How should airports be regulated?

This paper will answer the question of how to regulate airports by commenting on the main features of the Q5 price control. In BAA's response to the Civil Aviation Authority December 2005 policy document, upon which this paper is based, it was argued that price controls for BAA's London airports should: • be set by reference to CAA's statutory objectives and government policy for the development of runway capacity in the South East; • be set after a full analysis of the nature of the London market; • reflect the fact that extra capacity at Stansted is good not only for passengers at Stansted, but also at the other London airports, as competition drives down prices and increases innovation across the London system; • reflect the general move towards deregulation across other regulated sectors; and • deliver incentives for BAA's shareholders to choose to continue to invest in the transformation of Heathrow, the renovation of Gatwick and the development of Stansted. This paper is based upon BAA's submission to the December 2005 consultation document issued by the CAA. As such, it includes material from a variety of authors, in particular, Mike Toms and Jonathan Pacey, both of BAA.