CAA imposes ‘efficiency condition’ on Heathrow Airport

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The UK’s Civil Aviation Authority (CAA) has added a new condition to
London Heathrow Airport’s license “to promote economy and efficiency”
by the facility.

In a document titled “Economic regulation of Heathrow Airport Limited from January 2020: notice of license modifications,” the CAA set out its reasons for the new measure:

“Since HAL [Heathrow Airport Limited] has neither a general statutory obligation to conduct its activities efficiently, nor a general
obligation under its license to do so, an efficiency condition is needed to give the CAA a tool to ensure that: it has oversight of the way HAL runs its business generally; it can consider efficiency issues that both bear on the price control and more widely; and there are no ‘gaps’ in the oversight of HAL.”

Heathrow has come under fire from airlines for its charges, particularly for the cost of the proposed third runway at the airport.

International Airlines Group CEO Willie Walsh has expressed fears that
the project will be “gold-plated,” and that the airport has little incentive to keep the runway’s costs down. IAG subsidiary British Airways has its hub at Heathrow.

“An efficiency condition is needed to address the fact that it is not practicable for price control incentives fully to capture all aspects
of HAL’s behavior,” the CAA said.

“This is because we cannot be certain that incentives can be designed in such a way that they … could be relied on, by themselves and without more, to drive economy, efficiency and timeliness in all aspects of HAL’s business in every circumstance.”

“This is especially the case for HAL,” the report continued, “given both (a) the size and complexity of HAL’s business and (b) the requirements for detailed information and foresight that the design of such incentives would require both in relation to its existing activities and in the circumstances of a program as complex and difficult as capacity expansion.”

“There is the risk that incentives may be gamed or may have unforeseen
consequences,” the CAA report added.

The CAA noted that other regulatory tools did not provide a suitable
alternative to the new measure. For example, “the CAA’s conduct of price control reviews is limited in time and, therefore, cannot deal very well with issues arising between price control reviews.”

The new condition will come into effect Jan. 1, 2020.

Responding to the report, a Heathrow spokesman said, “Heathrow is extremely efficient and viewed as a benchmark for major infrastructure
project. The current level of scrutiny and transparency around capital
investment at Heathrow is already unmatched at any airport globally.
We respect the CAA’s new license agreement and we will comply
accordingly.”
Source: ATW

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