Civil Aviation Bill

Memorandum submitted by the Civil Aviation Authority (CAA) (CA 04)

The Civil Aviation Authority

1. The Civil Aviation Authority (CAA) is the UK's specialist aviation regulator. Our specific responsibilities include:

· aviation safety

· economic regulation of airports and air traffic control

· airspace regulation

· consumer protection

· environmental research & consultancy

2. The CAA’s objectives are:

· To enhance aviation safety performance

· To improve choice and value for aviation consumers now and in the future

· To improve environmental performance

· To ensure that the CAA is an efficient and effective organisation


3. The CAA considers the Civil Aviation Bill will significantly improve our ability to regulate to improve outcomes for passengers.

Consumer-focused regulation

4. Consumers have benefitted enormously from the liberalisation of aviation markets in recent years. Competitive markets continue to be the best way of ensuring choice and value for consumers. However, where airports have significant market power and are not subject to effective competition, we need an appropriate regulatory framework to protect consumers. The current economic legislation for airports dates back to the 1980s. As such, it has not kept pace with improvements in regulation in other sectors, and is in need of reform if we are to regulate in a more proportionate way.

5. The core provisions in the Civil Aviation Bill will replace the CAA’s current "one-size-fits all", 5-year price control with a more flexible, licence-based regime for the economic regulation of certain airports. In licensing any such airport, the Bill proposes that the CAA should have a primary duty to passengers and owners of cargo in undertaking our regulation.

6. The Bill also gives us an important new role in promoting the availability of better public information about airline and airport performance, and about the environmental impact of aviation, which we believe will benefit passengers and the wider public.

Modernising the Civil Aviation Authority

7. The proposed changes will align the CAA’s governance arrangements with those of other regulators.

8. The Bill will enable the CAA to introduce civil sanctions to enforce existing offences, providing us with a more flexible and proportionate enforcement toolkit.

Aviation security

9. The Bill proposes that, while the Secretary of State will remain accountable for aviation security policy and directions, some operational aviation security functions will be conferred on the CAA. This will create a single interface with industry for security and safety regulation.

Consumer-focused regulation

The economic regulation of airports

10. In our economic regulation of airports, the Bill proposes to replace our four current duties [1] with a single primary duty to promote the interests of users (current and future passengers and owners of cargo), where appropriate by promoting competition. This will mean that every time the CAA makes a regulatory decision it will need to be satisfied that doing so would be in the interests of users of airport operation services. This is in line with practice in other regulated sectors.

11. We have considered carefully the proposal that the CAA should have an additional, secondary duty to airlines but have concluded that the risks of this would outweigh the potential benefits. In particular, it would undermine the clarity that the Bill currently provides in requiring us to focus on outcomes for end-users (ie passengers). There is also a risk that such a duty would give airlines an undue place in regulation, above airports and other stakeholders. Whilst the interests of airlines and passengers often align, this is not always the case and where they do not, the primary duty provides clarity that the CAA must put the passenger first.  Such a secondary duty would also appear unnecessary given the safeguards in the Bill to ensure the CAA is accountable for its decisions. For example, the CAA is already obliged to consult interested parties, such as the airlines, before it reaches decisions on licence conditions and modifications and airlines will have the right to appeal those decisions.


12. One of the criticisms of the current regime is that the Secretary of State currently decides which airports should be designated for price cap regulation. The CAA supports the proposal in the Bill that the decision on which airports should be regulated should be taken by the CAA as it will provide greater regulatory certainty, remove political involvement and reduce costs.

13. The criteria for the CAA to take such a decision (the "market power" test) will be based on the existing criteria used by the Secretary of State for deciding which airports are designated for price control, and market power determinations will be subject to appeal. These criteria will provide a robust filter aimed at identifying those airports whose market power is such that they should be subject to appropriate constraints via a licence.

The licensing regime

14. The proposed licence regime would bring the CAA into line with other economic regulators in the United Kingdom and would benefit users by facilitating outcomes (for example price and service quality) that better reflect what would be expected in a competitive market.

15. Airports vary in size and market power. A licensing regime will give the CAA the flexibility to tailor licence conditions to the specific circumstances facing individual airports with substantial market power. In response to a request for advice from the Secretary of State, the CAA published an indicative licence to assist Parliament in its scrutiny of the Bill. It illustrates, for example, one possible approach whereby a licence could include provisions aimed at strengthening airports’ operational resilience to ensure they are much better prepared to avoid the passenger disruption previously experienced during severe weather. The licence regime should minimise the distortions associated with regulatory intervention.

