- Contracts & Commitments will provide a better outcome in terms of the quality of airport facilities, service levels and price than regulation could ever achieve
- Gatwick puts forward an improved offer for airlines and passengers with a price of RPI+ 1.5% over seven years
- Gatwick believes the pace of change at the airport should continue and so stands behind its initial Capital Investment Programme
- The CAA now has a real opportunity to create the conditions for a more competitive airports market
2013-06-26 — /travelprnews.com/ — London Gatwick has today submitted to the Civil Aviation Authority (CAA) a compelling offer on a new deal for the airport between 2014 and 2021. The improved offer – which would see a future in which airline-airport relationships are increasingly defined through tailored bilateral commercial contracts – will help create the conditions in which Gatwick and other airports in the South East can compete on service quality and price to the benefit of passengers and the airline community.
Gatwick’s radical plan to replace economic regulation with a Contracts & Commitments framework reflects the recent significant changes in the airport sector – most notably the unprecedented break-up of the BAA monopoly and the emergence of a more competitive airports market.
The CAA confirmed in April they hoped that a commitments and limited licensing framework could be the preferred form of regulation for Gatwick. However, they raised a number of points of concern which Gatwick has since considered and addressed. In particular:
- Price: The CAA challenged Gatwick to table an improved offer on price. In response, Gatwick has lowered the price commitment from RPI + 4% to RPI + 1.5% over a seven year period. This equates to an increase in the per passenger fee from £8.80 in 2013/14 to a per passenger fee of £9.76 in 2020/21.
- Capital Investment Programme: Gatwick commits to continue to fully consult with airlines on Capital Investment, and commits to substantial Capital Investment continuing
- Service Quality: Gatwick has proposed more passenger-focused targets to ensure passengers continue to enjoy high service standards throughout the airport
- Enforceability of the Commitments: Gatwick will work with the CAA to ensure that its Commitments are legally binding and the interests of passengers are safeguarded
Stewart Wingate, London Gatwick CEO said: “We have listened to our airline partners and are putting forward a great deal which seeks to address the issues raised, whilst still promoting the best commercial way forward for our passengers and airlines.
“We believe this revised offer will provide a much better future for passengers, the airline community and the airport than would be the case through a continuation of the current system of regulation.
“The CAA has a window of opportunity to create the conditions for a much more competitive airport market in the South East, which will build on the Competition Commission’s landmark decision to break-up the BAA monopoly. We hope that the CAA will feel sufficiently confident to endorse our deal as the preferred way forward for Gatwick in its October final proposals.”
As part of its analysis of the way forward, Gatwick commissioned Professor Stephen Littlechild, Emeritus Professor at the University of Birmingham, Fellow at the Judge Business School, University of Cambridge and former electricity regulator, to review the issues of regulation in today’s increasingly competitive airport sector.
Professor Littlechild comments that: “The CAA might feel that continuing to regulate an airport is a safer course of action. However, in practice greater involvement of regulation in an increasingly competitive market would lead to unintended consequences that can have adverse effects on service quality and price which would not protect the interests of the passenger in the long term.
“Less, not more, regulatory involvement at this stage would be more conducive to promoting competition and protecting the longer-term interests of customers. If it is not possible to remove regulation now, when will it ever be?”
To view Professor Littlechild’s report please click here.
To view Gatwick’s full submission to the CAA please click here.
Notes to Editors
About Professor Stephen Littlechild
Professor Stephen Littlechild is an Emeritus Professor at the University of Birmingham and Fellow at the Judge Business School, University of Cambridge. He was recently appointed a panel member at the Competition Commission, and is a member of the Ofgem panel of economic advisers, Chairman of the Advisory Board of the Electricity Policy Group at the University of Cambridge, and a member of the Advisory Council of the Centre for Competition Policy at the University of East Anglia. The views expressed in his paper are personal ones and do not purport to represent the views of any of the above organisations.
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London Gatwick submitted its revised offer to the Civil Aviation Authority (CAA) on new deal for the airport between 2014 and 2021