Placing consumers first

This week the UK Civil Aviation Authority responded to criticism of its decision to allow BAA to raise its flight charges well ahead of the rate of inflation (see: Airlines anger at BAA fee settlement), by publishing its proposals for regulatory reform.

The CAA proposals, contained in a submission to the Competition Commission, are based on the organisation’s view that there is a clear case for regulatory reform, but that airport investments and service quality improvements must still be paid for.

The regulatory framework for airports in the UK has remained largely unchanged in 20 years. The CAA argues that it risks not keeping pace with future changes in the UK aviation market and should be modified to bring it into line with best practice.

Reforms should include:

• Reframing the CAA’s duties to place the interests of consumers first, recognising that effective competition provides the best means of protecting their interests, as it does at the majority of UK airports.
• Providing the CAA with more flexibility and discretion so that it can tailor its regulation better across airports and over time, responding to the continually changing market environment. This could allow it to act more rapidly when unfair conduct is identified but also enable the CAA to enter into longer-term commitments with airports in a way that encourages appropriate investment.
• Providing the CAA with concurrent competition powers - which most other regulators hold - so that it can make use of the existing competition law regime to balance sector-specific regulation with general competition tools.

These improvements to the framework would enhance the clarity and flexibility of regulation, without extending unnecessarily the CAA’s intervention in markets: the CAA considers that the vast majority of UK airports should continue to operate free of detailed economic regulation as competition, rather than regulation, provides the best way of ensuring that consumers receive the service they demand, offered at fair prices.

With this in mind, the CAA recommends that there is a case for additional measures aimed at providing a check against unnecessary regulation, including:

• an improved appeals mechanism, installing the Competition Commission as the appeals body for CAA price control decisions;
• the use of time-limited licence conditions; and
• periodic reviews of the regulatory burden.

These would build on the CAA’s existing obligation to impose only the minimum of regulation necessary.

Harry Bush, the CAA’s Group Director of Economic Regulation, says, “There is now widespread agreement – between airlines, BAA and the regulator – that the current regulatory framework needs modernising. But there is likely to be considerable debate about the best way to do this.

The CAA has placed significant weight on passengers’ interests – notably in its recent decisions on investment and service quality at Heathrow and Gatwick – but the regulatory regime could be improved by placing the interests of consumers unambiguously at the heart of the CAA’s duties and by encouraging competition between airports and between airlines for their business. This would also line up the CAA’s duties with those of other economic regulators.

The CAA wants smarter regulation – rather than more regulation – encouraging competition and tailoring solutions to problems rather than extending the CAA’s remit to more airports or increasing the regulatory burden. The CAA therefore recommends an updated package of checks and balances to minimise the regulatory burden and to ensure that stakeholders are able effectively to scrutinise and challenge the CAA’s major regulatory decisions.

But we should also be clear that regulatory reform is no magic bullet – airport investments and service quality will still need to be paid for. What a reformed regulatory regime will provide, however, is the best possible framework to meet the complex and varied challenges facing UK aviation.”

A full version of the CAA’s submission is available here.

 

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