Notice of proposed modification to Heathrow Airport Limited’s economic licence to extend the current price control by one year

Overview

In March 2016, we launched a review (known as the H7 review) of the price control and associated arrangements that would apply to Heathrow Airport when the current control (Q6) expires at the end of 2018. We published a discussion document and undertook a series of industry workshops and seminars at which we sought views of interested parties on the process, strategic themes and relevant issues for the H7 review.

In written responses to the document and subsequent discussions, industry stakeholders suggested that we should consider extending Q6 by at least one year.

Stakeholders thought that the level of uncertainty over the Government response to the work of the Airports Commission on new runway capacity in the South East of England, would affect the quality of the work on the H7 review they could undertake. In particular, Heathrow thought that the additional time created by an extension, would enable it to enhance the quality and consumer focus of the H7 business plan. Airlines noted the significant staff resource required to engage in expansion plans across the industry and thought that better alignment between H7 and new capacity would reduce the risk of nugatory work and the complexity of H7.

In light of these views we consulted in July 2016 on whether we should:

• extend Q6 by one year;
• extend Q6 by two years; or
• not extend the price control.

Our preference was to extend Q6 by one year with the current Retail Price Index (RPI) -1.5% price control rolled over for the additional year.

All respondents to our consultation agreed with our preferred option of extending Q6 by one year. IAG/British Airways, the Lufthansa Group, Heathrow Airport and the representative bodies for Heathrow airlines (AOC and LACC) agreed with a roll over of the current price control. Virgin favoured a price control in the additional year that would take account of revised traffic forecasts to account for Heathrow outperforming the Q6 forecasts.

We held a workshop in August 2016 attended by Heathrow, the AOC, LACC and a number of airlines. All present supported extending the price control by one additional year and rolling over the current price control into the additional year.

This consultation is a formal notice under section 22(2) of the Civil Aviation Act 2012 to modify the Heathrow Airport’s economic licence. The proposed modifications are to extend Q6, that currently runs from 1 April 2014 to 31 December 2018, by one year so that it will end on 31 December 2019. The proposal is to roll over the current price control of RPI -1.5% for the additional year.

If you have any questions on this consultation please contact Rob Toal on 020 7453 6211 (or by e-mail to robert.toal@caa.co.uk).