cctinonne G london to the woRld - Home | Gatwick Airport...foreord by Steart ingate 4 London Gatwick has now been under new ownership for over three years. 2013 is going to be a defining

A new deAl At london GAtwickRevised Business plAn to 2024

JAnuARy 2013 puBlic veRsion

connectinG london to the woRld

©

Image on front cover: EasyJet – G-EZUI 200th AirbusCopyright: Andrew Simpson

CONTENTS 3

Section Subject Page

INTRODUCTION Foreword by Stewart Wingate

5

ChapTeR 1 A New Deal at Gatwick 7

ChapTeR 2 Competitive Landscape 21

ChapTeR 3 Competing on Service 27

ChapTeR 4 Gatwick’s New Deal: Contracts and Commitments 43

bUsINess plaN

ChapTeR 5 Developing the 2013 Business Plan 55

ChapTeR 6 Traffic Forecasts 59

ChapTeR 7 Our Capital Programme 65

ChapTeR 8 Service Quality Regime 83

ChapTeR 9 Our Environmental Story: Decade of Change 91

ChapTeR 10 Non Aero Revenue 97

ChapTeR 11 Operating Costs 109

ChapTeR 12 Regulatory Assumptions and RAB-Based Price 125

ChapTeR 13 Way Forward 133

Section Subject Page

appeNDICes

appeNDIX 1 Draft Airport Commitments 137

appeNDIX 2 CEWG End CE Review: Joint Submission to the CAA 151

appeNDIX 3 Economic Assumptions 183

appeNDIX 4 Gatwick Long Term Traffic Forecasts 185

appeNDIX 5 Customer Surveys: YouGov 213

appeNDIX 6 Business Cases 273

appeNDIX 7 Pensions 274

appeNDIX 8 Cost of Capital: Principles Paper 275

appeNDIX 9 Cost of Capital: Methodology and Estimation 276

appeNDIX 10 RAB-Based Price 11/12 Prices 277

appeNDIX 11 easyJet Consolidation into South Terminal 279

appeNDIX 12 RAB-Based Price for easyJet Consolidated Scenario 285

appeNDIX 13 SQR Performance 289

Parts of the submission to the CAA have been redacted for reasons of commercial confidentiality. These redactions are marked with .

FOREWORD BY STEWART WINGATE 4

London Gatwick has now been under new ownership for over three years. 2013 is going to be a defining year for the future of the airports in the South East. Competition, in line with the vision outlined by the Competition Commission in 2009, reaches a new level as Stansted passes into separate ownership. The four largest London airports each serving the London and South East market will, for the first time, be in separate ownership. The competition between these airports can only continue the improvement in the choices available to passengers and airlines that have been increasing since 2009.

In 2013, the CAA will be making decisions as to which airports should be regulated and, if they are to be regulated, how that should be carried out. This is against the background that the CAA put the interests of passengers at the heart of its duties. The CAA will be making these decisions with, for the first time, competing visions from each of the airport as to how they each want to develop.

Finally, 2013 will see the start of a process that could, finally, lead to new runway development in the South East, albeit that a new runway would not be built anywhere until the mid 2020’s at the earliest. For the first time, the decision as to where the next runway should be located will be made against competing proposals for growth.

It is against this dynamic future that we put forward our ten year business plan, for the period 2014 to 2024. The first five years of the business plan have been subject to detailed consultation with our airlines since we published our initial business plan in April 2012. The outcome of this consultation with our airlines has we believe significantly improved the initial proposals we issued in April 2012. The main elements of our vision for Gatwick are as follow:

• Improvements in all elements of the passenger journey through our airport, leading to a much better experience for all types of passengers, while at times delivering further operating efficiency;

• Growth in traffic from around 34 million passengers today, to around 37 million passengers as we approach 2020;

• Growth in non-aeronautical spend per passenger through innovation and improved offerings; and

• £1bn of capital expenditure between 2014 and 2020, thereby continuing the rate of improvement since the airport changed hands.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

FOREWORD BY STEWART WINGATE 5

This business plan now passes to the CAA for its consideration. However, as well as developing a vision for a new Gatwick, we have also developed proposals for a commercial, rather than a regulatory, relationship with our airlines. We believe that the radical change in the ownership structure of the London airports needs to be matched by an equally radical change in the regulatory framework at Gatwick, and that this is the key to making Gatwick aworld class airport.

We continue to make the case that there is no need to continue economic regulation of Gatwick beyond 2014. We do not believe that the exciting vision of a world-class Gatwick can be delivered under economic regulation. We are therefore proposing in this document that interests of passengers and airlines will be protected and furthered by a combination of Contracts and Commitments.

Our legally-binding Commitments would maintain and improve existing service levels and would offer long-term certainty in relation to maximum average price levels. We propose that under the Commitments Framework, following an initial price adjustment, the maximum average price level would increase by RPI+1.3% over a 7 year period from April 2014. Within this level of prices, we would then seek to negotiate bilateral, tailored contracts, with our airlines. In this business plan, we explain that continuous improvement in levels of service for our passengers and airlines is more likely under our commercial framework.

In summary, neither common ownership by BAA, nor the regulatory framework, have served passengers well. At last we have an opportunity for competition between the London airports to deliver a world class experience for passengers at our airport.

I am very excited to be CEO of Gatwick at this time, and I hope our vision as to how Gatwick will develop in the future will be exciting to you also.

Yours faithfully

Stewart Wingate Chief Executive

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

7

1.1 aIRpORT COMpeTITION Is Real

On 3 December 2009, London Gatwick was purchased by a consortium led by Global Infrastructure Partners. For the first time, there is now genuine competition between the major airports in the South East. This provides passengers and airlines with greater choice and the opportunity to benefit from the competitive dynamic between the South East airports, and puts an onus on Gatwick to deliver what passengers and airlines want by:

• Competing ever more vigorously for services in all market sectors, seeking point to point, short and long haul growth and to increase our share of transferring passengers;

• Delivering improving levels of service enabling us to serve the different parts of the market;

• Innovating and increasing efficiency in what we offer and how we deliver it;

• Investing cost effectively to deliver the facilities that an efficient, service-oriented airport needs while correcting the under investment of the past; and

• Seeking to expand the choice for passengers and airlines as the Government considers the options for expansion of runway capacity in the UK.

In the first three years of independent ownership, competition has brought opportunities, as well as creating risks, some of which have crystallised. We have successfully attracted airlines from other airports, such as the movement of Norwegian from Stansted. We have attracted long haul airlines, such as Vietnam Airlines, that have chosen Gatwick over Heathrow. Our biggest airline, easyJet, continues to grow at Gatwick, as do other airlines.

On the other hand, we have had our share of setbacks. Air Asia X and airberlin have withdrawn from Gatwick and the recent decision of Korean Air to operate from Heathrow continues to emphasise the competitive nature of the South East airports market. Ryanair, while still at Gatwick, has significantly reduced the number of routes it has here.

We have invested heavily in our competitive offering. An early focus of the new management was to transform the South Terminal security area, including the provision of premium and family security lanes. The fact that Heathrow chose soon afterwards to introduce family lanes is testimony that competition is extending across the whole London market.

Our investment programme continues to be focused on our competitive offering. We will shortly be ready to accept A380 pier-served passengers, putting Gatwick on a par with the other major European airports. We are investing in our immigration halls to ensure that Gatwick continues to offer the best immigration experience of the major London airports. We invested in snow equipment to ensure that we were able to stay open while Heathrow was shut. Our North Terminal extension helped British Airways transform its check-in product at Gatwick. We have invested in the railway station, to seek to address the decline in the service quality experienced by rail passengers as they come to and from the airport.

We have also invested heavily in our passenger facing products, and have awards for our online and social media programmes. We have put in place an extensive passenger feedback programme which led, for example, to significantly improved signage in the terminals, ensuring that we continue to exceed the regulatory service quality targets. We have invested in staff training so that passengers receive a warm welcome at Gatwick, a feature that by the end of 2012 resulted in South Terminal security being seen by passengers as the best security experience in Europe.

By understanding our passengers’ needs, we also have an insight into what draws them to Heathrow. Heathrow Terminal 5, and the extensive availability of A380 aircraft, remain very attractive to passengers, leading to a significant number of potential Gatwick passengers driving past the airport to Heathrow. This competition will be enhanced once Heathrow opens Terminal 2 in 2014. Much of our business plan is focused on seeking to compete with the continually improving service offered by Heathrow.

On 20 August 2012, the competitive dynamic entered a new phase as BAA confirmed the sale of Stansted to the Manchester Airports Group which was announced in January 2013. We expect the sale of Stansted to intensify competition with Gatwick for airlines and passengers, both in the low cost segments that have previously been Stansted’s strength and also in the faster growing, long haul business where a new owner might be expected to pursue many of the opportunities we have already found at Gatwick. So far, Gatwick has been the main beneficiary of competition with Stansted, as we have attracted airlines from Stansted to Gatwick. However, Stansted has both the spare capacity and operational strengths to win this business back – and more – unless Gatwick continues to improve its offering.

CHAPTER 1A new deAl At GAtwick

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

1Strategy

CHAPTER 1A NEW DEAL AT GATWICK

8

On 17 October 2012, Gatwick announced that it was starting the work necessary to understand the issues associated with, and the options for, the expansion of runway capacity at Gatwick. We believe that a new runway at Gatwick could have significant advantages over competing proposals for expansion that may emerge from Heathrow, Stansted or the more ambitious options in the Estuary. With this announcement, and the increased choice it now gives for capacity expansion in the South East, we continue to demonstrate the benefits that are being delivered by the break-up of the airport monopoly in the South East.

The advent of the Airports Commission provides the opportunity to realise fully the competitive landscape for South East airports which was foreseen by the Competition Commission (CC) and the Civil Aviation Authority (CAA) when the decision to break up BAA’s South East monopoly was taken. Although no decision to proceed with runway development is likely before 2016 at the earliest, the prospect of competition to provide extra capacity will put renewed focus on which airport has the most compelling vision for the passenger experience today and into the future and can demonstrate in the meantime the ability to deliver.

On 19 December 2012, the Civil Aviation Act became law. This legislation now puts a primary duty on the CAA:

“To further the interests of users of air transport services regarding the range, availability, continuity, cost and quality of airport operation services. where appropriate by carrying out the functions in a manner which it considers will promote competition in the provision of airport operation services.”1

This Act has thus put a onus directly on the CAA to promote competition between airports. The Act also introduces the flexibility for the CAA to tailor its approach to the individual circumstances of each airport. In this way, the change in ownership of the major South East airports, together with new obligations upon the CAA gives – for the first time – the opportunity for competition, rather than regulation, to deliver a better airport experience.

We believe that, with separate ownership of the four main South East airports, and with the requirement for the CAA to promote competition, the opportunity exists for passengers and airlines to benefit from a strong competitive dynamic between the airports. However, if this opportunity is to be exploited to the full, there needs to be a radical change away from the traditional approach to regulation and towards normal commercial and competitive ways of doing business.

We recognise that this represents a major change for all concerned and, to give reassurance to our airlines and the CAA, we have set out in this business plan detailed commitments which we would provide to our airlines on a legally-binding basis.

1 Civil Aviation Act 2012

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

1Strategy

9

1.2 COMpeTING TO GROW – DelIVeRING OUR sTRaTeGIC pRIORITIes

The way in which we have sought to compete since December 2009 is encapsulated in our ambition “Compete to grow and become London’s airport of choice”, and the strategic priorities by which we run the business. These priorities are included in the personal objectives of our Executive team and are then cascaded down to the individual objectives of our senior leaders and on to each of our members of staff.

Figure 1.1 Gatwick’s strategic priorities

Deliver the best passenger experience

Help our airlines grow

Increase value and efficiency

Protect and enhance our reputation

Build a strong EH&S culture

Develop the best p

eople,

processes a

nd technology

OUR AMBITION& STRATEGYCompete

to grow and becomeLondon’s airport of choice

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

1Strategy


10

In the section below, we describe briefly how each of these strategic priorities is reflected within this business plan.

DelIVeR The besT passeNGeR eXpeRIeNCe

…BY LISTENING TO OUR PASSENGERS AND DELIVERING THE KIND OF SERVICE THAT WILL MAKE THEM CHOOSE TO FLY FROM GATWICK.

In our business plan, we have included projects to improve the quality of our terminals, in line with passenger feedback on the need to improve the ambience of the airport. Projects arising from such passenger feedback include transformed check-in zones, replicating the South Terminal security experience in the North Terminal, and refurbishing the ceilings. Passengers tell us that they want improvements in the departure lounges. We have therefore included ambitious plans to expand and further upgrade both terminals. We know that passengers value the ability to get onto aircraft via a pier, so an important part of our business plan is the investment required to maintain 95% pier service in the North Terminal. We are also planning projects to improve the arrivals process, something we know is important to passengers, particularly improvements to the arrivals borders zone. Improvements to Gatwick station will have been delivered by 2014, and we are therefore at this stage not proposing any major further expenditure on the station, although we believe that we should, in partnership with Network Rail, be able to upgrade the station further in future.

help OUR aIRlINes GROW

…BY UNDERSTANDING THEIR GOALS AND DEVELOPING COMMERCIAL RELATIONSHIPS.

We have included projects that will facilitate growth in airline traffic, helping our existing airlines to grow and also seeking to attract new long haul traffic. Many of the projects in our business plan accommodate the continued growth in short haul aircraft. However, we also need A380 capability, which will in fact be delivered in 2013. Much of the work in our asset stewardship programme is required to ensure the continued efficient operation of our airside assets, an area of key importance for our airlines. We also aspire to negotiate commercial arrangements with our airlines underpinning our intention to retain, and to grow, their businesses.

A major issue in this business plan is the terminal location of easyJet at Gatwick. We believe that easyJet’s passengers would prefer the simplicity of being located entirely in one Terminal. However, the implications of consolidation of easyJet in the South Terminal, and the additional costs involved, have yet to be accepted by other airlines at Gatwick. We have therefore prepared this business plan on the basis that easyJet continues to be split between North and South Terminals although we show the implications of easyJet’s consolidation into the South Terminal as an overlay to this business plan. As our biggest customer, and to improve the passenger experience for easyJet’s passengers, we are keen to facilitate the consolidation of easyJet into one terminal. We will continue to develop the plan for easyJet consolidation, seeking in particular to address the impact on the service we offer to our other airlines.

INCRease ValUe aND eFFICIeNCY

…BY MAXIMISING INCOME FROM RETAIL, PROPERTY AND CAR PARKS, LOWERING OUR OPERATING COSTS AND INVESTING EFFICIENTLY.

We are planning retail projects in both our terminals, addressing in particular the need to extend the North Terminal international departures lounge to meet the growth in passenger numbers as well as the desire of our passengers to have an enhanced retail experience. Many of our asset stewardship projects are about reducing our ongoing operating costs, or preventing a rise in our operating costs as our assets age. We will continue to improve the efficiency with which we deliver our day to day operations, while increasing service quality and efficiency – the North Terminal security project is an example of that.

However, we are not simply focussed on our own operating costs. A number of our projects are intended to reduce our airlines’ operating costs, such as the projects around common use check-in facilities. We continue our drive to invest efficiently, a process that started with our reworking of the Q5 capital plan. The efficiencies that we delivered in Q5 are embedded in the capital proposals beyond Q5.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

1Strategy

11

pROTeCT aND eNhaNCe OUR RepUTaTION

…BY BUILDING STRONG AND CONSTRUCTIVE RELATIONSHIPS WITH OUR STAKEHOLDERS BASED ON OPENNESS AND TRUST.

We will be engaging fully with the Airports Commission to provide the Government with the evidence it needs to make a choice as to which airport should be expanded. As we explore options for runway development at Gatwick, we will be clear about the potential impacts on our local communities. Engagement with our communities is important, and we are considering an enhanced noise scheme to address local concerns.

As we develop plans for the more intensive use of our existing runway, our excellent relationship with our safety regulators will continue. We hope to continue our award-winning interfaces with our passengers, with a major expansion of technology expenditure in our terminals.

With respect to surface access, we will want to continue to build our relationships with Network Rail and the train operating companies as we seek to address the decline in the service standards of the rail services at Gatwick. We still lag behind the quality of the Heathrow Express, and the Stansted Express has new rolling stock. We will therefore seek to influence the nature of new railway franchises so that they directly address the needs of airport rail passengers.

bUIlD a sTRONG eNVIRONMeNTal, healTh aND saFeTY CUlTURe

…BY MAINTAINING A RELENTLESS FOCUS ON ACHIEVING ZERO INCIDENTS.

We can demonstrate a much improved safety record since the change in ownership. Our “Destination Zero” programme is intended to keep an intense focus on the safety of our staff, contractors and passengers. Our capital proposals will ensure that this improvement in safety continues. Our progress was verified independently when we achieved OHSAS 18001 and PAS55 certifications as well as retaining ISO 14001 certification. In terms of our environmental ambitions, we are intending to achieve our Decade of Change targets by investment in a wide range of innovative energy saving measures.

DeVelOp The besT peOple, pROCesses aND TeChNOlOGY

…BY INVESTING IN HIGH PERFORMANCE PEOPLE, DRIVING CONTINUOUS IMPROVEMENT AND DEPLOYING THE RIGHT SYSTEMS.

This business plan proposes a radical overhaul of the way in which IT services are provided, leading to a marked reduction in the capital expenditure proposals put forward in the April 2012 business plan. Nevertheless, we still need to continue investing in our IT systems, as we replace time-expired assets.

On the investment in our workforce, our business plan assumes we have met the Investors in People standard and aims to achieve the next level of recognition in this area.

1.3 WhaT sORT OF aIRpORT CaN We DelIVeR?

What kind of airport do we envisage by the early 2020s? We believe that the answer to this question depends very much on the environment we are given to work within. In this respect, the CAA’s forthcoming decisions are crucial, and we have focused on two scenarios, to which we return after we outline the sort of airport experience that we want to deliver.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

1Strategy


12

WheRe MIGhT We be IN 2020?

The improvements we have made at Gatwick in the past three years are clear. We wish to continue this improvement. The table below summarises our vision. By 2020:

OUR aMbITION Is TO COMpeTe TO GROW aND beCOMe lONDON’s aIRpORT OF ChOICe…OUR sTRaTeGIC pRIORITIes

lONDON GaTWICk bY 2020

DelIVeR The besT passeNGeR eXpeRIeNCe

… by listening to our passengers and delivering the kind of service that will make them choose to fly from Gatwick.

• Specific facilities for passengers with young children and passengers with reduced mobility• Queues at check-in and immigration significantly reduced, delivering an average of 10 minutes

and eliminating queues greater than 30 minutes• Continuation of our leading performance in security queuing• Arrivals bags wait times reduced, taking 10 minutes less than today.• Terminal facilities significantly improved, delivering an ambience that meets the expectations

of a 21st century airport• At least 95% of our passengers enjoying pier service as passenger demand grows• Departure lounges that deliver comfort and space

helpING OUR aIRlINes GROW

… by understanding their goals and developing commercial relationships.

• New technology offering a reduced cost to operate at check-in• Propositions to attract business travellers• Piers and stands designed to deliver fast turn around and lower cost to operate• Automation of boarding processes that reduce cost• A new baggage system that allows anytime check-in and reduced cost handling in the baggage hall• Increased movements off the world’s busiest single runway increasing capacity for airlines to grow

INCRease ValUe aND eFFICIeNCY

… by maximising income from retail, property and car parks, lowering our operating costs and investing efficiently.

• Significantly improved retail revenue from North Terminal departure lounge through an expansion that will deliver 45% more space and a walk through duty free store

• A new food court in South Terminal• Investment in our property portfolio to maintain our income levels• A programme approach to capital development that returns greater value at a reduced cost.• A new North Terminal security zone that delivers an improved passenger experience.

pROTeCT aND eNhaNCe OUR RepUTaTION

… by building strong and constructive relationships with our stakeholders based on openness and trust.

• We will have secured improvement in the quality of the rail rolling stock and protected the Gatwick Express service through our close working relationships with Network Rail and the train operating companies

• We will continue our close working relationship with the local community and passenger advisory group

• Collaboration with UKBF to improve processes, maintain a robust border and improve customer service

bUIlD a sTRONG eNVIRONMeNT, healTh aND saFeTY CUlTURe

… by maintaining a relentless focus on achieving zero incidents.

• We will retain OHSAS 18001, PAS55 and ISO 14001 certifications• We will be delivering on our Decade of Change targets• Our “Destination Zero” programme will continue to ensure our intense focus on the safety

of our staff, contractors and passengers

DeVelOp The besT peOple, pROCesses aND TeChNOlOGY

… by investing in high performance people, driving continuous improvement and deploying the right systems.

• Radical overhaul of how IT services are provided• Investors in People achieved and a target to attain a top 10 place in the Sunday Times 100

Best Companies to Work For• A service-led delivery model taking lessons from industry best practitioners such as Disney• Industry leader in the application of Building Information Modeling (BIM) in design and

construction management

DRIVeN bY OUR passeNGeR COMMITMeNTs

Figure 1.2 Gatwick’s strategic priorities deliverables:

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

1Strategy

13

It is fundamental to this business plan that we continue to improve the quality of our service offering, thereby addressing the increase in competition that we foresee in London and the South East. This leads us to put forward a significant level of capital expenditure of £965m, in the years between 2014 and 2020. Beyond 2020, our projections are less certain, although we can see no reason why increasing the experience offered at Gatwick will not require us to continue to invest heavily.

For the period up to 2020, our capital expenditure proposals fall into 3 broad categories.

CaRRY OVeR pROjeCTs £89.4m

South Terminal Baggage/Pier 1 and Pier 5 will not have been completed by the end of Q5.

asseT sTeWaRDshIp £351.4m aND COMplIaNCe

In this category, we intend to continue the increased level of expenditure as we seek to maintain and improve existing facilities in a timely and efficient way, and to avoid any return to Gatwick’s previous rundown condition.

DeVelOpMeNT pROjeCTs £524.1m

Projects in this category are intended to improve our competitive offering and/or to increase capacity, particularly in our terminals. Examples include the extension of Pier 6 (to maintain 95% pier service), North Terminal security (to increase service levels, while cutting costs) or the IDL improvements (to increase service levels, while increasing revenue).

As we explain later in this business plan, while significant, the proposed £965m of capital expenditure is less than the £1.15bn put forward in the April 2012 Initial Business Plan. The differences arise from two main dynamics. First, the Constructive Engagement process did not produce support for some projects and we have decided not to put them forward at this stage. Second, this business plan contains a lower forecast of traffic than we included in the April 2012 Initial Business Plan. This delays the need for some capital expenditure to beyond 2020.

sCeNaRIO 1: WORkING WIThIN The FRaMeWORk OF ReGUlaTION

The priorities outlined above, and the business plan that we have developed to deliver these priorities, are laid out in detail in the rest of this document. However, the business plan – if it was to be delivered under a standard regulatory framework – carries significant risks to delivery, stemming particularly from a revitalised Stansted and continued heavy investment at Heathrow. Further economic and external shocks are also a strong possibility – particularly in relation to the ten year forecast we have been asked to make.

We need to respond to these threats by establishing a competitive position so strong that it enables Gatwick to withstand them, making Gatwick as “London’s airport of choice” a reality. This will require world-class performance from Gatwick.

We do not believe that this ambition can be realised within a framework of continued regulation:

• Investment timing can be distorted because of the way in which prices are linked to the Regulatory Asset Base (RAB);

• There are weak incentives to deliver efficiencies, or to increase non-aeronautical revenue, particularly toward the end of any regulatory period;

• Regulation creates significant direct and indirect costs for both the airport and airlines, and diverts significant amounts of management time and effort;

• The adversial nature of the regulatory system inhibits co-operation, and prevents alignment of incentive with our airlines;

• The rigid regulatory review process is insufficiently flexible to deal with the uncertainty and speed of events in the aviation sector; and

• The regulator is making the key decisions in what is supposed to be an increasingly competitive market.

We do not believe that the drawbacks identified above can be addressed via a standard regulatory framework. The regulatory system came under heavy criticism during the CC’s investigation into BAA’s ownership of the regulated airports. As a result, there are now new duties upon the CAA as it carries out its statutory functions – in particular, the need for the CAA, where appropriate, to carry out its functions in a manner which will promote competition between airports.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

1Strategy


14

Nevertheless, the CAA has asked for price associated with a standard regulatory framework. This is contained in the table below:

beYOND q5 TO 2018/19

£m aT 13/14 pRICes 2013/14 FOReCasT

2014/15 FOReCasT

2015/16 FOReCasT

2016/17 FOReCasT

2017/18 FOReCasT

2018/19 FOReCasT

Regulatory price Cap (£/passenger) (pre-profiling) 8.80 10.15 10.73 10.99 11.03 10.70

Price Path x=3.3%

Regulatory price Cap (£/passenger) (post-profiling and P0 adjustment) 8.80 10.06 10.39 10.73 11.08 11.45

Table 1.1 Illustrative RAB based price path (profiled with a P0 adjustment, 2013/14 prices).

This table includes a one-off price adjustment of 11% at the end of Q5. This is then followed by prices rising by RPI+3.3%. This calculation is carried out on the same basis as Q5, a so-called “Gross average yield”, which we discuss in more detail later.

However, we are not proposing a regulatory framework as the best way forward for passengers and airlines at Gatwick Airport, and we now turn to Gatwick’s proposals for Commitments and Contracts we believe are a more appropriate way to protect the interests of passengers, as well as being in the interest of airlines, and the airport.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

1Strategy

15

sCeNaRIO 2: a NeW Deal aT lONDON GaTWICk

Competition between airports in the South East of England is the best way to improve choice for airlines and passengers and to drive improvements in facilities and service standards that are valued by passengers. We recognise that there would be concerns if the current system of regulation was replaced by an alternative which might be perceived as potentially producing a worse outcome in terms of quality of airport facilities, service levels and price. We have therefore developed an alternative that provides all airlines and passengers the assurance of a better outcome while unleashing the benefits that flow from encouraging and delivering greater competition between airports. This alternative – A New Deal at London Gatwick is based on a legally-binding Commitments Framework within which airport-airline relationships can develop under the terms of bilateral, tailored contracts.

We believe that our proposed Commitments Framework will deliver a better and more efficient airport than if the current regulatory model continues. Our Commitments maintain and improve existing

service levels and offer long-term certainty in relation to maximum average price levels as Gatwick is willing to take traffic and other business risks for an extended period of 7 years compared with the traditional 5 year period. Removing the direct and indirect costs of regulation and distortions of incentives under regulation enables Gatwick to offer a lower price path for a longer period than it expects under our estimate of a regulatory framework.

Gatwick estimates that following an one-off price adjustment of 11%, the maximum average price level under a regulatory framework will increase by RPI+3.3% over the 5 year period from April 2014. Under the Commitments Framework, following the same initial price adjustment, the maximum average price level would increase by RPI+1.3% over a 7 year period from April 2014.

A comparison between prices under a regulatory framework as opposed to a Commitments Framework is shown in the figure below.

12.0

11.5

11.0

10.5

10.0

9.5

9.0

8.5

8.0

X=1.3

X=3.3

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21

P0+11% increase

£8.80 Q5 end price

Commitments and RAB Based Prices

Ave

rage

Aer

onau

tical

Yie

ld (£

per

pas

seng

er)

RAB based price control

Commitments Framework

5 years beyond Q5

Figure 1.3 Price path under Commitments and RAB-based price control

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Gatwick will be able to react much more responsively to the evolving and varying needs of airlines and passengers in an increasingly dynamic and competitive market. As described in Chapter 4, the interests of all airlines will be protected while there will be flexibility to work more closely and collaboratively with individual airlines to deliver attractive services to passengers efficiently. We therefore see this approach as a better route to delivering more effectively the facilities and service levels that are wanted by our customers thereby delivering a better passenger experience.

If the way is clear for us to offer overarching Commitments to all our airlines, as an alternative to regulation, we would then seek to proceed to enter into bilateral contracts with our airlines. In this way, we will be able to deliver the relationship between airport and airlines that we see in competitive markets, tailoring our services more closely to the requirements of individual airlines and their passengers, and ensuring that the incentives on both airport and airlines are targeted to deliver further improvements in the passenger service.

RaDICal ChaNGe FROM The Caa TO MaTCh RaDICal ChaNGe IN OWNeRshIp

Competition between the South East airports is now a reality given the changes in ownership that have taken place or in prospect. The question is how far and how fast this competitive dynamic is allowed – by the CAA – to proceed.

We believe that Gatwick’s proposal of Commitments should provide a better deal for airlines and their passengers than a regulatory outcome. A decision by the CAA to allow competition, rather than regulation, to protect the interests of passengers would, in our view, be the most important step that the CAA could take in putting the interests of passengers at the heart of its overall duties, which is now the test that the CAA must apply when considering the future of Gatwick. We can summarise the change as follows:

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OlD WORlD NeW DealInvestment The link between the RAB and prices colours

discussions on the nature and timing of investment. The needs of passengers, now and in the future, can become a secondary consideration.

Eliminated since capital expenditure now driven by capacity needs and service quality.

Incentives Incentives for airport and airlines are weak, primarily because of:

•Theeffectof5yearcontrolperiods;

•Therequirementtosharevalue-addedalmost immediately with all airlines;

•Aone-sizefitsallpricingandrelationship.

Longer time horizons, with airport and airline incentives stronger and better aligned.

Greater share of value-added goes to those who create it.

Pricing and contractual relationships tailored for individual airlines.

Burden of Regulation Significant direct and indirect costs for both airport and airlines.

Major diversion of management time and effort onto regulatory matters, and away from improving service and efficiency.

Costs reduced.

Significant amount of additional management time and effort available for improvement of service and efficiency.

Speed of Response The airport’s ability to respond in a fast-changing aviation environment is hampered by:

•Theinabilityofanyregulatorysystemtoforecast accurately for 5-7 years ahead;

•Theregulatoryprocesseswhichmakechange difficult or impossible.

The airport’s ability to respond to changes in the market, or to the needs of airlines, will be greatly enhanced.

Decision times for changes will be reduced substantially.

Airport/Airline Co-operation

The regulatory process, leads to adversarial relationship between airport and airlines because it is seen as a “zero sum game”.

Weak and misaligned incentives exacerbate this problem, which leads in turn to reduce levels of co-operation.

Stronger and better aligned incentives, plus much less emphasis on the “zero sum game”, can transform airport/airlines relationships and co-operation to the ultimate benefit of passengers and airlines.

CAA role The CAA is central to the regulatory process, and to the dialogue between airport and airlines on many issues.

The CAA would be making key decisions which will determine outcomes in what is supposed to be an increasingly competitive market.

The CAA’s role will be largely one of oversight and monitoring.

There will be more onus on the airport and airlines to sort out issues themselves, and there will be much less risk of CAA decisions distorting outcomes in a competitive airports market.

Table 1.2 Service quality commitments

In our view, these substantial benefits can be secured by the CAA at relatively low risk:

• Commitments provide assurances to airlines;

• The Commitments are contractually enforceable by the airlines while the CAA will continue to have investigation and enforcement rights under the Airport Charges Regulations as well as the Groundhandling Regulations and competition law generally; and

• The CAA can carry out a market review at any time, when there are changed circumstances and, if appropriate, implement a licence for the airport.

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1.4 CONClUsION

Airport competition in the South East and London is already delivering benefits for passengers and airlines. We expect this competition to continue and increase. Gatwick will compete more intensively with Heathrow, attracting long haul flights, thereby supporting London’s status as an international hub. We will also seek to compete with Heathrow, Stansted and Luton for short haul traffic, thereby supporting the most successful airline models in Europe. We will make the case to be the location for the next runway in the South East.

