviation Bill beyond its core remit.

Rights of Appeal

9. BATA members strongly support the Bill’s grant of a right of appeal to airlines against CAA decisions. We have worked closely with the DfT and CAA to ensure the removal of any risk of frivolous or vexatious appeals, which some have argued would be inevitable if airlines were allowed the same right as airports have, and we are grateful for this inclusion in the Bill. However, we remain concerned that the six-week period for appeals to the Competition Commission may not be sufficient in all circumstances. Any decision to launch an appeal is complex and not to be taken lightly. In addition to internal approval processes, an appeal may require additional research by external advisers which can be time-consuming. We believe the Competition Commission should be granted the flexibility to extend the six-week period if it thinks this is appropriate.

CAA Efficiency

10. We find it odd that the Bill contains no requirement for the CAA to be efficient, a concern which the House of Commons Transport Committee shared. "Who regulates the regulator" is a perennial problem, exacerbated here by the fact that, unlike other regulators, the CAA is not subject to oversight by the National Audit Office. As a monopoly provider, the CAA does not have to react to competitive pressure, and current consultation procedures, on charges for example, have been shown to be less than fully effective. We believe the CAA should have an explicit efficiency duty and/or an independent external body should be appointed to ensure that it operates as efficiently as possible in the interests of consumers.

Secretary of State Guidance

11. The Bill grants the Secretary of State wide-ranging powers to issue Guidance to the CAA. Given the responsibilities which the CAA has, it is not immediately obvious why the Government powers need to be so extensive. In any case, we would urge that the Secretary of State should be required to consult stakeholders in advance of issuing Guidance, other than in exceptional circumstances, in order to ensure adequate transparency. The DfT has told us that normally the Secretary of State would indeed consult, in which case what would be lost from including such a requirement in the Act?

Civil Penalties

12. The Bill also gives the CAA wide-ranging powers to impose civil penalties for breaches of regulations. This should be acceptable in principle, as long as the penalties are seen as an option of last resort. It is important, therefore, that there are adequate safeguards against the disproportionate use of such powers which would threaten the current constructive relationship between the industry and the CAA which benefits everyone. The advantages of a non-confrontational approach are particularly evident in the area of safety regulation, where open discussion of problems and issues has contributed to the UK’s excellent air safety record. Every effort should be made to minimise the risk that the CAA will use its powers inappropriately, perhaps at some time in the future.

Information Gathering Powers

13. The Transport Committee drew attention to the extent of the powers provided in the Bill for the CAA to collect and publish additional information. We share the Committee’s concern that these powers are too wide and risk imposing a disproportionate burden on the industry. The CAA should be required to demonstrate that there has been a market failure before engaging in compulsory data collection. We are also concerned about the protection of commercially sensitive information.

Security

14. Finally, the Bill provides for the transfer of certain security regulation powers from the Government to the CAA. BATA members have campaigned for some time for UK security regulation to follow the approach being adopted in safety regulation, the so-called "outcome- focused risk-based" (OFRB) approach. We welcome the fact that the Government has indicated its support for such a change and believe that the CAA is probably in a better position to implement it than a government department. In addition, there is significant room for improvement in the efficiency of security regulation while maintaining current high standards. The CAA may be better able to achieve efficiencies, especially if it has a specific efficiency duty.

15. However, two aspects of the Government’s proposals are of concern to us. The first is the fact that substantial costs will be transferred from the DfT to the aviation industry. We understand and accept the "user should pay" principle, but it is by no means clear that the costs of preventing terrorists attacks against the State should not be borne by the State, as they are for other transport modes. Secondly, we are disappointed at the lack of clarity about the transfer of responsibilities to the CAA, again a point made by the Transport Committee. It is important that no such transfer should be made until everyone involved, including industry stakeholders, is satisfied that any new regime will work effectively. This is too important an area of national policy for there to be any lack of clarity about objectives and means.

Conclusion

16. The member airlines of BATA are grateful for the opportunity to make this submission on the Civil Aviation Bill. The current economic regulatory system for UK airports has become out-dated. The proposed reform, therefore, is necessary and welcome. We are broadly supportive of the legislation, but believe that the suggested amendments listed in this note would result in a Bill more likely to meet its key objectives.

February 2012

Prepared 22nd February 2012