Draft Civil Aviation Bill & Licensing
In the Queen’s Speech (2010) the Government announced its intention to reform the framework for the economic regulation of airports.
The purpose of the Bill is to:
- To develop a new vision for a competitive aviation industry, supporting UK economic growth and designed within the constraint of the existing runway infrastructure. The Bill will reform the framework for the economic regulation of airports to benefit passengers and drive investment in airport facilities.
The main benefits of the Bill are intended be:
- To sharpen incentives on airports to deliver better outcomes for passengers.
- To drive investment in improved airport facilities for passengers.
- To allow the removal of unnecessary regulation in order to help competition to thrive and deliver benefits for passengers.
- To reduce unnecessary bureaucracy and political involvement in the regulatory process.
The main elements of the Bill are:
- Replace the existing process and system for setting price caps at airports which are subject to economic regulation with a more flexible framework focused on the outcomes that matter to passengers.
- Introduce a new set of duties for the Civil Aviation Authority's (CAA) economic regulation of airports which will put the interests of passengers unambiguously at the heart of the regime. Under these proposals the CAA's primary duty will be to promote the interests of existing and future passengers.
- To allow economic regulation to be used in a targeted way the Government plans to introduce a new licensing regime to be applied only to airports with substantial market power and where such regulation adds real value.
- In order to ensure the financial resilience of UK airports, the Government will also introduce a supplementary financing duty and minimum credit worthiness requirements as well as ring fencing conditions where there is a net benefit in introducing such measures, and require the preparation of plans for continuity of service should an airport operator get into financial difficulties.
- Effective enforcement is critical to the efficiency of any regulatory system. To bring airport economic regulation into line with other regulated sectors of the economy the Government also plans to introduce civil sanctions, including financial penalties, for the CAA to enforce licence conditions, creating a more efficient and responsive enforcement regime.
The CAA's competition assessments
In July 2011 the CAA initiated the Market Reviews and Competition Assessments. The CAA is canvassing input and gathering evidence for these competition assessments. These will look in detail at a full range of factors relevant to assessing whether the airports, including Heathrow, have market power. The CAA expects its emerging views on competition, published by the end of 2011, will not be a binary, ‘yes/no’ decision but will set out the evidence for a judgement on the degree of market power present at each of the designated airports.
The CAA’s competition assessments will help inform the CAA’s approach to Q6 and its view on other issues such as disputes between airports and airlines (e.g. price discrimination investigations under section 41 of the Act), complaints about compliance with the Airport Charges Directive (ACD), and the development of economic licences for airports under the Government’s proposed reforms of economic regulation.
The CAA will be keen to ensure that it develops a tailored and proportionate regulatory response to the conditions at each airport – one size may not fit all. The CAA expects to publish a Policy Update in April 2012 setting out, among other things, its initial assessment of the appropriate form (model) for regulation at each of the airports.