16. The CAA welcomes the provisions to improve its accountability through the introduction of a system of appeals for key regulatory decisions. We consider the safeguards in the Bill to prohibit frivolous and vexatious appeals are appropriate and essential. The CAA welcomes the Government’s decision to add new provisions to the Bill, following its publication in draft, to allow for "interveners" in the licence modification appeals regime. These enable any parties, who would have standing to appeal, to become party to an appeal.


17. Proportionate enforcement powers are an important part of a regulatory system as they influence behaviour and encourage ongoing compliance with licence conditions. The proposed powers for enforcing breaches of licence conditions mirror those of other UK economic regulators by introducing:

· a process of escalation with increasing consequences for the operator for non-compliance, balanced by the opportunity to contest any penalty

· the ability to impose a fine even if the contravention has been rectified

· penalties of up to 10% of turnover at the relevant airport

18. The CAA will also have the ability, backed by penalties and civil sanctions, to obtain information from a person (i.e. not just licence holders) to support the carrying out of its economic regulation functions.

Concurrent competition powers

19. The Bill will provide the CAA with powers to investigate and remedy anti-competitive behaviour in the provision of airport operation services, by any person at all UK airports.This could mean investigating and fining operators who abuse their dominant position or collude to fix prices. It would also allow the CAA to investigate a particular market where there is no illegal conduct as such but competition does not seem to be working effectively. The CAA can draw on the case law, guidance and expertise built up by OFT as the principal UK competition authority.

   Publication functions 

20. The Bill will give the CAA a role in promoting better public information about airline and airport performance and about the environmental impact of aviation, which will improve consumers’ ability to make an informed choice and help drive standards of service delivery.  Access to information powers would better enable the CAA to operate within the Government’s ‘Better Choice Better Value’ agenda. This promotes the publication of information so that consumers have better choices about the services that are important to them.

21. Information provided currently is piecemeal and subjective. For example, the Association of European Airlines used to publish its ‘Consumer Report’, which included statistics on the number of missing bags for each European airline, but this has been withdrawn.

22. Passengers value consumer information. The CAA’s research shows that two thirds of passengers are unsatisfied with the ability to compare the service quality of airlines when purchasing a ticket. Air Transport Users Council research found that 84% of respondents tended to agree or strongly agree that performance league tables should be made generally available. 

23. The CAA currently has a number of environmental responsibilities including: assessing environmental impacts as part of the airspace change process; measuring noise around airports; providing advice to Government on aviation’s environmental impacts and to the Environment Agency on emissions trading; and improving efficiency incentives through economic regulation to benefit the environment where possible. We intend to develop our capability further in line with our strategic objective to help the aviation industry improve its environmental performance and are currently consulting on our intended approach and work programme.

24. Under the Bill, price control conditions may form part of the economic licences for airports, and where they do there will be continuity with the current approach to environmental efficiency, which is to ensure that price control incentives aligned with cost efficiency have beneficial environmental outcomes where possible.

25. We believe that the provision in the Bill that the CAA must publish information on the environmental effects of civil aviation in the UK will drive improvements in the industry’s environmental performance. Although parts of industry currently provide environmental information it is not standardised. Publication powers will allow us to gather and publish information in a proportionate way.

26. Consumer information has led to improvements in environmental performance in other sectors. For example:

· in the automotive industry manufacturers have to publish information about fuel consumption and environmental efficiency

· the labelling of white goods has driven performance in the electrical manufacturing sector

· energy performance certificates have led to improvements in the energy efficiency of buildings

27. We are aware of airlines’ concerns that the costs of providing passengers with information should be acceptable. We believe that the Bill ensures this by requiring the CAA both to consult on the preparation or revision of its information policy before requesting information, and to have regard to the principle that the benefits of providing information should outweigh any adverse effects.

28. The CAA has recently consulted on the establishment of a new Consumer Panel. The purpose of the Panel is to act as a ‘critical friend’ to the CAA, providing a consumer perspective on all aspects of the CAA’s work, and in particular on the passenger experience and the enforcement of consumer protection legislation. Panel members will provide a source of challenge to the CAA on how we identify the consumer interest, and how we ensure that consumers’ interests are reflected in our work.

29. The Panel will help the CAA decide what information to publish under its new powers by advising it of the key areas of service where consumers would benefit most if performance data was published. For example, the publication of mishandled baggage data might help encourage airlines and airport operators to address their own individual performance in the handling of baggage. In relation to the environmental impact of aviation, the Panel will be well-placed to help the CAA to promote better passenger understanding of the environmental impact of their travel choices. The Panel will also help the CAA understand what form information needs to be presented in to be most helpful to the most consumers, and what channels of communication maximise the chance of reaching consumers when they need this help.

