Transport CommitteeSupplementary written evidence from Virgin Atlantic Airways (AS 89A)

Summary

Regulated charges are a significant component of overall ticket costs. The previous regulatory regime did not deliver good value for consumers in determining prices over the last 10 years. Charges at Heathrow tripled in this time.

At Heathrow airport charges are already over £40 for a return trip. The airport’s proposals for the next regulatory period will see price inflation well above the rate of inflation (RPI+6% p.a.). Under this proposal charges would rise to almost £70 for a return trip by 2019.1

The picture at Gatwick is very similar with similar above-inflation increases proposed, albeit current charges are lower.

Although both airports are proposing inflation-busting price rises for consumers, neither Heathrow nor Gatwick is committing to overall service level improvements for passengers.

We know there are opportunities for efficiency gains at both airports. Virgin Atlantic believes the CAA must rise to the challenge as a strong regulator and reach a price settlement that delivers value for consumers in Q6. A real terms decrease is deliverable through efficiency savings and is compatible with protecting investment that passengers value and improving the service they receive.

Background

Every five years (quinquennium) the CAA is required to undertake a price control review to set the maximum charge per passenger that each regulated airport (currently Heathrow, Gatwick and Stansted) is allowed to levy. In 2014 the sixth quinquennium will begin, known as Q6.

Regulated charges are a significant component of overall ticket costs so it is crucial that passengers get value for money and that remedies are in place to protect them from the market power held by the airports.

Prices at Heathrow are triple the level that they were ten years ago. These price rises are in sharp contrast to the efficiencies made by airlines over the same period and unsustainable when set against the extremely challenging economic situation.

The previous regulatory regime clearly failed to protect our passengers from the market power held by the airports. We are hopeful that the CAA will execute its new powers and flexibility provided by the Civil Aviation Act 2012 to deliver more effective and efficient regulation.

The Q6 settlement is the opportunity for the CAA to address serious issues with the existing settlement, with an outcome that focuses on improving passenger experience, at prices passengers are willing to pay.

Organisations across the private and public sectors (and especially airlines and other aviation-based businesses) are making savings while continuing to deliver value for money to consumers. Airports should not be exempt. As regulator, it is the CAA’s responsibility to act in the interests of consumers and ensure airports do not exploit their market power. We believe a real terms decrease in airport charges is deliverable and that this can be realised through efficiency savings, whilst protecting investment that passengers value and continuing to improve the service they receive.

During 2013 the CAA will run a structured series of consultations to reach its final price decision at the end of the year.

Date	Activity
End April	Initial price proposal from CAA Market power assessments consultation Consultation on forms of regulation at Gatwick
July	CAA oral evidence hearings
September	Final price consultation
December	Final price decision
April 2014	Q6 starts

April 2013