Civil Aviation Bill

Henry Smith Excerpts

Tuesday 22nd May 2012 Commons Chamber

[Henry Smith (Crawley) (Con)]

It was a pleasure to speak on Second Reading and an honour to serve on the Public Bill Committee earlier this year. As I said on those occasions, and it is worth repeating now, the airport and airline industry has changed significantly in the more than a quarter of a century since this area of legislation was significantly addressed. Since the British Airports Authority—latterly known as BAA—was privatised in 1986, London’s largest airports, Heathrow, Gatwick and Stansted, have been subject to the same economic regulatory regime designed to ensure that they did not abuse their monopoly position. The prices that Gatwick airport, which you will know is in my constituency, Mr Deputy Speaker, charges airport passengers are currently capped by the CAA, which sets them in accordance with Competition Commission recommendations. The revenues from those prices often appear listed on passenger tickets simply as “airport charges”, but of course they are used to pay for things such as runways, airfield facilities, terminal security, baggage systems and future development. Price caps are normally reviewed every five years. The Bill rightly reforms this process.

Gatwick airport supports the Bill’s key principles, which herald a more flexible regulatory system that better reflects the way in which today’s aviation sector operates. Nevertheless, Ministers should recognise the relationship between the economic regulation of London’s airports and the Government’s priority of attracting new direct routes to emerging economies, which will help to grow the UK economy. My right hon. Friend the Prime Minister recently acknowledged that, under new ownership, Gatwick is emerging as a business airport, competing with Heathrow. Indeed, the airport’s operators have established new routes to countries such as China, Vietnam, South Korea and Hong Kong. Such progress shows that Gatwick can compete to provide direct links to those emerging economies, fulfilling the ambition it has of being a gateway to Asia.

[Graham Stringer (Blackley and Broughton) (Lab)]

My point probably applies more to Heathrow than it does to Gatwick, which is obviously the hon. Gentleman’s main interest, but does he agree that the decision of COMAC—the Commercial Aircraft Corporation of China—to locate in Paris rather than in London, mainly for airport capacity reasons, shows that the Government’s aviation policy has failed because it is essentially an anti-aviation and anti-business policy?

[Henry Smith]

I would not accept that the Government’s aviation policy is either anti-aviation or anti-growth, as shown by the fact that we are now on Third Reading of a Bill that will produce greater flexibility in this sector—vital for a trading nation such as ourselves. I believe the Government should be congratulated by hon. Members on both sides of the House on that achievement.

Returning to my principal interest of Gatwick airport—I am the local Member of Parliament—I believe that it can grow by a further 11 million through-passengers than the current market share shows. The airport’s overall market share is only about a quarter of the total. Gatwick is not a monopoly, so it does not need to be economically regulated. The market should be allowed to work. Deregulation would allow Gatwick the flexibility to invest with pace in new infrastructure to accommodate developments such as the new A380 aircraft and undertake much-needed investment in areas such as the border zone. Through deregulation, Gatwick can emerge fully in line with the views expressed by my right hon. Friend the Prime Minister as an airport that can fairly compete with Heathrow and others. As an economically regulated airport, Gatwick cannot invest flexibly or price services according to what individual customers want or what the market will support.

The Bill outlines a series of tests that must be met for an airport to be regulated. These aim to determine whether an airport has substantial market power and, if so, whether there is a risk of abuse of that position, which existing competition law is insufficient to control. An airport that meets the market power test requires from the CAA a licence to operate, which may include a price cap on what can be charged to carry passengers.

With Gatwick being sold by BAA two and a half years ago and now separately owned and operated, I very much agree with the Transport Select Committee’s findings:

“Given the greater degree of competition that now exists between airports in the south east of England…the CAA should undertake its economic regulatory duties with a relatively light touch.”

Several members of the Public Bill Committee expressed a similar view. On Report, my hon. Friend the Member for Rochester and Strood (Mark Reckless) said, correctly in my opinion:

“If Gatwick feels that it should invest significant sums of money in better terminal facilities in order to service the A380s and…allow the sorts of routes to high-growth markets in Asia that we so strongly support, I see no strong reason why it should be prevented from doing so and charging what the market will bear. I believe that that could be to the benefit of the consumer.”—[Official Report, 25 April 2012; Vol. 543, c. 1031.]

Similarly, in Committee my hon. Friend the Member for Amber Valley (Nigel Mills), whom I am pleased to see in the Chamber, noted that the CAA started

“from a position that… airports are regulated, and appears to want to keep them that way…. we should regulate airports only where there is a definite need to do so, and where there is a real advantage to the user, rather than looking to regulate unless we can find a way out of it.”––[Official Report, Civil Aviation Public Bill Committee, 28 February 2012; c. 153.]

There is clear evidence that Gatwick is now competing with other London area airports. Airlines and passengers are moving between those competing airports in the south-east, and airlines are choosing Gatwick in preference to other airports to establish brand-new routes to countries that are key trading partners. Any legal test should reflect those trends, and there should be no risk of presumption towards regulation.

The correct threshold for economic regulation of any company, including an airport, involves the application of the legal concept of dominance, which is well established in both European Union and United Kingdom competition law. It is used, for example, to determine whether telecom network operators should be subject to economic regulation in all EU member countries. Any test for market power should also be one of dominance. That would ensure a consistent approach to assessing whether there is a need to regulate in line with the regulation of other industries.

I welcome this updating of legislation for the air industry. I believe that it gives us an opportunity to enhance our gift as an innovative aviation and trading nation, and to grow the economic prosperity and employment that we need.