CAA proposes Heathrow price cap

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Price controls at Heathrow have been proposed by the UK's Civil Aviation Authority.

Unveiling initial proposals for the economic regulation of three London airports, the CAA said it found "clear evidence of substantial market power" at Heathrow. Noting a decade of price rises and major capital investments - such as Terminal 5 - the authority says it is "looking to encourage further investment whilst improving value for passengers in other ways, with charges capped at RPI [the retail price index] minus 1.3% for the five years from April 2014".

For Gatwick, where "market power is weaker than Heathrow's", the authority is proposing "a flexible regulatory approach" based on price and service quality commitments agreed by the airport and its airline customers, underpinned by a CAA licence. But "the airport has not yet made acceptable proposals along these lines", says the CAA, which has "set out the price cap that would apply if this remains the case, with prices capped at RPI plus 1% for the five years from April 2014".

Proposed regulation at Stansted takes the form of the CAA monitoring price and service quality, though the authority warns that it "may impose more detailed regulation" unless the airport's prices reduce.

In the CAA's verdict, Stansted "shows the weakest evidence of market power" among the three airports, but such power "is likely to grow stronger between 2014 and 2019 as capacity around London becomes even more constrained".

IATA has criticised the CAA's Heathrow proposal, likening it to "prescribing a placebo to treat a very serious illness".

The "weak price cap... does not even begin to address Heathrow's cost problems seriously", argues the association.