Reforming the Framework for the Economic Regulation of UK Airports
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Reforming the framework for the economic regulation of UK airports March 2009 The Department for Transport has actively considered the needs of blind and partially sighted people in accessing this document. The text will be made available in full on the Department’s website in accordance with the W3C’s Web Content Accessibility Guidelines. The text may be freely downloaded and translated by individuals or organisations for conversion into other accessible formats. If you have other needs in this regard please contact the Department. Department for Transport Great Minster House 76 Marsham Street London SW1P 4DR Telephone 020 7944 8300 Website www.dft.gov.uk © Crown copyright 2009, except where otherwise stated. Copyright in the typographical arrangement rests with the Crown. This publication, excluding logos, may be reproduced free of charge in any format or medium for non-commercial research, private study or for internal circulation within an organisation. This is subject to it being reproduced accurately and not used in a misleading context. The copyright source of the material must be acknowledged and the title of the publication specified. To reproduce maps, contact Ordnance Survey via their website www.ordnancesurvey.gov.uk/ copyright or write to Customer Service Centre, Ordnance Survey, Romsey Road, Southampton SO16 4GU. For any other use of this material, apply for a Click-Use Licence at www.opsi.gov.uk/click-use/index.htm or e-mail [email protected] To order further copies contact: DfT Publications Tel: 0300 123 1102 E-mail: [email protected] ISBN 978 1 906581 88 6 For a fuller listing of DfT publications, see www.dft.gov.uk/about/dftpubdatabase/ Published by the Department for Transport Printed in Great Britain March 2009 When you have nished with 75% this item please recycle it Contents 1. Executive summary 4 Context to reforming the economic regulation of airports 4 Proposed reforms to the economic regulation of airports 5 Next steps 8 2. Undertaking the Review 10 Introduction 10 Why review the framework for the economic regulation of airports? 10 Evidence considered during the Review 11 Responding to the consultation 13 Structure of the consultation document 14 3. Features of the aviation sector in the UK 16 Introduction 16 Features of the aviation sector 16 Developments in economic regulation 23 Conclusions 24 4. The need for Government or regulatory intervention to address the existence of substantial market power or dominance 25 Introduction 25 Initial conclusions from the DfT’s September 2008 submission to the Competition Commission 26 New evidence and analysis 29 Conclusions on the need to intervene to address market power 43 5. The need for Government or regulatory intervention to address the presence of externalities 45 Introduction 45 Initial conclusions from the DfT’s September 2008 submission to the Competition Commission 46 External impacts of aviation from airport development 48 The CAA and the environment 56 Conclusions on the need for additional environmental provisions to address the environmental impacts of airport development 58 1 Reforming the framework for the economic regulation of UK airports Conclusions on the need to intervene to address the presence of externalities 59 Implications of our conclusions on the need for intervention for the design of an effective regulatory framework for airports 59 6. Statutory remit for the economic regulation of airports 61 Introduction 61 Context for developing proposals for the statutory remit of the economic regulator 61 Proposed statutory remit of the economic regulator 63 Governance 73 Summary of key proposals 73 7. Designing a flexible, fair and effective enforcement regime 74 Introduction 74 Content of licenses 79 Developing the initial licence 84 Changing licence conditions 85 Concurrent competition powers 91 Summary of key proposals 93 8. Enhancing accountability 94 Introduction 94 Mechanisms for appeal of CAA decisions 95 General principles 98 Whether an airport should be regulated under a Tier 1 licence 99 The sunset clause 101 The modification of licence conditions 102 Process for appeals 105 Environmental reporting 106 The Regulators’ Compliance Code 107 CAA annual report and accounts 107 Summary of key proposals 107 9. Aligning airport services with passengers’ needs 108 Introduction 108 Aligning airports’ capital expenditure programmes with user needs 109 Service quality regime 111 Provision of service quality information to passengers 114 Co-ordinating role in the provision of airport services 114 Approach to setting price caps 114 The single and dual till approaches to airport charges 115 Developing and operating competing terminals 116 Promoting financial resilience 