Realising our ambition depends, however, on stepping up the pace of improvement in the passenger experience at Gatwick, based on much stronger co-operation between airport and airlines. This business plan supports that ambition and directly aligns with the new duties that the CAA is shortly to be given, to protect passengers (and cargo users) where appropriate by promoting competition.

We now turn to our view of the competitive landscape we face now and into the future.

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on Flybe, easyJet and Aurigny. We accommodate the away based operations of airlines like Ryanair, Norwegian and Turkish Airlines. In addition to the major long haul leisure operations of British Airways and Virgin, we are now seeing the emergence of long haul services to the Far East, with the arrival of Vietnam Airlines and Air China complementing the existing long haul services provided by, for example, Emirates. Of particular note was recognition by the CAA of the competitive nature of the South East market when it awarded the London to Moscow route to easyJet out of Gatwick rather than to Virgin Atlantic out of Heathrow.

We are aware that the operators of a number of our new services considered Heathrow before choosing Gatwick. It is our belief that the facilities offered and services available at Gatwick were as a much a consideration as capacity and price. At the same time as securing these long haul airlines, we also attracted a number of airlines from Stansted. Airberlin moved routes from Stansted, and Norwegian has continued to grow after its switch in 2009. Norwegian has recently announced that it will develop Gatwick as a base from 2013, basing 3 or 4 aircraft at Gatwick, reinforcing the growth of the short haul low cost model across Europe.

Of course, competition means we have had our share of disappointments as well as successes. In the last year or so, we have lost the services of Qatar, Air Asia X, Hong Kong Airlines and Delta Air Lines. Just recently, both US Airways and Korean Air have decided to cease operations at Gatwick while airberlin has moved back to Stansted. The competitive nature of the airport market means that short haul airlines in particular have opportunities to base planes elsewhere in Continental Europe. Ryanair and easyJet are very public about their ability to move aircraft to the most profitable routes across networks that extend throughout Europe and, to some extent, beyond. The same is true of other point to point operators. This means that Gatwick is competing to attract (and retain) airlines not only with airports in the South East and London, but also with airports outside London and the South East, in Europe and beyond. In the last year, the ability of Ryanair in particular to move aircraft between European bases has coincided with a marked reduction in its use of Gatwick.

It is well documented that within London and South East there are peak time capacity constraints which apply mainly to aircraft movements at Heathrow although, to some extent, also at other airports.

2.1 INTRODUCTION

Gatwick’s positioning in an increasingly competitive market means that it must be able to provide the quality of service that different types of passengers and airlines demand. Unless we can do so, we will neither be able to retain existing traffic, nor attract the new airlines and services that will add value to Gatwick’s product range and enable us to grow our business. In this section, we explain how we have sought to understand our market, and the needs of our airlines and our passengers.

2.2 The COMpeTITIVe MaRkeT

GaTWICk TODaY

London Gatwick is one of several large airports serving London and the South East. In 2012, around 135m passengers used one of these airports. As a destination in its own right, London is one of the best connected cities in the World. London and the South East has long been one of the most vibrant markets in the World in terms of airline competition. Liberalisation of the airline market in the 1980s means that some of the fastest growing European airlines are based in the United Kingdom. Competition is now increasingly a fact of life for airports as well.

Gatwick serves around 25% of the London and South East market. London Heathrow is currently the market leader, reporting almost 70m passengers in 2012, representing around 50% of the market. Gatwick welcomed around 34m passengers in 2012. Significant numbers of passengers also used London Stansted (just over 17m passengers) and London Luton (9.5m passengers). Other smaller, competing airports, including London City (3m passengers). London Southend (which in the last year has grown from 50,000 passengers to 560,000 passengers, with plans to grow to 2m passengers, and Southampton (1.7m passengers), also serve the South East market in different, overlapping ways.

A distinctive feature of Gatwick is that we compete in all sectors of the South East market. We welcome short haul, long haul, low cost carriers, full service carriers and charter traffic. We are the most important base for easyJet, the largest British airline by passengers flown and one of Europe’s most successful airlines. We also serve important charter operators, particularly Thomson, Thomas Cook and Monarch. We provide connectivity from the regions to London, with significant numbers of passengers travelling

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However, airport operators are seeking to alleviate peak time constraints. Luton’s recent plans to expand is one example as is our aspiration to increase peak time runway movements to 55 an hour from 53 at present. In addition, there remains much capacity outside the peak hours. Importantly, there is also capacity available to handle additional passengers at all times of the day through larger plane sizes and therefore more efficient runway use. It is because of this potential for growth in the number of passengers that could be handled at competing airports that Gatwick has put so much emphasis on improving the passenger experience. Passengers have a choice, often have experience of a number of airports, and can be expected to make increasingly informed decisions as competition builds.

DeMaND aND sUpplY

As our Masterplan1 indicated, the maximum throughput for Gatwick remains above 40mppa, a threshold which is forecast to be reached in the early 2020’s. However, the previous two regulatory settlements have forecast that Gatwick would see a throughput of close to 40mppa within 5 years. The outturn has consistently been below those forecasts. Indeed, over Q5, we expect traffic to be some 11 million passengers below the numbers used by the CAA. We have therefore sought in this business plan to take a more realistic approach to traffic forecasting with a forecast throughput of around 36 million passengers by 2019, up from around 34 million passengers today.

We believe that there is unlikely to be any major addition to airport capacity in London and the South East during the period of this plan given the Government’s current stance on runway development. Despite the Government’s decision to set up the Airports Commission, it seems highly unlikely that any major addition to airport capacity will be delivered before the mid 2020’s. With the inevitable time lags in bringing major projects to fruition, airports will continue to make best use of their existing capacity and to seek incremental increases where feasible. As mentioned above, Luton has recently set out expansion plans while Gatwick has ambitions to increase movements through better use of our existing runway. There are likely to be capacity increments at other airports as well. All these developments contribute to a supply of additional potential movements, including at peak times.

On the other hand, demand is likely to face continuing headwinds from the economic situation in the UK and in Europe generally. Risks remain on the downside in the near to medium term. In this business plan, we provide our most recent forecasts of passengers to 2020. We are projecting continued slow traffic growth in this period as the economy struggles to recover from recession.

As a result, capacity is unlikely to tighten as quickly as was foreseen even a few years ago. This will leave, as the Competition Commission identified in its 2011 report2 confirming that BAA should sell Stansted airport, significantly greater scope for the interplay of competitive forces than it had foreseen in 2009. Gatwick must therefore continue its transformation if we are to compete to retain, and grow, airline and passenger traffic.

eVOlVING aIRlINe COMpeTITION

We are forecasting that our fastest growth will be in the long haul part of Gatwick’s business, in particular from the growing economies of China and the Far East. Our aim is to ensure that the successes we have had in attracting airlines from Turkey, China and Vietnam will continue into the future. Full service facilities, superior retail offerings and premium products are some of the aspects that we will need to focus on in order to achieve this. We see that the nature of the transfer market is changing as low cost airlines begin to interline with full service carriers. If this trend continues, then the nature of airline competition will evolve further since transfer volumes might take place outside of the traditional national carrier business model. In that light, and as our service quality continues to improve, not least to improve our attractiveness to business passengers, we will increasingly look to take routes and passengers from Heathrow.

While demand from the more mature airline business models is forecast to slow down, our traffic forecasts assume that they will continue to use Gatwick. This means we must continue to supply and develop the facilities that are important to these airlines for their passengers. We also want to provide good service to fast growing, low cost airlines. Efficient facilities, fast turn operations and value for money are some of the aspects that we will focus on.

2 BAA Market Investigation, Competition Commission, July 2011 1 Gatwick Masterplan, London Gatwick, July 2012

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aIRpORT eXpaNsION

A major new factor that will affect the development of the South East airports is the setting up, by the Coalition Government, of the Airports Commission to

“...examine the scale and timing of any requirement for additional capacity to maintain the UK’s position as Europe’s most important aviation hub; and it will identify and evaluate how any need for additional capacity should be met in the short, medium and long term.”

Under the current timetable, the earliest that any Government would be likely to give approval to an airport operator seeking permission to expand would be 2016. Whilst the current Goverment has set up the Airports Commission, there is no guarantee that a new Goverment would accept and implement its recommendations. No political party has stated that it would fully accept its conclusions. As a result, it is not possible to include the costs for planning and construction into the business plan. We do not therefore see it likely that a new runway could be open, in the South East, during the timescale of this business plan. This business plan does not therefore include the costs associated with seeking planning permission for, or construction of, a second runway. Our first estimate of the scale of these costs could be included in Gatwick’s evidence to the Airports Commission. Thereafter, any work that might lead to a planning application and, ultimately, construction, would only follow a Government decision on the future of airport capacity in the South East.

aIRpORT COMpeTITION

We expect a significant level of investment at Heathrow to continue. In the last ten years, around £1bn a year has been spent. The impact can be seen in the improved rankings reported by Heathrow in the ACI ASQ3 survey and in particular for its newer facilities. From our passenger research, we know that the look and feel of Terminal 5 is very important to passengers choosing to use Heathrow. While we cannot replicate that level of spending, our business plan includes projects to deliver levels of passenger and airline experience that will be competitive with what Heathrow currently has to offer, in line with our ambition to compete with Heathrow for long haul and business traffic. The North Terminal extension, currently occupied by British Airways and Emirates, is an example of the improvements to our infrastructure that are beginning to attract more long haul and business traffic. The ability to compete effectively for passengers and airlines that already use Heathrow, or could potentially go to Heathrow, continues to be an important element of our business plan. The changing nature of the transfer market will be of particular relevance in this regard.

We have already discussed the additional competitive dynamic that will be introduced with the recently completed sale of Stansted. Stansted is a relatively modern airport, with the capacity to take perhaps 20mppa extra passengers, without the need for major expenditure. It was designed as a long haul international airport, and so has the infrastructure to challenge in the long haul market, as well as to grow its current European short haul traffic.

Other airports will also seek to grow to meet the likely increase in demand for access to the London market. Ambitious plans have been announced by Luton to increase its capacity from 10mppa to 18mppa. Southend has ambitions to grow to 2mppa. Further afield, the aspirations of Birmingham to serve the London market should not be under-estimated with its investment programme designed to allow it to take long haul flights.

3 The ASQ survey is an independent passenger survey that rates passengers’ views of all aspects of an airport experience

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We have not included any costs post 2015 since the nature and scale of any such costs are as yet unknown. This then leads to the second impact on our business plan. The pricing framework for Gatwick airport will be set in early 2014 – either in the form of a regulatory settlement, or some form of the Contracts and Commitments Framework. In either world, we propose some form of re-opener should the costs associated with planning permission, or construction, arise. As noted above, any decision in this regard is not likely until 2016 at the earliest.

The commencement of a “runway race”, whereby airports compete to display their alternative proposals, together with the confirmed sale of Stansted, are the final pieces in the competitive landscape that was foreseen by the Competition Commission (and by the CAA) when it mandated the break-up of BAA. Competition with the other airports in the South East is a reality. We now turn to how Gatwick sees competing on service as the way to address this new world.

In addition, the business plan does not include the impact of Heathrow being given permission to use mixed mode operations or for runway expansion. Nor does it include the implications of an 4 runway airport being built to the east of London. If any of these scenarios were to happen it is likely that the shape of Gatwick would fundamentally change and would require us fundamentally to revisit the projections included in this business plan.

There are however two immediate impacts on this business plan. First, we have included the possible costs associated with providing evidence to the Airports Commission in the business plan. These are costs associated with, for example –

• Traffic forecasts – is there sufficient need for another runway at Gatwick?

• Airport economics – Is competition the best way for capacity to be provided for London?

• Runway options – what are pros and cons of various runway options? What are the likely construction costs of these options?

• Surface access – Can the roads and railways take the extra passengers and traffic that would be generated by a second runway?

• Environmental issues – what would be the impacts on, for example, noise, air quality and carbon emissions of various runway options?

• Economic benefits – what would the local and national impacts of a new runway at Gatwick?

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3.1 IMpROVeMeNTs MaDe TO DaTe

If we are to be successful in the increasingly competitive airport market, we have to retain as many of our existing airlines and passengers as possible. If we are to grow, we need to attract new passengers and airlines to the airport and we want Gatwick to become increasingly a business airport for London, competing with Heathrow. It is therefore imperative that we understand what our passengers – existing and future – want. While we have regular, frequent dialogue with our airline customers, we need also to understand what their passengers are expecting from Gatwick. We have therefore undertaken a range of passenger insight surveys and reviewed the service offers of competitor airports. Further passenger insight work has been undertaken since the April 2012 Initial Business Plan was published and we have put in place a programme of airport visits to see first hand what is working well at other airports. As a result, we have identified areas which are important to passengers, where competitor airports have lessons for us and where improvements to Gatwick will continue to be necessary. In particular, there are opportunities to enhance our competitive position by focusing further efforts on the overall ambience as well as key processes that affect the overall passenger experience.

In 2010, Gatwick became the first UK airport to publish passenger commitments, outlining the standards of service our passengers can expect. We have been working more closely than ever with our airlines, their handling agents and our other airport partners who recognise that we all need to put the passenger first and that we each have an important role to play in doing that. Our current Passenger Commitments are shown below.

Through collaborative discussions, these commitments were endorsed by our airlines, handling agents and the UK Border Force (UKBF). The commitments are central to our service focus and are publicly displayed on our website and throughout the terminals. We have also embraced the regulated service standards, continuously improving our performance and going beyond these standards, to develop an airport community approach across a broader range of services, such as check-in, arrivals baggage and border zones.

CHAPTER 3coMpetinG on seRvice

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CHAPTER 3COMPETING ON SERVICE

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OUR PASSENGER COMMITMENTS

We think it’s quite simple:

We’ll treat you as our guest - We’ll always try to offer you the very best possible airport experience or make it right if we don’t.

We hate queues - We know you do too, so Gatwick is working hard with our staff and airport partners to keep queues in all areas to a minimum.

We love to be on time - We’ll do our best to get you away on time.

Gatwick wants to deliver the service you expect at everystage of the airport journey.Everyone who works at the airport - airlines, handling agents and other service partners - has a role to play in getting you to and from your aircraft and departing promptly. We’re working hard every day with our staff, airlines, and our partners to deliver the high standards of service that we know you expect.

Disclaimer

Please note this artwork should not be reproduced without the permission of the airline

Before going to print please ensure you have the Pantone colour references.

This airline logo is only current and up to date on theday it is downloaded from this site. Do not keep andreprint from it at a later date as it may be supersededby a more up to date version.

Disclaimer




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Current contact: BAA Simon Edwards

On screen

In partnership with

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Current contact: Not up to date

Figure 3.1 Our current Passenger Commitments

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IMpROVING The pRM aND FaMIlY eXpeRIeNCe

The introduction of our innovative Assistance Lane security screening for passengers with reduced mobility (PRM) and families with young children was designed to help reduce the hassle and stress of passing through security by providing a more relaxed and targeted service offering to passenger groups who require more time and space to complete the security process. This innovation has had the additional benefit of allowing other passengers to pass through security more speedily, resulting in passenger benefits across the board with compliments about security up and complaints down. The introduction by Heathrow of the same concept demonstrates the success of competition in improving the passenger experience.

pReMIUM seCURITY laNes

The introduction of a Premium security lane product provides a dedicated service for first and business class travellers, key passenger groups that we are seeking to attract to Gatwick from other airports in the South East. Unlike the previous Fast Track – which was simply based on shorter queue times – the Premium service focuses on creating a more streamlined environment and personal service. As our standard security services are meeting targets to reduce queues, there is no longer a significant difference in the time taken to get through any of our security lanes.

An immediate priority of the new owners was to improve the service quality offered by Gatwick to all our passengers. We placed a significant focus on passenger security screening to ensure that we provide a product that meets our passengers’ needs, in some cases exceeding the quality standards required by the current regulatory settlement. Initially, this was focussed on ensuring passengers did not have to endure unacceptable queues, and then subsequently on investing in facilities, people and processes to deliver a best in class security product for our passengers. Since sale, we have consistently met or exceeded our regulatory obligations for security queues, in marked contrast to Gatwick’s performance prior to sale. This approach has also been applied to other areas of airport activity. Resulting successes include the following:

IMpROVING The passeNGeR eXpeRIeNCe ThROUGh seCURITY - The NeW sOUTh TeRMINal seCURITY aRea

For many people, going through airport security can be their least favourite part of flying. That is why Gatwick has designed and built a new £45 million state-of-the-art security area in the South Terminal with a focus on passenger-friendly processes combined with high levels of security. To do this, we removed the retail units contained in the “Gatwick Village” landside retail area, incurring a significant loss in retail revenue.

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seCURITY sTaFF

We have trained all of our security staff in a Tourism South East City and Guilds qualification in customer service to ensure that our passengers receive consistently high levels of service. The impact of this training is evident in our improved compliments to complaints ratio with respect to our security staff. The combination of new facilities and a new approach from our staff means that the South Terminal security area was recently rated as number one in the ASQ rankings for major European airports.

ReVITalIsING The CheCk-IN eXpeRIeNCe

Reducing queues and delivering a smoother check- in experience was one of our early priorities. We listened to our passengers, who said they liked to be able to check-in online and wanted more self-service opportunities. We therefore partnered with Norwegian – an airline which switched from Stansted to Gatwick – to create a check-in ‘test lab’ in our South Terminal. We have given our passengers control of the process which enables them to use self-service kiosks to check in and tag their own bags, and in the first five months of trialling the system we saw usage leap from 35% to 85%, with an average transaction time of less than 30 seconds.

sNOW ResIlIeNCe

Gatwick was particularly adversely affected in the early months of 2010 by heavy snow fall. In light of those events, the new management team undertook a review of all aspects of our response to adverse weather, including management of terminals, snow plans, capability to respond and a review of our snow clearing assets. We purchased new snow clearing assets in 2010. The result of this was that we were better able to respond to the snow events in late 2010 and 2011. This compared favourably to some competing airports, which had not undertaken such a comprehensive review and reform of their snow preparations and investments.

pUblIshING seRVICe INFORMaTION

We now publish ground-handler baggage performance to show our passengers how the different ground-handlers at Gatwick are performing, as well as to incentivise them to improve service delivery. An example of this is given in Figure 3.2. Since we started publishing this data, performance has improved significantly, to the ultimate benefit of passengers. We have also agreed with the UKBF that we will publish their performance data and this is now available on our website.

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Figure 3.2 Example of ground-handlers published performance (December 2012) – South Terminal

SOUTH TERMINAL DECEMBER 2012

HOW ARE WE PERFORMING?During December, Gatwick worked with our airlines and handling agents to ensure 98.3% of flights at the South Terminal had their bags delivered within 55 minutes.

Baggage delivery performance is determined by the time of arrival - indicated by the ‘on chocks’ time supplied by the airlines’ handling agents and the delivery to the baggage carousel, measured by Gatwick Airport.

HERE’S HOW OUR BUSIEST AIRLINES IN THE SOUTH TERMINAL ARE PERFORMINGAirline Handling agent First bag within

20 mins of aircraft arriving on stand

% (of flights)

Last bag within 55 mins of aircraft arriving on stand

% (of flights)

PERFORMANCE

Flights within the 55 minute service standard

Flights outside the 55 minute service standard

Flybe Menzies 92.6% 100.0% 618 0

Ryanair Servisair 92.4% 100.0% 197 0

Aer Lingus Menzies 82.8% 100.0% 303 0

Aurigny Menzies 73.4% 100.0% 143 0

Norwegian Air Shuttle Servisair 60.6% 99.7% 375 1

easyJet Menzies 79.7% 99.4% 1459 9

TAP Air Portugal Swissport 81.7% 98.9% 92 1

Monarch Swissport 79.1% 94.3% 316 19

Virgin Atlantic Swissport 85.7% 93.1% 163 12

Thomas Cook Swissport 52.6% 87.9% 102 14

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3.2 WhaT OUR aIRlINes WaNT

a UNIqUe aIRlINe MIX

Gatwick’s very diverse airline base means that it faces challenges, and has opportunities, which are different from most other global airports. Some of our airlines value premium services, such as valet car parking or premium security. These airlines might value the personal approach to check-in facilities. Some of our airlines value fast turn-around times, ensuring that a plane can be unloaded and loaded within half an hour. These airlines value efficient operational performance. In contrast, other airlines are happy to park on stand for many hours.

Most airlines value pier service for their passengers, but there are a minority that are keen to have remote operations. We have many home based airlines for which surface access is important, while for many away based carriers rail connectivity into London will be more important.

This variety of airline services is reflected in the wide range of destinations that we offer. In fact, Gatwick is the best connected of all the London airports, offering more destinations than any other. In particular, we are the most important London airport in terms of domestic connectivity. The table below illustrates the breadth of network coverage and network density of the three major London airports.

Figure 3.3 Network coverage and network density of the three major London airports

aIRlINes DesTINaTIONs aVG Dep peR Week peR DesTINaTION

LGW LHR STN LGW LHR STN LGW LHR STN

Domestic 4 3 3 12 7 6 37.2 65.4 13.7

Short Haul (ex UK) 36 33 13 145 73 143 14.2 35.1 8.4

Long Haul 15 49 – 40 83 – 5.2 19.3 –

Total 48 80 14 197 163 149 13.8 28.3 8.7

15.9

2.4

11.2

5.5

16.1

12.1

2002

Full Service Low Cost Charter

Mill

ions

2003 2004 2005 2006 2007 2008 2009 2010 2011

Figure 3.4 Changes in mix of traffic over the last 10 years at Gatwick

The change in airline mix in recent years has had a dramatic impact on Gatwick. The figure below shows how the broad mix of traffic has changed over the last 10 years.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

3 Service

33

worldwide audience at Routes conferences and to private bilateral Director-level meetings. We are now able to make a convincing case to the global airline community about Gatwick based on its own key fundamentals – the strength and density of its catchment area, the surface access connectivity it enjoys to London and beyond, the breadth and diversity of its airline connections, the quality of its transformed service proposition, and its competitive pricing. We also seek to engage with potential new airlines on the basis of compelling data on route viability, albeit that the process can take many years to come to fruition.

This approach has already met with a good degree of success, attracting new short haul carriers such as Lufthansa, Turkish Airlines, Norwegian, Vueling, airberlin, Air One, Air Arabia, WOW, Icelandair, Ukraine International, Rossiya, Adria, and new long haul airlines such as Vietnam Airlines (offering the first direct flights from the UK to Vietnam), Air China, Korean Air, Air Asia X, Hong Kong Airlines, Air Nigeria, Caribbean Airlines and Gambia Bird. Not all of these carriers have remained with us due to a number of factors such as the extreme economic downturn affecting base levels of demand, APD increases, sustained high fuel costs, mis-judgments over the right business model to use, and the usual and healthy dynamics of route and airport competition. This shows that we cannot rest on our laurels. While the airport has strong fundamentals in its catchment area and transport connections, it will need to continue improving its service quality and infrastructure, as well as remaining competitive on price, if it is to retain existing, and attract new airlines.

As a result of our intensive programme of bilateral engagement, multi-lateral consultation and intelligence gathering, we have developed our Product Matrix in figure 3.6, which aligns our product development around the segmentation that our airlines use (premium, business, core/economy, families, PRMs etc), from which specific initiatives have arisen such as, for example, Premium Security, Premium Parking, limousine forecourt drop-off, new PRM seating areas and PRM process changes to speed up the arrivals processes, in addition to check-in/bag-drop, crew reporting and aircraft turnaround projects to improve passenger processing times and on-time performance. These initiatives are also consistent with our own Passenger Commitments, developed alongside and signed to by our airlines and handlers.

The scale of this change in such a short period suggests that our future development plans need to provide the flexibility to accommodate such change. Gatwick’s possibly unique challenge is, therefore, to deliver a flexible service and price proposition which meets the needs of different airline business models representing regional, charter, low cost and full service carriers as well as to anticipate, over a full investment cycle, the needs of our future customers.

In this context, the fact that Gatwick’s traffic is derived from such diverse sources also means that the global drivers of demand can to a greater or lesser extent be felt at Gatwick, for good or ill. It is therefore critical that we are in regular commercial and operational dialogue with our key airline partners as they plan and operate from our airport, and that we are active in our business development to attract new short and long haul routes to the airport.

CUsTOMeR eNGaGeMeNT

Under new ownership and management, we have put in place with the majority of our major airline customers a plan for regular bilateral engagement, the form of which will vary in intensity depending on the carrier. This ranges from regular CEO/Director level quarterly meetings, to more operational and commercially focused forums. At these meetings both parties will update on business performance, operational issues that need to be addressed, product and process innovations that can support the development of the business, and future route development and capacity plans. This more intense level of engagement has been of great benefit to both airlines and the airport in improving the quality of dialogue, and having a shared understanding of how best to focus our own people, process, technology and infrastructure priorities to drive better outcomes.

More formal processes with the various airline/airport committees around capital expenditure are also part of the day to day consultation process, and the regulatory cycle brings with it the Engagement process which informs the business plan.

On the business development front, Gatwick has established a new identity as we compete for business in the London market. Gatwick was re-branded as Your London Airport, and we have positioned Gatwick as “London’s airport of choice” not just for passengers, but for airlines and other commercial business partners. We also established a suite of strong marketing material that we have taken to a

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

3 Service


34

aIRlINe INDUsTRY Is IN a CONsTaNT sTaTe OF ChaNGe

The long term strategic development of Gatwick also needs to anticipate changing airline business models and alliances, and to influence that change where we see the opportunity to do so. Our marketing approach allows us to gain significant market intelligence which helps us understand risks and opportunities in our traffic base. The airline industry is notoriously vulnerable to shocks, but is also continually re-inventing itself as business models adapt to market conditions and commercial opportunities, and airlines re-evaluate their alliances and partners. These market dynamics are increasingly not the preserve just of airlines, as competing airports evaluate how their own proposition can influence airline choice. At Gatwick we are particularly aware of this opportunity to challenge industry norms, for example in the use of technology and processes to help our airlines grow and win new business. The fact that we have had numerous visits from airports around the world to examine our innovations, some of those visits being prompted by our own airlines, is testimony to the change we have achieved.

One of Gatwick’s major strengths is its thriving and diverse short haul point to point network, driven by some of the world’s most innovative airlines. As we look across the world we see how airlines such as these, particularly those built around the low cost model, are beginning to develop a broader view about how they can be successful.

Examples of such developments, which signal a path to a new generation of business models, are:

• The emergence of Germanwings as Lufthansa’s short haul European platform, with the stated intention of linking its point to point low cost operation to Lufthansa’s long haul network;

• Southwest Airlines’ purchase of AirTran in 2011, which has given it international reach and which will be fully integrated with Southwest’s domestic network in 2014 when systems and process changes have been put in place;

• FlyDubai’s low cost model now offering through-baggage and ticketing linked to Emirates powerful network in Dubai;

• AirAsia connecting up its diverse network using its through-baggage Fly-thru product and Norwegian offering connecting flights within its own network;

• Vueling’s low cost model now fully integrated for ticketing and baggage with Iberia’s network;

• easyJet use of Frequent Flyer miles on behalf of Emirates; and

• The emergence of the self-transfer product at Milan Airport (‘Via-Milano’) whereby passengers can purchase a product offered by the airport to manage the connection between low cost and other flights on their behalf.

We see increasing convergence of airline models as carriers look, on the one hand, to exploit the marginal opportunity to build on the successful low cost networks into which they have sunk investment, and on the other hand to find more sustainably profitable ways to deliver feed into their long haul networks. Gatwick does not intend to wait for these developments to emerge; rather it intends to develop a world leading self-transfer capability which we believe will enable airlines to offer connecting opportunities to their customers without the cost and complexity of systems and business model integration that characterises the legacy model.

The transformative potential for the London market is considerable as existing airport infrastructure and airline networks can be exploited at low cost for the benefit of consumers and for the UK economy as a whole.

3.3 WhaT OUR passeNGeRs WaNT

In the same way that we have a very diverse airline base at Gatwick, so we have a diverse passenger base with differing needs and expectations. To better understand our passengers’ requirements, Gatwick commissioned some extensive survey work via YouGov. The surveys were conducted as live passenger panels at various venues across London facilitated by YouGov, comprising passengers who had flown from a London airport in the last 12 months, covering all cabin types and matching our core, premium, business, and family services. All conclusions from the YouGov work were shared with the CAA and our airlines.

In addition to this market research we also monitor passenger feedback constantly through our customer services team, measuring the levels of satisfaction from complaints to compliments across all stages of the passenger journey. We are also able to obtain insights via social media, with the added benefit that these are delivered in real time.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

3 Service

35

The YouGov research confirmed that Gatwick’s possibly unique challenge is to deliver products and services that meet the needs of a very diverse passenger mix. A summary of what the various passenger groups wanted is given in the figure below:

Each passenger segment has unique or specific requirements. Gone are the days of being able to offer a “one size fits all” suite of products – passengers today demand and expect differentiation, and this was a key learning from the YouGov panels. However, it is important to understand precisely how such differentiation is likely to influence passengers’ decision making and passengers’ willingness to pay for such improvements. Both aspects are important to prioritising the changes that are most likely to improve the airport’s competitive position, particularly as it seeks to attract more inbound and long haul passengers.

18-24 YeaRs ✓ Baggage reclaim (C10) ✓ General ambience (C11) ✓ Common bag drop (C3)

25-64 YeaRs ✓ Quiet zone (C6) ✓ General ambience (C11) ✓ Common self-tag bag and drop (C4) ✓ Outside space (C7)

65+ YeaRs ✓ Check-in at the car drop off (C1) ✓ Common check-in and common

bag drop (C3) ✓ Common self-tag bag and drop (C4)

FaMIlY’s (UNDeR 5’s) ✓ Family zone (F9) ✓ Children’s play area (F10) ✓ Distractions (F4)

FaMIlY (OVeR 6’s) ✓ Toilet and changing (F16) ✓ Family security lane (F7) ✓ Family check-in zone (F3)

bUsINess passeNGeRs ✓ Separate Business check-in

lane (B1) ✓ Business security lane (B3)

pReMIUM passeNGeRs ✓ Premium security lane (P3) ✓ Dedicated lane through

immigration (P12)

sUMMaRY – MOsT ReleVaNT MOTIVaTING CONCepTs

Figure 3.5 YouGov research

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

3 Service


36

3.4 WhaT DO We kNOW abOUT OUR COMpeTITOR aIRpORTs?

We constantly monitor developments at our competitor airports. Clearly, the South East airports are our most direct competitors. However, the mobility of our airlines means that we need also to understand airports in Continental Europe.

Since the publication of our Initial Business Plan in April 2012 we have therefore undertaken a comprehensive programme of airport visits, to better understand what facilities and services are offered by competitor airports and to gain insight into what their passengers think of these facilities and services. We have spent time with airport management in these airports, to gain further insight into their operational effectiveness and future plans. This work has enabled us to further refine our own plans.

The airports visited to date are Zurich, Dublin, Copenhagen, Amsterdam, London Heathrow (terminals 1,3,4 and 5), Stockholm Arlanda, Manchester, Barcelona, Istanbul, London Stansted, Birmingham, Newcastle, Paris Charles de Gaulle, Vienna and Antalya in Turkey. We have further visits planned to Munich, Athens, Oslo, Geneva, Madrid and Luton.

We have benchmarked our position against these comparator airports, using the internationally recognised quarterly ACI passenger survey and have used our visits and discussions with management to get further insight into what drives “good” or “bad” performance from a passenger perspective. The most recent results were reported for Q3 of 2012. Since the actual rankings of other airports are confidential, we are only able to report our own ranking. This shows that in our competitor set of 23 airports, Gatwick ranks 9th.

