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Lighter regulation is a route to more competition for Heathrow

SOURCE: Financial Times –

From Deri Hughes, London, UK

Sir Willie Walsh’s criticism of Heathrow and the Civil Aviation Authority in respect of the costs of using that airport carries some force. Heathrow exhibits traits that could be defined as monopolistic, and the airport’s economic regulation appears less stringent than is the case for, eg, the UK’s electricity grid.

However, Mr Walsh’s analysis should not be regarded as definitive, and his policy recommendations should be treated with caution.

The Chief Executive of International Airlines Group blames the CAA for allowing Heathrow to levy charges that he describes as “monopoly prices”. Irrespective of one’s opinion on the reasonableness of the CAA’s economic regulation, it should be borne in mind that Heathrow’s ability to charge high prices is ultimately a result of its ability to attract custom; if its ability to attract airlines and passengers were weaker, there would be little need for economic regulation. Furthermore, Heathrow is not a monopoly in the mould of the operators of electricity cables. Heathrow is not the only large airport in the London area, which means that airlines and passengers do, in practice, have a degree of choice.

That so many — including Mr Walsh’s employer — continue to choose Heathrow says much about the latter’s advantages and benefits. However, it also says something about the airport’s economic regulation. Logic implies that in the absence of such regulation, Heathrow’s prices would be even higher. In that case, the services offered by Heathrow’s competitors would become more attractive, and those competitors’ commercial position — including their ability to embark on heavy capital expenditure — would be improved.

In turn, Heathrow would, for the first time, face serious competition, and be obliged to behave accordingly.

As such, if the policy aim is to reduce monopolistic behaviour, as opposed to, for example, protecting the position of Heathrow and certain airlines that rely on having a base there, it would be preferable for the CAA to become more lenient in its economic regulation of Heathrow, or indeed for such regulation to be discarded entirely.

Deri Hughes London E15, UK

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