Economic regulation

Overview

Heathrow makes up some of the UK's most critical transport infrastructure. As a result we have a range of obligations, in the form of regulation we must fulfil. Various regulatory bodies in the UK influence Heathrow'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, Glasgow and Southampton.
• The Competition and Markets Authority (CMA) is the UK’s competition authority it carries out market and competition investigations and it is also the body to which airports or other persons with a qualifying interest can appeal the CAA’s price determinations.

Airports are governed by the Civil Aviation Act 2012 (the Act). The Act sets out the legal framework governing the economic regulation of airports in the United Kingdom. The Act re-establishes the CAA as the industry (economic) regulator and the duties and functions to which the CAA must have regard.

The CAA’s primary duty is to exercise its functions ‘in a manner which it considers will further the interests of users of airport transport services regarding the range, availability, continuity, cost and quality of airport operation services.’ The users of air transport services are passengers and those who ship cargo. The CAA must also have regard to ensuring that regulated airports can finance their activities; that regulated airports meets all reasonable demand for services; and that services are delivered efficiently.

Before determining whether or not an airport should be regulated the CAA must conduct a market power assessment. The market power assessment is the CAA’s way of formally assessing whether or not Heathrow has significant market power. The CAA has determined that Heathrow has significant market power.

Once a determination is made by the CAA that an airport has significant market power and is to be subject to economic regulation the Act imposes a prohibition which means it would be illegal for the company to charge for services at the airport. The prohibition on charging is removed when the CAA grants a licence to the airport which sets out the basis for the maximum level of charges that may be levied and other licence conditions governing Heathrow’s supply of services to passengers, airlines and cargo handlers.