Our conclusions from these visits are that passengers rate highest airports that have:

• Modern un-congested facilities, with plenty of natural light;

• Facilities that are clean, well maintained and working;

• An easy journey through the airport - good wayfinding, well informed and friendly staff and minimal queues;

• An easy journey to and from the airport, with integrated surface access facilities;

• An appropriate world-class retail offering; and• The provision of innovative products and services

that passengers and future passengers want.

These insights confirmed many of the points that arose from both the YouGov research and our regular passenger monitoring and have informed the development of both day to day management of the airport and, crucially, the priorities for – and design of – the facilities at Gatwick.

These insights are then captured by our product matrix in which our various products are summarised, across the airport, by type of passenger. An outline of the product matrix is shown below. Having established this product matrix, we then use it to develop the various capital and operational offerings that are included in our business plan.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

3 Service

37

Fig

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1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

3 Service


38C

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2 Competition

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7 Capital

8 Service Quality

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10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

3 Service

39

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1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

3 Service


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L st

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1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

3 Service

41

3.5 CONClUsION

We have carried out extensive work to understand the service levels required by our airlines and our passengers. We have supplemented this by extensive benchmarking with the airports with which we are competing. This shows that we need to continue to improve the service levels across the entire airport as we seek to grow to compete to become London’s airport of choice.

Given that the competitive landscape described earlier continues to change dramatically – with the setting up of the Airports Commission and the sale of Stansted being two key new developments – we believe that the improvement in service levels need dramatic changes in the regulatory landscape. We now turn to our proposal for a replacement for regulation that is consistent with the competitive forces we have already described.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

3 Service

43CHAPTER 4GAtwick’s new deAl: contRActs And coMMitMents

4.1 INTRODUCTION

In the previous three chapters, we have set out our vision for Gatwick airport and provided an overview of the competitive landscape that we will be operating and competing within for the foreseeable future:

• In chapter 1, we explain that competition is real and how Gatwick is approaching its ambition to compete to grow to become London’s airport of choice;

• In chapter 2, we set out the competitive landscape. It is clear that the South East airports market is competitive, and is becoming more so. The sale of Stansted and the competition to influence Government policy on runways are two areas where the competitive dynamic will be heightened; and

• In chapter 3, we explain how Gatwick plans to deliver the best passenger experience in response to these competitive pressures.

It is against this backdrop that Gatwick believes that the best way forward for our passengers and airlines, and therefore for Gatwick, is to allow the competitive market to dictate the service and price levels for the airport. Accordingly, we have developed a commercial approach for our airlines, comprising “Contracts and Commitments”.

As at other non-regulated airports and businesses worldwide, we see a future in which airline-airport relationships at Gatwick are increasingly defined through bilateral contracts. We would expect such contracts to be tailored to the specific needs of different airlines and their passengers, and therefore have bespoke service and price levels. These contracts would be negotiated on an individual airline basis.

Of course, we recognise that some airlines may choose not to enter into bilateral contracts, and will therefore continue to access the airport under the terms of Gatwick’s Conditions of Use. To provide these airlines with long term certainty as to the future service/price offer available at the airport, Gatwick is proposing to put in place long-term Commitments. The certainty provided by the over-arching framework of Commitments will also facilitate the development of contracts, such that in time they become the norm.

Our Commitments proposal is conditional upon the CAA not establishing a licence for Gatwick. We have summarised in section 4.2 Gatwick’s proposed Commitments and a more detailed term sheet is attached at Appendix 1.

The headlines are that Gatwick will commit:

• For a period of 7 years – i.e. to March 2021;

• To maintain service standards at the high levels already achieved in Q5, but with further important extensions in the scope of standards such as in relation to airfield resilience and passenger baggage handling; and

• To limit increases in the average aeronautical yield from core airport services to RPI + 1.3% p.a. (following a one-off adjustment). This limit will be taken into account each year when Gatwick publishes the tariff for core airport services in its Conditions of Use. A separate tariff for ancillary services (not subject to this limit) will also be published.

Consistent with Q5, the average aeronautical yield will be measured as the revenue from core airport services per passenger, assuming all passenger traffic at the airport were to pay the published tariff i.e. the effect of bilateral contracts would not be reflected in this calculation. As this is an average, the actual aeronautical yield for an individual airline may be higher or lower than the average depending on that airline’s use of core airport services and the applicable published tariff.

This offer represents a substantial price improvement relative to what we estimate to be the RAB-based price control, as detailed in Chapter 12. The chart overleaf provides a comparison between the price path of the seven year Commitments and the five year RAB-based price control. As can be seen, the Commitments price path is lower throughout; indeed, by 2020/21, prices under the Commitments are still below the levels under the RAB-based price control some 4 years earlier. In the absence of the one-off adjustment, these price paths would be equivalent to a smoothed profile of RPI + 4.0% p.a. (under the Commitments) vs. RPI + 6.9% p.a. (under a RAB-based price control). This reflects Gatwick’s confidence that the flexibility afforded by the Commitments Framework will enable us, and our airline partners, to focus on increasing the overall value of activity at the airport. There is a need to break with existing mindsets, engendered through RAB-based regulation, that focus on the “zero-sum game” of arguing over dividing up the existing value of the business, rather than seeking to grow it to the mutual benefit of the airport, airlines and passengers.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

4 Gatwick’s

Offer

CHAPTER 4GATWICK’S NeW DeAl: CoNTrACTS AND CoMMITMeNTS

44

Whilst Contracts and Commitments are primarily a commercial response to the need for Gatwick to operate in an increasingly competitive market, the proposed structure is also relevant to the debate about the future of regulation.

As the CAA is aware, it is our strongly held view that the significant increase in competition means that Gatwick does not have substantial market power (SMP) and as such there is not a basis on which Gatwick can be issued a licence by the CAA. In these circumstances, we believe that the CAA should welcome Gatwick’s proposal for a Contracts and Commitments Framework: as the best way to promote competition between airports and further the interests of passengers at Gatwick, consistent with the CAA’s new primary duty under the Civil Aviation Act; to address any lingering concerns the CAA might have about the behaviour of an unlicensed Gatwick; and as an efficient, modern, and cost effective alternative to a traditional RAB-based price control.

The good reasons for a move away from a RAB-based price control have been made compellingly by the CAA. In its evidence to the Competition Commission supporting the break-up of BAA:

“The CAA accepted that continuation of RAB-based price control regulation might well serve to limit competition between airports as it would involve the regulator effectively determining the price, service quality and investment of airports, thus effectively crowding out the potential for competition.”5

This is echoed in the findings of the Australian Productivity Commission:

“…it is far from clear the interests of passengers will be best served by strict price control regulation, or indeed any licenced-based economic regulation. Indeed it is far more likely that passengers’ interests will be furthered by a more commercial approach to setting prices which will allow market signals to better provide for passengers in terms of the range, availability, continuity, and cost of airport operations services.”6

12.0

11.5

11.0

10.5

10.0

9.5

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X=1.3

X=3.3

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21

P0+11% increase

£8.80 Q5 end price


Ave

rage

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ld (£

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5 years beyond Q5

5 BAA Airports Market Investigation Final Report, Appendix 5.1, Competition Commission, March 2009

6 Economic Regulation of Airport Services, Productivity Commission Inquiry Report No.57, 2012

Figure 4.1 Price path under Commitments and RAB-based price control

The graph below compares the alternative price paths.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

4 Gatwick’s

Offer

45

We agree with the CAA and the Australian Productivity Commission and we consider that the Contracts and Commitments Framework is the best way to promote competition between airports and to further the interests of passengers, consistent with the CAA’s new primary duty. However, we recognise that for all concerned, this will represent a departure from the past. It is to be expected that, after over a quarter of a century of RAB-based regulation, some may be reluctant to embrace change.

In this situation, and as we have already stressed to the CAA, the success of Contracts and Commitments is dependent on the CAA opening the way for this new approach in its April 2013 publication. This signal from the CAA is important in relation to progressing contracts as well as Commitments, since the latter provides the framework which enables contracts to develop. Clarity of direction from the CAA is required since long-term strategic contracts that can be established within the Commitments Framework are not consistent with the time frames, incentives and mechanics of RAB-based regulation.

4.2 OUR COMMITMeNTs TO OUR aIRlINes

In our July 2012 response to the CAA’s May 2012 policy update, Gatwick proposed Commitments covering:

• Service quality (including investment required to support it);

• Price (based on a limit to the average aeronautical yield); and

• Consultation and transparency in relation to charges, capital projects and operational & financial performance.

In relation to these proposed Commitments, we noted that the CAA would take the role of standard competition regulator, a position that would be consistent with the concurrent Competition Act powers given under the Civil Aviation Act 2012.

Since July, we have discussed our Commitments Framework with a number of airlines and with the CAA. We are encouraged that Commitments is a workable concept and have updated the key elements of the Commitments Framework to take account of the feedback we have received. A detailed version of the Commitments heads of terms is attached as Appendix 1. The main features are as follows:

leGal sTaTUs

The Commitments Framework would be available to all airlines operating at Gatwick. We propose that the Commitments Framework is given legal effect via the existing Conditions of Use which set the contractual framework for all the airlines operating at Gatwick. The current Conditions primarily include obligations on the airlines that choose to fly from Gatwick. The revised Conditions would also include obligations on the airport operator reflecting the Commitments Framework and provide legal redress to any airline that considers that the Commitments made are not being adhered to. The right of redress would be to the courts but with an adjudication provision built in to encourage speedy resolution of disputes. Airlines would continue to have separate rights of redress under the Airport Charges Regulations 2011. In addition, the CAA will continue to have rights to investigate and make compliance orders in relation to the airport operator’s failure to comply with the Regulations.

INDICaTIVe pRICe paTh

We propose a price path which would limit, over the duration of the Commitments period, the average aeronautical yield from core airport services. That is, airport charges revenue from core airport services per passenger, assuming all passenger traffic at the airport paid the published tariff ( i.e. the same method for monitoring charges as in Q5, and as such the effect of bilateral contracts would not be reflected in this calculation). This price path would consist of an initial proposed price – currently the price applicable at the end of Q5, uplifted by a one-off adjustment for lower traffic levels at the end of Q5 – and then an RPI+X Commitment for the duration of the Commitment period.

We are proposing a one-off adjustment of 11% (as per the RAB-based price control), to be followed by a much reduced price path of RPI+1.3% for the period 1 April 2014 to 31 March 2021. In the absence of a one-off adjustment, the Commitments price path would be equivalent to a smoothed price profile of RPI+4% p.a., as compared to RPI+6.9% p.a. under a RAB-based price control.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

4 Gatwick’s

Offer


46

There are two areas where we propose the indicative price path in the Commitments Framework could be altered during the Commitment period. First, the current price cap allows for significant changes in security costs, where these changes arise from Government directives, to be mostly passed through to airlines – the “S-factor”. Given the importance of security to our passengers, the materiality of this cost to Gatwick, and the external nature of any mandatory process/technology changes, we propose that a pass-through mechanism in relation to security cost increases is retained.

Second, the Government has set up an Airports Commission to investigate what options there might be for the expansion of airports. This Commission is due to report in 2015, with any Government decision as to future capacity expansion being taken perhaps in 2016. Any decision by the Government to support expansion at Gatwick, if followed by a planning application, would incur significant costs. Given the uncertainty over the future direction of policy, we have not included costs associated with a planning application in this business plan. We instead propose that any significant costs associated with a planning application, or construction of a runway, would – following consultation – be included as an uplift to the price path commitment. This we believe would be consistent with the price path in other competitive industries subject to “lumpy” investment whereby prices would be expected to rise ahead of major capacity expansions as supply tightens.

seRVICe qUalITY COMMITMeNT

Core Service Standards would include the existing SQR metrics. Additions to the SQR scheme are proposed as follows:

• The inclusion of an outbound baggage availability target; and

• The inclusion of an airfield availability metric (to replace the current airfield congestion metric)

We propose that the service quality standards would be subject to amendment following consultation with the airlines. Other detailed proposals are included in Appendix 1.

In addition, we would be proposing airport-wide standards, covering the performance of all stakeholders at the airport, with performance published.

These would cover:

• Immigration;• Arrivals baggage;• Check-in;• On-time performance; and• PRM performance.

This would continue the improvement generated by the publication of UKBF and arrivals baggage performance. The Commitments Framework also includes an incentive mechanism to deliver a minimum level of performance from all parties at Gatwick. Any performance incentives for individual airlines could also be contained within any bilateral contracts.

Finally, Gatwick would publish its quarterly ACI ASQ performance, with the stated aim of achieving upper quartile performance in the relevant ASQ comparator set.

Gatwick would commit to the capital expenditure necessary to maintain the Service Quality Commitment. However, we would not be proposing an explicit level of capital expenditure nor a commitment to the specific capital projects to achieve this. Gatwick would consult with its airlines on all major capital expenditure programmes, as set out below.

CONsUlTaTION COMMITMeNT

Gatwick would consult with its airlines on all major capital expenditure programmes. We would publish and consult on a Masterplan. We would publish and consult annually on a rolling five year capital expenditure programme. As part of the annual consultation on airport charges, we would of course satisfy the requirements of the Airport Charges Regulations, which apply to all airports over 5mppa in Europe. Gatwick’s financial accounts are published (in accordance with the UK listing requirement) and would be provided to the CAA and airlines giving transparency over the financial performance, investment and asset base of the airport. There would be no requirement on the CAA to approve a Regulatory Asset Base.

DURaTION OF COMMITMeNT peRIOD

In our July 2012 response to the CAA, we had proposed three years as a commitments period. In light of discussions, it would seem that a longer period could be justified. The merits of a longer period are that it:

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

4 Gatwick’s

Offer

47

• Provides a stable, overarching framework within which bilateral contracts can flourish and become the norm;

• Extends the period of assurance as to the prices and service quality that our airlines could expect from Gatwick;

• Provides better incentives for the airport to continue driving down operational expenditure and increasing commercial revenue; and

• Increases the incentives on airlines and the airport to work collaboratively without an eye to a market or regulatory review.

We therefore propose that the Commitments are for a period of seven years – i.e. to March 2021 and that this period could be extended with the agreement of our airlines.

eXpIRY OF COMMITMeNT peRIOD

With a longer duration of Commitments, there is greater uncertainty as to the likely shape of the London airport market at the end of the Commitments, not least with the emergence of Stansted under independent ownership, the planning and development of new runway capacity in London likely to be well advanced, and the development of a more contractual approach to airport/airline relationships at Gatwick and, most likely, elsewhere. Accordingly, there is little that can be said about what follows the initial period of the Commitments Framework – it is possible that we would seek to extend the Commitments period. We propose that any decision by Gatwick not to extend the Commitments Framework would be given with 2 years notice.

DIspUTe ResOlUTION

As stated above, airlines would have redress to the courts if a dispute should arise under the Conditions of Use which would include the Commitments. We would also envisage putting in place a speedy non-final dispute resolution process, such as the adjudication provisions imposed by section 108 of the Housing Grants Construction and Regeneration Act 1996.

The Caa’s INTeRVeNTION pOWeRs

In relation to our proposed Commitments Framework, the CAA will have available to it intervention powers under the ACR and the Groundhandling Regulations. The CAA will also have concurrent Competition Act powers given to it under the Civil Aviation Act.

OpeRaTIONal ResIlIeNCe

Since the change of ownership, Gatwick has demonstrated a track record of operational improvement and service delivery. There are many examples to illustrate this, but in the interests of brevity we mention just three:

• Our work to increase the peak hour movements on the runway to deliver an increase in overall capacity whilst at the same time improving the on-time departure record of the airport – the on-time performance in Summer 2012 was the best for the last five years;

• Gatwick’s resilient performance in handling snow disruption in mid-December 2010, when other airports in the South-East were shut for extended periods, some even for several days. There has been similarly good performance by Gatwick during the recent snow event in January 2013; and

• Gatwick’s investment in people, process, and technology to deliver a modern, efficient, effective and resilient security screening operation in the South Terminal. Since the change of ownership, Gatwick has met its security service metrics every month.

Gatwick recognises that operational resilience at the major UK airports is a matter of public interest. Thus, in the absence of a licence, Gatwick believes it would be appropriate to provide explicit assurance on this matter through the Commitments Framework.

We will develop, maintain and publish an operational resilience plan which will set out how Gatwick intends to operate an efficient and reliable airport to the levels required by the Commitments or otherwise agreed with users. This plan would also contain best endeavours obligations on Gatwick in cases of disruption to minimise detriment to users on a non-discriminatory basis and to provide timely, accurate and clear information. We would consult annually on the resilience plan with all interested parties including the CAA.

FINaNCIal ResIlIeNCe

Gatwick has adopted a prudent approach to its financing such that we are well placed to execute the major development programme and be resilient to changes in the operating environment. We have always made it clear that Gatwick management should be focussed on operational delivery rather than any self-imposed imperative of annual re-financings.

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Reflective of the long-term nature of Gatwick’s asset base and to mitigate its refinancing risks, Gatwick has issued £1.2bn of secured sterling bonds, listed on the London Stock Exchange, with maturities of 12, 15, 25 and 30 years. The terms and conditions of these bonds are fixed and set out in a Common Terms Agreement. Inter alia, Gatwick is not permitted to raise additional debt if that would result in net debt to RAB exceeding 70%. Further, if market circumstances change and Gatwick’s net debt to RAB rises above 70%, then Gatwick will not be permitted to distribute any excess cash flow out of the operating business to shareholders – it must be held within the business to reduce net debt.

We consider that these arrangements provide significant assurance about the financial resilience of Gatwick and clear mechanisms to ensure that it is retained. Nevertheless, Gatwick recognises that financial resilience at the major UK airports is a matter of public interest. Thus, in the absence of a licence, Gatwick believes it would be appropriate to provide assurance on this matter through the Commitments.

In this regard, we consider that we can provide the following assurance to users within the Commitments:

• Gatwick Airport Ltd will undertake at all times not to take any action which would result in the loss of an investment level credit rating for Gatwick Airport Ltd; and

• The Directors of Gatwick Airport Ltd will provide an annual confirmation to the CAA of adequate resources to operate the airport and provide the Core Services.

We have begun discussing the concept of airport commitments with a number of our major airlines. The areas covered in the Commitments Framework should, we believe, give sufficient assurance to our airlines as to how Gatwick is proposing to behave in a world without a licence. We believe that the CAA should also have sufficient reassurance as to our future behaviour that it will not feel the need to issue a licence, which in any event, we do not believe the CAA has grounds to issue.

4.3 GaTWICk’s appROaCh TO bIlaTeRal CONTRaCTs

We recognise that some airlines will not see the need to enter into bilateral contracts. Airlines that so choose will still be protected by the Commitments. For airlines that choose to enter into bilateral arrangements

with Gatwick, such contractual arrangements will be somewhat different from those offered under the Commitments. Areas where individual airlines might seek different arrangements might include differential pricing, differing levels of service quality, bespoke or premium services, or volume and value creation incentives. Until we have the freedom to conclude contractual negotiations, it is unclear how individual airlines needs may be met. We consider it would be useful, however, to explain how we might approach the issue of price, via a set of general pricing principles.

Gatwick will provide users, from time to time, with a summary of the pricing principles it has adopted in setting the airport tariff and entering into bilateral contracts. At this time, Gatwick believes the following are relevant:

• In general, prices should be set: – to generate expected revenue for a service

that is at least sufficient to meet the costs of providing the service;

– to include a return on investment in assets, commensurate with risks involved; and

– to provide incentives to reduce costs or improve productivity.

• There will be price differentiation between different users of the infrastructure, based on commercially objective rationales, including, but not limited to: – responding to competition for airlines and

passengers; – efficiently managing demand and promoting

efficient investment in and use of airport infrastructure, in particular the airfield through greater intensity of use of peak-period slots, extending slot season-lengths, and increasing off-peak operations;

– reducing the risk of a reduction in, or securing a commitment to, existing traffic volumes;

– incentivising, or securing a commitment to, traffic volume growth;

– recognising differential contributions to ancillary commercial activities and revenues;

– encouraging or securing an increase in ancillary commercial activities and revenues;

– incentivising or securing cost reductions; and – promoting diversification of routes/

destinations and market segments.

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We consider that the pricing principles outlined above would govern a series of contractual arrangements with our airlines. Of course, in entering into contractual arrangements, we would be mindful of the non-discrimination constraints in the Airport Charges Regulations and, to the extent applicable, general competition law.

We are also of the view that such an approach to setting outcomes for passengers (and airlines) will perform much better against the criteria of the CAA’s primary statutory duty to further the interests of passengers, where appropriate through the promotion of airport competition. The Commitments provide an umbrella of protection for all classes of passenger (current and future), provide an opportunity for the airport and airlines to negotiate mutually beneficial, bilateral commercial agreements, while at the same time enhancing the competitive dynamic and tension between airports in the South East and beyond.

Gatwick has undertaken early contractual discussions with some airlines operating at the airport, but inevitably the overhang from the ongoing regulatory process has been a major factor influencing progress – particularly the uncertainty as to whether a Commitments Framework will be allowed by the CAA and if so, how contracts will be permitted to operate within this. Clarity is required since long-term strategic contracts that are deliverable within a Commitments Framework are not consistent with RAB-based regulation.

4.4 DeRIVING a COMMITMeNTs pRICe leVel

In the previous sections of this chapter we have set out our rationale for our Contracts and Commitments Framework and explained that they further the interests of passengers and promote competition between airports.

In this section, we set out the rationale for our proposed Commitments price path which would limit increases in the average aeronautical yield from core airport services to a one-off adjustment of 11% plus annual increases of RPI+1.3%. To be clear, this is proposed as an upper limit to the average aeronautical yield from core airport services (and assumes for calculation purposes that all passenger traffic at the airport pays the published tariff). There would be no expectation on the part of the airport that all airlines would be priced at this average level. Some airlines could have prices included in bilateral

contracts below this level depending on the value created in the contractual arrangement. In addition, as is already the case with respect to the Q5 price cap, the airport would retain the ability to vary published tariffs for airlines operating under the Conditions of Use – as such, the actual aeronautical yield for an individual airline may be higher or lower than the Commitments price path and the airport average depending on that airline’s use of core airport services and the applicable published tariff.

In setting a price level, we have considered the issues that firms, not artificially constrained by regulation, would take into account when setting their prices in a competitive market. These include:

• A view of the underlying demand from different levels of the demand chain e.g. from end-users and intermediate providers (if relevant) both in terms of volumes and the specification of the product and services required;

• A view of the sources of supply to meet that demand, which includes direct competitors within the market as well as providers of alternative products in closely related markets that can satisfy underlying demand; and

• A forward-looking view of the costs of provision of the product or service.

As another reference point, we have also compared the Commitments price path with the prices resulting from a traditional RAB-style, cost-based calculation.

assessMeNT OF FaCTORs UseD TO INFORM pRICING IN a COMpeTITIVe MaRkeT

sUpplY aND DeMaND FUNDaMeNTals

An analysis of supply and demand shows that at current regulated prices, there is an imbalance, with demand outstripping available supply at some times of the day. This is the case in the Summer in particular, but also at times during the Winter. This imbalance remains the case despite Gatwick under separate ownership introducing a more ‘peak-based’ structure of charges. This indicates that even if prices (in terms of an average aggregate charge) at Gatwick were to increase above current levels there would be airlines, either incumbent or new entrant, that would be willing to pay an increased price to utilise Gatwick’s facilities.

The clear implication of an analysis of supply and demand indicates that there is upward pressure on prices and this is what would be experienced in a competitive market. The CAA itself has recognised

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this in the past. For example, the CAA’s thorough consideration of using long run incremental costs to inform its Q5 price control proposals for Stansted, clearly articulated the link between rising prices when capacity is in relatively short supply (which in turn incentivises capacity expansion) and depressed prices when capacity (and supply) becomes more abundant. This is also wholly consistent with economic fundamentals, where prices are expected to increase as the demand/supply balance tightens. Therefore, the conclusion that there is underlying upward pressure on prices at a time when there is a degree of capacity constraint should not be a surprise.

Another piece of supporting evidence can be found in the CAA’s analysis of market power. The CAA says7 that data has been provided by airlines which demonstrates average yields at Gatwick are higher than the average yields available to airlines at Stansted and Luton. This evidence suggests that if airport prices were to rise at Gatwick from current levels then airlines (in aggregate) would be able to continue profitable operations at Gatwick, in preference to potential less profitable operations elsewhere. This evidence of airline yields provides further support to the contention that it would not be unreasonable to expect prices to increase from current levels in a market with competition – although we recognise fully that there would be debate over what magnitude of price increase would be reasonable.

pOTeNTIal alTeRNaTIVe sOURCes OF sUpplY OF aIRpORT seRVICes

In broad terms there are two different sources of supply. The first are those competing to provide capacity in the South East market: Heathrow, Gatwick, Stansted, Luton, London City and Southend. The second are those airports further afield which present alternative locations from which airlines can operate and utilise their aircraft. This second source of supply would include airports from elsewhere in the UK and in the EU.

An airport in a competitive market, in thinking about its charges, would take into account the charges levied by its direct competitors and more distant potential providers of supply. An airport, by comparing the level of its charges with those of direct competitors and a broader set of comparators, can gain an insight to whether the current level of prices is broadly

appropriate, or whether a downward or upward movement in prices would be more appropriate. Such comparisons would need to pay attention to relative levels of service, capacity utilisation, traffic mix and other factors to ensure the appropriate lessons were drawn.

Gatwick and the CAA have produced various pieces of analysis as part of the work to assess Gatwick’s market power. Comparing charges at a range of appropriate comparator airports demonstrates that Gatwick’s charges are relatively low. For example, Gatwick’s charges are around 50% of those levied by Heathrow8. Against our other direct competitors, our charges are slightly higher than those of Stansted and Luton airports. In comparing these charges, we of course need to be cognisant of the differences in the product on offer by the various airports and any additional charges that are levied where costs are not recovered through airport charges to airlines.

In terms of other comparator airports – those with which Gatwick competes outside the South East – Gatwick has established a set of comparators which it uses to benchmark its performance and efficiency in its operation and service provision to airlines and passengers. This set of airports includes Gatwick’s direct competitors in the South East, the airports that our major airlines base aircraft at and other major international European airports. In this set of airports, Gatwick’s charges are currently towards the lower end of the range.

MeasURes OF FORWaRD-lOOkING COsTs

The CAA, as part of its work on the Q5 price control at Stansted, explained why basing price caps in a market with competition on forward-looking measures of cost was a superior regulatory approach to using a historic cost-based approach9. The CAA’s reason for referencing forward-looking costs of airport development (including LRAIC) in its Q5 decision for Stansted was that the resulting price profile was consistent with the development of more effective competition between airports over time.

7 Gatwick Market Power Assessment Initial Views, CAA, February 2012

8 Review of Price Regulation at Heathrow, Gatwick and Stansted airports – Policy Update, CAA, May 2012

9 Price control review – consultation on the framework and options for the economic regulation of Stansted Airport, CAA, January 2008

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As part of our submissions to inform the CAA’s assessment of Gatwick’s market power we commissioned consultants FTI to develop estimates of forward-looking costs10. These estimates were for the purpose of examining the narrow question of whether it was reasonable for the CAA to assume that the current regulated prices at Gatwick were similar to the prices that would be expected in a competitive market.

Working with the CAA, it was agreed that FTI should examine three main estimates of LRAIC at Gatwick, including the prices associated with a second runway. All estimates produced prices somewhat above today’s price. This information on forward-looking costs again lends further support to a conclusion that it would not be unreasonable to expect that in a market with competition, prices at Gatwick would be expected to increase from current levels.

a Rab-baseD pRICe Cap

Towards the end of this business plan, we derive a RAB-based price cap associated with the business plan we are proposing. This results in a one-off adjustment of 11% at the end of Q5, followed by RPI+3.3% p.a., which is equivalent to a smoothed price profile of RPI+6.9% p.a. As we point out in Chapter 12, there are a number of risks (for example, in relation to traffic and assumed cost of capital) which may constitute upside pressures in relation to this price profile. One of the judgements to be made relates to the benefits from moving to a Contracts and Commitments Framework as an alternative to our view of the likely regulatory framework. We believe that the following areas lead us to propose a price path somewhat lower than the price path that we have estimated under this RAB-based price control:

• Incentives – improved incentives to cut operating costs and increase commercial revenue, as well as improved collaborative working with our airlines;

• Cost of regulation – eliminating the direct and indirect costs of the regulatory process;

• Duration – we are proposing a seven year framework which allows any gains to be retained or shared for longer; and

• Traffic mix – by enhancing our ability to incentivise growth in larger aircraft, we should be able to alter the traffic mix, thereby allowing Gatwick to offer lower prices to our airlines.

It is difficult to quantify the benefits that could flow from these measures as it is uncertain how relationships with airlines would develop within the Contracts and Commitments Framework, and it will of course depend on the outcome of future contractual negotiations. Nevertheless, it is our judgement that, given the right freedoms, we would be able to deliver a substantively better price path than the RPI+6.9% p.a. that we have calculated as arising from a RAB-based price.

The appROpRIaTe leVel OF a COMMITMeNT ON FUTURe pRICe leVels

Having determined that an upward movement in charges levied on airlines at Gatwick is appropriate, the question then becomes, to what level? In considering this issue, it needs to be borne in mind that the Commitments price is not a proposal to price up to the specified level, but for Gatwick not to price above that level. This means that actual average levels charged could turn out to be lower than that allowed for in the Commitments Framework, but not above it.

Our assessment of the appropriate level of a Commitments price suggests a one-off adjustment of 11% plus a real increase of RPI+1.3% p.a. (equivalent to a smoothed price profile of RPI+4% p.a.) on the average aeronautical yield from core services for a period of 7 years would be appropriate. This yield is a “gross yield” i.e. for calculation purposes it is assumed that all passenger traffic at the airport pays the published tarrif for the Core Services. Insofar as Gatwick is successful in negotiating bilateral contracts which include discounts from the published tariff, the average net yield payable (and therefore that actually received by Gatwick) will be lower than this. We have come to this conclusion based on our consideration of the different factors discussed above.

10 LRAIC for Gatwick Airport: Presentation to Stakeholder Workshop, FTI, December 2011

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4.5 GaTWICk’s COMMITMeNTs pROpOsal eNables The Caa TO besT aChIeVe ITs sTaTUTORY DUTIes

The CAA, in carrying out its functions, must do so in a manner consistent with the fulfilment of its statutory duties as set out in the Civil Aviation Act 2012. In this section, we explain why Gatwick’s Commitments enable the CAA to best achieve its statutory duties. We have been clear to the CAA that we consider that there are insufficient grounds for it to find Gatwick to have passed the Market Power Test in the Civil Aviation Act and as such it will not be in a position to regulate Gatwick with a licence. We are also of the view that the proposed Contracts and Commitments Framework, outside of a licence, will best achieve the CAA’s statutory duties.

The CAA’s primary duty from the Civil Aviation Act is for it:

…to further the interests of users of air transport services regarding the range, availability, continuity, cost and quality of airport operations services, where appropriate through the promotion of airport competition.

In this light, a key consideration for the CAA will be to assess the impact on passengers as opposed to the producer (airport and airline) welfare implications arising from Gatwick’s proposed Commitments. The CAA has tentatively identified the detriment that it considers could arise from market power in its January 2012 summary of its views on market power.

High levels of market power can allow airports to raise prices, deliver inadequate levels of service quality and scale back on investment. This can harm consumers, including by limiting the ability of airlines to offer choice and value to passengers11.

We do not believe that Gatwick possesses such a level of market power. However, our approach to the CAA’s duties considers how the Contracts and Commitments Framework address these potential adverse impacts.

First, do the Commitments allow prices to rise? Clearly, our proposal is for market price increases (for continuing improved service). However, the question for the CAA to consider is not whether prices rise, but whether the resultant price levels are consistent with those that would be seen in a competitive market, i.e. the competitive price level.

