Civil Aviation Bill

Memorandum submitted by the Airport Operators Association (AOA) (CA 06)

The AOA welcomes the broad thrust of the Bill. We believe it contains some good proposals to modernise the powers and regulatory activities of the CAA, bringing it into line with other regulated sectors and aligning fully with EU law. The proposals will help clarify the CAA’s primary focus to further the passenger interest. However, the AOA is concerned that the Bill risks introducing a good deal of complexity to deal with the economic regulation of the remaining three designated airports.

The AOA also has a number of detailed concerns about how the Bill might effects these airports:

1. Airport Resilience

The AOA does not take a view on airports’ particular financial circumstances, but acknowledges that it is important that airports are able to finance their operations. However, where financial resilience is concerned, the AOA does not welcome the idea of CAA regulatory interventions which might aim to control the financial structures of private airport operators. We believe that this is essentially a matter for the area of corporate governance and its associated regulation.

The AOA is encouraged by the CAA’s emphasis on ‘voluntary sector-led solutions’ to resilience in the new airport licences. However, the legislation must ensure that the airport license regime is not heavy handed.

The new "10% penalty" clause raises the possibility of large penalties being applied to events, which may often be beyond airports’ control. Aviation is a global industry and heavily dependent on weather conditions and factors outside UK jurisdiction. It is especially prone to factors beyond the control of the companies that operate in the sector.

While the AOA acknowledges that a 10% penalty is established as precedent in other regulated industries, it would like to understand more about how licences may be developed with regard to establishing criteria on operational resilience.

2. Competition Law and Appeals

The move away from a mandatory referral to the Competition Commission (CC) brings the regulatory framework in line with that of other sectors. However, the AOA wants to ensure that the new framework to allow an appeal to the CC does not result in a de facto continuation of the previous framework. It is not clear what the motivation would be not to appeal, and it is not difficult to foresee a situation where appeals become habitual, because they represent a risk-free opportunity to secure a better commercial outcome for appellants.

The AOA believes that the Government should introduce clear criteria against which an appeal could be allowed, and could be focussed on whether such an appeal would be truly in the interests of passengers.

Furthermore, there are a number of areas of the Bill which have implications both for the three designated (economically regulated) airports and the many non-designated UK airports. These are:

3. Increased Cost Burden for all Airports

The CAA charges airports per arriving passenger to undertake its functions. These charges vary between ‘designated’ (Heathrow, Gatwick and Stansted) and ‘non-designated’ airports. The CAA charges are set to increase by one third in April 2012 to allow the CAA to fund its new responsibilities of consumer protection, and partly as a result of structural changes in the way that charges are applied. The Bill itself will also load additional costs onto airports.

The Government proposes a measure for the CAA to publish environmental information. Airports; Government departments, such as Department for Energy and Climate Change and the Department for Transport (DfT); and independent bodies, including the Committee on Climate Change already publish significant amounts of information. The duplication of existing information will not only increase costs for airports, via increased CAA charges, but will also add further regulatory burden on airports having to publish the information required by the CAA.

The Bill also proposes that the cost of security compliance will be met by the industry, rather than general taxation in future. This is part of a wider move to an Outcomes Focused Risk Based (OFRB) security regime for the UK. The AOA supports, and is working closely with the DfT on this principle, as done right should deliver a more dynamic and better aviation security regime for airports and passengers. It must be noted however that OFRB could be introduced whether the Bill goes through or not.

The AOA would be very disappointed if the transfer of staff, and the associated re-charge of employee costs to the sector, went ahead, but momentum towards a better aviation security regime were lost. While the result of such an outcome would be a saving for the Government, it would not deliver any benefit to passengers.

The proposals in the Bill could amount to a re-charge of up to four pence per departing passenger. At a mid-sized airport carrying ten million passengers a year (where the charge would be levied on approximately half the passengers), this would add c.£200,000 to the cost base, a material amount of money. We also expect additional, as yet unknown charges, to arise from the CAA’s new enforcement and competition law powers.

4. Airports’ Ability to Recover Additional Costs

As noted above, the Bill will increase the cost burden faced by all airports. While designated airports may be able, through the regulatory structure, to pass these charges through to airlines, non-designated airports, who operate in a market where airlines generally hold the market power, may not have this opportunity. We would like to see some recognition in the Bill with regards to cost pass through.

5. Regulatory Revenues Collected by Airports

The costs of consumer protection regulation are met by indirect charges via NATS, in recognition of the fact that the CAA has no power to directly levy non-UK airlines. However this will not be available in future, instead the CAA will be loading regulatory charges onto airports, assuming that they will be able to pass them on to airlines – which as noted above can be extremely difficult in such as competitive environment. Consumer protection is an industry wide issue and as such, airports should not shoulder the burden of regulation for complaints relating to airlines.

A preferable approach would be for the Bill to give the CAA the statutory power to levy charges on all airlines, including non-UK airlines. That would enable the CAA to apportion consumer protection charges more appropriately, rather than load all the costs onto airports, which may be unable to pass them on.

February 2012

Prepared 22nd February 2012