Select Committee on Constitution Minutes of Evidence

Supplementary memorandum by the Civil Aviation Authority

  At the oral evidence session on 11 June the CAA was asked to respond to statements made to the Committee by British Airways that all fares must still be filed with the CAA. The purpose of this note is to supplement the oral answer the CAA gave to the Committee by explaining the CAA's approach towards the filing and approval of air fares.

  Since 1996 the CAA has progressively reduced its requirements in line with the development of more competitive markets. We estimate that British Airways now needs to file less than 1 per cent of its passenger fares (and none of its cargo rates). The fares that UK airlines need to file are now confined to those routes where competition is constrained by government-imposed restrictions and where, consequently, the CAA may wish to intervene in the level of fares charged to passengers. This is consistent with the CAA's duty under the Civil Aviation Act 1982 to keep to a necessary minimum any restrictions placed on the airline industry.

  However, a significant amount of fare filing is still required in order for the CAA to apply the "sum-of-sector" fares policy on UK-USA and UK-Canada routes at the request of the Department for Transport (DfT).

  The following comments are therefore divided into two parts, covering the CAA's own fares policy and the DfT's sum-of-sector policy. This is followed by some comments on the resources employed and the costs involved.


  The CAA's fares policy, derived from the CAA's statutory duties under the Civil Aviation Act, is set out in its published Statement of Policies1[15]. Essentially the policy says that in markets where competition is constrained by government-imposed restrictions, the CAA is prepared to consider intervening where, after taking into account the relevant market, the degree of bilateral constraints, the availability of different fare products and other factors including route profitability, it concludes that airlines possess and exploit market power to the disadvantage of users. In such circumstances, the CAA will be concerned to ensure that all those who require it on international scheduled services have access to "basic" on-demand travel (normally regarded as the lowest fully flexible economy class fare) at a price reasonably related to its cost of provision.

  In order to determine whether proposed fare changes are consistent with this policy, the CAA requires UK airlines to file any fully flexible passenger fares from the UK to markets where bilateral treaties between governments potentially constrain competition. [16]There are usually two fully flexible fares in each class of travel on any given route. The CAA monitors these closely on around 50 of the more important routes (this subset of routes varies over time with changes in UK airlines' networks and traffic flows). Routes where there are no government-imposed restrictions, and therefore no fare filing, include the whole of the European Economic Area (EEA) [17]as well as a number of other non-EEA countries.

  Thus, the number of fares which the CAA requires to be filed in pursuit of its fares policy is relatively small. It would be surprising if the number approached 1 per cent of the total number of fares currently offered by British Airways worldwide, since this is estimated at 1.4 million. It should also be noted that fares filings only occur when fares change and, unlike leisure fares, fully flexible fares do not change very often, perhaps only once or twice a year.


  Fares to and from the USA and Canada have to be filed in order to determine whether they conform with the "sum of sector" policy of the DfT (under which fares charged between the points in the UK and points in the US without direct air services must not be lower than the sum of the international fare to/from the relevant gateway and the domestic fare). All fare types, including numerous leisure fares that change frequently, must be filed. This has to include fares to and from interior points, which are the main reason for the policy. Interior points number at least 300 in the USA, 80 in Canada, and 20 in the UK. Also, fares for travel to the UK in US or Canadian dollars must be filed.

  The DfT is aware of the CAA's view that this policy should be discontinued because it restricts competition and imposes higher fares on UK passengers.


  The number of people employed by the CAA specifically in relation to fare filing and fare regulation has reduced considerably in recent years, and would be further reduced in the absence of the DfT's sum-of-sector policy:

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  British Airways' fares are displayed in Computer Reservation Systems (CRSs) that allow travel agents worldwide to sell tickets on its flights (and the flights of most major airlines). British Airways' fare filings with the CAA are generated automatically as a by-product of the process by which its fares are transmitted electronically to the CRSs via Airline Tariff Publishing Company (ATPCO). These filings can be viewed electronically via the Internet and the CAA has the ability to annotate them electronically with approval and comments.

  ATPCO makes no extra charge for fare filings with the CAA. The CAA does not levy any charges for fare filing. Therefore British Airways incurs no additional costs where fares are filed with the CAA via ATPCO, since the fares are being transmitted to ATPCO anyway. No additional work by the airline is involved, other than instructing ATPCO to add a short statement to the filing saying what it contains. Occasionally some material is not presented to us by ATPCO in which case British Airways will file it with us by e-mail. This occurs once a month on average.


  British Airways is incorrect when it states that all prices must be filed with the CAA. The CAA's fares policy means that British Airways need file:

    —  less than 1 per cent of its passenger fares;

    —  0 per cent of its cargo rates.

  The CAA would be happy to explore other ways of achieving the same goal, but informally British Airways has so far indicated that the current filing arrangement suits it well because it involves no additional work or cost.

  The bulk of fares that British Airways files with the CAA are on UK-US/Canada routes in pursuit of a policy at the request of DfT.

Civil Aviation Authority

15 July 2003

15   Statement of Policies on Route and Air Transport Licensing, June 2002, see: Back

16   The conditions in UK airlines' licences that contain the formal requirement to file fares in certain markets for approval are published in the CAA's Official Record Series 1, Schedule 4, see: Back

17   The 15 EU Member States plus Norway, Iceland and Liechtenstein. For fare filing purposes the United Kingdom is regarded as including the Channel Islands and Isle of Man. Back

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