Second, do the Commitments prevent service quality levels diminishing? Since we are proposing that the current regulatory service quality regime is, if anything, enhanced, then the Commitments do in fact protect the interests of passengers. Indeed, the Commitments include proposals to incentivise the service quality of airlines, thereby increasing the service levels to passengers at Gatwick.

Third, do the Commitments stop the scaling back of investment? The business plan that will be delivered under the Commitments is contained later in this document. While it is not proposed that a specific level of capital expenditure is included in the Commitments, we will undertake the capital expenditure necessary to deliver the planned service levels we have committed to. We propose full transparency over the capital expenditure programme, in order that airlines and the CAA have early sight of any proposals to alter the level of capital expenditure proposed in this business plan.

There have been further concerns raised by the Government in terms of operational and financial resilience. We are offering Commitments in both of these areas. Taken together with the three concerns identified by the CAA, it appears to Gatwick that the Commitments Framework allows the CAA fully to meet the requirements of its primary duty with respect to the users of air transport services.

As noted above, the second part of the CAA’s primary duty is to further the interests of passengers, where appropriate by the promotion of airport competition. In this regard, we note that in other regulated sectors where competition has been introduced, regulators move away from the use of binding RAB-based price controls. This is because, as we have previously submitted to the CAA, RAB-based price controls crowd out the incentives for firms to compete, with regulatory decisions replacing market driven, commercially led decisions.

11 Heathrow, Gatwick and Stansted – Market Power Assessments: Summary of the CAA’s Initial Views, CAA, January 2012

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Gatwick’s Commitments Framework will provide an umbrella protection to passengers (and airlines) while providing scope for commercial contractual arrangements to be agreed between the airport and individual airlines on a bilateral basis. Such an approach will provide greater flexibility for the airport and its airlines to respond to competitive developments at other airports in the South East (and beyond) and to provide the services and facilities necessary to meet the needs of passengers. We therefore conclude that the move from a RAB-based framework to a Contracts and Commitments Framework enables the CAA to best achieve its primary duty.

4.6 CONClUsIONs aND WaY FORWaRD

Gatwick’s proposed Contracts and Commitments Framework is intended to support the development of Gatwick’s competitive proposition by providing airlines and passengers with a multi-year view on what they can expect from the airport. This should assist with airline planning and underpin passenger expectations of the improving service that we are already delivering. Commitments are clearly consistent with the pattern of behaviour we have demonstrated since the change of ownership and provide prospective comfort to the CAA and our airlines about Gatwick’s future intentions. Any assessment of risk of abuse of any market power held by Gatwick can now take account not only of what has happened to date but also what will happen over the next seven years. Finally, the proposed Commitments Framework will assist in further developing competition – and competitive behaviours – in the market. They provide a framework within which airport-airline contracting can get under way, while providing the CAA with assurance regarding the position of airlines unable or unwilling to contract.

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55CHAPTER 5developinG the Revised Business plAn

5.1 The apRIl 2012 INITIal bUsINess plaN

On 1 April 2012, we published Gatwick’s Initial Business Plan to 2020. This was the first time we had provided a detailed business plan forecast for the period beyond Q5. The main elements of the business plan were:

• Growth in traffic from around 34 million passengers today, to around 38 million passengers approaching 2020;

• Growth in non-aeronautical spend per passenger through innovation and improved offerings;

• Improvements in all elements of the passenger journey through Gatwick, leading to a much better experience for all types of passengers;

• Continued efficiencies in the delivery of operating and capital expenditure; and

• £1.15bn of capital expenditure between 2014 and 2020, thereby continuing the rate of improvement since the airport changed hands.

We explained that we aimed to deliver this despite the economic headwinds being faced in our industry, including taxes and high fuel costs. For the five years beyond Q5, we proposed that prices would increase by RPI+5.5%.

The highlights of this business plan were shown to all stakeholders at the airport on 19 April 2012. Feedback from passenger groups in particular was positive, with requests that many of the service improvements should be advanced in timing.

5.2 CONsTRUCTIVe eNGaGeMeNT

Once the business plan had been published, the CAA instructed the airport and its airlines to take the main elements of the Initial Business Plan through a process of Constructive Engagement. This was a multi-lateral process in which we discussed the various elements of the business plan in structured, transcripted format. The subjects to be covered were agreed in advance with the CAA and the airlines in the form of a Constructive Engagement mandate. In total, we had 33 Constructive Engagement meetings. Airline attendance was mainly easyJet, British Airways and Virgin Atlantic. Topics covered included:

• Traffic forecasts;• Capital expenditure;• Service quality;• Operating expenditure; and• Commercial revenues.

A full summary of the Constructive Engagement process was provided to the CAA by Gatwick and its airlines on 28 December 2012, and is included as Appendix 2. It is fair to say that progress was mixed.

TRaFFIC FOReCasTs

Although we did not reach agreement on traffic forecasting methodology, we did agree on the base forecasts provided in the Initial Business Plan. During the CE process, Gatwick reduced its traffic forecasts to reflect downgrades in forecasts of economic recovery. Our airlines agreed that the April traffic forecasts should be reduced, albeit not as far as Gatwick proposed. The airlines did not agree to the use of high case forecasts for the purposes of planning the development of the airport.

CapITal eXpeNDITURe

Constructive Engagement involved a detailed review, project by project, of the entire capital expenditure forecast. We reviewed a detailed business case for each project, using a business case format agreed with the airlines. There was a significant degree of agreement as to the projects that should be included in the regulatory submission, albeit less agreement on the forecast costs of those projects.

seRVICe qUalITY

There was broad agreement to continue the use of the SQR / QSM regime that has been in place in Q5. There was not agreement on Gatwick’s proposal to extend the service quality regime to elements of airline service in order to set a minimum level of service that could be expected across the whole airport.

OpeRaTING eXpeNDITURe

There was little agreement with respect to the scrutiny of operating expenditure. Although Gatwick provided much more detail of its forecasts than for the previous Q5 Constructive Engagement, the airlines considered that this level of detail was still insufficient to be able to provide comment.

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COMMeRCIal ReVeNUe

Although there was little agreement on the commercial revenue forecasts, we were able to agree a way forward in which the airlines’ consultants would be able to undertake a detailed review of Gatwick’s forecasts. This work is underway, but has not been completed in time to inform the forecasts in this business plan.

lOCaTION OF easYjeT

As we published the business plan, we were asked by easyJet to explore the options for locating its entire operation in the South Terminal, as opposed to the split operation that they currently have across North and South Terminals. The outcome of that work was discussed as part of CE, but no agreed way forward was reached.

OTheR sUbjeCTs

It was the CAA’s stated intention that reviews of other parts of the business plan would be undertaken in time to allow any relevant conclusions to be input into the CE process. However, none of these studies were completed in time to allow airlines or Gatwick to comment on any emerging findings for this business plan.

5.3 ChaNGes sINCe apRIl 2012 INITIal bUsINess plaN

As a result of Constructive Engagement, and due to other developments during 2012, some elements of the business plan have been changed. The detailed changes will be discussed, but include:

TRaFFIC

Our traffic forecasts now show Gatwick reaching only 35.9 million passengers in 2018/19, down from the 37.3 million passengers forecast for the same year in the Initial Business Plan.

CapITal eXpeNDITURe

The capital expenditure total of £1.15bn in the April business plan has been reduced to £965m. This reflects a lack of airline support for some projects, as well as the reduced traffic forecasts delaying the need for some projects to the early 2020’s.

lOCaTION OF easYjeT

The business plan still assumes easyJet remains split between North and South terminals. Other airlines at Gatwick have some concerns about the increase in capital expenditure that may be required to facilitate this move, as well as some operational impacts. Nevertheless, Gatwick remains keen to facilitate such a move if these issues can be addressed as locating all easyJet’s passengers in one terminal would seem to be a significantly better offering for their passengers. We have therefore included a version of the business plan showing the impact of easyJet consolidating into South Terminal as Appendix 11 to this business plan, and will continue the dialogue with our airlines.

TIMesCale OF FOReCasTs

Towards the end of Constructive Engagement, the CAA asked for our forecasts to be extended to 10 years from the end of Q5. All forecasts in this business plan are therefore made to 2024. However, the reduced level of detail of forecasts between 2020 and 2024 means that these forecasts are inevitably less robust than those for the earlier years beyond Q5.

CapaCITY eXpaNsION

The April business plan made little reference to the possibility of an additional runway at Gatwick. Government policy at that time was to oppose any runway development at Gatwick (as well as Heathrow and Stansted). Since April 2012, the Government has set up the Airports Commission, to examine options for runway development. This business plan therefore includes a forecast of the costs necessary to develop the necessary evidence to support submissions to the Airports Commission. The costs of a planning enquiry or of any construction have not been included since there will be no clarity on Government support, or otherwise, for runway expansion anywhere until 2016 at the earliest.

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5.4 NeXT sTeps

This business plan now passes to the CAA to consider as part of the preparation of its initial proposals in April 2013. In the meantime, we will continue work in the following areas, in order to inform the 20 July 2013 refresh requested by the CAA:

• Traffic forecasts will be reviewed, early in 2013, in the light of our most up to date information on the near term traffic outlook, as well as any revisions to the longer term economic outlook;

• We will continue to consult our airlines on the capital expenditure projects contained in this business plan, as well as commencing consultation on possible additions to, or reductions from, this project list;

• We will continue the discussion around the service quality proposals, and, in particular, hope to have a view from the airlines on maintaining the 95% pier service level; and

• We will continue the detailed work necessary to provide evidence to the Airports Commission which may produce more insight as to the likely costs of that work.

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59CHAPTER 6tRAFFic FoRecAsts

6.1 sUMMaRY

Traffic forecasting in a competitive environment needs to take account not only of general commercial and economic conditions, but also of the specific factors that will affect both passenger and airline decisions. This includes, for example, the experience passengers receive and the marketing and other efforts by Gatwick and our competitors to retain and attract airlines and passengers. In the last three years, following new ownership, we have embraced the challenge of competing through service improvement and have been successful in securing airlines new to both Gatwick and to the UK. That is why we believe that taking a service based approach to the development of the airport will be reflected in future growth. The competitive dynamic this implies means that various airlines can be expected to respond differently, depending on Gatwick’s competitive positioning, the market opportunities available to us, and how successful we are. Traffic forecasting in these circumstances is more complex than it was in the past. For example, the switch of airlines from Stansted to Gatwick would not have been seen in forecasts resulting from traditional forecasting techniques, since it was competition under separate ownership that drove this switch.

To ensure that Gatwick has a realistic and substantiated view of future traffic demand, we appointed SH&E, a company with extensive traffic forecasting experience in different airport environments, to advise on our traffic forecasts for this business plan. SH&E produced long term passenger forecasts for Gatwick in May 2011. These forecasts were then shared with our airlines, through a number of workshops, in the second half of the year. These workshops enabled SH&E and Gatwick to share their methodologies and data sources with our airlines. It also provided an opportunity to substantiate the foundation for development of this business plan, as traffic demand, both in absolute terms and, crucially, composition, is central to the analysis of business cases for investment, revenue generation and operational improvements.

In January 2012, at the request of Gatwick, SH&E updated the long term passenger forecast. This forecast underpinned the Initial Business Plan. The updated forecasts were somewhat lower than those presented in May 2011, reflecting the slightly softer demand outlook.

In September 2012, at the request of Gatwick, SH&E further updated the forecasts in order to inform the Revised Business Plan. Gatwick was able to share these forecasts with its airline customers through Constructive Engagement.

Historically, regression analysis has shown a correlation between economic growth and overall levels of air travel. However, UK GDP is not the only determinant of traffic growth and the relationship appears to be changing. The market is maturing and as the UK and European economies face headwinds, the propensity to fly tends to plateau. Price effects, including fuel and taxes, continue to impact the affordability of flying. In addition, increased competition between airports in the South East is having an impact with some airports winning and losing significant passenger numbers.

Nevertheless, as an independent variable in long term forecasting, SH&E consider that UK GDP is the best proxy available and they continue to use it for the unconstrained London and South East forecasts, albeit with significant adjustments, in order to reflect other qualitative judgements. The forecasts used in this business plan for UK GDP are contained in Appendix 4, although it should be noted that since these were compiled in September 2012, it is already becoming apparent that longer term forecasts could be optimistic.

The traffic forecasts for Gatwick are the product of a number of factors:

• The first three years are based on a bottom-up forecast, driven by our market intelligence, various levels of commitments given to us by airlines, and an assessment of our continued success in attracting new airlines; and

• The later period of the forecast is where the bottom-up segues into the long run trend which is influenced by total market growth and Gatwick’s forecast market share.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

6 Traffic

CHAPTER 6TRAFFIC FORECASTS

60

While long haul growth is forecast to be the fastest growing part of our traffic, we expect short haul traffic, including charter traffic, to continue to represent the majority of our traffic in the period up to 2020. The challenge for Gatwick is how best to accommodate the differing business models of our existing and new airlines. Thus, while passenger and aircraft movements may be important to the overall traffic forecasts, understanding more about the segmentation of traveller groups is central to enabling development of service propositions better aligned to differing needs. We are developing our approach to this and working with our airlines to drive such improvements.

Over the past decade, the airline industry has been subject to a variety of external “shocks” (e.g. Gulf War, SARS, 9/11 and volcanic activity), none of which could have been predicted, but all of which had a very significant impact on air travel. Due to their nature, such events have not been built into our forecasts, but remain a very real risk.

6.2 TRaFFIC OVeR-FOReCasTING

The recent history of the traffic forecasts used by the CAA at Gatwick has been poor. Since the start of Q4, actual passenger numbers have fallen short of the CAA’s expectations, consistently on a year-by-year basis, as shown in figure 6.1 below.

aCTUal passeNGeRs

q4 FOReCasT

q5 FOReCasT

2003/4 30,063,086 31,200,000

2004/5 32,013,385 33,760,000

2005/6 32,851,244 36,000,000

2006/7 34,389,316 38,600,000

2007/8 35,568,421 39,700,000

2008/9 33,104,653 35,900,000

2009/10 32,396,977 36,400,000

2010/11 31,647,217 36,800,000

2011/12 33,826,766 37,200,000

2012/13 34,064,357 37,700,000

Table 6.1: Passenger numbers

Figure 6.1: Historic CAA over-forecast of traffic since Q4

25

20

15

10

5

30

35

40

45

Actual passengers

Q4 forecast Q5 forecast

SH&E Jan 2012

Pass

eng

ers

per

yea

r

2006

/07

2005

/06

2004

/05

2003

/04

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

Such over-forecasting reveals a historic over-optimism both of traffic and the opportunity for external asymmetric shocks to affect Gatwick’s traffic downward. We believe that the CAA should adopt Gatwick’s prudent and evidence based approach to forecasting as part of any regulatory work in the future.

6.3 ReVIseD FOReCasTs

The revised forecasts have been calculated against a backdrop of worsening economic news. The underpinning GDP forecasts show a steadily delayed start to an economic recovery, as shown in the figure below.

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

2010

20

11

2012

20

13

2014

20

15

2016

20

17

2018

20

19

2020

20

21

2022

20

23

2024

20

25

2026

20

27

2028

20

29

2030

20

31

2032

20

33

2034

20

35

2036

May-11 Dec-11 Aug-12

UK

GD

P Fo

reca

st, A

nnua

l Per

cent

age

Cha

nge

Figure 6.2: Forecast of UK GDP growth used in SH&E traffic forecasts

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

6 Traffic

61

Since the last traffic forecast, there have been signs of weakness within the industry. Airlines have been making more negative statements about industry recovery. Gatwick’s passenger numbers for the remainder of 2012/13 are expected to be 33.8m, as shown in the figure below. This means that year 1 forecasts are on a par with the financial year 2011/12 base.

This weakening results in a decline in the medium term passenger forecast, compared with the Initial Business Plan basis. This means that 2018/19 base case passenger forecast sees a reduction of 1.4m (3.7% reduction) to 35.9m passengers, as shown in the figure and table below.

passeNGeRs sh&e base sh&e lOW sh&e hIGh

11/12 33.8 33.8 33.8

12/13 33.8 33.4 33.9

13/14 34.0 32.8 34.7

14/15 34.5 33.0 35.8

15/16 34.7 32.8 36.6

16/17 35.0 32.7 37.4

17/18 35.4 32.8 38.2

18/19 35.9 32.9 39.2

19/20 36.6 33.2 40.4

20/21 37.2 33.7 41.0

21/22 38.1 34.1 41.6

22/23 39.0 34.7 42.2

23/24 40.1 35.2 42.8

25

30

35

40

45

SH&E Low SH&E Base

SH&E High SH&E Base Jan 2012

AnnualPassengers (m)

06/0

7

07/0

8

08/0

9

09/1

0

10/1

1

11/1

2

12/1

3

13/1

4

14/1

5

15/1

6

16/1

7

17/1

8

18/1

9

19/2

0

20/2

1

21/2

2

22/2

3

23/2

4

passeNGeRs sh&e base

sh&e base jaN 2012

DIF (%) DIF (abs)

11/12 33.8 33.7 0.4% 0.1

12/13 33.8 34.6 -2.3% -0.8

13/14 34.0 35.2 -3.6% -1.3

14/15 34.5 35.7 -3.3% -1.2

15/16 34.7 36.0 -3.8% -1.4

16/17 35.0 36.4 -4.0% -1.4

17/18 35.4 36.8 -3.9% -1.4

18/19 35.9 37.3 -3.7% -1.4

19/20 36.6 38.1 -4.1% -1.6

20/21 37.2 39.1 -4.8% -1.9

21/22 38.1 40.2 -5.3% -2.1

22/23 39.0 41.1 -5.2% -2.1

23/24 40.1 41.6 -3.7% -1.5

Figure 6.3/Table 6.2: SH&E latest Gatwick passenger forecast and movement since Initial Business Plan

Table 6.3: SH&E low, base and high passenger forecasts

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

6 Traffic

CHAPTER 6TRAFFIC FORECASTS

62

In addition, growth rates through the period have declined, compared with the Initial Business Plan basis, as shown in the figure below.

The latest long term forecast from SH&E is attached as Appendix 4.

-2.0%

0.0%

2.0%

4.0%

11/1

212

/13

13/1

414

/15

15/1

616

/17

17/1

818

/19

19/2

020

/21

20/2

2-2.0%

0.0%

2.0%

4.0%

11/1

212

/13

13/1

414

/15

15/1

616

/17

17/1

818

/19

19/2

020

/21

BASE v LastYear HIGH v LastYear LOW v LastYear

-2.0%

0.0%

2.0%

4.0%

11/1

212

/13

13/1

414

/15

15/1

616

/17

17/1

818

/19

19/2

020

/21

Total Jan 12 Base

Total Sept 12 Base

Gro

wth

Rat

e

Gro

wth

Rat

e

Gro

wth

Rat

e

Total Jan 12 High

Total Sept 12 High

Total Jan 12 Low

Total Sept 12 Low

Figure 6.4: SH&E Gatwick forecast growth rates

passeNGeRs m

sh&e DOMesTIC

sh&e shORT haUl

sh&e lONG haUl

12/13 4.9 25.1 3.8

13/14 4.9 25.2 3.9

14/15 5.2 25.4 3.9

15/16 5.2 25.5 3.9

16/17 5.3 25.8 3.9

17/18 5.3 26.1 4.0

18/19 5.5 26.5 4.0

19/20 5.6 26.9 4.1

20/21 5.7 27.4 4.1

21/22 5.9 28.0 4.2

22/23 6.1 28.6 4.3

23/24 6.3 29.3 4.4

Table 6.4 SH&E passenger forecast by market segment

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

6 Traffic

63

6.4 RIsks

The latest base case reflects a balanced forecast, capturing both positive and negative market forces. However, even since its production, the overall economic outlook has deteriorated, with a growing consensus around subdued short term growth and question marks around the extent and speed of any recovery. The fortunes of the Eurozone will be critical, not merely for their impact on growth prospects generally, but also for the short haul focus of the airport’s current airlines.

For the purposes of producing this business plan, the base case has been used as our most likely passenger growth scenario, with the high case used for capital planning. However, past history of traffic forecasting reveals multiple incidences of unforeseen shocks to expected growth: 9/11, the Gulf War, SARS and the recent financial crisis have all resulted in considerable downturns in Gatwick’s traffic numbers. As the CAA conducts its analysis through 2013, there will be a need to revisit the traffic numbers.

In terms of risk factors, we have not addressed the following:

• Our current traffic forecasts do not include “shocks”; the record of the last ten years is a series of almost annual shocks (with snow and ash being the most recent examples); how such shocks should be included in the forecasts is an issue to be resolved;

• The forecasts do not include the impact of more intense competition resulting from the sale of Stansted or any development of mixed mode at Heathrow;

• It is clear that the risks with respect to traffic are asymmetric, particularly as we get closer to our capacity; how this asymmetry is reflected in the forecasts or in the regulatory architecture is to be resolved; and

• Traffic forecasting has traditionally used UK GDP as an important factor in the growth forecasts; it is not clear that the linkage to GDP holds in the way that it has done historically, particularly given the competition between the South East airports.

Any regulatory price control would need to make appropriate allowance for such risks. In addition, there are other uncertainties. As indicated above, the economy appears to have weakened further since the most recent forecasts. We will need to keep this under review, as well as considering the full range of other scenarios that might apply. On the downside, examples would include:

• Even lower economic growth for a prolonged period;

• Deeper Eurozone crisis;• Significant fuel price increase leading to higher

fares, loss of routes and market contraction; and• Loss of recently gained long haul services and/or

established carriers due to competition.

On the upside, examples would include:

• Faster economic recovery and higher sustained growth rates;

• Greater success in capturing market share from other London airports;

• Faster acquisition of long haul routes; and• Faster growth of our based airlines.

As in April 2012, we continue to believe that the risks are weighted to the downside.

6.5 CONClUsION

The forecast of traffic is a key element in the development of Gatwick’s longer term business plan. We have produced a range of traffic forecasts to the early 2020s. The tentative nature of these forecasts is acknowledged, particularly given the economic headwinds that are all too evident.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

6 Traffic

65CHAPTER 7ouR cApitAl pRoGRAMMe

7.1 INTRODUCTION

This chapter sets out how Gatwick proposes, through its capital programme, to bridge the gap between current capability and the future service proposition that we believe will deliver competitive advantage, thus retaining our current passengers and airlines and attracting future new business to the airport. Well designed and scoped capital improvements increase the opportunities for airlines to increase efficiency and reduce their costs, as well as providing facilities consistent with passenger expectations.

In chapter 3, we explored the significant work we have completed to identify and clarify the need for service improvements across Gatwick, detailing our desired outcomes in our Product Matrix, in line with our ambition and strategic objectives, and providing increased scope for ourselves and our airlines to compete.

In chapter 6, we set out our approach to traffic forecasting. We explained that we have, in addition to broad traffic numbers, sought also to forecast our passenger demand at a more granular, segmented level. This additional level of detail has allowed us to identify the capability we require against the facilities and processes we currently have, in order to assess the scale of gap that requires closing and over what timescale, and so to determine what investment or other changes are needed. This involves taking a holistic approach looking at what can be delivered through people, processes and technology as well as just infrastructure.

We use the high case passenger and air traffic movement forecasts as the basis for developing our capacity related projects. Taking this approach is both a prudent and widely accepted way to ensure we have timely design, consultation and construction activities to deliver the passenger facilities and experience that is intended. To plan on the basis of the lower central forecast would risk the operational resilience of the airport and passenger experience. Gatwick’s approach is in line with best practice of other large infrastructure providers, including the network utilities, by delivering infrastructure in time to meet demand and by providing a level of service that is expected by customers over the long term.

At the heart of all we do is the goal of delivering for passengers and airlines to enhance the experience at the airport and in so doing deliver our ambition of competing to grow to become London’s airport of choice.

7.2 Gap aNalYsIs

In Chapter 3, we have shared the high level insight we have developed through our benchmarking activities. However, to facilitate the creation of our capital programme we have developed a gap analysis to a more detailed level. As a starting point for the analysis, we used the ASQ scoring previously mentioned, but then correlated that with visits to our competitor and comparator airports. This has allowed us to experience the complete service and ambience of the passenger journey, and in many cases to share insight with the respective host airport management teams. Only by doing these visits could we truly compare like for like services and products.

Through these activities we have also developed an understanding of the relationship between the ASQ score, given by passengers using these airports, with our own judgement based on experience of airport operations and Gatwick’s own passenger feedback.

The gap analysis methodology has enabled us to determine the size and scale of gap closing proposals, where we judge ourselves to be against our Product Matrix outcomes and where we consider our competitor and comparator airports to be performing. It has also helped prioritise our investment and developed a tool to communicate this information with our stakeholders.

However, in many cases we were comparing products in significantly different environs, due to the differential in terminal building generations and the maturity of the architectural design e.g. comparing Gatwick’s South Terminal with Heathrow’s Terminal 5, with a differential of nearly 50 years. Therefore, in these cases and at the level of investment proposed in this plan, we cannot close the gap on some architectural aspects of ambience. We can, however, close the gap or indeed take the lead in the products provided within the terminal buildings. An example of this is check-in, where our process development, collaborative working with our airlines and the introduction of new technology will outperform our competitors. Balancing this judgement with the physical ambience elements allows us to develop a relative position on our comparator charts below.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

7 Capital

CHAPTER 7Our Capital prOgramme

66

DelIVeRY OF sTRaTeGIC ObjeCTIVes ThROUGh The CapITal plaN

keY TO DIaGRaMs

Our passenger research has informed us that ease of surface access is a significant factor in the choice of an airport. In line with our Decade of Change environmental commitments, we propose to achieve modal share increases in public transport through infrastructure improvements that make public transport a more viable and pleasant experience.

Providing real time passenger information in the right locations will also assist achievement of this goal. We propose to increase the breadth of car parking products, in line with our passenger segmentation work, and to add capacity to ensure this meets the predicted demand.

sURFaCe aCCess

■ Estimated objectives achieved through the current Q5 Capital Plans ■ Estimated objectives achieved by 2020 through c£965m Capital Plan ■ Post 2020 objectives

ST = Gatwick South TerminalLTN = Luton MAN = Manchester

NT = Gatwick North TerminalDUB = Dublin STN = Stansted CPH = Copenhagen LHR T5 = Heathrow Terminal 5 AMS = Amsterdam ZRH = Zurich

MAN DUB LHR T5

Competitor/comparator assessed position

Gap filling investment(eg. achieving competitive equivalence to LHR T5)

Achieving competitive advantage(eg. over LHR T5)

ST

NT

ST

NT

LTNDUB STN MAN CPH T5 AMS ZRH

Objectives achieved by March 2014

■ ST forecourt improvement■ NT interchange & forecourt■ Railway contribution (VCC & 7th platform)■ External wayfinding (pedestrian & vehicular flows)■ Shuttle replacement & station refurbishment■ Valet bag drop (pilot)■ Limousine drop off / pick up■ Dedicated PRM drop off / pick up lounge (proposed)

Post 2020 ObjectivesRemaining gap following £965m Capital Plan

■ Local road and forecourt capacity improvements■ Significant vehicular queues at peak■ Rail Station major refurbishment■ Road network resilience■ Short stay car park capacity■ Long stay car park capacity■ Dedicated PTI

Objectives to be achieved by 2020

■ Additional NT Coaching Bays £3.70m■ Public Transport / DDA Access £9.20m■ Passenger service through IT (Included below)

Figure 7.1 Key to assessment of delivery against our strategic objectives

Figure 7.2 Assessment of surface access projects

As stated previously, the Product Matrix outcomes encompass our longer term service proposition, which realistically may not be delivered wholly in the years to 2020. We have therefore, in the diagrams below, estimated where on the journey we will be between the end of Q5 and 2020, including all potential

aspects of improvement in our assessment. Processes, people and new technology need to be part of a complementary programme of improvements. The assessment, depicted below, also identifies outcomes that will not be delivered at the level and pace of investment proposed in this plan.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

7 Capital

67

From our passenger research, check-in was second on passengers’ priority list for investment by Gatwick. Queuing at check-in causes high anxiety and is a major area of opportunity for improving the passenger experience significantly. As well as completing the South Terminal baggage project carried over from Q5, we propose to undertake check-in transformation projects in both our terminals. These projects will build on the process improvement work we have completed to date,

the “laboratory” work we have trialled with a number of our airline partners, and the remodelling of the check-in passenger flow through infrastructure changes. The addition of an early bag store in North Terminal will facilitate greater flexibility of passenger products, such as night before check-in, and will also provide a platform for airlines to drive efficiencies, via just-in-time make up processes by their handling agents.

CheCk-IN


■ ST & NT Airline & Handling Agent process improvements■ NT Extension (A-C and orientation area) – layout & ambience■ ST & NT LCD screens in all zones■ ST & NT bag drop flexibility (any desk to any chute)■ ST zones A & C - natural light and ambience■ ST zone F (laboratory)


■ Natural light in all zones■ Segregated premium check-in lounge■ Off site and kerb side bag drop


■ NT & ST check-in & bag drop improvement £41.6m■ NT Early Bag Store £24.0m■ ST Baggage & Pier 1 (carry over) £88.6m■ Passenger service through IT (Included below)■ Airline performance incentivisation and measurement

MAN AMSCPH

LHR T5ZRHLTN

DUBSTN

ST

NT

Figure 7.3 Assessment of check-in projects

We have made significant improvements to South Terminal passenger search and increased capacity in the South Terminal. We now propose to replicate the very successful South Terminal model in North Terminal. In addition, we propose to improve communication to

passengers about security queue times, via passenger screens and mobile applications, again seeking to reduce the anxiety that airport processes sometimes cause our passengers.

seCURITY


■ ST Security improvement project■ DMAIC performance improvement project■ Customer service training■ Dedicated assistance and premium lanes


■ Changes to screening technology■ Loyalty based segregation


■ NT Security reconfiguration £25.8m■ Passenger service through IT (Included below)

LTN AMSZRH CPHMAN DUBLHR T5

STN

ST

NT

Figure 7.4 Assessment of security projects

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

7 Capital


68

In addition to the projects for Pier 1 and 5, carried over from Q5, and to meet the passenger demand for pier served flights, an additional pier project is proposed. The Pier 6 southern extension project will provide capacity to enable Gatwick to continue to deliver 95% pier service for our passengers.

