THE BLOG

Who Will Pay For A New Runway: A Delicate Balancing Act Required

12/03/2017 18:46 GMT | Updated 12/03/2017 18:46 GMT

Think about your journey to and from work. Chances are many of you will take a train, bus or car at some point - using a diverse transport infrastructure system designed to get millions of people from A to B safely and efficiently. As demand increases, that infrastructure starts to feel the strain and needs updating to continue serving the public - hence the development of schemes like Crossrail. Aviation is no different and we are now facing a situation where it is vital more capacity and infrastructure is developed.

Over 250 million passengers fly in and out of the UK every year and our airspace is amongst the busiest across the globe. London, in particular, is the best connected city in the world. The UK's biggest and busiest airport, Heathrow, is essentially full. While this is all good news for the strength of the UK aviation industry, in the long-run, you the consumer will suffer if we do not increase aviation capacity.

We have consistently and clearly said that the UK needs more aviation capacity or consumers will face more disruption as there will be no slack in the system, less choice on where to fly and higher fares as that reduced choice takes hold. So while it was not for us as the regulator to determine where that capacity should be built, we are pleased to see the Government take a significant step towards making new capacity a reality by confirming its preferred option for airport expansion at Heathrow.

As the UK's independent aviation regulator, consumers are at the heart of everything we do and we stand ready to play our part to help facilitate the extra capacity consumers need. We will work with stakeholders to find a way of making the capacity expansion affordable and financeable, with Heathrow's investors financing a proportion of the upfront costs of the construction programme.

This programme is no simple task. The third runway will be the largest privately financed project in the history of UK infrastructure. Our attention is focused on how investors can recover the costs over time from the landing charges Heathrow levies on airlines in a way that is affordable, as landing charges ultimately feed through to the airfares consumers pay.

Heathrow is the UK's only hub airport and by far the biggest and busiest airport in the country. It does not face strong competitive pressure from other UK airports and without regulation, there is a risk its landing charges could increase to unreasonable levels. So the CAA regulates charges at Heathrow to keep charges fair. This means we need to craft a package that encourages the necessary private investment, whilst taking into account how the resulting level of landing charges will affect airlines and ultimately consumers. Our role in the past has required a delicate balancing act not least because the airport and airlines have often had very different views on what they regard as a fair level for charges.

The airlines have been very clear with Heathrow that they want the resulting landing charges to be affordable and not increase from their current levels once inflation is taken into account. Chris Grayling, Secretary of State for Transport also said in his speech in the House of Commons that the Government wants to see charges kept close to the current level. So the key is whether Heathrow can design a scheme that meets these expectations, while ensuring a fair return for their investors and delivering new infrastructure that is fit for purpose.

We have made it very clear to Heathrow that we expect cost-efficiency and value for money to be central to the design of their scheme; and proper, detailed engagement about the design and costs between Heathrow and its airlines is essential.

But we fully recognise this is more than just a huge construction project based around a new strip of tarmac. For example, as the airspace above London gets ever more congested changes will be required to ensure the invisible infrastructure in the sky keeps pace with the physical infrastructure on the ground. When you think about it, our airspace essentially operates like a rail network or motorway system and similarly should be thought of as a vital piece of national infrastructure.

Throughout the process, and beyond it, it is important Heathrow engages with local communities properly and takes into account their expectations. The Government has also been clear it wants to see a world class environmental compensation and mitigation regime as a condition for its support for Heathrow.

So the regulatory process to set future charges will be a lengthy and complex one - especially if the airport and airlines cannot agree on the design and cost of the scheme. Despite all the complexity, we will be guided by a very simple question in making the third runway a reality: what is best for the consumer?