The Airports Act sets out the regulatory framework for airports in the UK. Our sector regulator, the Civil Aviation Authority (CAA) sets price caps 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*. The CAA must request advice from the Competition Commission (CC) in setting these price caps.

[*Note: BAA sold Gatwick Airport in December 2009.]

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

• annual revenues generated from airport charges;
• 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 CAA must set price controls in a way that is best calculated to further the interests of airport users and to promote efficient, economic and profitable operation of the airports. They must also ensure the price caps are set at a level that encourages investment in new facilties in advance of expected future demand. Finally before setting the price caps the CAA will review our conduct in relation to customers, business partners and suppliers is assessed at the same time to ensure we are acting in the best 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% each 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]

You can find out more information about the CAA's review and its full implications from the following websites.

Competition Commission

CAA