The departure lounge is often the first point where passengers can relax on their departure journey ahead of their flight. Our research and insight work streams have informed us that passengers want improvements in general ambience, light, space and environment, together with superior retail offers. Differentially zoned areas of the departure lounge were shown to be popular with passengers, to provide ambience and facilities in line with different passenger segments. To keep pace with these spatial and

ambience requirements, improvements have been proposed to South Terminal and North Terminal lounges. Additional dedicated airline lounges are proposed in both terminals, in addition to wayfinding enhancements and improved passenger facing IT, providing proactive information to them along their journey.

pIeRs

DepaRTURe lOUNGes


■ Pier 5 improvement■ Pier 2 improvement■ Call to gate process improvement■ Stand 125 (A380 capability)■ Pilot process for strollers at aircraft side for arrivals■ Gateroom seating (part)


■ Automated boarding■ Premium segregation■ Experiential areas in all gaterooms■ Gate room ambience, look & feel throughout■ Pier 3 segregation issues


■ Delivery of 95% Pier Service (NT) £175.5m■ Pier 1 (carry over) (Included in Check-in)■ Pier 5 (carry over) £0.8m

LTN STN CPHAMS

LHR T5ZRH

DUBMAN

ST

NT


■ ST IDL extension (early Q5)■ ST IDL (phases 1 & 2)■ NT IDL improvement (catering & smoking area)■ Initial family / children’s areas■ NT & ST dedicated PRM zones■ Call to gate process improvement


■ Limited airfield views■ Direct routes to CIP lounges (not via WDF)


■ NT IDL reconfiguration and expansion £90.0m■ ST IDL reconfiguration (Food Court) £13.5m■ ST IDL capacity £35.0m■ Passenger service through IT (Included below)

LTN STN MAN DUB LHR T5AMS CPHZRH

ST

NT

Figure 7.6 Assessment of pier projects

Figure 7.5 Assessment of departure lounge projects

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

7 Capital

69

Collaborative work with UKBF on processes and technology has delivered positive service improvements compared to other major UK airports. In fact, the work has been recognised by an internal UKBF award and gone on to inform national strategies. However, to continue this improvement and to keep

pace with growth, we propose a further project to improve the North Terminal border zone. The provision of automated queue measurement and its publication to passengers will both assist management of the arrivals border service and improve transparency to passengers about service performance.

aRRIVal bORDeR ZONes


■ UKBA process improvements■ ST automation and capacity improvements■ Dedicated assistance and family lanes■ A warm welcome to Gatwick / UK (signage)


■ Premium route away from main hall■ Dedicated business and premium lanes


■ NT Border Zone £17.5m■ Passenger service through IT (Included below)

STNLTN

MAN DUB ZRH LHR T5 CPHAMS

ST

NT

Figure 7.7 Assessment of arrival border zone projects

In line with our Passenger Commitments, we currently publish baggage reclaim performance by airline. This has been well received by passengers. We therefore are proposing publication of real-time bag delivery status messages to passengers waiting in the reclaim hall and via mobile applications. We also propose capacity improvements in North Terminal to keep pace with forecast growth.

ReClaIM


■ Airline & handling agents process improvements■ Process for bag reconciliation on major failure■ Publication of performance■ Onward travel ticket machines / information (proposed)


■ Natural light■ Catering facilities


■ NT baggage reclaim £2.8m■ Passenger service through IT (Included below)

LTN MAN DUBSTN ZRHLHR T5AMSCPH

ST

NT

Figure 7.8 Assessment of reclaim projects

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

7 Capital


70

We propose projects for digital media, together with Wi-Fi and related business systems improvements that provide proactive and intuitive information to passengers throughout their journey.

We intend to develop real-time road and rail information feeds for arriving passengers in the reclaim hall, in addition to public transport interchanges and consolidated booking facilities at the appropriate stages of the journey. We also propose the development of dedicated lounges for arriving passengers, important for our long haul passengers arriving in the UK, whose number is steadily increasing.

OTheR passeNGeR FaCING pRODUCTs

ONWaRD TRaVel & aRRIVals CONCOURse


■ NT & ST wayfinding replacement and improvement■ Wi-Fi improvement■ ST & NT disruption / landside areas


■ Ambience improvements throughout■ Experiential displays■ Toilet enhancements in all passenger areas■ Cladding of buildings


■ Digital media – return £5.3m■ Business Systems Transformation £15.8m

LTNDUB

MANSTN CPH LHR T5 ZRHAMS

ST

NT


■ ST arrivals improvement (phase 1)■ ST & NT info zones■ Onward travel wayfinding improvements■ Chauffeur pick up areas


■ Intuitive layout (including pick up)■ Clear routing to products


■ NT Arrivals transformation £27.0m■ CIP arrivals £2.1m■ Product development car parking £5.0m■ Passenger service through IT (Included in check-in)

LTNDUBMANSTN CPH LHR T5

AMSZRH

ST

NT

Figure 7.10 Assessment of other passenger facing projects

Figure 7.9 Assessment of onward travel and arrivals concourse projects

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

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71

As mentioned below, we are implementing PAS 55 as our asset stewardship methodology. The above forecasts are based on investment optimised for each asset group.

asseT ReplaCeMeNT & COMplIaNCe


■ Asset stewardship (PAS 55 & IT)■ Compliance & minor projects■ Optimal investment timing in Q5, but under investment in Q4


■ Asset stewardship (PAS 55 & IT) £311.7m■ Compliance & minor projects £39.7m


LTNAMS

MANSTN

CPH LHR T5ZRH

DUB

ST

NT

Figure 7.11 Assessment of asset replacement and compliance projects

In addition to an allowance for the costs associated with providing evidence to the Airports Commission on runway development, we propose improvements to car rental, CIP departure lounges, together with reconfiguring airfield stands to improve utilisation, to match forecast demand.

NON-passeNGeR FaCING pRODUCTs


■ NT baggage improvement■ ST baggage improvement


■ Joint control centre■ Alpha box / 26L improvements■ FOD radar■ A380 airfield enhancements■ NATS control tower & equipment


■ 2nd Runway development £10.0m■ CIP Departures £2.3m■ Stand reconfigurations £10.0m■ Consolidated Car Rental & Transport Facility £8.0m

LTNAMS

MANSTN

CPH LHR T5ZRH

DUB

ST

NT

Figure 7.12 Assessment of non-passenger facing products

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

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Plan

6 Traffic

7 Capital

8 Service Quality

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10 Revenue

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7.3 The CapITal pROGRaMMe

COsT sUMMaRY

£m at 2013/14 prices £m

CaRRY-OVeR pROjeCTs

ST Baggage & Pier 1 88.60

Pier 5 0.79

asseT sTeWaRDshIp & COMplIaNCe

Airfield 75.15

Facilities 164.40

Commercial 37.97

Compliance & Risk 39.67

IT 34.17

DeVelOpMeNT pROjeCTs

Surface Access 12.90

Check-in Concourse & Early Bag Store

65.60

Security 25.80

Departure Lounges 138.50

Piers 175.50

Arrivals Border Zones 17.50

Baggage Reclaim 2.80

Onward Travel & Arrivals Concourse

34.14

Other Passenger Facing Products

21.09

Non-Passenger Facing Products

30.30

TOTal 964.88

CapITal pROGRaMMe DesCRIpTION

In our Initial Business Plan, we set out three key streams of projects in our capital programme –

• carry over projects from Q5, • asset stewardship and compliance projects, and • development projects to secure and improve our

competitive position.

CARRY OVER PROJECTS £89.39M

The following are significant projects that are in the construction phase which spans the end of Q5.

• South Terminal Baggage & Pier 1• Pier 5

ASSET STEWARDSHIP AND COMPLIANCE PROJECTS £351.36M

asseT sTeWaRDshIp

Safeguarding and maintaining existing facilities in a timely and efficient fashion is important in maintaining and improving Gatwick’s competitive position. Our

relentless focus on the proper and timely maintenance and replacement of passenger sensitive equipment has ensured that we provide passengers and airlines with a much more reliable level of service every day. This is reflected in our performance on SQR measures. The timing of airfield maintenance, such as pavement resurfacing and lighting equipment replacement, is also critical to ensure effective airline operations and resilience of the airport.

Given the increased competitive pressures to which the airport is subject, allowing assets to become time expired and costly to maintain would undermine our competitive position by reducing service quality and increasing costs. We have therefore chosen to maintain our assets using the PAS 55 methodology the British Standards Institution’s Publicly Available Specification for the optimised management of physical assets and have been accredited to the standard. This internationally recognised standard provides clear definitions and a 28-point specification for establishing and verifying a joined-up, optimised and whole-life management system for all types of physical assets.

The above rationale and process has led to the development of a programme of asset stewardship of £311.69m. Whilst higher than the cost of comparable programmes in Q5, the current proposal takes into consideration the period of past under investment in the asset stewardship area, which has been clearly identified using the PAS 55 methodology, and the increase in the asset base in recent years.

COMplIaNCe

Shortly after the sale of the airport, we launched our Decade of Change strategy. The strategy sets targets for us to deliver by 2020 across all key sustainability areas. It describes how we aim to deliver sustainable growth through responsible environmental management coupled with strong economic and community programmes. The strategy is supported internally by a team of airport environmental partners who are the principal points of contact for ensuring their respective business unit strategies are being delivered in line with the wider targets.

We have already seen some real progress with independent recognition through achievement of ISO14001 and our carbon management performance. We want to continue along this path. This business plan therefore includes several projects that are critical to the achievement of our Decade of Change environmental targets and to ensuring the airport’s sustainable growth.

1Strategy

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Offer

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Plan

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DEVELOPMENT PROJECTS TO SECURE AND IMPROVE OUR COMPETITIVE POSITION £524.13m

The development portion of the capital programme is intended to enhance both the level of service and its delivery, so as to significantly improve the passenger experience, secure our competitive position, and enhance the ability of our airlines to operate effectively and attract the passengers they need.

From our analysis of traffic growth and mix explained in Chapter 6, together with our service proposition in Chapter 3 and the gap analysis in this chapter, we are proposing a number of projects that are focused on securing and improving our competitive position. We continue to prioritise these schemes so as to focus resources on those that bring the maximum benefits and are most likely to contribute to a step change in the passenger experience at Gatwick. All of the projects are supported by our YouGov and Accent passenger research studies. We will continue to discuss these projects with our airlines through the on-going consultation process in 2013. We give details of some of the key projects later on in this chapter.

ChaNGes MaDe sINCe The INITIal bUsINess plaN

CONsTRUCTIVe eNGaGeMeNT

Business cases have been developed for each of the proposed infrastructure projects and have been shared with our airlines through Constructive Engagement. These business cases set out for each project the business objectives, the scope and nature of the project concerned, the impact on our competitive position and the estimated costs and benefits. These are included in Appendix 6.

During the Constructive Engagement process we have listened to our airlines, translating their feedback into enhancements within our programme or in some cases removing schemes from our proposals, such as the original scheme for Pier 3. The majority of the projects presented through Constructive Engagement have received support to continue development up to Tollgate 3. The extent of support was detailed in the end of CE joint report, issued to the CAA in December 2012.

We will continue to consult with our airlines and a capital forum has been created to ensure on-going debate and provision of information to airlines, following the publication of this Revised Business Plan. The aim is to achieve Tollgate 3 standard information for key projects by July 2013.

We have made a proposal for a more strategic consultative process for Asset Stewardship, reflecting our PAS 55 accredited processes.

In Constructive Engagement, we have discussed the concept of split capital expenditure. No clear definition, with measurable criteria for decision making, has been proposed by our airlines. We are clear that current capital proposals are core capital expenditure required for the essential improvement of the airport.

We are, however, open to further discussion on how new projects could be introduced. Some projects we may want to consider in the July 2013 update to this Business Plan, or at a later date, could include:

• Investment to transform Gatwick into a new generation hub;

• Bringing car park investments forward if traffic justifies it;

• Deployment of new security technology as it becomes available; and

• Investment to transform the railway station.

We have discussed with our airlines the shortcomings of Annex G – the consultation procedure put in place by the CAA for Q5 – and propose this is updated, taking a more strategic consultative approach. We have agreed to facilitate the airlines’ proposal to bring in capital investment expertise via consultants. We do not agree, however, with the proposal that all projects must have airline agreement as part of an annual process, as we believe this will only delay or prevent necessary airport development, restricting our ability to make rapid decisions in the competitive environment. Furthermore, we do not agree with the airlines proposal for annual CAA verification, as it would complicate the authorisation processes and potentially delay timely improvements to the passenger journey.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

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8 Service Quality

9 Environment

10 Revenue

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74

pROGRaMMe appROaCh

Since publication of our Initial Business Plan and considering the complex nature of our investment programme, we have proposed a programme approach that will:

• Improve capital efficiency, by merging adjacent projects to deliver in a phased way;

• Provide earlier benefits to our passengers;• Deliver earlier returns, helping to improve the

economics of the programme; and• Move us towards a holistic approach to airport

development and away from the piecemeal approach encouraged by Constructive Engagement.

DelIVeRabIlITY

An implicit element of our programme approach is the assessment of deliverability of projects, particularly those that have interdependencies or adjacencies during the design and construction phases. This continuous review process assists in the identification of issues at an early stage, removing abortive cost, minimising disruption, and improves programme accuracy and duration. It also allows integration with our operations and maintenance teams to protect operational delivery and provide proactive resilience decisions.

This approach is supplemented by the use of 3D Building Information Models (BIM) that we have developed over the last two years. The generation and management of digital representations of the physical and functional characteristics of our facilities, especially in the early concept stages, facilitates effective decision making for design, construction and eventual demolition. We also plan to pilot the use of BIM in our Airport Operation Readiness process, to aid visualisation of facility improvements for our operational and maintenance staff. The use of BIM technology has become best practice for large scale infrastructure development programmes and mandated in a number of Government programmes. We are also using micro simulation modelling programmes, such as CAST for terminal improvements and SIMMOD for airfield improvement, to assist with assessing the sequencing and impacts of construction phasing.

The 10 year summary of our capital expenditure proposals is given in the table below. We highlighted in Chapter 1 that the terminal location of easyJet remains under discussion. In the following table, “easyJet split” refers to easyJet continuing to split its operations across North and South terminals.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

7 Capital

75

ProjeCt NAme 5-Year Total

5-Year Total2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

Asset stewArdshiPAirfield

£6.70 £6.95 £12.57 £19.55 £29.38 £75.15 £28.00 £36.00 £39.50 £34.50 £34.50 £172.50 Facilities

£26.03 £31.63 £33.86 £37.75 £35.13 £164.40 £29.50 £41.50 £31.50 £29.00 £27.50 £159.00 Commercial

£6.69 £7.69 £8.19 £8.19 £7.21 £37.67 £9.50 £9.50 £9.50 £9.50 £9.50 £47.50 Compliance & Risk

£14.07 £9.60 £5.80 £5.10 £5.10 £39.67 £6.10 £8.10 £8.10 £5.10 £6.60 £34.00 I.T.

£10.27 £8.67 £3.57 £7.89 £3.77 £34.17 £10.00 £10.00 £10.00 £10.00 £10.00 £50.00 Total Asset Stewardship £63.76 £64.54 £63.99 £78.48 £80.59 £351.36 £83.10 £105.10 £98.60 £88.10 £88.10 £463.00 CArry over ProjeCtsST Baggage & Pier 1 £88.60 Pier 5 £0.79

£66.39 £23.00 £89.39 Total asset Replacement plus Carry Overs £130.15 £87.54 £63.99 £78.48 £80.59 £352.51 £83.10 £105.10 £98.60 £88.10 £88.10 £463.00 develoPmeNt ProjeCts 2013/14 – 2018/19Delivery of 95% Pier Service (North Terminal) £175.50 NT Security Reconfiguration £25.80 Early Bag Store £24.00 Upgrade Check In & Bag Drop & NT Ceilings and Floors £24.00 Upgrade Check In & Bag Drop ST £17.60 NT Border Zone £17.50 NT IDL Reconfiguration & Expansion £90.00 Runway 2 £10.00 Business Systems Transformation £15.79 ST IDL Reconfiguration (Food Court) £13.50 Stand Reconfigurations £10.00 Product Development – Car Parking £5.00 Digital Media – Return £5.30 CIP Departures £2.30 NT Baggage Reclaim £2.80 NT Arrivals Transformation £27.00 ST IDL Capacity £35.00 £44.00CIP Arrivals £2.14 Additional NT Coaching Bays £3.70 ST Public Transport/DDA Access £9.20 Consolidated Car Rental and Motor Transport Facility £8.00

£62.09 £141.27 £153.21 £105.82 £61.74 £524.13 £107.10 £125.10 £98.60 £88.10 £88.10subtotal £192.24 £228.81 £217.20 £184.30 £142.33 £964.88 £107.10 £125.10 £98.60 £88.10 £88.10 £507.00develoPmeNt ProjeCts 2019/20 – 2023/24Long Stay Capacity (Decking) Post 2019 £38.30 CIP Building Replacement (North Terminal) £20.00 North Terminal Avenue Reconfiguration £12.00 North Terminal Baggage Reclaim Reconfiguration £64.00 NT Short Stay Car Park £20.00 Supergate £5.45 ST Baggage Reclaim £12.00 Additional Staff Car Park Capacity £5.40 NT IDL Phase 2 (Post 2019) £53.00 Baggage Capacity Expansion (Post 2019) £20.00 Railway Contribution £50.00 Railway Station UpgradeBridge Over Railway £20.00 Urban Space Development £6.00 ST Short Stay MSCP £20.00 Product Development – Car Parking, Post 2019 £6.00 Terminals Works Post 2019 £43.50 Piers Works (Post 2019) £80.00 CIP GrowthAirfield Capacity/Reconfiguration Works Post 2019Commerical Products £25.00 Buy Back CargoNew Build Office DevelopmentIndustrial Bays £20.00 Hangar FacilitiesGASHCOHBS Replacement £50.00 Landside Restaurant £8.00

subtotal £192.24 £228.81 £217.20 £184.30 £142.33 £964.88 £186.40 £241.60 £242.70 £227.40 £187.55 £1085.65

CapITal pROGRaMMe: sUMMaRY bY YeaR

bUsINess plaN – easYjeT splIT – pROGRaMMe appROaCh 10-YeaR plaN high Case (sep 2012) easyjet split – (dated 11.01.2013). prices at 2013/14

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

7 Capital


76

keY CapITal pROjeCTs

A. DELIVERY OF 95% PIER SERVICE NORTH TERMINAL £175.50m

As passenger and aircraft traffic increases, and with no expansion, North Terminal pier service levels would fall below 95% in 2016, meaning that an increased number of passengers would be coached to remote stands. Feedback from our passengers is that coaching to remote stands, usually in the early morning peak, is severely detrimental to their experience of travelling through Gatwick. Through our YouGov research, passengers have told us that pier service is one of their top priorities.

We are therefore proposing to build a southern extension to Pier 6 which will deliver sufficient pier served stands to meet forecast growth and future fleet mixes, ensuring that at least 95% of passengers receive air bridge access to their aircraft.

After taking into consideration the length of time to design and build the Pier 6 southern extension, and to ensure we continue to provide pier service for at least 95% of our passengers, we can no longer delay a decision for this scheme. Design needs to commence in the Q5 period to allow construction to commence in 2014.

The alternative to the Pier 6 extension by 2016 is a reduction in the 95% pier service target. While that could avoid, or more likely delay, capital expenditure, it would do so at the expense of an unacceptable degradation of passenger experience which would also damage the airport’s competitive position, particularly thwarting our efforts to attract new long haul business.

Figure 7.13 North Terminal pier service

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

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77

B. NORTH TERMINAL INTERNATIONAL DEPARTURE LOUNGE £90m

There are already a significant number of days in the North Terminal when the number of passengers is such as to cause overcrowding. This is both directly detrimental to the passenger experience and means that we are losing out on retail income due to under provision of retail space. As passenger numbers increase, this situation will deteriorate further. The airport could have to remove retail space to increase circulation and seating areas, thereby leading to an unnecessary increase in airport charges.

The overall ambience in the IDL is poor. The North Terminal has not been modernised for a significant period of time and is not attractive to many retail brands who do not wish to be associated with Gatwick unless we improve the environment. Support for changes to our retail spaces also comes from our passenger research which shows that passengers desire areas aligned to their needs. Redevelopment will, therefore, also provide the opportunity to differentiate the overall IDL service offer to segmented passenger groups, explained in more detail in Chapter 3.

The North Terminal IDL reconfiguration and expansion project is therefore designed to satisfy current and future expectations of our passengers and to accommodate passenger growth, whilst improving service and increasing income by improving the quality of the retail offer. The improvement will consist of an extension to the IDL, creating an additional 6,500m2 of floor area, an increase of 45%. The current World Duty Free store, which is currently split over two locations, would be combined into a single walk through offer, with the entrance leading directly from the main security search area. The viability of this approach is confirmed by experience in the South Terminal where the new walk through WDF has proved popular with the majority of passengers, significantly increasing retail spend as forecast in the business case.

Since the early conceptual development of this project for the Initial Business Plan, we have improved the design of the proposed IDL reconfiguration. Through constructive feedback from our airlines and the innovative programme approach to preliminary design development, we have been able to achieve a reduction in the cost of the project from £157m to £90m.

Figure 7.14 North Terminal International Departure Lounge

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

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78

C. UPGRADE CHECK-IN & BAG DROP SOUTH TERMINAL £18m NORTH TERMINAL £24m (including ceilings and floors)

Our Passenger Commitments are clear – we hate queues. From the YouGov research, queues are quoted as ‘the enemy’ by passengers. Reduction in queue time would improve and enhance the airport journey and help build our reputation with our passengers, thereby making us more competitive with other airports.

We have transformed the passenger experience at security and now it is time to do the same at check-in. New technology will deliver enhanced service to passengers whilst reducing airline labour costs at the check-in desks. We have strong support from the airlines to seek new technological solutions that will speed up the process for passengers, reduce queues and operating costs.

In addition, as part of the drive to improve queue management and to keep passengers informed, we will install new technology that will permit accurate queue measurement and publication of the results. This is a necessary investment to be able to include airline performance in the service quality proposals set out in Chapter 8.

In both terminals, we will re-orientate the check-in desk layout by 90 degrees in the central concourse to provide a more open and intuitive layout, which has a flow through design. The central revised layout will be a focal point for the enhanced bag drop processes, whilst the remaining check-in desks at the sides of the concourse will allow airlines to continue a more traditional style of check-in experience. The North Terminal check-in concourse floors and ceilings, that were not part of the recent extension, date back to the construction of the Terminal in the 1980’s. As such, these areas now require replacement and will be part of this check-in upgrade project.

New bag drop

Line of existing Check-in

Figure 7.15 South Terminal Check in

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

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8 Service Quality

9 Environment

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79

D. NORTH TERMINAL SECURITY £26m

The current North Terminal security layout, ambience, equipment and processes are out dated and need to be transformed to deliver the enhance experience enjoyed by passengers in South Terminal and to enable the efficiencies that have been achieved there.

Extensive positive feedback has been received from both passengers and airlines showing they are very impressed with the step change to security processing embodied in the South Terminal security facility. Gatwick South Terminal security has also been given an award by Future Travel Experience and is currently the benchmarking standard for European airports. We are now in a position where other airports aspire to meet our standards and have established a reputation for reliably delivering our 95/5 target and for providing a range of facilities to meet different passenger market segments.

We will therefore install new technology and upgrade the North Terminal security facility, to enhance the passenger experience and achieve operational efficiencies. We will safeguard areas for future capacity growth, and to ensure that future improvements in process or technology can be incorporated into the facility.

Through our programme approach, we have improved the business case for the North Terminal security project, by phasing the delivery and incorporating elements of the IDL improvement into one project. This approach has also limited abortive and disruptive works in this area, together with producing a business case that has a positive net present value. The project will also lead to a reduction in operating expenditure, by reducing the security officers on each lane from seven to six and increase planned throughputs to 250 passengers per hour per lane. This project will create the most efficient and effective security area of any large airport, whilst also delivering improved customer service, through appropriate training of front line staff and intuitive passenger processes.

Figure 7.16 North Terminal security

1Strategy

2 Competition

3 Service

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Offer

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Plan

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80

7.4 DelIVeRING CapITal eFFICIeNTlY

DesIGN FOR sIX sIGMa

Over the course of Q5, Gatwick has been improving its capability and methodology for delivering projects in a complex environment of a space-constrained, ageing and regulated airport. The first phase of this improvement has been achieved with implementation of a suite of procedures and processes including the well-known Design for Six Sigma (DfSS) and Tollgate processes shown below:

In order to demonstrate a commitment to quality, Gatwick has ensured that its development processes have been accredited to the international quality standard ISO 9001 whilst integrating these processes with environmental, safety and asset management processes already accredited under ISO 14001, ISO 18001 and PAS 55 respectively.

The accredited development process ensures that business cases and project management fully consider all aspects of projects including people, process, technology and infrastructure, to ensure the most effective use of project resources in delivering desired outcomes and, therefore, full integration of business improvement and infrastructure projects.

DfSS Stage 4 DfSS Stage 5 DfSS Stage 6 DfSS Stage 7DfSS Stage 3DfSS Stage 2

TG 0

Initiate

TG 1

Define

TG 2

Launch

TG 3

Design

TG 4

Deliver

TG 5

Trial

TG 6

Operate

TG 7

CloseOut

DfSS Stage 1

inp

uts

dec

isio

no

utp

uts

• define problem or opportunity

• requirements• order of cost• order of benefits

• scope• cost• timing• team• benefits

• design options• design recommendation• procurement plan• high level AOR plan• updated business case

• detailed design• detailed cost/ programme• draft contract• detailed AOR plan• updated business case• staff engagement results

• ready to operate• zero defects• update business case

• zero snags• AOR complete• update business case

• lessons learned• accountability review – cost – benefits – deadline – quality

• stop or go to TG1 • stop of go to TG2 • stop or approved project• partial funding

• select option• design/build yes/no

• award contract• full funding

• accept handover • transfer ownership to operate

• close project

• resource• assign leader• TG1 date

• resource• assign leader• TG2 date

• assign leader• team• funding to TG4• business case

• high level design• AOR plan• procurement plan

• design frozen • launch AOR • launch benefits validation

• learning

Figure 7.17 Design for Six Sigma Process

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

7 Capital

81

hOlIsTIC appROaCh

In order to assess how well the new processes have been embedded and how they benchmark with best practice and industry norms, Gatwick is using HM Treasury’s Portfolio, Programme and Project Management Maturity Model (P3M3®) and has commissioned an assessment from Aspire Europe who are accredited to undertake this work. The P3M3® model is particularly useful as it examines the maturity of an organisation, testing whether success is dependent on individuals/groups of individuals or is the result of the way the organisation functions. It particularly helps to identify areas that provide the most value and aids performance improvement in the short and long term.

“The rating achieved by Gatwick Airport is exceptionally high. It significantly outperforms the overall average and the transport sector average in a database of over 200 results from across the world. The strongest rating is in project management which is a core competence underpinning the service proposition of GAL; this endorses the significant efforts that are being made to achieve excellence.12”

The report clearly demonstrates the breadth, depth and successful implementation of our development processes. This is important as benefits derived from the programme approach have already been factored into this business plan. We will need to ensure that this programme approach is fully integrated into the proposed new stakeholder engagement processes to guarantee, that once underway, there is robust governance of changes in timing or scope.

NeW ORGaNIsaTION

Along similar lines to the process review described above, in order to assess the capability and structure of the Gatwick development organisation to deliver this capital plan, we commissioned Deloitte to review the organisation design. Deloitte looked at the organisation, developed an understanding of the forward programme, sampled programme information to build an understanding of delivery track record and tested multiple organisational design options. Deloitte concluded that the organisational design is set up well to deliver both the current and next phases of the capital investment programme.

However, as highlighted in the Aspire Europe review, Deloitte recognised that in order to maximise the benefits of managing a large capital programme, we should develop portfolio and programme strategies and processes. They recommended that we develop our programmes as holistic airport developments, rather than on a project by project piecemeal approach. An extract of the report’s findings is below:

“This report recommends the identification of certain works in the next phase beyond Q5 which could be delivered more effectively under a more strategic contracting and procurement model.” “GAL as an organisation would benefit from the development of a Programme Level Contracting Strategy.13”

7.5 CONClUsION

This chapter has described the proposed capital expenditure programme which will substantially bridge the gap between current capability and the future service proposition that we believe will deliver competitive advantage.

We have prepared detailed business cases for each of the projects highlighted in this programme, which were consulted through the Constructive Engagement process and are provided in Appendix 6. We now go on to consider how our service proposition might be supported by a new service quality regime for beyond Q5.

13 Organisation Design Review Report Wed 21st November 2012 by Deloitte MCS Ltd

12 Reference P3M3 Assessment Full Report For Gatwick Airport Limited Version 5e by Aspire Europe Ltd, December 2012

1Strategy

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83

8.1 INTRODUCTION

The Service Quality Rebate (SQR) and Quality of Service Monitor (QSM) processes have provided a regulatory vehicle to measure and encourage delivery of a range of acceptable performance standards across a selection of services at the airport. This has been accomplished by the establishment of penalties for performance below a minimum standard, as well as bonus payments for performance above a specified level. However, though delivering these standards is important, they do not sufficiently address our position in the competitive environment nor, indeed, cover areas of the passenger experience delivered through different or multiple stakeholders rather than by the airport acting on its own. Indeed, it is clear that while we have for some time been meeting all of our regulatory service quality targets, there is still some way to go to meet the aspirations of the passengers who use, and who might in the future use, Gatwick.

8.2 seRVICe qUalITY peRFORMaNCe IN q5

During Q5, we have seen a marked improvement in Gatwick’s performance against the CAA’s SQR measures. This is illustrated in the figure below which shows the proportion of SQR measures passed and failed each month since the beginning of Q5.

As is evidenced by the dramatic change in performance, our approach to SQR has changed following new ownership, moving from a reactive response to service failure to a proactive, process driven culture which seeks to anticipate problems and to design systems to prevent their recurrence. Relationships with contracted service providers have also changed. Good examples are the PRM and cleaning services. These services were typical of remote contractual relationships driving outdated performance metrics and reacting to service failures. They are now considered to be part of the wider team delivery and are proactively supported, e.g. through the daily performance reporting that was introduced by the new leadership team following the purchase of the airport.

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Figure 8.1 Gatwick’s SQR performance

CHAPTER 8seRvice QuAlity ReGiMe

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

8 Service Quality

CHAPTER 8SERVICE QUALITY REGIME

84

The figure below compares Gatwick’s performance over the same period with that at Heathrow and Stansted. It can be seen that Gatwick has had considerably more success in achieving 100% compliance with its SQR measures.

8.3 ChaNGes MaDe sINCe The INITIal bUsINess plaN

pRaCTICe aT OTheR aIRpORTs

In developing the proposals in this business plan, we have looked in detail at how service quality is approached at other airports. We have taken particular interest in the recently introduced Service Level Agreement scheme at Copenhagen airport. This is a voluntary scheme agreed between airport and airlines, and covers significant parts of the customer journey (namely check-in, security, baggage inbound, turnaround, transfer, baggage outbound and passenger satisfaction) regardless of who is responsible for the provision of the service in each area.

This is proving to be an extremely effective tool in improving the end-to-end journey, not because of the monies involved, but because it has encouraged fruitful discussions between the various parties which are now working towards a common aim, in place of the sometimes adversarial culture that existed previously. One note of caution however, was that this scheme required the weekly collation and

Gatwick’s approach to service has progressed beyond the limited scope of the SQR regime, introducing the measurement and reporting of other stakeholders’ performance and how this impacts the passenger’s journey. Gatwick now publishes the arrivals baggage performance of airlines and baggage handlers, with a league table that informs passengers about relative performance of each. The result has been a consistent increase in good performance in this area.

By working in close partnership with the UK Border Force we have gained agreement to publishing queue time performance of each. Gatwick has also invested in the training of members of UKBF, providing a number of their staff with new skills in 6 Sigma process improvements and undertaking a number of joint projects to improve service to passengers. Gatwick is the only large London airport where UKBF has been successful in meeting its performance targets for immigration queue times.

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Figure 8.2 Comparison of Gatwick’s SQR performance with Heathrow and Stansted

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

8 Service Quality

85

distribution of over 60 KPIs, which has required a significant increase in administrative resource by the airport operator.

CONsTRUCTIVe eNGaGeMeNT

A service quality working group was set up as part of the weekly Constructive Engagement forum to allow detailed discussions between Gatwick and its airlines. The purpose was to discuss the service quality proposals set out in the initial business plan to better inform the proposals Gatwick would make in this plan. Airline feedback has largely focused on the existing service quality scheme with some potential additions. However, airline consensus on service delivery priorities was not forthcoming during Constructive Engagement though airlines have stated that this is an area they wish to continue discussing in 2013.

