BAA owns some of the UK’s most critical transport infrastructure. As a result BAA has a range of obligations, in the form of regulation that it must fulfil. Various regulatory bodies in the UK influence BAA’s operations including:

• The Department for Transport responsible for UK aviation policy.
• The Civil Aviation Authority (CAA), the UK’s independent aviation sector regulator, responsible for the price regulation of Heathrow, Gatwick and Stansted airports and more general consumer regulation of UK airports including Aberdeen, Edinburg, Glasgow and Southampton airports.
• The Competition Commission is the competition regulator but it is also involved in price control determinations for three London airports which are carried out typically every five years.

The Airport Act 1986 sets out the regulatory framework for airports in the UK. Our sector regulator, the Civil Aviation Authority (CAA) puts in place price controls on airport charges levied by “designated” airports. Whether an airport is “designated” or not is decided by HM Government. At present Heathrow, Gatwick and Stansted are all “designated” and therefore price regulated. For BAA that means price caps are set for Heathrow and Stansted every five years, this period can be extended by the CAA by up to 1 year under the same terms*.

*Note: BAA sold Gatwick Airport in December 2009

In November 2011 the Government published a Draft Civil Aviation Bill designed to modernise key elements of the regulatory framework. The Civil Aviation Bill will be introduced into Parliament during 2012.

The CAA reviews two major aspects of our business before setting price caps:

• The capital expenditure programme both in the previous period and for the following 5 year period. This determines the Regulated Asset Base for the airport on which we are permitted to make a return.
• The required annual revenue to be generated from airport charges in maintaining, developing and running the airport. This ensures an airport cannot abuse its market position to the detriment of consumers. The CAA, in effect, sets a ceiling on the charges a designated airport may levy on airlines.

The CAA must set price controls in a way that is best calculated to further the interest of airport users and to promote efficient, economic and profitable operations of the airport. They must also ensure the price caps are set at a level that encourages investment in new facilities in advance of expected future demand.

Before setting the price caps the CAA will review our conduct in relation to customers, business partners and suppliers to ensure we are acting in the Public interest.

The CAA’s final decision for the period 1 April 2008 until 31 March 2013 set the maximum price we can charge per passenger. These are:

• Heathrow Airport: £12.80 per passenger in 2008/09 (in 2007/08 prices), then increases by RPI + 7.5% per year.
• Stansted Airport: £6.53 per passenger in 2009/10 (in 2009/10 prices) for two years, subsequently rising at RPI +1.63% per annum for the three years 2011/12 to 2013/14.

The CAA has decided to extend the current public interest conditions applying at Heathrow by one year to March 2014, then maximum price that we can charge per passenger will continue increasing by RPI + 7.5 during the extension year.

Related resources

Heathrow economics and regulation

Economic regulation of Heathrow and Gatwick airports 2008 to 2013 - published 11 March 2008 (1,073KB PDF)

Extension of Q5 Heathrow and Gatwick price controls - published April 2011 (61KB PDF)

Economic regulation of Stansted Airport 2009 to 2014 - published 13 March 2009 (612KB PDF)