Air Travel Organisers' Licensing (ATOL) reform

30. The holiday market has seen significant change and diversification in recent years with customers able to book flights, hotels and car hire directly through the internet, and low cost airlines changing the way people arrange holidays. There are now many holidays available to consumers that look like packages but do not fall under the legal definition and so are not protected under the ATOL scheme. As a result, the number of people whose holidays are ATOL protected has fallen considerably and today only around 50% of holidaymakers travel with full financial protection from ATOL.

31. The CAA therefore supports the Government’s proposed reforms of the ATOL scheme, which will give consumers a greater chance of benefiting from statutory protection. This will be achieved in the short term with the implementation of revised ATOL Regulations which will extend the scope of ATOL to cover ‘Flight-Plus’ holidays (which appear to be packages but do not meet the legal definition), and which introduce the ATOL Certificate, a standardised document which will explain to holidaymakers what is protected and what assistance is available in the event of an insolvency.

32. Provisions in the Bill enable the Secretary of State to make regulations to further extend ATOL to cover air holidays sold by airlines and sales where a travel firm is acting as agent for the consumer. These measures are vital to ensuring all holidays which look the same are subject to the same consumer protection requirements, providing greater consumer clarity and ensuring a level playing field across the travel market.

Modernising the CAA

Governance reforms

33. The Bill will ensure the CAA Board is accountable for the appointment of executive members, without the involvement of the Secretary of State. This will align the CAA’s governance arrangements with those of other regulators.  The reforms also make a provision to ensure that the non-executive members, who are appointed by the Secretary of State, form the majority on the CAA Board, and for the chief executive to be appointed by the non-executives with the approval of the Secretary of State.

Civil sanctions     

34. The Bill will provide the Secretary of State the power to give the CAA access to civil sanctions to enforce existing offences. In future the CAA will have access to a wider range of tools, enabling it to be more flexible and proportionate in its response to breaches of aviation legislation.

Regulation of aviation security

35. The Bill will confer certain operational aviation security functions on the CAA as part of the Government’s work to improve aviation security regulation. The Secretary of State will remain accountable for policy and directions on security matters, with the CAA assuming responsibility for the provision of advice to the Secretary of State and industry.

36. The change will result in an additional circa £5m p.a. charge to industry and create a single interface with industry for safety and security regulation. We will work closely with the Department for Transport to plan for a smooth transition including the transfer of staff with the necessary skills and expertise.

37. Separately, the Government has recently consulted on moving to an outcome focused, risk based regulatory regime for aviation security. The CAA supports the principle of a move to a security regime that is based on outcomes rather than solely on compliance with fixed standards. However, it will take time to move to such a regime, and this process is separate from the changes proposed by the Bill .


The Civil Aviation Authority’s Current legal framework

As a body that has been created by statute the CAA is only able to do that which primary or secondary legislation expressly or impliedly permits. Historically, primary legislation relating to civil aviation has been infrequent; the CAA’s extensive range of functions is set out in:

· the Civil Aviation Act 1982 – which covers the establishment of the Civil Aviation Authority and how it must carry out its general functions;

· the Airports Act 1986 – which sets out the scheme for the economic regulation of airports and our duties in this area (Part 4 will be replaced by the Bill once enacted) ; and

· the Transport Act 2000 – which provided for the part privatisation of NATS, established the scheme for the economic regulation of air traffic services and placed new air navigation responsibilities on the Civil Aviation Authority.

The 1982 and 1986 Acts have been amended regularly by means of secondary legislation and all three Acts are supplemented by a wealth of secondary legislation that confers functions on the CAA and governs its activities.

Part 8 of the Enterprise Act 2002 also gives CAA powers to enforce a range of consumer protection legislation. It can take action to ensure compliance with such legislation where it has evidence of conduct which amounts to a breach or breaches of relevant legislation and which harms the collective interests of consumers. This power allows CAA to tackle very serious or systemic breaches of consumer protection legislation in the aviation sector. Key pieces of legislation that can be enforced via this framework are:

· EC Regulation 261 on Denied Boarding

· Package Travel, Package Holiday and Package Tours Regulations

· Unfair Terms in Consumer Contracts Regulations.

· Consumer Protection from Unfair Trading Regulations.

February 2012

[1] Under the Airports Act 1986 the CAA currently has duties to further the reasonable interests of users of airports; to promote the efficient, economic and profitable operation of airports; to encourage the investment in airport facilities, and to impose minimum standards.

Prepared 22nd February 2012