ABSTRACT

The Airports Act 1986 which privatised the British Airports Authority also imposed a condition on certain charges that BAA pIc could impose on users of its three southeast airports, London Heathrow, Gatwick and Stansted. This condition takes the form of a price cap; charges are permitted to rise in line with inflation plus or minus a specified percentage, known as the ‘X’ factor. The RPI-X form of price regulation has been applied in a number of UK utility industries transferred to private ownership – telecom, gas, water and electricity in addition to airports. In all cases the initial condition on prices was set by the government with the requirement that it be reviewed after a specified period – five years in the case of airports. The first quinquennial review of BAA plc is now taking place: in July 1991 the Monopolies and Mergers Commission (MMC) published its findings under a reference made in December 1990 by the industry regulator, the Civil Aviation Authority (CAA).