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British Airways response to airport reform proposals

British Airways will give evidence tomorrow to the Civil Aviation Authority’s proposed pricing reforms for London’s main airports for the next five years from 2003.

The airline will welcome many of the CAA’s initial conclusions, in particular:

1 The three London airports should be treated separately with the elimination of cross subsidies and separate price caps set. Each airport to be developed to meet the needs of its own customer base.

2 Introduction of service quality standards and penalties for failure to meet agreed targets.

3 Introduction of punctuality targets and penalties if not met. Airports must accept responsibilities for the delays they may cause to airlines.

4 Lower charges to offset T5 “pre-funding” payments already made since 1997.

5 Improved procedures for consultation with airlines on capital spending plans

However, it will argue against the following:

1 Further pre-funding arrangements, which do not incentivise investment. The general rule should be that no funds should be paid until the benefits are available for air travellers.

2 A move away from the single till* to a dual till which allows airport operators to extract excess profits from airlines and their passengers.

3 Future commitments to significantly higher prices for passengers using Heathrow airport which may not be justified or sustainable.

4 Over-generous and poorly targeted investment incentives, including high estimates of the cost of raising capital to fund airport infrastructure.

British Airways Chief Economist Andrew Sentance, said: “We support the CAA’s intention to align the interests of airport providers and users and agree with much of the regulators’ analysis. In particular, we support the need to ensure that BAA plc provides additional airport capacity when and where it is needed in the London area - starting with the completion of T5 at Heathrow.

“However, we believe the proposals in their current form risk allowing airport operators to make excessive profits, at the expense of airlines and the travelling public. The CAA’s initial proposals need to be amended to remedy this problem - by linking investment incentives more closely to the needs of airport users and retaining the single till. This will ensure that retail revenues generated by the airlines and their passengers remain available to fund future investment in better airport facilities.”