Supplementary memorandum by the Civil
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
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.
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
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
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
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:
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
Civil Aviation Authority
15 July 2003
Statement of Policies on Route and Air Transport Licensing, June
2002, see: www.caa.co.uk/erg/ergdocs/Statement_of_Polices_June_2002. Back
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:
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