One particular area of discussion with the airlines related to ‘event based’ measures. This is the term used to describe a measure whereby the rebate is triggered immediately by an event. For example following system failure in the baggage system the direct result is that a number of bags miss their flight; the proposal is that event based measures are in addition to measures where performance, such as the consistent availability of the baggage system, is averaged over a period of time, generally a month. The discussion specifically focused on departures (outbound) baggage and airfield availability. In the airlines’ view such event based measures would provide further incentive to Gatwick to rectify any major issues quickly, thus increasing airport resilience and aiding a faster recovery to normal operations. Our view is that we already have sufficient incentive to recover operations quickly – however we do wish to instigate an outbound baggage measure to ensure collaborative resolution of outages, and are therefore currently exploring the exact metrics with the airlines which includes an event based measure.

The aerodrome congestion term (ACT, currently in the service quality regime) is an event based measure. The airlines believe this measure is ineffective and, whilst we do not concur on this point, we are happy to enter discussions around any suggestions airlines may have to improve it; in this context, we have removed the ACT from our future proposals and added an airfield availability measure with a proposal that it should include a new snow readiness.

Proposals put forward in the Initial Business Plan to extend a service quality rebate scheme to include check-in and arrivals baggage performance were completely rejected by the airlines during Constructive Engagement. Airlines believe there is no basis for regulating airline services and that this could distort competition by artificially constraining choice. Nonetheless, we strongly believe that every part of the passenger journey should reach acceptable minimum standards and are therefore keeping these proposals within our business plan.

8.4 seRVICe qUalITY pROpOsal FOR The peRIOD beYOND q5

We propose to continue to operate an enhanced form of SQR beyond Q5 that measures the minimum acceptable standards that passengers should expect from their Gatwick experience. We believe that this acts as a reasonable control on service quality although our aspirations, as detailed in Chapter 2, are to deliver results for passengers and airlines that surpass these minima.

In line with our service proposition, we have therefore developed a proposal for a new service quality regime for the period beyond Q5, to extend to all elements of the passenger journey, not just those parts over which the airport has direct control. We propose monitoring and publishing performance against a minimum standard plus the levying of a self-funding surcharge/rebate to incentivise “good” performance.

CURReNT sTRUCTURe

The current structure has the following principal elements:

• North and South Terminal targets;• 17 SQR + 4 QSM Measures;• Maximum exposure = 7% airport charges;• Maximum bonus = 2.24% airport charges;• Penalties paid in current period; and• Bonuses paid through adjustments to airport

charges in subsequent years.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

8 Service Quality


86

• Monitoring and publication of immigration queue performance by UKBF; and

• Monitoring and publication of the overall ASQ ranking of the airport versus other European airports.

Gatwick does not believe that the current SQR regime (even with the additions proposed) adequately addresses all passenger requirements. This is because it focusses on services provided by the airport alone. However, passengers view airport service as an end-to-end proposition and do not differentiate between the differing operators at an airport. This means that services provided by other stakeholders need to match the service quality that Gatwick provides if the airport offering as a whole is to be competitive.

GaTWICk’s seRVICe qUalITY pROpOsal

Gatwick has demonstrated its ability to deliver consistently the SQR service targets since the change of ownership in 2009. This has been achieved through strong management leadership and reflects our clear focus on improving service to passengers. It is proposed to roll forward most of these targets with some additions to reflect new priorities for the airport and airlines. Therefore, the scheme elements proposed for the period beyond Q5 are as follows:

• SQR & QSM Measures similar to Q5;• The introduction of a new baggage system

availability measure;• The removal of one measure – aerodrome

congestion term;• The replacement of the aerodrome congestion

term with a new airfield availability measure which includes snow event readiness. Gatwick Airport Limited have made a proposal to the airlines for the snow event part of this measure with the intention of trialling the measure in the winter of 2013/14, prior to it becoming part of the SQR scheme14;

• Target levels as per Q5;• Symmetry in the airport’s exposure to penalties

and bonuses;• Performance Rebate/Surcharge scheme for airline

performance in check-in and arrivals baggage;

14 We note that this proposal could be expanded to address any overall concerns with respect to operational readiness.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

8 Service Quality

87

pROpOseD TaRGeTs – GaTWICk aIRpORT

sTaNDaRD MeTRIC RebaTe leVel* pROpOseD bONUs leVel

security search

Central Passenger search Times <5 minutes 95% 97%

Central Passenger search Times ≤ 15 minutes 98% 99%

Passenger transfer search Times < 10 minutes 95% 97%

Staff Search (T) Times < 5 minutes 95% 97%

Staff Search (J & A) Times < 10 minutes 95% 97%

External Control Posts search Times <15 minutes 95% 97%

airfield Facilities

Pier Service Moving average % passengers pier served 95% 97%

Stand % time available 99% 99.5

Jetty % time available 99% 99.5%

Fixed electrical ground power % time available 99% 99.5%

Airfield availability (including snow event readiness) To be defined tbd tbd

Terminal Facilities

Reclaim belt availability % time available 99% 99.5%

Passenger sensitive equipment (General) % time available 99% 99.5%

Passenger sensitive equipment (Priority) % time available 99% 99.5%

Shuttle 1 car availability % time one car available 99% 99.5%

Shuttle 2 car availability % time two cars available 97% 98%

Outbound baggage To be defined tbd tbd

quality of service Monitoring (qsM)

Departure Lounge seat availability Moving average QSM score 3.8 4.0

Cleanliness Moving average QSM score 4 4.2

Wayfinding Moving average QSM score 4.1 4.2

Flight information Moving average QSM score 4.2 4.3

Table 8.2 – Summary of targets to be measured on a monthly basis and subject to a Service Quality Rebate / Bonus scheme

* As in Q5, we would be seeking alleviation on any targets impacted during the delivery of the capital programme, until the relevant project(s) have been completed and the impact on the moving annual total has been neutralised.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

8 Service Quality


88

Second, many international airports use the ASQ (Airport Service Quality) rankings as an independent source of passengers’ views of the overall airport experience. The ASQ ranking is compiled by the Airports Council International (ACI) and is the only global passenger satisfaction survey which is conducted with passengers at the boarding gates. The survey must be carried out in strict accordance with the sample plan for the airport, developed by ACI, which guarantees a representative sample of the flights, destinations and passenger groups served by the airport. ACI regularly audits participating airports to ensure compliance and to validate the results. We propose a regular monitoring of this measure, with the aim of improving Gatwick’s current “mid-table” ranking as measured against our selected comparator set as mentioned in Chapter 3. Our aspiration is to be in the top quartile of this group.

These two areas are captured in the table below –

AREA MINIMUM STANDARD

PROPOSED CONTROL MECHANISM

Immigration EU : 10 mins maximum Non EU : 25 mins maximum

Publish performance on a monthly basis

Airport Performance

Upper quartile of European airports (based on selected 22 comparator airports)

Publish ASQ level performance on a quarterly basis

Table 8.3 Proposals to monitor performance

pROpOseD TaRGeTs – aIRlINes aND haNDlING aGeNTs

We propose to publish real time data on check-in queue performance. The delivery of the real time data will be developed following the implementation of the measurement system. We also propose to continue to publish the time taken to return arrivals bags. Provision of information is vital to help passengers understand what service they are being delivered during their time at the airport. This will be supplemented by monthly reports which inform passengers of the service level their airline has been delivering.

In addition, we propose that airlines pay a small per passenger surcharge of circa £0.03 per passenger to fund a quarterly rebate to those airlines meeting the minimum performance standards. Airlines which have not met the standard would not receive a rebate, with the remaining balance being distributed amongst those which have. We propose that Gatwick is held neutral to this flow of monies, acting only to administer flows between airlines.

aRea MINIMUM sTaNDaRD

pROpOseD CONTROl MeChaNIsM

Check in queues

95%, 30 mins Publish performance; surcharge and performance rebate

Arrival Bags

100% 45 mins (last bag delivery)

Publish performance; surcharge and performance rebate

Table 8.2 Proposed minimum standards for check-in, arrivals and on time performance

TaRGeTs TO be MONITOReD aND pUblIsheD ON a MONThlY/qUaRTeRlY basIs

We propose greater transparency than at present in two other areas of the overall service quality offering.

First, we propose that we will begin to publish the performance of UKBF against our existing Gatwick specific minimum standards (we currently only publish performance against the national standards). In addition, in this business plan, we propose to reduce further – through collaborative working and investment – the maximum wait times in our arrivals halls.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

8 Service Quality

89

8.5 CONClUsION

In this business plan, we have demonstrated Gatwick’s commitment to improving service. This is clearly evident in our improved performance against the regulated SQR targets and the introduction of new services for passengers.

As part of our continuous improvement effort, Gatwick has sought to learn from other airports’ experience and has consulted with its airlines through the Constructive Engagement process.

It is clear that the current regime, whilst important in improving certain aspects of the passenger experience, does not go far enough to address all the expectations passengers have from an airport experience. So, while Gatwick proposes to continue the scheme, it is also proposing to extend the scope of service incentivisation to include airlines and handling agents and to enhance transparency more generally so as to address more of the concerns of passengers and improve performance overall against comparator airports. We believe that these proposals have the potential to enhance the passenger experience significantly.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

8 Service Quality

91

9.1 INTRODUCTION

In 2010, shortly after the sale of the airport, we launched our Decade of Change strategy. The strategy sets targets for us to deliver by 2020 across all key sustainability areas – it describes how we aim to deliver sustainable growth through responsible environmental management coupled with strong economic and community programmes. The strategy is supported internally by a team of environmental ‘champions’, employees who are given responsibility for ensuring that individual business units deliver in line with airport-wide targets.

We have already seen significant progress in our environmental efforts with independent recognition through achievement of ISO 14001, the environmental management system standard, and of the Carbon Trust standard. Looking ahead, the business plan includes several projects that are critical to the achievement of our Decade of Change targets and sustainable growth.

9.2 peRFORMaNCe

The Decade of Change strategy envisages that by 2020 we will have improved the overall sustainability of Gatwick’s operations by:

• Reducing our direct carbon emissions by 50% compared to 1990 levels Since 2009, we have reduced our carbon emissions by over 40% against our 1990 level. We will continue to consider and develop opportunities to further reduce our carbon emissions through innovative energy management systems and behavioural change. We are also exploring options to procure greener energy in the future and are therefore confident of achieving our emissions target.

• Cutting our energy consumption by 20% from our 1990 baseline In 2011, our energy consumption was 8% lower than our 1990 baseline. Whilst we have therefore made progress, there is more to do. In 2013, we will conduct an energy audit of Pier 3 and Pier 6 to identify energy savings opportunities. In 2011 we installed a pilot solar array panel at the eastern end of the runway to help assess the potential for greater renewable energy generation on the airport. We aim to continue to invest in technology that will enhance energy efficiency and also to identify areas for improved operational control.

• Improving the way we mitigate airport related noise through implementing our noise action plan and delivering an industry leading noise insulation scheme. We are now two years into our European Noise Directive noise action plan. Our plan, formally endorsed by the Secretary of State, outlines 55 actions we will deliver by 2015. We have shown good progress so far, with noise complaints reducing by over 40% over the last 12 months. We have also held a noise seminar at the airport for the local community, launching a new Fly Quiet and Clean campaign that outlines how we will drive improvements beyond our noise action plan. We will also be consulting on an improved domestic noise insulation scheme in 2013.

• eliminating the use of landfill waste sites and ensuring that 70% of all waste we generate is recycled. In 2011 we handled 9,206 tonnes of operational waste. Of this we re-used and recycled 55%. This is a 25% improvement on 2010 and sets us well on the way to our 70% target. In 2011, we improved our waste disposal location and processes, enabling us to recycle and re-use many more different types of waste. We aim to continue this work through improved airport recycling facilities for our passengers, working more closely with our airlines to improve cabin waste segregation and to trial a food waste recycling scheme.

• Investing in new infrastructure that will improve the quality of water leaving the airport site. Improvements have been made to the quality of waste water leaving our site. We have made some large investments in new water quality monitoring equipment and the installation of two new water treatment plants. We have also recently gained permission to build a new treatment lagoon to increase both our holding capacity for waste water and our ability to treat it prior to discharge. Working closely with the Environment Agency, we also completed the Upper Mole flood alleviation scheme at Tilgate.

CHAPTER 9ouR enviRonMentAl stoRy: decAde oF chAnGe

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

9 Environment

CHAPTER 9OUR ENVIRONMENTAL STORY: DECADE OF CHANGE

92

9.3 NOIse MaNaGeMeNT

Despite the airport’s good record to date on noise management, we continue to engage with the local community over its noise concerns and seek to be more effective at responding to the concerns of residents. Noise complaints and aircraft noise compliance issues are managed through the Flight Performance Team. This team works alongside the airport’s customer service team to ensure that it is using the latest customer facing training, techniques and processes.

Although noise complaints are down by over 40% on last year, we have picked up four key themes from the local community:

• need for noise respite;• current noise contour metrics need improvement;• aircraft arrival practice has changed (flaps and

undercarriage); and• departure flight paths have changed

Aircraft noise impact is something we take very seriously. Our Fly Quiet and Clean strategy will explore and deliver various solutions to tackle these 4 key areas, including the use of PRNAV15 and Rotating Respite16. This work builds on our European Noise Directive 55 point action plan endorsed by the Secretary of State. Delivery against these actions in the period to 2015 will create the foundations for us to become a leader in this field.

• Managing the impact of our operations on local air quality To date we have performed well in this area. Since the designation in 2000 of the Air Quality Management Area in Horley, there have not been any breaches of the air quality limits. We have recently completed modelling that indicates we will continue to comply with these limits as we grow to 40 million passengers per annum. Underlying this performance is improved public transport access to the airport for passengers and employees and a reduction in aircraft and airfield vehicle emissions.

• promoting more sustainable surface access to the airport With around 33.6 million passengers travelling through Gatwick in 2011 and plans to increase this to 40 million by 2021/22, surface access to the airport is an integral part of our strategy. The ways in which passengers and staff travel to the airport contribute around 30% of our total carbon footprint. We are on course to achieve our public transport mode share target of 40%, and last year we launched our new Airport Surface Access Strategy aimed at delivering the following key objectives for the period 2013- 2030:

– Achieve 40% public transport mode share for air passengers and staff by the time the airport reaches 40 million passengers per annum;

– Identify feasible measures to achieve a stretch target of 45% public transport mode share once the 40% target at 40mppa has been achieved; and

– Achieve a quality service rating of 4.5 (1 is lowest, 5 is the highest) for all surface access transport modes and facilities by the time the airport reaches 40mppa

• Generating local economic benefits We have been working closely with our business partners on and off the campus to ensure strong and effective relationships are built and maintained. We have a close working relationship with the Gatwick Diamond Business group, supporting its business development activities. We are also strong supporters of the annual Meet the Buyers event, giving local firms the opportunity and necessary skills to successfully tender for work at the airport. In 2011, we also expanded our apprenticeship scheme into security and to date have taken on 24 apprentices. We aim to build on this in 2013.

15 PRNAV (Precision Area Navigation) is the ability of an aircraft’s Flight Management System (FMS) to fly an aircraft on a much more accurate route, in effect concentrating aircraft tracks over smaller area.

16 Rotating Respite is the process of alternating the flight tracks aircraft fly on a pre- determined time frame so that for example, on one week all aircraft fly along one track and then the next week this is switched to another track in another location.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

9 Environment

93

9.4 CapITal pROjeCTs & sUsTaINabIlITY

The capital project list contains over 100 projects. Where these involve any changes or extensions to facilities they will take account of sustainability objectives, including the need to improve energy management and waste recycling. However, there are a number of specific projects that are also essential to delivering our Decade of Change targets and ensuring sustainable growth.

• Fixed electrical Ground power (FeGp) The airport boundary borders to the north east an air quality management area in Horley which is within the Borough of Reigate and Banstead. We have a legal agreement ensuring that we deliver a range of measures across the airport to manage our emissions and prevent any breaches of the limits. Through detailed analysis of our emission sources it is clear that the use of aircraft Auxiliary Power Unit’s (APU) is a significant emitter. The provision of efficient FEGP will enable aircraft to stop unnecessary use of APU’s and deliver continued compliance with our air quality agreements and our Decade of Change targets.

• ponds and Water Management The ponds and water management projects are also important in delivering our sustainability strategy and improving airport resilience. Upgrading our water management infrastructure is required to deliver greater capacity and to ensure we remain compliant with all Environment Agency discharge consents. We have also recently invested, in partnership with the Environment Agency and Crawley Borough Council, in an off-airport project to improve regional flood resilience and to significantly reduce flood risk on the airport. The next stage of this project is critical work on the Gatwick stream to further reduce flood risk, taking our risk from a 1 in a 50 year flood to 1 in 100 years.

• s106 agreement Our Section 106 agreement is a legal agreement with Crawley Borough Council and West Sussex County Council signed in December 2008 setting out a series of obligations, commitments and action plans to mitigate the environmental impacts as the airport moves towards handling 40 million passengers. As part of this agreement, the airport is required to support local transport and surface access to and from the airport to deliver a 40% public transport mode share. The S106 contribution allows the airport to promote and improve surface access and deliver connectivity with the south east region and central London. One key element is the partnership work with Network Rail to upgrade the railway station in the South Terminal. This work will help to improve the passenger experience through the interchange between the station and the airport and also to provide additional rail platform capacity. In 2012, we published our new Airport Surface Access Strategy called ‘Access Gatwick’ which sets out our priorities to 2030.

• Domestic Noise Insulation We are planning to consult the public in early 2013 on a new domestic noise insulation scheme. There was strong support in the Government’s 2003 Aviation White Paper for larger airports, including Gatwick, to provide such a scheme and noise insulation schemes also feature strongly in the Government’s recent draft Aviation Policy consultation. The new scheme will run over three years and will ensure that Gatwick Airport is able to provide the best noise mitigation for our local communities, helping to strengthen and protect our reputation and enhance our status as London’s airport of choice.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

9 Environment

CHAPTER 9OUR ENVIRONMENTAL STORY: DECADE OF CHANGE

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2020 VISION

Our 10 point plan to make Gatwick more sustainable, by 2020 we want to:

1. Community

To share the benefits of Gatwick’s growth, contributing to the social, environmental and educational development of our community

7. EnERGy

20% reduction in energy (against 1990 baseline) and water consumption (against 2010 baseline)

8. WAStE

Generate no untreated waste to landfill and achieve a 70% waste recycling rate

9. WAtER

Continually improve the quality of water leaving the airport

20% reduction in water consumption (against 2010 baseline)

10. BioDiVERSity

Have an award winning biodiversity approach through achieving a nationally recognised award for ecological awareness

6. tRAnSPoRt

Achieve 40% public transport mode share for air passengers and staff by the time the airport reaches 40mppa

Identify feasible measures to achieve a stretch target of 45% public transport mode share once the 40% target at 40mppa has been achieved

Achieve a quality service rating of 4.5 (1 is lowest, 5 is the highest) for all surface access transport modes and facilities by the time the airport reaches 40mppa

2. EConomy

Develop and fulfil our role as an economic driver of local, regional and national significance

3. CARBon

Reduce our carbon emissions by 50% (Total known CO2 at 1990 baseline vs 2020 scope 1 & 2 emissions). 25%of our energy to come from renewable sources

4. AiR quAlity

Maintain current zero breaches of air quality limits

5. noiSE

Be consistently recognised as a best practice operator for noise management

1

Figure 9.1 2020 Vision

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

9 Environment

97CHAPTER 10non-AeRo Revenue

10.1 INTRODUCTION

In this section, we consider the performance of our non-aeronautical revenues in Q5, and our forecasts for the period beyond Q5. Non-aeronautical revenue can be split into two main categories:

• Commercial revenue (from retail, car park and property activities); and

• Other non-regulated income (from charges for “specified” and other operational activities).

In Section 10.2, we set out a summary of the financial outcomes for total non-aeronautical activities in Q5 and our high level forecasts for the 5 and 10 year periods beyond Q5.

In section 10.3, we summarise the key themes influencing the performance of revenues from our commercial activities (retail, car parking and property), and examine in detail the Q5 commercial revenue performance.

In section 10.4, we then set out our strategy, assumptions and forecasts for our commercial revenues for the period beyond Q5, separately identifying the impact of new projects.

In section 10.5, we examine both Q5 performance, and our forecasts beyond Q5, for other non-regulated income.

10.2 TOTal NON-aeRO ReVeNUe FINaNCIal sUMMaRY

Total non-aeronautical revenue for Q5, and for the five years beyond Q5, is summarised in the table below, with commentary in the sections that follow.

For completeness, we have included inter-company income which was rental income from office accommodation for the BAA Group which ceased following the sale of Gatwick.

Non-aeronautical revenue for the five year period commencing 2019/20 is summarised in the table below. Apart from recognising the financial impact of specific projects, the base assumptions for this period are not modelled to the same level as detail as the five year period to 2018/19.

Q5 beyond Q5 to 2018/19

non aeronautical revenue £m at 2013/14 PriceS

2008/09 actual

2009/10 actual

2010/11 actual

2011/12 actual

2012/13 forecaSt

2013/14 forecaSt

2014/15 forecaSt

2015/16 forecaSt

2016/17 forecaSt

2017/18 forecaSt

2018/19 forecaSt

Total passengers (m) 33.1 32.4 31.6 33.8 34.1 34.0 34.5 34.7 35.0 35.4 35.9

Commercial revenue

Retail 137.2 132.3 125.4 126.7

Car Park 48.8 42.4 38.9 42.9

Property 31.2 30.9 29.5 27.3

Total Commercial revenue 217.2 205.7 193.8 196.9

£/passenger £6.56 £6.35 £6.12 £5.82

Non Regulated Income 47.4 48.6 47.1 50.3

Inter-co Income 4.0 1.8

Total Other revenue 51.4 50.4 47.1 50.3

£/passenger £1.55 £1.56 £1.49 £1.49

Total Non-aeronautical Income 268.6 256.1 240.9 247.2

£/passenger £8.11 £7.91 £7.61 £7.31

Table 10.1 Non-aeronautical income forecast beyond Q5 to 2018/19

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Offer

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10 Revenue

CHAPTER 10NON-AERO REVENUE

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10.3 COMMeRCIal ReVeNUe

keY TheMes aFFeCTING COMMeRCIal ReVeNUes

Airport commercial income is not insulated from the impact on household income of low economic growth, nor from changes in legislation, or trends in consumer buying behaviour. Neither can a desire to drive commercial revenue override the airport’s primary focus, which is to deliver a standard of service that not only meets service targets, but, in Gatwick’s case, supports our ambition to compete to grow to become London’s airport of choice. Building world class security facilities, for example, cannot be achieved at Gatwick without impacting on the space allocated to commercial revenues. In such circumstances, commercial space, and the revenue associated with that space, therefore needs to be foregone or re-provisioned.

Further, every airport has to understand, and deliver services that are right for, its own unique customers and their travel patterns. As has been described in Chapter 3 of this Business Plan, Gatwick faces challenges that are very different to those of most other global airports in the diversity of its airline business models and the high proportion of seasonal traffic which must be accommodated by our facilities and services. Each airport has an investment requirement and cycle which reflects its own history, the needs of its airlines and their customers and

service quality requirements. Although commercial income benchmarking is important, there is a need, therefore, to understand its context in order to use it appropriately.

Gatwick’s commercial businesses are also subject to strong competitive dynamics and are vulnerable to risks. In our retail areas, we believe that, in addition to continued pressure beyond Q5 on personal disposable incomes, we are vulnerable to the accelerating trend towards online shopping, a mix change away from charter to lower spending low cost customers and changes in tobacco legislation, fundamentally affecting the presentation of product at point of sale in 2015. Gatwick is also aware that airlines could take retail spend away from the airport by using their customer relationships to drive ancillary revenues from retailing. Developing our own e-Commerce capability, an enhanced service agenda around hating queues, shop and drop/click and collect, as well as actively managing our space allocation, product and brand mix, have been central to our retail response.

With respect to the car parking business, as well as being highly seasonal and vulnerable to changes in trip lengths and to our UK leisure passenger mix, it is subject to very strong competitive pressures from off-airport operators. This makes any top line growth very challenging and has required us to respond innovatively in terms of product development, distribution reach and efficiency, and dynamic pricing.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

10 Revenue

99

Similarly, our property business is affected by the state of the local market, putting pressure on rents and occupancy, focusing our attention on driving high service standards and new products to sustain our current rental levels and grow revenues.

It is therefore vital for us to understand the drivers and risks affecting our commercial businesses. By doing so we have been able to develop strategies to mitigate these, but also to address the impact of legacies such as inadequate space standards in our departure lounges, lack of investment and identity of Gatwick as an advertising proposition as distinct from Heathrow, and retail brands and contracts that do not match our customers’ requirements, nor our commercial ambition.

The commentary that follows provides more detail on our performance and our response to these challenges and opportunities.

q5 peRFORMaNCe aND ReCeNT TReNDs IN COMMeRCIal ReVeNUe

RETAIL

As the figure and table below show, retail revenues have been significantly below the Q5 forecast assumption due to lower than expected passenger numbers and a change in mix away from higher spending North Atlantic and charter traffic. This has been mitigated in the first three years of this period by a higher average spend per passenger, although this was reversed in 2011/12, by the partial closure of the South Terminal IDL due to the South Terminal security project, and a decline in higher margin non-EU passengers due to the effects of the ‘Arab Spring’.

Q5 actual Q5 Settlement variance v Q5 Settlement

£m at 2013/14 PriceS 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12

Total passengers (m) 33.1 32.4 31.6 33.8 35.9 36.4 36.8 37.2 (2.8) (4.0) (5.2) (3.4)

Total Retail Income – £m 137.2 132.3 125.4 126.7 135.2 137.6 140.1 142.1 2.0 (5.2) (14.7) (15.4)

Retail Income – £/passenger

WDF & Airside Specialist Shops £1.97 £1.98 £1.97 £1.85 £1.71 £1.72 £1.75 £1.76 £0.27 £0.26 £0.21 £0.08

Bureau de change £0.51 £0.47 £0.52 £0.52 £0.50 £0.50 £0.50 £0.49 £0.01 £(0.03) £0.03 £0.02

Catering £0.61 £0.63 £0.59 £0.57 £0.61 £0.62 £0.62 £0.63 £(0.00) £0.02 £(0.03) £(0.06)

Other Retail Income £1.06 £1.00 £0.88 £0.82 £0.95 £0.95 £0.94 £0.94 £0.10 £0.06 £(0.06) £(0.12)

Total Retail income £4.14 £4.09 £3.96 £3.75 £3.77 £3.78 £3.81 £3.82 £0.38 £0.31 £0.16 £(0.07)

Table 10.3 Retail performance in Q5

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Yield Per Passenger Q5 settlement (13/14)

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Actual Property Income (13/14) Property Q5 settlement (13/14)

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Total Retail Revenue – outturn Total Retail Revenue – 13/14 prices

St IDL ProjectLegislationon tobacco sales change

Income disruptionfrom NT IDL build

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Actual Car Park – 13/14 Car Park Q5 settlement – 13/14

Figures 10.1 and 10.2 Retail performance in Q5

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1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

10 Revenue


100

As highlighted in our Initial Business Plan, retail performance in Q5 must be viewed in the context of lower than forecast passenger volumes and one of the deepest recessions in recent history, which has resulted in falling living standards and poor consumer confidence, with few signs of recovery as yet. This situation has been exacerbated by the crisis in the Eurozone, which again shows few signs of quick recovery. Further, the large proportion of Gatwick traffic to the severely indebted countries of the Eurozone has limited the potential to benefit from consumer spend in higher growth, emerging economies, notwithstanding the airport’s success in attracting a number of such services in recent years.

There have also been longer term trends at work. The internet, and broadband penetration in particular, has radically transformed consumer buying behaviour. Recently released sales figures from Amazon UK show year on year sales growth of 26.8% from 2009-2010 and 22.9% from 2010-201117. Reflecting this trend, the most recent ONS retail statistics18 show online sales across the UK market accounting for 9.4 per cent of all retail spending.

The other significant factor governing Gatwick’s Q5 retail performance was the change in management focus, following acquisition of the airport from BAA. The strategy adopted by the new management team was to focus on addressing key operational and service issues that were causing the airport to fail its SQR targets, notably security, but also seating and wayfinding. Decisions to reduce the retail and catering footprint to invest in additional security capacity were taken at the expense of our catering and retail income during 2011/12.

Despite the Q5 change in mix away from North Atlantic long haul and high spending charter traffic, to EU-centric low cost short haul traffic, strong Income per Passenger (“IPP”) performance has been generated by out-performance of duty free and airside specialist shops in the early years of Q5. The reduction in higher margin non-EU traffic from North Africa to Western Europe as a consequence of the ‘Arab Spring’ of 2011 has contributed to the reversal of this trend in 2011/12, alongside the reduction in retail space due to the South Terminal security project.

Offsetting this strong overall IPP performance has been a relatively poor catering performance, which we believe has been caused by: i) space reduction due to the South Terminal security project; ii) a higher propensity for low cost carrier passengers to buy ‘grab and go’ offers driven by lower dwell times; and iii) changes to flows in the South Terminal departure lounge that have disadvantaged some of our catering outlets. Catering income has under-performed the Q5 settlement to date by 13%.

Income from bureaux de change has also been adversely impacted by customer preference increasingly to use cards in ATMs abroad, and by the convenience, and competitive cost, of currency pre-ordering and purchase online. Our 2009/10 performance was affected by the ash crisis, with income recovering to some extent following an increase in prices. Bureaux income has under-performed the Q5 settlement to date by 9.2%.

Other retail income, which includes bookshops, other landside retailers (excluding catering and bureau), media advertising sites, telecommunications and onward travel products such as taxis and car rental, showed some resilience in the early years of Q5. However, recent changes in consumer preference for e-Readers and digital news media, as well as what we believe was a deteriorating customer experience in our Confectionery, News and Tobacco (“CTN”) outlets has caused this category to show year on year decline in the later years of Q5. The FT reported in September 2012 that sales of fiction e-books in the UK nearly tripled in the six months to the end of June compared with the same period in 2011. Further digital sales now comprise about 13 per cent of total UK book sales, up from 7.2 per cent a year ago. This growth is in line with, although still behind, that seen in the US where e-books accounted for 22% of all book spending in the second quarter of 2012, up from 14% in the comparable period in 2011, according to figures from Bowker Market Research. WH Smith has launched its own e-Reader in response to these trends, but deterioration in this category is likely to continue which may require further remedial action over and above that already taken by Gatwick management with a re-launch of the CTN business as the London News/Book Company in 2012.

The poor economic climate has also affected advertising revenues, but efforts to address this have been taken through a programme of investment in digital media throughout the airport. This programme continues to be rolled out, with further innovations to follow. This investment, allied to a re-launch of our

17 Figures supplied to the Commons Public Accounts Committee – 12/11/12

18 Office of National Statistics, November 2012

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

10 Revenue

101

advertising proposition on the back of the change in our passenger environment and our recent airline wins, has enabled us to diversify our advertising base into more sectors such as automotive, beauty and technology, to the extent that revenue from our top 20 advertisers has grown 50% in the last 12 months and 10 clients have generated over £100,000 in the last 12 months, double the number 12 months ago.

The other significant ‘other revenue’ initiative that is now beginning to bear fruit is the tender and award of the taxi concession contract to a new local operator. A decade of under-investment in product and service quality is now being addressed, with income beginning to reverse its previous declines.

CAR PARKS

Car parking revenue is generated through a mix of passengers pre-booking space online (64% of revenue), and those turning up on the day (36%). Our main products are long-stay parking (57% of revenue), short-stay (37%) and valet parking (6%). Currently, we operate 34,000 spaces, competing with 22,000 spaces off-airport.

