COMPETITION COMMISSION'S CURRENT THINKING ON DUAL TILL PROPOSALS FOR MANCHESTER AIRPORT

As part of its five year review of charges at Manchester Airport the Competition Commission (the Commission) has today published a statement of its current thinking on the Civil Aviation Authorities (CAA) proposal to introduce the dual till approach to the setting of charges for the airport.
In its recommendations to the Competition Commission, which accompanied the reference for the review of charges at Manchester Airport for the five year period beginning on 1 April 2003 (available at www.caa.co.uk) the CAA proposed that the existing 'single till' regime for airport charges should be replaced by a system which involves a revised regulatory cost base - referred to in the industry as a 'dual till'. Under a single till, commercial as well as aeronautical revenues received by an airport are taken into account in assessing the appropriate maximum level of airport charges. Under a dual till, only the returns on aeronautical assets would be considered. Other things being equal, airport charges derived using a single till approach are likely to be lower than they would be under a dual till, because of the higher profits generated by commercial activities.

Over the last four months, the Commission has considered this proposal very carefully and has taken evidence from the CAA itself, from Manchester Airport and from many of the airlines and others who use the airport. The Commission will not reach a final view on this issue until it prepares its final report, and it remains open to further arguments and representations on this point. Our current thinking, however, is that, so far, the Commission has not found the arguments for moving to a dual till at Manchester persuasive.

Discussion of the single / dual till issue has overshadowed other elements of this reference. So one reason for issuing this statement now is to enable those interested in the subsequent stages of this inquiry to make representations on other aspects of the reference in the knowledge of the Commission's current thinking on this issue. Amongst the other issues on which we would now like to focus further are:

- the appropriate value for 'X', in the pricing formula RPI - X;
- the best mechanism for delivering service quality at Manchester;
- the treatment of non-regulated charges and their consequences for the price cap;
- consultation between the airport and its users;
- the justification for, and transparency of, differential treatment of users at Manchester; and
- the treatment of additional security costs (the S factor).

The reasons that have informed our current thinking on the single / dual till include:

- The difficulty, conceptually, of separating commercial and aeronautical activities. Commercial revenues at Manchester airport cannot be generated without aeronautical facilities.
- The difficulty, in practice, of allocating both investments and operating costs between aeronautical and commercial activities. We are concerned that this allocation must, to an extent, be arbitrary and could lead to wrangles which, in turn could harm relations between the airport and its users.
- It is not clear that the dual till would have a beneficial effect on efficiency in the utilisation of aeronautical facilities.
- The dual till could risk distorting investment incentives: commercial activities might expand at the expense of aeronautical, which may not attract sufficient funds or attention.
- There is no evidence that the single till has led to under-investment in aeronautical assets at Manchester in the past, nor any expectation that it will do so over the next five years.
- It is not clear that the dual, as opposed to the single, till would be likely to lead to better aeronautical investment in the future. Increasing the allowable rate of return for particular projects might be a better way to incentivise investments, if a problem were to occur.
- Introducing the dual till at Manchester on the grounds of regulatory consistency does not seem to be compatible with ICAO guidelines that each airport should be looked at on its merits.
- No useful parallels can be drawn from the overseas airports which use the dual till in whole or in part, as their circumstances are not comparable with Manchester's.
- As airlines bring in the customers who make commercial operations at Manchester Airport profitable, it is reasonable that they should also share in their benefits.
- If airport charges were to be higher at Manchester under a dual till regime than under the single till - as is likely to be that case - then this could have adverse implications for passengers and the fares that they would have to pay for flights.

The Competition Commission is also carrying out an inquiry in to the three BAA London airports. It is issuing a separate statement today on its current thinking on the single / dual till issue in that reference.

Notes to Editors

1. The reference of Manchester Airport to the Competition Commission was made by the CAA on 28 February 2002.

2. Under the airports Act 1986, the CAA is required to refer Manchester Airport to the CC every five years. The price cap for Manchester Airport will expire on 31 March 2003. A new price cap will have to be set by the CAA for the period from 1 April 2003 to 31 March 2008. The CAA's proposals and background information are published on their website at www.caa.co.uk

3. Further information can be found on the CC website: www.competition-commission.org.uk/inquiries/manchester.htm

4. Enquiries should be directed to: Francis Royle, Press Officer, tel: 020 7 271 0242.