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This chapter investigates the effectiveness of the airport planning and regulatory system in the United Kingdom and assesses the appropriateness of the current ownership structure. The airport industry has shifted from public to private sector ownership over the last twenty years as a result of new policy directions initiated by the desire of the 1980s conservative government to privatize public utilities. At the same time, air traffic growth has been strong, encouraged by a more liberal environment and in particular by the emergence of low-cost carriers (LCCs). Moreover, throughout this period there have been pressures on capacity at airports in London and the southeast of England, especially at Heathrow, and these pressures have had a major impact on the development of the U.K. airport industry. Today the U.K. government has very limited influence over the air transport sector through ownership—the airline industry is entirely private and the airport industry is now mainly private. The only remaining limited control lies with en route air traffic control, which is provided by a mixed public-private organization that took over from a public agency in 2001. Therefore the main ways in which the government can influence the U.K. airport industry are through the planning system and regulation. Three other sets of policies that affect the airport industry are not considered directly in this chapter. The first set is the U.K., European, and international policy measures designed to mitigate the environmental impacts of aviation, such as local regulations regarding air quality and noise, and possible wider controls related to climate change and emissions. These policies clearly have a major impact on the planning process and are likely to have an increasing influence over future traffic volumes and costs of the industry. The second set of policies affects the use of 5 Airport Planning and Regulation in the United Kingdom anne graham 100 05-9395-3 CH 05 2/29/08 2:09 PM Page 100 existing capacity, such as the current slot allocation system and the lack of a transparent secondary market. Third are the bilateral restrictions on U.K. airlines for services outside of Europe. As background, this chapter begins by considering the nature and traffic characteristics of the airport industry in the United Kingdom. It then reviews the U.K. airport policy and planning framework and discusses the ownership structure and regulatory regime of the airports. This leads to an assessment of the effectiveness of the planning, regulatory, and ownership system, and to the implications of making changes to this system. The paper concludes that the planning process is too long and needs to be shortened and that the regulatory regime has produced economic distortions that need to be corrected. The chapter is also critical of the structure of the BAA airport group, formerly the British Airports Authority, which was set up when privatization occurred and economic regulation was introduced. In short, it is argued that the regulatory and industry structure that was established twenty years ago is now outdated and in need of a full-scale, coordinated review. The U.K. Airport Industry Geography (a large number of towns with significant population volumes and an island characteristic) and a relatively high per capita income help explain the extensive number of international regional airports in the United Kingdom. In 2006 twenty airports in the United Kingdom each served more than 1 million passengers, ranging from London Heathrow with over 67 million passengers to Cardiff in Wales with just under 2 million passengers. The distribution of traffic is clearly uneven, with London currently handling 58 percent of the traffic (table 5-1). Bilateral air service agreements and traffic distribution rules have meant that Heathrow has traditionally been the main international airport in the United Kingdom, handling much business and connecting traffic; in 2006 its share of the U.K. market alone was 29 percent . London Gatwick and Stansted have more leisure traffic and low-cost carriers, as has the smaller airport of London Luton. Stansted, in particular, has experienced very high growth rates in the last ten years because of the LCC sector. The BAA-owned airports of Heathrow, Gatwick, and Stansted have 91 percent of all air traffic in and out of London—although this share has decreased slightly over the years (96 percent in 1990), primarily because of the development of Luton and London City airports. The regional airports have grown in a less coordinated manner. Most were owned by local governments for many years...

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