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Figure 10.3 Car park performance in Q5

As can be seen from the figure and tables below, car park revenue is expected to be significantly below the Q5 settlement. This is due in part to lower passenger numbers, but also to an observed trend towards lower UK outbound leisure customers as a proportion of our total customer base (down 4 percentage points between 2010 and 2011). UK outbound leisure customers are the bedrock of our car parking market.

Further, our offering has faced fierce competition from off-airport operators who have taken a very aggressive pricing stance and operate almost exclusively in the pre-book market. The growth in online pre-book activity has negatively impacted our higher yielding long stay roll-up business, to the extent that we have observed substitution of one for the other. We have made significant changes to almost every aspect of our car parking business since the separation from BAA, in an effort to combat this decline. Along with a revision to our tariff structure, some of the product initiatives designed to support our revenue line have been:

• The investment made in new short stay car parking capacity in north terminal (car park 6);

• The doubling in size of valet car parking capacity to accommodate an increased focus on that segment of the travelling public which sees added value through proximity and convenience, and is being served by multiple off-airport meet and greet providers;

• The introduction of premium parking which provides an ultra-convenient location close to the terminal (introduced in support of Gatwick’s ambition to drive more business traffic), and offers the opportunity to use our premium security product as part of the product bundle;

• Closure of our long stay plus offer to concentrate on the valet/meet and greet market;

• The addition of car washing/valeting as a paid-for option for valet parkers; and

• Introduction of cancellation insurance and additional e-commerce products (hotels, park and stay).


car Park income £m at 2013/14 PriceS 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12

Total passengers (m) 33.1 32.4 31.6 33.8 35.9 36.4 36.8 37.2 (2.8) (4.0) (5.2) (3.4)

Car Park Income £m 48.8 42.4 38.9 42.9 49.2 49.4 49.0 49.0 (0.4) (7.0) (10.1) (6.1)

£/passenger £1.48 £1.31 £1.23 £1.27 £1.37 £1.36 £1.33 £1.32 £0.10 £(0.05) £(0.10) £(0.05)

Table 10.4 Car park performance in Q5

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

10 Revenue


102

However, despite these initiatives and a review of our channels to market, the decline in gross revenue (excluding car park costs) per passenger has continued due to the underlying change in departing passenger mix and competition from the off-airport competitors. In 2011/12, income per passenger (which includes car park costs) improved versus prior year with operational cost efficiencies offsetting the adverse revenue trend.

PROPERTY

As can be seen from the figure and table below, property income has been declining since 2009/10, and in 2011/12 ended £2.3m lower, due to the underlying local office property market. This has remained weak, with a 30% decrease in rents over Q5 to date and no immediate sign of a return to growth. When combined with ample stock in the market (an estimated 774,000 sq ft equating to five years supply), rents have reduced as occupiers vacate, particularly in offices below 5,000 sq ft. Local market conditions constrain our ability to raise rents, as we do not want to lose business to the off-airport market.

By competing on service, we have managed to keep our overall void levels and rents stable (in nominal, but not real, terms) in spite of market pressures. Additionally, for the early part of Q5, we succeeded in securing additional lettings from on-site construction contractors and backdated rent and lease renewals, as well as up-front payments from some companies for early surrender of property.

We are taking the opportunity to enhance our portfolio, having signed heads of terms and obtained planning permission for a new hotel in Norfolk House in the South Terminal, and having also entered into a 99 year lease for Longbridge House to accommodate a new Hampton Hilton hotel. Both of these projects will see improvements in Gatwick income, but have required extended periods of voidage which has affected near term income. The crew reporting move to Atlantic House has also required extensive decanting from Atlantic House, and will leave Concorde House void from Jan 2013, whereupon it will be re-let to commercial tenants. Property income has reduced from £31.1m in 2008/09 to £27.3m in 2011/12.

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Figure 10.4 Property performance in Q5


ProPerty income £m at 2013/14 PriceS 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12

Property Income 31.2 30.9 29.5 27.3 29.6 29.2 28.9 29.6 1.6 1.7 0.6 (2.3)

Year on year % (1)% (5)% (7)% (1)% (1)% 2%

Table 10.5 Property performance in Q5

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

10 Revenue

103

10.4 COMMeRCIal ReVeNUe sTRaTeGY aND FOReCasTs

10.5 OTheR NON-ReGUlaTeD ReVeNUe

Other non-regulated revenue arises out of the provision by Gatwick of a range of operational services to passengers, airlines, ground-handlers, property tenants and on-airport staff. These include check-in and baggage services, the recharge of utilities, the PRM service, the sale of vehicle fuel (not aviation fuel) and staff car parking. This income is generally priced on a cost-recovery basis including an allocation of indirect costs. Certain activities are “specified” in that they currently subject to public interest conditions which were first imposed in 1991. The table below summarises the principal categories of other non-regulated revenue.

In the following sections, further detail is given in relation to the three main elements of non-regulated revenue i.e. check-in and baggage services, the recharge of utilities and staff car parking. In relation to the other revenue categories, the following observations are relevant:

• Other specified revenue. This covers a range of miscellaneous services (namely, ID cards, FEGP, airside vehicle licences and bus & coach access) and has been projected at a level broadly consistent with charges and usage in 2012/13;

• pRM revenue. This relates to the charge per departing passenger for the provision of services for passengers with reduced mobility. The projected income profile matches the underlying PRM service costs (see chapter 11), plus a small contribution for overheads;

• Vehicle fuel revenue. This relates to the retailing of vehicle fuel to third parties and the projected income profile matches the underlying commodity cost;

• Intercompany revenue. This relates to property at Gatwick rented by the BAA Group while Gatwick was a member of that Group and is no longer relevant; and

• Other non-specified revenue. This arises predominantly out of cargo, positioning flights, waste and recycling, and CCTV. Projected revenue has been maintained at the current level.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

10 Revenue


104

OTheR NON-ReGUlaTeD ReVeNUe q5 peRFORMaNCe


other non-regulated revenue £m at 2013/14 PriceS

2008/09 actual

2009/10 actual

2010/11 actual

2011/12 actual

2012/13 forecaSt

2013/14 forecaSt

2014/15 forecaSt

2015/16 forecaSt

2016/17 forecaSt

2017/18 forecaSt

2018/19 forecaSt

Check-in/baggage 16.8 16.6 14.3 16.8

staff Car park 6.2 6.5 7.3 7.8

FEGP 3.1 2.9 2.6 3.1

Identity Cards 1.0 1.0 1.1 2.2

Bus & Coach 0.6 0.7 0.6 0.7

Airside Licenses 0.1 0.1 0.1 0.1

Aviation Fuel (0.1) (0.0) 0.0 0.0

Other specified Revenue 4.6 4.6 4.4 6.1

Electricity 6.7 8.6 8.7 7.4

Water & Sewerage 0.6 0.5 0.5 0.5

Heating 0.4 0.5 0.3 0.3

Gas 0.1 0.1 0.1 0.1

Utilities Revenue 7.8 9.8 9.6 8.2

Total specified activities 35.4 37.6 35.6 38.9

PRM 5.1 5.5 4.9 4.8

Vehicle Fuel & Oil 2.8 2.3 2.3 2.7

Intercompany 4.0 1.8 0.0 0.0

Other Non-Specified Revenue

4.0 3.1 4.3 3.8

Total Non-specified activities

16.0 12.8 11.5 11.3

Total other Non-Regulated Revenue 51.4 50.4 47.1 50.3

Year on year % (2)% (7)% 7%

Table 10.12 Other non-regulated revenue beyond Q5 to 2018/19


£m at 2013/14 PriceS 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12

Check-in and Baggage 16.8 16.6 14.3 16.8 16.8 16.9 16.9 17.4 (0.0) (0.3) (2.6) (0.6)

Utilities Income 7.8 9.8 9.6 8.2 10.6 10.4 10.4 10.4 (2.8) (0.6) (0.8) (2.2)

Staff Car Park 6.2 6.5 7.3 7.8 8.9 8.9 8.9 8.9 (2.7) (2.4) (1.7) (1.1)

Other 20.6 17.5 15.9 17.4 13.4 13.5 13.5 13.5 7.2 4.0 2.4 3.9

Other Non-Regulated Revenue 51.4 50.4 47.1 50.3 49.8 49.7 49.8 50.3 1.6 0.7 (2.7) (0.0)

Table 10.13 Other non-regulated revenue variance Q5 Actual versus settlement

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

10 Revenue

105

CHECK-IN AND BAGGAGE (C&B) REVENUE

Gatwick charges for the use of its check-in and baggage facilities (both for the out-bound baggage system and the in-bound baggage arrivals belts and halls). The operating costs of this activity are separately identified (including a contribution towards overheads) and Gatwick seeks to recover these through the C&B charges. The C&B costs and charges tariff are reviewed annually.

In Q5 to date, Gatwick’s C&B income has been lower than the Q5 settlement, notably in 2010/11, with traffic volumes lower each year than expected. This shortfall has not been subsequently recovered. In addition, an expected annual contribution of £0.5m per annum towards the Transfer Baggage Factory facility did not materialise post 2008/9. As such, in the first four years of Q5 Gatwick has significantly under-recovered both the costs of providing C&B services by £8.8m (out-turn) as well as against the Q5 settlement.

From 2008/09 to 2011/12 C&B charges were levied on a per departing passenger basis with some differentiation in the rate based on how an airline chose to manage its check-in. From 1 April 2012, the structure of these charges was changed to be levied on the basis of three metrics of use: departing passengers, departing bags and ATMs.

The figure below shows the projected C&B income over Q5 to date against the actual income:

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Figure 10.9

Check-in and baggage Q5 performance


£m at 2013/14 PriceS 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12

Check-in and Baggage 16.8 16.6 14.3 16.8 16.8 16.9 16.9 17.4 (0.0) (0.3) (2.6) (0.6)

Table 10.14 Projected Check-in & Baggage income over Q5

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

10 Revenue


106

UTILITIES REVENUE

Utilities costs (electricity, water and, to a lesser extent, gas and telecoms) are partly re-charged to tenants. The level of recharge reflects the underlying costs of the commodity supplied to Gatwick plus certain indirect costs e.g. the capital costs (depreciation and return) of the electricity infrastructure.

In Q5, the utility recharge has been of the order of 29% to 36% of the overall utility cost. In 2013/14, the rate is expected to be at the upper end of this scale at 34% due to the backdated recovery of the Carbon Reduction Commitment tax.

The figure below shows the utilities income over Q5 to date:

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Figure 10.10

Utilities revenue Q5 performance


£m at 2013/14 PriceS 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12

Utilities 7.8 9.8 9.6 8.2 10.6 10.4 10.4 10.4 (2.8) (0.6) (0.8) (2.2)

Table 10.15 Utilities income over Q5

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

10 Revenue

107

STAFF CAR PARKING REVENUE

Staff car parking charges reflect the cost of providing the car parking facilities for the staff of all businesses operating at the airport. These facilities are separate from the public car parks. Prior to Q5, the costs of staff car parking largely reflected direct operating costs and there was only a modest contribution towards capital costs. The figure below shows the staff car parking income over Q5.

The Q5 settlement income depicted above assumed a broadly flat tariff from the outset of Q5. However, following consultation and agreement with the airport community, staff car parking tariffs were phased across Q5 profiled as 25%/50%/100%/125%/150% increases from 2007/08 income levels. Accordingly, the actual Q5 income to date shows a steady year-on-year increase. However, as a result of the volume of passes issued being significantly below the level expected, Gatwick has under-recovered from staff car parking in Q5. Total income in first four years is £7.9m lower than that included in the settlement.

The figure below shows the staff car parking income over Q5:

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Figure 10.11

Staff car parking revenue Q5 performance


£m at 2013/14 PriceS 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12

Staff Car Park 6.2 6.5 7.3 7.8 8.9 8.9 8.9 8.9 (2.7) (2.4) (1.7) (1.1)

Table 10.16 Staff car parking income over Q5

OTheR NON-ReGUlaTeD ReVeNUe FORCasTs

Our forecasts for other non-regulated income beyond Q5 to 2018/19 are set out below.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

10 Revenue

109CHAPTER 11opeRAtinG costs

11.1 INTRODUCTION

Operating costs at Gatwick can be considered within three main categories:

• staff costs: These consist of direct labour for the provision of services to airline customers and passengers, as well as indirect labour, which includes senior management and specialist support groups such as HR, IT, deregulation, commercial and legal functions;

• Contracted service costs: These consist of major services that Gatwick generally procures from third parties on a contractual or quasi-contractual basis. This includes the provision of police, business rates, utilities, cleaning services, aerodrome air traffic control, PRM services, insurance, maintenance services & consumables, coaching services, and airside licence fees; and

• Other costs: These comprise IT services, marketing expenditure, professional consultancy services, regulatory costs, and other miscellaneous activity.

The total operating costs for Q5 and the five years beyond are summarised in the table below. The four largest elements are: staff costs, as well as rent & rates, utilities, and maintenance & equipment within Contracted service costs. These categories account for around 71% of Gatwick’s operating cost base and are those most closely related to the service and investment proposals set out elsewhere in this business plan.


oPerating coSt forecaStS £m at 2013/14 PriceS

2008/09 actual

2009/10 actual

2010/11 actual

2011/12 actual

2012/13 forecaSt

2013/14 forecaSt

2014/15 forecaSt

2015/16 forecaSt

2016/17 forecaSt

2017/18 forecaSt

2018/19 forecaSt

Staff Costs 120.1 122.9 122.3 126.7

Contracted Service Costs

Police Costs 16.7 15.2 14.6 13.5

Rent & Rates 30.0 28.9 24.7 28.4

Utility Costs 31.6 36.6 30.9 31.9

Maintenance & Equipment 36.0 29.9 23.9 24.5

Other

NATS 20.7 21.0 18.3 17.6

PRM costs 6.2 4.9 4.8 6.5

Cleaning 9.5 8.9 7.5 8.1

Other 13.2 12.5 11.6 10.7

sub-total 163.7 158.0 136.4 141.1

Other

IT Costs 0.5 5.3 18.3 15.4

Other 9.0 26.3 18.0 15.1

Total 9.5 31.6 36.3 30.5

Inter-co Costs 49.9 22.2 (1.0) (0.0)

Total Operating Cost pre exceptional Costs 343.2 334.7 294.0 298.3

Year on year % -2% -12% 1%

Exceptional Costs (2.6) 138.7 18.6 0.0

Total Operating Cost post exceptional Costs 340.6 473.4 312.6 298.3

£/passenger (pre exceptional Costs)

£10.37 £10.33 £9.29 £8.82

Table 11.1 Operating cost forecast to 2018/19

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

11 Costs

CHAPTER 11OPERATING COSTS

110

In the first two years of Q5, the actual and settlement operating costs (pre-exceptionals) were broadly comparable. The business was predominantly focussed on the challenges involved in meeting the enhanced security screening regime, and reliant on the BAA Group for the provision of a range of services and for expectations as to what constituted good operating practice.

However, there has been a step change in the operating cost performance of the business over the last three years, alongside a marked improvement in the service quality performance metrics. The change in ownership of the business in December 2009 allowed the introduction of new leadership and the application of best practice manufacturing process methodologies (e.g. Lean, Six Sigma), which challenged and changed approaches to cost management, staff productivity and business development. Operating cost efficiencies during this period have been achieved through improved utilisation of labour, better procurement of goods and services, as well as by more effective partnering with other organisations to deliver shared efficiencies.

As a result, over the first four years of Q5, Gatwick has delivered a substantial (c.£45m) reduction in overall annual operating costs (pre-exceptionals), equivalent to £1.55 per passenger, and achieved an 8.3% productivity improvement in terms of operational manpower per passenger. Over the same period, the marked improvement of passenger experience at the airport is reflected in the achievement of all SQR targets for the first time in Q5 in May 2011 and in almost every subsequent month.

In this business plan, real operating costs face upward pressure from passenger growth (including a faster than average growth of passengers with reduced mobility using the airport), infrastructure expansion, new passenger services, labour costs and pricing pressures in excess of RPI affecting contracted services (e.g. NATS, police, electricity, natural gas). However, the business plan envisages Gatwick offsetting these costs by productivity gains in security, energy, IT, and maintenance delivered through process re-engineering and capital projects, as well as continued tight cost management in all other areas.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

11 Costs

111

11.2 q5 OpeRaTING COsT peRFORMaNCe TO-DaTe VeRsUs q5 seTTleMeNT

The Q5 operating cost performance to date versus Q5 settlement (CAA forecast) is summarised in the table below.

Operating cost performance to date versus the Q5 settlement has been influenced by four key factors:

• Operating cost efficiencies realised following change of ownership in December 2009, such as those outlined in the preceding section;

• Significantly lower passenger volumes than those included in the Q5 settlement, which has reduced the number of front-line staff required at central search versus the CAA forecast;


£m at 2013/14 PriceS 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12

Staff Costs 120.1 122.9 122.3 126.7 142.3 139.9 137.0 135.5 22.3 16.9 14.7 8.8

Police Costs 16.7 15.2 14.6 13.5 15.8 15.6 15.4 15.2 (0.9) 0.3 0.8 1.7

Rent & Rates 30.0 28.9 24.7 28.4 30.3 31.4 31.8 33.7 0.4 2.5 7.1 5.3

Utility Costs 31.6 36.6 30.9 31.9 31.3 31.5 32.0 32.7 (0.3) (5.1) 1.1 0.8

Maintenance & Equipment 36.0 29.9 23.9 24.5 30.2 30.0 32.4 33.5 (5.8) 0.1 8.4 9.0

IT Costs 0.5 5.3 18.3 15.4 0.0 0.0 0.0 0.0 (0.5) (5.3) (18.3) (15.4)

Other Costs 58.5 73.6 60.2 58.0 43.1 44.0 44.4 44.2 (15.4) (29.6) (15.8) (13.8)

Inter-co Costs 49.9 22.2 (1.0) (0.0) 41.4 40.4 40.0 39.5 (8.5) 18.2 41.0 39.5

Total 343.2 334.7 294.0 298.3 334.3 332.7 333.0 334.2 (8.9) (2.0) 39.0 35.9

v Settlement (%) 3% 1% -12% -11%

Exceptional Costs 0.0 0.0 0.0 0.0 2.6 (138.7) (18.6) 0.0

Total Operating Costs 340.6 473.4 312.6 298.3 334.3 332.7 333.0 334.2 (6.3) (140.7) 20.4 35.9

£/passenger (pre exceptional Costs)

10.37 10.33 9.29 8.82 9.31 9.14 9.05 8.98 (1.05) (1.19) (0.24) 0.16

Table 11.2 Q5 operating cost performance to date versus Q5 settlement

• The re-scoping of the capital plan following change of ownership, which has reflected the down-turn in passenger volume and change in mix. The main impact of this was to delay some of the investment required (in particular North Terminal pier service, which has now been moved to beyond Q5), and to allow us to deliver more for less by the introduction of an enhanced Pier 1 and Baggage combined project and a leading edge South Terminal security project. This has impacted costs in three areas: i) a reduction in security staff costs, through the South Terminal security project; ii) a lower level of business rates; and iii) lower cleaning costs than those forecast due to the later / different delivery of projects; and

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

11 Costs


112

• Investment in improved service. Gatwick’s service performance has improved throughout the quinquennium, as we have invested heavily in passenger-facing areas. This improved level of service has been generated not only through capital investment, but also through investment in operating costs. Examples of this include: the introduction of Assistance Lanes in security offering improved service for families and PRMs, albeit at a lower throughput; ensuring that all security officers are trained in a Tourism South East City and Guilds qualification in customer service; and increasing the level and consistency of service to PRMs, including through bringing its management in-house. Gatwick has also changed the cleaning contractor and increased the scope of the cleaning contract to ensure a higher level of service. All of these factors have led to upward pressure on operating costs.

STAFF COSTS TO DATE

0

5

10

15

20

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

Total IT costs

IT costs

6

7

8

9

10

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Cleaning Costs

Cleaning (13/14)

0

2

4

6

8

10

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

PRM Costs

PRM (13/14)

12

14

16

18

20

22

24

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

NATS

NATS (13/14)

10

15

20

25

30

35

40

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Maintenance & Equipment Costs

Maintenance & Equipment (13/14)

Maintenance & Equipment pre projects

26

28

30

32

34

36

38

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Utility Costs

Utilities (13/14) Utilities pre projects (13/14)

15

20

25

30

35

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Rent & Rates

Rent & Rates (13/14) Rent & Rates Pre Projects (13/14)

10

11

12

13

14

15

16

17

18

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Police Costs

Police (13/14)

110

115

120

125

130

135

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

Total Staff costs

Staff Costs (13/14)

6

7

8

9

10

11

12

2008/09 2009/10 2010/11 2011/12

£m

Cleaning Costs

Cleaning (13/14) Cleaning Q5 settlement (13/14)

0

1

2

3

4

5

6

7

2008/09 2009/10 2010/11 2011/12

£m

PRM Costs

PRM (13/14)

12

14

16

18

20

22

24

2008/09 2009/10 2010/11 2011/12

£m

NATS

NATS (13/14) NATS Q5 settlement (13/14)

10

15

20

25

30

35

40

2008/09 2009/10 2010/11 2011/12

£m


Maintenance & Equipment (13/14) Maintenance & Equipment Q5 settlement (13/14)

26

28

30

32

34

36

38

2008/09 2009/10 2010/11 2011/12

£m

Total Utility Costs


20

25

30

35

2008/09 2009/10 2010/11 2011/12

£m

Total Rent & Rates

Rent & Rates (13/14) Rent & Rates Q5 settlement (13/14)

10

11

12

13

14

15

16

17

18

2008/09 2009/10 2010/11 2011/12

£m

Total Police Costs

Police (13/14) Police Q5 settlement (13/14)

100

105

110

115

120

125

130

135

140

145

2008/09 2009/10 2010/11 2011/12

£m

Total Staff Costs

Staff Costs (13/14) Staff Costs Q5 settlement (13/14)

Figure 11.1

Total staff costs to date

Staff costs consist of direct labour for the provision of services to airline customers and passengers, as well as indirect labour, which include senior management and specialist support groups such as HR, IT, deregulation, commercial and legal functions. Staff costs (including contractors) associated with capital and IT projects are capitalised and are not, therefore, recorded under operating costs (actual or projected).

Staff costs have been broken down into two categories – security staff and other staff.


total Staff coStS £m at 2013/14 PriceS 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12

Security Staff Costs 72.0 64.1 60.0 60.6 84.3 82.5 80.5 79.8 12.2 18.4 20.5 19.2

Non Security Staff Costs 48.0 58.9 62.3 66.1 58.1 57.4 56.5 55.7 10.0 (1.5) (5.8) (10.4)

Total staff Costs 120.1 122.9 122.3 126.7 142.3 139.9 137.0 135.5 22.3 16.9 14.7 8.8

Table 11.3 Staff costs to date

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

11 Costs

113

SECURITY STAFF COSTS

As the Q5 discussions were taking place, the security operating environment was constantly changing which meant that Gatwick’s forecasts could not be verified against an actual operating environment. In addition, because of Gatwick’s aged infrastructure, the expected additional costs to cope with a more stringent security regime were significantly above those forecast for Heathrow. There was obvious uncertainty – recognised by the CAA, the airport and the airlines – as to the level of costs being forecast by Gatwick. A joint working party was set up with British Airways (on behalf of the airlines) in order to verify Gatwick’s forecasts, and although agreement could not be reached at that stage, the two sets of forecasts did move closer. The CAA decision was based on the airport forecast, overlaid with a 3% efficiency target.

The variance in security staff costs versus the Q5 settlement is highlighted in the table below. These savings have been driven by three main factors – lower passenger volume, efficiencies and presentational differences.21

Q5 actual

Security Staff coStS £m at 2013/14 PriceS 2008/09 2009/10 2010/11 2011/12

Actual 72.0 64.1 60.0 60.6

Q5 Settlement – per Regulatory Accounts

84.3 82.5 80.5 79.8

Difference 12.2 18.4 20.5 19.2

of which assessed as

Passenger Volume 2.0 2.8 3.6 2.2

Efficiency 4.7 10.6 12.8 11.1

Presentational 5.5 4.9 4.1 5.8

Difference 12.2 18.4 20.5 19.2

Table 11.4 Security staff cost savings versus the CAA Q5 forecast

IMPACT OF LOWER PASSENGER VOLUMES

Our security workforce is made up of positions that are directly impacted by the number (and profile) of passengers, such as Airport Security Operatives (ASOs) and flow team leaders at central search, plus those that are either supporting the central search area (e.g. resource planners, trainers, managers) or are required to resource “fixed posts” e.g. staff search, external control posts. For analytical purposes, we have assumed that approximately one third of our security staff costs are variable.

EFFICIENCY SAVINGS

Although man years were higher than the settlement at the beginning of Q5, a steady programme of efficiency savings has resulted in headcount numbers decreasing each year, and in the last 2 years being below the settlement. This has been achieved through the implementation of flexible rostering, shorter working hours and the targeted use of overtime to resource peak-periods. A reduction in pension costs, as well as this more targeted overtime, has meant actual average cost per man year has been lower than the settlement.

Q5 actual

imPact of efficiency SavingS at 2013/14 PriceS 2008/09 2009/10 2010/11 2011/12

average staff Cost per Man Year

Actual – £000/Man Year 42.5 40.5 40.8 42.1

Q5 Settlement – £000/Man Year 48.0 48.6 49.0 48.8

Difference – £000/Man Year 5.5 8.1 8.2 6.7

No. of Man Years

Actual – Man Years 1,696 1,581 1,471 1,439

Q5 Settlement – Man Years 1,599 1,538 1,486 1,469

Difference – Man Years (97) (43) 15 30

efficiency savings due to

Lower Average Cost/Staff – £m 9.3 12.8 12.0 9.6

Inc. in no. of Man Years – £m (4.6) (2.1) 0.7 1.5

Total – £m 4.7 10.6 12.8 11.1

Table 11.5 Impact of efficiency savings

PRESENTATIONAL DIFFERENCES

Certain elements of non-staff related cost, in particular third party airside screening are shown in the “Q5 settlement – per regulatory accounts” line. This creates a presentational difference.

21 Security analysis has been reassessed and restated since an initial view was released to airlines in July 2012. Further granularity in our analysis has allowed us to identify those roles which are strictly variable in relation to passenger throughput. Further information is available on request.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

11 Costs


114

NON SECURITY STAFF COSTS

As can be seen from table 11.3, Non Security Staff costs rose over the period, primarily due to the in-sourcing of activities that were previously undertaken by BAA Group (and therefore recharged to Gatwick via inter-company charges). This covered such functions as commercial, IT, legal, HR and finance.

Although these annual staff costs have increased by £18.1m since 2008/9, increasing these costs against the Q5 settlement, this has helped to drive considerable cost savings to the bottom line, with inter-company costs of £50m per annum no longer being incurred.

POLICE COSTS TO DATE

Policing services are provided by Sussex Police under an agreement with Gatwick. The security risk plans which drive the need for policing have been drawn up by Gatwick in conjunction with the police, and audited by the Department for Transport and the Home Office. The policing requirements and associated costs are reviewed with the police on an annual basis.

Working in partnership with the police, costs have been reduced year-on-year since 2008/09, and in 2011/12 are set to be £1.7m below the Q5 settlement. A detailed programme of activity has delivered significant efficiencies, while maintaining high standards of security.

0

5

10

15

20

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

Total IT costs

IT costs

6

7

8

9

10

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Cleaning Costs

Cleaning (13/14)

0

2

4

6

8

10

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

PRM Costs

PRM (13/14)

12

14

16

18

20

22

24

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

NATS

NATS (13/14)

10

15

20

25

30

35

40

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m




26

28

30

32

34

36

38

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Utility Costs


15

20

25

30

35

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Rent & Rates


10

11

12

13

14

15

16

17

18

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Police Costs

Police (13/14)

110

115

120

125

130

135

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

Total Staff costs

Staff Costs (13/14)

6

7

8

9

10

11

12

2008/09 2009/10 2010/11 2011/12

£m

Cleaning Costs


0

1

2

3

4

5

6

7

2008/09 2009/10 2010/11 2011/12

£m

PRM Costs

PRM (13/14)

12

14

16

18

20

22

24

2008/09 2009/10 2010/11 2011/12

£m

NATS


10

15

20

25

30

35

40

2008/09 2009/10 2010/11 2011/12

£m



26

28

30

32

34

36

38

2008/09 2009/10 2010/11 2011/12

£m

Total Utility Costs


20

25

30

35

2008/09 2009/10 2010/11 2011/12

£m

Total Rent & Rates


10

11

12

13

14

15

16

17

18

2008/09 2009/10 2010/11 2011/12

£m

Total Police Costs


100

105

110

115

120

125

130

135

140

145

2008/09 2009/10 2010/11 2011/12

£m

Total Staff Costs


Figure 11.2 Police costs to date


Police coStS £m at 2013/14 PriceS 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12

Police Costs 16.7 15.2 14.6 13.5 15.8 15.6 15.4 15.2 (0.9) 0.3 0.8 1.7

Table 11.6 Police costs to date

RENT & RATES COSTS TO DATE

baCkGROUND

Rent & rates costs comprise business rates, which apply to all non-domestic properties in the UK. The annual business rates cost is the product of the rateable value (RV) of property at the airport and the Uniform Business Rates multiplier (UBR).

A formal rating revaluation is generally undertaken by the Valuation Office Agency every 5 years, but Government has recently extended this to 7 years from the last revaluation effective April 2010. A “Contractors Test” basis of valuation (essentially a depreciated replacement cost methodology) is used for Gatwick. Given the dynamic nature of the property portfolio at the airport, the RV is rolled forward each year taking into account property additions, removals and voids – this interim valuation is based on rules agreed with the Valuation Office and undertaken with input from Gatwick’s rating advisers. An “Annualised Rental” basis of valuation is used for these interim adjustments to RV for Gatwick. The UBR is set annually by Government. The figure below shows the actual costs when compared to the regulatory settlement.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

11 Costs

115

PERFORMANCE TO DATE

0

5

10

15

20

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

Total IT costs

IT costs

6

7

8

9

10

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Cleaning Costs

Cleaning (13/14)

0

2

4

6

8

10

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

PRM Costs

PRM (13/14)

12

14

16

18

20

22

24

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

NATS

NATS (13/14)

10

15

20

25

30

35

40

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m




26

28

30

32

34

36

38

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Utility Costs


15

20

25

30

35

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Rent & Rates


10

11

12

13

14

15

16

17

18

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Police Costs

Police (13/14)

110

115

120

125

130

135

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

Total Staff costs

Staff Costs (13/14)

6

7

8

9

10

11

12

2008/09 2009/10 2010/11 2011/12

£m

Cleaning Costs


0

1

2

3

4

5

6

7

2008/09 2009/10 2010/11 2011/12

£m

PRM Costs

PRM (13/14)

12

14

16

18

20

22

24

2008/09 2009/10 2010/11 2011/12

£m

NATS


10

15

20

25

30

35

40

2008/09 2009/10 2010/11 2011/12

£m



26

28

30

32

34

36

38

2008/09 2009/10 2010/11 2011/12

£m

Total Utility Costs


20

25

30

35

2008/09 2009/10 2010/11 2011/12

£m

Total Rent & Rates


10

11

12

13

14

15

16

17

18

2008/09 2009/10 2010/11 2011/12

£m

Total Police Costs


100

105

110

115

120

125

130

135

140

145

2008/09 2009/10 2010/11 2011/12

£m

Total Staff Costs


Figure 11.3

Rent & rates costs to date

Rent and rates costs have been lower in Q5 than envisaged in the settlement due to both the changes in the scope and phasing of the capital programme plus active management of our estate (e.g. the demolition of Hangar 5 and the leasing of Longbridge and Norfolk House to hotel operators, to reflect the changing nature of our business).

