Transport CommitteeFurther written evidence from the Civil Aviation Authority (AS 75A)

When I appeared before the Transport Select Committee at the evidence session on aviation policy on 10 December 2012, I was asked a number of questions about the CAA’s proposed charges for non-designated airports. I thought it might be helpful to set out in more detail the proposals on which we are currently consulting.

I understand the difficult economic environment in which airports are operating at the present time. As part of this, it is an important principle that our charges are representative of the work carried out in connection with each area of regulation so that no one part of the aviation industry subsidises the regulation of another. This is consistent with our charging principles, which were formally agreed with industry.

Overall, the main charges we are proposing for 2013–14 are held at current levels, which represents a reduction in real terms. However, some specific charges are being lowered whilst others are being raised. The increase in non-designated airport charges that was referred to has been proposed to reduce the cross-subsidy that this area of the industry has benefited from over a number of years. To this end, we also anticipate a further increase in 2014–15 to fully eliminate the cross-subsidy. Historically, the cross-subsidy has been paid by airlines, which also operate in a competitive market.

Whilst I understand that any increase in charges will not be welcomed, CAA economic regulation charges represent a tiny proportion of non-designated airports’ turnover. Airports subject to economic regulation of airports charges are those with more than 500,000 arriving passengers in the previous financial year. There are currently 17 non-designated airports subject to these charges. We are proposing to increase the charge by 0.23p per arriving passenger, to 1.49p per arriving passenger.

This is expected to generate total income of £716,000 (an increase of £110,000). By way of context, the most recent accounts we have seen for the 17 non-designated airports record an aggregate annual income of some £1.1 billion.

Our charging proposals are currently subject to consultation and we will consider carefully representations from the non-designated airports on this matter.

I was also asked why the CAA is forecasting a profit of £1.7 million. We are required by the Treasury to set our charges at levels sufficient to achieve either a rate of return of 6% before interest on the average level of capital employed, expressed in current cost terms, or to break even after interest and tax, whichever is the greater. This is not so much about making a profit, as ensuring the CAA uses capital in a disciplined way. Achieving a rate of return is also necessary if we are to invest in more modern systems to generate future efficiencies.

As I explained when I appeared before the Public Bill Committee on the Civil Aviation Bill earlier in the year, the CAA is committed to being as efficient as possible. Over the last 10 years (2002–03 to 2011–12), despite significant growth in and changes to the aviation industry, the CAA has reduced its operating costs in real terms by more than 26%. However, we recognise that further efficiencies are required and are currently undertaking a significant modernisation programme to achieve this. As a result, we remain on track to employ fewer people after April 2014 than currently, even allowing for the transfer into the CAA of approximately 80 people from the Department for Transport at that time, as part of our new responsibilities for regulating aviation security.

21 December 2012

Prepared 31st May 2013