117 Conclusions 121 2 Contents 10. Enhancing consumer representation within the aviation sector 122 Introduction 122 Through-airport experience from the perspective of passengers 123 Existing arrangements for independent consumer representation 123 Recent developments in consumer policy within the CAA 124 Reforming consumer representation within the aviation sector 125 Summary of key proposals 128 The Seven Consultation Criteria 129 Annexes 129 Annex 1 – Code of Practice on Consultation 129 Annex 2 – List of consultees 131 Annex 3 – The current regulatory framework 133 Annex 4 – Environmental Law that impacts on airport developments 137 Annex 5 – Aviation and climate change 159 Annex 6 – Questions for Stakeholders 164 3 1. Executive summary 1.1. This consultation seeks views on the UK Government’s proposals to update and change the framework for the economic regulation of the UK airports sector.1 The proposals are intended to provide a flexible economic regulatory framework for the sector that puts the passenger experience at the centre of regulatory decision-making and processes as well as emphasising the environment, financeability, and the principles of Better Regulation. We propose that the Civil Aviation Authority (CAA) should regulate fewer airports but be given more powers, with appropriate checks and balances, to further the interests of passengers and adapt the economic regulatory regime to reflect differences across the airports sector and changes over time. 1.2. We will consult later in the year on proposals to take forward key environmental commitments made when Government announced support in principle for the construction of a third runway at Heathrow airport. These will include proposals on a new “green slot” principle and mechanisms to ensure that additional flights at Heathrow can only be allowed when noise and air quality limits at Heathrow are complied with. This subsequent consultation will also set out how the Government intends to implement the recommendations from Sir Joseph Pilling’s strategic review of the CAA. Context to reforming the economic regulation of airports 1.3. Under the Civil Aviation Act 1982 and subsequent Legislation, the CAA regulates in four areas: safety, air space, consumer protection and economic regulation of airports and NATS. In 2008, the Government commissioned two separate, but complementary reviews of the CAA’s role: ●● A strategic review of the CAA’s overall scope, structure and organisation undertaken by Sir Joseph Pilling. This review reported in June 2008. ●● An in-depth review of the economic regulation of airports undertaken by the Department for Transport (DfT), recognising that this aspect of the regulatory regime was set up over 20 years ago and much had changed since it was established. 1 The overarching framework for the economic regulation of airports in Scotland and Wales is a reserved matter with DfT retaining responsibility for policy development. The separate legislation that provides a framework for airport regulation in Northern Ireland currently closely follows that for other parts of the UK and is overseen by the CAA. DfT will work closely with the Devolved Administration in developing policy for Northern Ireland. 4 Executive summary 1.4. It is the conclusions of the review of economic regulation that are set out in this consultation document. However these need to be considered in the context of the former. As the Review’s independent Expert Panel has pointed out, economic regulation cannot be considered in isolation, and the governance arrangements of the CAA can be expected to play an important role in the operation of the regime in practice. The Government has already accepted Sir Joseph Pilling’s recommendations that this legislative framework needs to be brought up to date. Of particular relevance here is his conclusion that the CAA’s general statutory remit does not adequately reflect its responsibility for safeguarding the public interest. The Government is developing proposals for future legislation that will, amongst other things, give the CAA a clear focus on actively pursuing consumer-related and environmental objectives whilst at the same time maintaining the strength of its existing focus on securing a high standard of safety. 1.5. In addition to proposed changes to domestic legislation, airport charges at a number of UK airports are to be subject to new legislation arising from Europe by Spring 2011. An Airport Charges Directive (ACD) has been negotiated by Member States, the Commission and the European Parliament and is expected to become EU law in Spring 2009. The UK, and other Member States, will then have 2 years to implement the Directive’s provisions. The Directive sets a common framework regarding the principles of how airport charges should be established and the associated