Prompt action is also taken to ensure that the rates liability accurately reflects the extent and occupation of the airport at all times, both through the annual roll-forward of the RV and application for vacant rates relief in respect of unoccupied accommodation.


rent and rateS £m at 2013/14 PriceS 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12

Rent and rates 30.0 28.9 24.7 28.4 30.3 31.4 31.8 33.7 0.4 2.5 7.1 5.3

Table 11.7 Rent and rates to date


utility coStS £m at 2013/14 PriceS 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12

Utility Costs 31.6 36.6 30.9 31.9 31.3 31.5 32.0 32.7 (0.3) (5.1) 1.1 0.8

Table 11.8 Utility costs to date

UTILITY COSTS TO DATE

0

5

10

15

20

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

Total IT costs

IT costs

6

7

8

9

10

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Cleaning Costs

Cleaning (13/14)

0

2

4

6

8

10

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

PRM Costs

PRM (13/14)

12

14

16

18

20

22

24

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

NATS

NATS (13/14)

10

15

20

25

30

35

40

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m




26

28

30

32

34

36

38

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Utility Costs


15

20

25

30

35

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Rent & Rates


10

11

12

13

14

15

16

17

18

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Police Costs

Police (13/14)

110

115

120

125

130

135

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

Total Staff costs

Staff Costs (13/14)

6

7

8

9

10

11

12

2008/09 2009/10 2010/11 2011/12

£m

Cleaning Costs


0

1

2

3

4

5

6

7

2008/09 2009/10 2010/11 2011/12

£m

PRM Costs

PRM (13/14)

12

14

16

18

20

22

24

2008/09 2009/10 2010/11 2011/12

£m

NATS


10

15

20

25

30

35

40

2008/09 2009/10 2010/11 2011/12

£m



26

28

30

32

34

36

38

2008/09 2009/10 2010/11 2011/12

£m

Total Utility Costs


20

25

30

35

2008/09 2009/10 2010/11 2011/12

£m

Total Rent & Rates


10

11

12

13

14

15

16

17

18

2008/09 2009/10 2010/11 2011/12

£m

Total Police Costs


100

105

110

115

120

125

130

135

140

145

2008/09 2009/10 2010/11 2011/12

£m

Total Staff Costs


Figure 11.4 Utilities costs to date

Utility costs encompass the costs of gas and electricity consumption, telecoms, waste & recycling, and water & sewerage services, as well as high voltage infrastructure system support charges. UK Power Networks maintains the high voltage system at Gatwick under a long term agreement (which has been reviewed in several preceding regulatory reviews). Electricity consumption and network maintenance comprise the predominant share of utility costs – approximately 75% to 80%.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

11 Costs


116

Over the first four years of Q5, utility consumption can be explained as follows:

• Electricity consumption has remained relatively stable. Passenger numbers have not increased significantly and capital development has predominantly focused on reconfiguration and refurbishment which has little effect on consumption. In the later phases of Q5, the significant footprint projects have had relatively low consumption impacts or, as in the case of the North Terminal Extension, the increased consumption has been offset by consumption reductions in other areas of the estate;

• Gas consumption has not been significantly affected by the capital developments that increase footprint and has fluctuated within the Q5 period, with the weather and third party demand changes, as well as achieving efficiencies from upgraded building management systems; and

• Water consumption has seen the most significant change with a reduction in site water use of 25% over the 4 years. This is driven to a significant extent by Gatwick addressing infrastructure leakage issues and to a lesser extent by third party demand reductions.

Utility costs were marginally higher than the settlement, with a number of contributing factors:

• Electricity market prices peaked in late 2008/early 2009 and then fell sharply to a low in late 2009/early 2010 of circa £32/MWh; since then they have been gradually increasing, with prices in late 2012 at around £50/MWh. In early 2009, BAA executed a 4 year electricity contract, which fixed prices for a specified volume (based on projected demand) for a three year period. With the collapse in electricity prices and lower demand than originally anticipated, Gatwick’s contracted electricity costs were above short-term market prices in 2009/10, 2010/11 and 2011/12. Ultimately, the contract was accounted for as an ‘onerous contract’ – the marked increase in utility costs in 2009/10 reflects this accounting provision. The electricity supply contract reverted to floating prices effective April 2012 and has resulted in a reduction in electricity costs, more reflective of the prevailing spot market price.

• New environmentally driven legislation in the form of the carbon reduction commitment has increased GAL’s costs from 2011/12 and, from 2012/13, we are also seeing unexpected increases in electricity charges related to the Government recouping costs to fund the domestic and commercial solar energy ‘feed in tariffs’ through business electricity contracts;

• Costs associated with the management of the high voltage network by UK Power Networks have increased across Q5 due to the effect of RPI and increased capital annuities due to the expansion of the high voltage network infrastructure to meet the requirements of development;

• During Q5, Gatwick’s gas supply contracts have provided for the purchase of gas on a short-term basis and have broadly tracked market prices, which have been somewhat variable over the 4 year period with noticeably lower prices in 2009/10. 80% of Gatwick’s consumption is during the winter and so it is winter market prices that largely drive costs, not annual average market prices;

• From 2011/12 (for gas) and 2012/13 (for electricity), Gatwick has adopted a forward purchasing (hedging) strategy based on external advice, with a proportion of the commodity gradually purchased over a period of time commencing several seasons ahead. This strategy has been adopted to take potential commercial advantage from buying ahead, to smooth out potential negative market fluctuations and to achieve a higher level of budget predictability/certainty. This contracting arrangement avoids the airport being overly exposed either to spot prices or a large single forward purchase; and

• Gatwick’s water supply and sewerage discharge agreements have meant tariffs have generally increased reflecting RPI. However, as mentioned previously Gatwick’s costs have decreased in absolute terms from 2010/11 due to reduced water volumes consumed/sewerage discharged. Storm water discharge, trade effluent consent and waste management contract costs have remained relatively flat across Q5.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

11 Costs

117

MAINTENANCE AND EQUIPMENT COSTS TO DATE

0

5

10

15

20

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

Total IT costs

IT costs

6

7

8

9

10

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Cleaning Costs

Cleaning (13/14)

0

2

4

6

8

10

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

PRM Costs

PRM (13/14)

12

14

16

18

20

22

24

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

NATS

NATS (13/14)

10

15

20

25

30

35

40

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m




26

28

30

32

34

36

38

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Utility Costs


15

20

25

30

35

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Rent & Rates


10

11

12

13

14

15

16

17

18

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Police Costs

Police (13/14)

110

115

120

125

130

135

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

Total Staff costs

Staff Costs (13/14)

6

7

8

9

10

11

12

2008/09 2009/10 2010/11 2011/12

£m

Cleaning Costs


0

1

2

3

4

5

6

7

2008/09 2009/10 2010/11 2011/12

£m

PRM Costs

PRM (13/14)

12

14

16

18

20

22

24

2008/09 2009/10 2010/11 2011/12

£m

NATS


10

15

20

25

30

35

40

2008/09 2009/10 2010/11 2011/12

£m



26

28

30

32

34

36

38

2008/09 2009/10 2010/11 2011/12

£m

Total Utility Costs


20

25

30

35

2008/09 2009/10 2010/11 2011/12

£m

Total Rent & Rates


10

11

12

13

14

15

16

17

18

2008/09 2009/10 2010/11 2011/12

£m

Total Police Costs


100

105

110

115

120

125

130

135

140

145

2008/09 2009/10 2010/11 2011/12

£m

Total Staff Costs


Figure 11.5 Maintenance and equipment costs to date

Maintenance and equipment costs relate to the costs of maintenance work undertaken by third parties, spares used by the direct-employed technician teams, and vehicle fuel & lease costs. The employment costs of directly-employed technician teams are recorded under staff costs. The level of third party maintenance costs and spares use is a function of the requirements of the maintenance plan and the amount of unplanned reactive work, both related to the condition of Gatwick’s assets.

In 2008/09, costs were considerably above the following three years, as BAA prepared the airport for sale, thereby investing in several one-off maintenance programmes:

• To improve lighting levels, ambience and energy efficiency;

• To improve terminal building fabric, toilets, and water systems to enhance the passenger experience; and

• Condition surveys carried out on commercial buildings.


maintenance and eQuiPment £m at 2013/14 PriceS

2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12

Maintenance and Equipment 36.0 29.9 23.9 24.5 30.2 30.0 32.4 33.5 (5.8) 0.1 8.4 9.0

Table 11.9 Maintenance and equipment costs to date

Since acquisition, a thorough review of maintenance costs and process has taken place and Gatwick has now adopted the PAS55 standard of asset management, enabling us to reduce maintenance costs by replacing assets at their optimum age profile and reducing unplanned (and more expensive) maintenance. This also includes adopting improved procurement processes, which has reaped a variety of benefits:

• Procurement savings from changing supplier of Mechanical, Electrical, and Building Fabric maintenance support;

• Value from setting more stringent SLA’s on our supplier of Lifts, Escalators, and Passenger Conveyors support, aligning its goals with Gatwick’s desire to keep all passenger facing equipment operational; and

• Working capital efficiencies from moving spare parts into contractor stocks.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

11 Costs


118

NATS COSTS TO DATE

0

5

10

15

20

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

Total IT costs

IT costs

6

7

8

9

10

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Cleaning Costs

Cleaning (13/14)

0

2

4

6

8

10

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

PRM Costs

PRM (13/14)

12

14

16

18

20

22

24

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

NATS

NATS (13/14)

10

15

20

25

30

35

40

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m




26

28

30

32

34

36

38

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Utility Costs


15

20

25

30

35

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Rent & Rates


10

11

12

13

14

15

16

17

18

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Police Costs

Police (13/14)

110

115

120

125

130

135

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

Total Staff costs

Staff Costs (13/14)

6

7

8

9

10

11

12

2008/09 2009/10 2010/11 2011/12

£m

Cleaning Costs


0

1

2

3

4

5

6

7

2008/09 2009/10 2010/11 2011/12

£m

PRM Costs

PRM (13/14)

12

14

16

18

20

22

24

2008/09 2009/10 2010/11 2011/12

£m

NATS


10

15

20

25

30

35

40

2008/09 2009/10 2010/11 2011/12

£m



26

28

30

32

34

36

38

2008/09 2009/10 2010/11 2011/12

£m

Total Utility Costs


20

25

30

35

2008/09 2009/10 2010/11 2011/12

£m

Total Rent & Rates


10

11

12

13

14

15

16

17

18

2008/09 2009/10 2010/11 2011/12

£m

Total Police Costs


100

105

110

115

120

125

130

135

140

145

2008/09 2009/10 2010/11 2011/12

£m

Total Staff Costs


Figure 11.6 NATS costs to date

Aerodrome air traffic services are provided by NATS. The initial 5 year services contract has been extended for a further 2 years to March 2015. Costs are based on the number of landing aircraft movements per annum uprated by RPI (August baseline), subject to a minimum number of landings. This minimum volume clause has applied throughout this period.

Taking Q5 to date as a whole, the costs of the NATS service has been broadly as envisaged in the Q5 settlement – the year-on-year variability largely reflects certain accounting adjustments. Although air traffic movements have been lower than forecast, this itself has not resulted in any reduction in cost versus forecast due to operation of the minimum volume clause in the contract.


natS £m at 2013/14 PriceS 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12

NATS 20.7 21.0 18.3 17.6 19.6 19.8 19.8 19.8 (1.1) (1.2) 1.5 2.2

Table 11.10 NATS costs

PRM COSTS TO DATE

0

5

10

15

20

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

Total IT costs

IT costs

6

7

8

9

10

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Cleaning Costs

Cleaning (13/14)

0

2

4

6

8

10

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

PRM Costs

PRM (13/14)

12

14

16

18

20

22

24

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

NATS

NATS (13/14)

10

15

20

25

30

35

40

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m




26

28

30

32

34

36

38

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Utility Costs


15

20

25

30

35

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Rent & Rates


10

11

12

13

14

15

16

17

18

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Police Costs

Police (13/14)

110

115

120

125

130

135

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

Total Staff costs

Staff Costs (13/14)

6

7

8

9

10

11

12

2008/09 2009/10 2010/11 2011/12

£m

Cleaning Costs


0

1

2

3

4

5

6

7

2008/09 2009/10 2010/11 2011/12

£m

PRM Costs

PRM (13/14)

12

14

16

18

20

22

24

2008/09 2009/10 2010/11 2011/12

£m

NATS


10

15

20

25

30

35

40

2008/09 2009/10 2010/11 2011/12

£m



26

28

30

32

34

36

38

2008/09 2009/10 2010/11 2011/12

£m

Total Utility Costs


20

25

30

35

2008/09 2009/10 2010/11 2011/12

£m

Total Rent & Rates


10

11

12

13

14

15

16

17

18

2008/09 2009/10 2010/11 2011/12

£m

Total Police Costs


100

105

110

115

120

125

130

135

140

145

2008/09 2009/10 2010/11 2011/12

£m

Total Staff Costs


Figure 11.7 PRM costs to date

Q5 actual

Prm coStS £m at 2013/14 PriceS 2008/09 2009/10 2010/11 2011/12

PRM Costs 6.2 4.9 4.8 6.5

Table 11.11 PRM costs to date

The costs of delivering the PRM service consist of: (i) direct labour (i.e. PRM operatives and controllers, which varies monthly depending on demand); (ii) indirect labour (i.e. external resource management, which is a fixed monthly fee); and (iii) non-labour costs, which consist principally of equipment, accommodation, IT, radios, car park passes and fuel costs.

PRM costs (and income) were not included in the Q5 settlement, as PRM service provision was a relatively late change to the airport’s responsibilities and, as a cost-recovery activity, it did not have an impact on the resultant price-cap calculations.

This service was initially out-sourced to a third party provider, but given poor service levels, Gatwick chose to bring the management of the service in-house following the change of ownership, relying upon OCS to provide operational resource and equipment. Service levels have markedly improved. The cost of delivering this service has increased as the airport has sought to address the service issues and to cope with the significant increase in demand.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

11 Costs

119

CLEANING COSTS TO DATE

0

5

10

15

20

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

Total IT costs

IT costs

6

7

8

9

10

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Cleaning Costs

Cleaning (13/14)

0

2

4

6

8

10

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

PRM Costs

PRM (13/14)

12

14

16

18

20

22

24

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

NATS

NATS (13/14)

10

15

20

25

30

35

40

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m




26

28

30

32

34

36

38

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Utility Costs


15

20

25

30

35

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Rent & Rates


10

11

12

13

14

15

16

17

18

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

2018/19

£m

Total Police Costs

Police (13/14)

110

115

120

125

130

135

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

£m

Total Staff costs

Staff Costs (13/14)

6

7

8

9

10

11

12

2008/09 2009/10 2010/11 2011/12

£m

Cleaning Costs


0

1

2

3

4

5

6

7

2008/09 2009/10 2010/11 2011/12

£m

PRM Costs

PRM (13/14)

12

14

16

18

20

22

24

2008/09 2009/10 2010/11 2011/12

£m

NATS


10

15

20

25

30

35

40

2008/09 2009/10 2010/11 2011/12

£m



26

28

30

32

34

36

38

2008/09 2009/10 2010/11 2011/12

£m

Total Utility Costs


20

25

30

35

2008/09 2009/10 2010/11 2011/12

£m

Total Rent & Rates


10

11

12

13

14

15

16

17

18

2008/09 2009/10 2010/11 2011/12

£m

Total Police Costs


100

105

110

115

120

125

130

135

140

145

2008/09 2009/10 2010/11 2011/12

£m

Total Staff Costs


Figure 11.8 Cleaning costs to date

Gatwick outsources cleaning services across the airport. OCS is the current service provider, having replaced Mitie in February 2011. In the first three years of Q5, cleaning costs were held within the range £7m to £8m (outturn). However, there was an unacceptable deterioration in the cleaning levels, which was also reflected in failure to meet the minimum target in the South Terminal at the end of 2010. This was the primary driver in our decision to retender the cleaning contact. Gatwick accepted that more stringent service standards would mean that future cleaning costs would be higher than the 2010/11 cost. As planned, the change in supplier and restructuring of resource deployment has resulted in a significant improvement in SQR service levels. Since May 2011, the target has been exceeded in both terminals.


cleaning £m at 2013/14 PriceS 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12

Cleaning 9.5 8.9 7.5 8.1 10.0 10.3 10.6 11.1 0.5 1.3 3.1 3.0

Table 11.12 Cleaning costs

11.3 OpeRaTING COsT sTRaTeGY

Gatwick’s operating cost strategy takes its lead from our overall strategic objectives, with five areas of emphasis, as set out below. This strategy has been central to the service and operating cost improvements already achieved from the business since the acquisition of Gatwick in December 2009. It is also central to the future direction of the business in Q5 and beyond:

• building a strong environmental, health and safety culture, reflecting the fact that safety is of paramount importance in the aviation industry. We have adopted the PAS55 standard for asset stewardship and the maintenance cost and engineering staff cost projections and the proposed capital programme have been defined in accordance with this widely adopted standard.

• enhancing the passenger experience, by delivering a level of service quality that meets the needs of our varied passenger segments.

In Q5, Gatwick has addressed key operational and service issues that were causing the airport to fail its SQR targets, notably security but also seating and wayfinding. In some instances, this required us to incur additional operating costs and/or remove retail and catering footprint leading to a loss of revenue. We also invested in product innovation; dedicated family and assistance lanes, for example, have now been replicated at competitor airports.

Passenger demands for improved and expanded levels of service are expected to continue. To enable Gatwick to establish a significantly improved passenger service proposition and effectively to compete in the market, we will require increased deployment of both people and technology. Both our operating costs forecasts and the proposed capital plan make provision for this. We have also assumed targeted re-investment of some operating cost efficiencies to deliver enhanced passenger service.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

11 Costs


120

• supporting the growth of our airlines, by driving operational improvements at the airport that enable airlines to deliver productivity gains and/ or service improvements. This provides Gatwick with a stronger competitive position to grow existing business and also to win new airline customers.

In Q5, Gatwick has invested time and resources, in partnership with airlines and ground handlers, to improve check-in processing times and aircraft turn-around performance to deliver cost savings and improvements in asset utilisation for airlines. This has included work with Norwegian and British Airways on the introduction of new check-in facilities and processes and with Norwegian on turnaround times. Other airlines are now engaging with us on similar initiatives, recognising the value of such partnership. On-time performance at the airport has also improved significantly over the last 5 years from 58% in peak summer 2007 to 76% in peak summer 2012.

We expect to be able to continue to utilise such partnerships to further reduce not only airport costs, but also the costs of other service providers. Furthermore, provision has been made in the capital programme for enhancements in airfield operations (including through the deployment of technology) to improve capacity and/or resilience at the airport in peak hours.

• Maximising value, primarily by leveraging the existing workforce and assets of the business to deliver productivity improvements. We also target cost reductions, subject always to the need to maintain a safe operational environment and meet passenger service standards.

In Q5 to date, Gatwick has already achieved staff productivity savings through the introduction of improved working practices, implementation of flexible rosters for front-line staff and a new absence management programme. Reductions in future staff costs have also been secured through the closure of the defined benefit pension scheme. Capital investment (e.g. in security) will allow us to deliver additional staff-productivity, as reflected in our business plan projections.

Cost efficiencies in third party contract services will continue to be explored case-by-case on contract renewal recognising that value can also be obtained from better service provision. In Q5, the majority of contestable contracted services have been re-tendered e.g. PRM, cleaning and baggage maintenance.

• Developing the best people, Gatwick’s employees are central to the delivery of the airport’s ambition and strategic priorities. As a customer facing business, our people play a key role in differentiating the passenger experience at Gatwick and are a source of competitive advantage. Furthermore, as a business operating in a competitive market where service cost is also a key factor in airline decision making, our people need to have the right attitudes and skills to respond accordingly. For this reason, since the change of ownership, we have placed considerable emphasis on maximising the capability and efficiency of our staff, in terms of culture, skills and knowledge, structure and headcount, and processes and systems.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

11 Costs

121

Following the change in ownership, the immediate priority was to create a standalone business that was able to compete. External experts were engaged to advise on organisational design. As part of this, our new Executive Team was formed, bringing together experience from private and public sectors, with both commercial and service expertise backgrounds. There was also an imperative to separate the business functions from BAA, within a definite timeline, which initially required additional resource, particularly in IT and capital development.

After the initial post-sale period, Gatwick has been able to establish performance driven values to lead the organisation. At a strategic level, this has been through the development of our ambition, strategic priorities and values, through optimising the contribution brought to the business by our staff, in the following ways:

– We set out a clear ambition for the airport with underpinning strategic priorities to which all activity within the business is aligned;

– Through direct involvement, our people identified core values for Gatwick and the expectations of a Gatwick people leader. Such values expect every employee to: – Deliver great service every day; – Be better than the rest; and – Work together as one team.

– We developed a people strategy that was aligned to the business strategy and values, focusing on four key people goals of: – Outstanding Gatwick people leadership; – Creating a high performance culture; – Developing people for today and tomorrow;

and – Effective ways of working.

A number of specific actions have been taken to implement the people strategy and embed the ambition, strategic priorities and values into the business. These include:

• Setting the target of achieving Investors in People (IIP) accreditation by the end of 2012/13;

• 98% of customer facing staff have achieved an NVQ level 2 qualification in customer service;

• The ‘Rhythm of Gatwick’ programme brought our values to life in an innovative and inspiring way which involved not only GAL employees but other organisations across the Gatwick campus in defining how they contribute to customer service;

• Our “myPerformance” performance management process has been rolled out across the organisation so all employees have aligned objectives and are assessed twice a year on their objectives (what) and behaviours (how). This is the first time this has been achieved at Gatwick and is a significant step forward in creating a high performance culture and obtaining value from our employees;

• We have invested time, energy and resource into the development of the 350 People Leaders across our business and have achieved a step change in how our people feel they are led and managed;

• We review our talent for the future once a year, identifying our high potential employees at all levels, key development activities and successors to key roles; and

• We have simplified the number of grades in our management population and moved our key Duty Manager operational roles into the non-negotiated grades.

We believe that these strategies and actions are fundamental to making Gatwick a great place to work for employees, and in turn transforming the passenger experience at Gatwick to enable the airport to compete.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

11 Costs


122

11.4 beNChMaRkING

In the process of compiling our operating cost financial projections, we have benchmarked our cost base against competitor performance and industry standards (where relevant) in order to understand how we perform against the market. To assist us in doing this, we have taken a leading role in the recent ACI Europe annual KPI benchmarking study. Many of the KPI’s and the analysis included in this part of our plan come from this study22. We have supplemented this from publicly available information, such as statutory and regulatory accounts.

We continue to search out opportunities to benchmark our performance against the market using universally recognised metrics, such as the HAY Group annual salary survey. We have also participated in various one-off closed-group studies, looking at specific areas of interest. We will also welcome any insight that will be provided by the recent CAA sponsored consultancy studies, although at the time of writing, we have only had output from the mid-quinquennium review of Stansted undertaken by Steer Davies Gleave.23

22 This data is confidential23 Review of operating expenditure and investment consultation, Steer Davies Gleave on behalf of the CAA, 2012

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

11 Costs

123

Based on Gatwick’s own analysis of UK airports, Gatwick’s total cost per passenger has fallen consistently since 2008/9 in real terms, as the figure below shows24.

Based on this data set, Gatwick’s costs on a per passenger basis are now lower than three out of the four airports of comparable size; only Stansted has a lower cost base. This positioning is due to an efficient operation which allows us to handle over 34m passengers with only one runway and two terminals. It has also been aided by our continual search for cost efficiencies which is evident over the last 4 years with total cost per passenger reducing by 15% in real terms over the last 4 years, despite passenger numbers rising by 2%.

£0.00

£2.00

£4.00

£6.00

£8.00

£10.00

£12.00

£14.00

£16.00

£18.00

LHR MAN LGW LTN STN

UK AirportsTOTAL COST £/ pax

@ 2013/14 prices

2008/09 2009/10 2010/11 2011/12 * Calendar year

*

Figure 11.10 UK airports: Total cost per passenger 2008/9 – 2010/11 at 2013/14 prices Source: regulated accounts for Heathrow (LHR), Gatwick (LGW) and Stansted (STN). Statutory accounts for Manchester airport (MAN) and Luton airport (LTN)

24 The cost of Heathrow’s rail operation has been removed from this analysis, for comparative reasons

Where we have the data to benchmark individual areas of cost, we have included this analysis in the appropriate sections below.

11.5 FOReCasT OpeRaTING COsTs FOR The peRIOD beYOND q5

11.6 OpeRaTING eXpeNDITURe FOReCasTs TO 2023/24

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

11 Costs

124

125CHAPTER 12ReGulAtoRy AssuMptions And RAB-BAsed pRice

12.1 INTRODUCTION

We believe that there is a better future for our passengers, our airline customers and the airport without the burden and distortions of economic regulation. For this reason, we have developed a Contracts and Commitments Framework, as discussed in chapter 4 of this business plan. We believe that these Commitments, and related bilateral contracts, form the best potential opportunity to develop the businesses of the airport and airlines, as well as promoting competition between airports that will enhance the overall passenger experience. However, we understand that the CAA still wishes to analyse the business plan through its building blocks price control model, to form a conventional and counterfactual RAB based price.

The CAA’s building block model sums projections of operating cost, regulatory depreciation of the RAB (as adjusted by capital expenditure) and a regulatory return on the RAB, and subtracts commercial and other revenue to form an allowance, which is recovered from regulated aeronautical charges. Earlier chapters of this business plan describe capital expenditure, operating costs and revenues. This chapter provides a summation of the building blocks, together with other regulatory assumptions, such as projections of regulatory depreciation and the cost of capital, which are needed to develop the RAB based price, for both the five year period beyond Q5 and the subsequent five year period. Beyond the core business plan, we also list significant risks and issues against the baseline, together with overlay items that are not included in the core plan, but may need to be considered.

Each of the projections given in this chapter are based on the current view that easyJet will remain split between North and South terminals. A RAB based price calculation for the scenario in which easyJet is consolidated into the South terminal is provided in Appendix 12.

The CAA has asked for building block model details to be provided in 2011/12 prices. These are provided in Appendix 10.

12.2 ReGUlaTORY DepReCIaTION

Regulatory depreciation allows Gatwick to recover costs spent on its regulatory capital programme. Once assets are built, the related expenditure is added to the RAB. This RAB is depreciated over the varying assets lives contained in the RAB. This depreciation charge is added to the building blocks and recovered through regulated charges.

Hence, forecast regulatory depreciation includes:

• Depreciation resulting from the assets already included in the RAB plus those that are due to be built as part of the Q5 programme; and

• Depreciation resulting from the forecast capital programme beyond Q5.

Since April 2012, we have reviewed more up to date information on the assets to be developed in the remaining part of Q5 (including Q5+1). This has allowed us to analyse the projection, together with revised depreciation attributable to capital spend during the years beyond Q5. This is reflected in a potential increase to the projected regulatory depreciation over the five years beyond Q5, as shown in the table below:

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

12 Regulation

CHAPTER 12REGULATORY ASSUMPTIONS AND RAB-BASED PRICE

126

While the standard regulatory model allows for a revision to regulatory depreciation forecasts, we are not currently proposing to include this increase in charges to flow into the core business plan and RAB based price. This is because we are at a point where forecast traffic reduction is already creating upward pressure on the RAB-based price. Hence, we are proposing that recovery of this element of depreciation is deferred into the following regulatory period, should regulation continue.

Accordingly, we have not updated our regulatory depreciation in the calculations of the RAB based price. The effect of this decision will be to reduce the RAB based price from what it would otherwise have been and to delay the recovery of the RAB.

12.3 Rab FOReCasT

Following the CAA’s Q5 decision, the RAB is increased for capital expenditure and inflation, while expected regulatory depreciation charges reduce its value. Given the actual capital expenditure, the projection of regulatory depreciation and the expected capital programme described in chapter 7, the table below shows the revised RAB forecast for Q5 and the five years beyond Q5:

12.4 COsT OF CapITal UseD IN ReVIseD bUsINess plaN

The cost of capital recovers interest costs, tax and a reasonable return to shareholders. It is used in the building blocks model to calculate the regulatory return, when multiplied by the forecast RAB value, as well as being the discount rate for NPV calculations.

Following discussion with the CAA, we have undertaken calculations on the Q5 cost of capital rate of 6.5% (pre-tax, real), in forming the RAB based price.

We have engaged Oxera as expert consultants, to advise on the appropriate cost of capital rate for the five years beyond Q5. Oxera’s full analysis is included in Appendix 8 and 9. Oxera’s advice has highlighted the increase in business risk for Gatwick compared with the position at the start of Q5, following such events as the break up of BAA and the introduction of competition between airports in the South East. Combined with the efficient embedded cost of debt secured by, and on, Gatwick since separation, this increase in risk has resulted in Oxera advising that there should be an increase in the cost of capital for the five years beyond Q5 to a range of between 6.8% to 7.1% (pre-tax, real), with a point estimate of 7.1% (pre-tax, real). Given that this represents an increase over the Q5 cost of capital of 6.5% pre-tax, real, we look forward to detailed discussions with the CAA on the appropriate cost of capital given that Gatwick is now a stand-alone business, competing directly with the other airports, which is a substantially different context from that experienced at the start of Q5.

rab forecaSt Q5 lateSt forecaSt beyond Q5 to 2018/19

£m 2008/09 actual

2009/10 actual

2010/11 actual

2011/12 actual

2012/13 forecaSt

2013/14 forecaSt

2014/15 forecaSt

2015/16 forecaSt

2016/17 forecaSt

2017/18 forecaSt

2018/19 forecaSt

at out-turn PriceS at 2013/14 PriceS

Opening RAB (incl opening adjustment) 1,559.7 1,580.8 1,753.6 1,993.2

Capital Additions 104.0 181.4 211.4 239.3

Enterprise Car parks 0.0 0.0 20.8 0.0

Proceeds from Disposal (0.1) 0.0 (0.4) (1.8)

Regulatory Depreciation (76.5) (81.3) (89.8) (98.1)

Revaluation (6.3) 72.6 97.5 73.2

basic Closing Rab 1,580.8 1,753.6 1,993.2 2,205.8

Annual Profiling Adjustment (5.3) (3.5) 1.4 2.8

Closing Profiling Adjustment (5.3) (8.9) (7.5) (4.7)

Closing Rab 1,575.5 1,744.8 1,985.7 2,201.1

Weighted average Rab 1,660.1 1,865.2 2,093.4

Table 12.2 Revised RAB forecast

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

12 Regulation

127

12.5 a p0 aDjUsTMeNT

Before we turn to the outcome of the building block calculation, we are proposing a profiling adjustment at the end of Q5. A P0 adjustment is a standard regulatory tool used to moderate a price profile by adjusting prices upwards (or downwards) at the start of a regulatory period. The CAA made a P0 adjustment of an increase of 21% at the start of Q5 for Gatwick, reflecting a step change in, and reclassification of, a number of costs.

For the period beyond Q5, we are proposing a P0 adjustment to correct for the under-forecasting of traffic in Q5. Simply put, if the CAA had used the lower traffic figures that have occurred in Q5, the CAA – using the standard RAB building block approach – would have set higher prices than the RPI+2 set for Q5 (which is itself after the 21% P0 adjustment). This would have resulted in higher prices at the end of Q5. The P0 position is intended to set a starting point commensurate with the traffic that actually passed through the airport.

We note that this adjustment does not seek to recompense Gatwick for the lost revenue in Q5, since the airport carried the traffic risk in this period. A P0 adjustment merely profiles the future revenue recovery in a manner reflective of the airport’s underlying cost and revenue reality, in addition leading to a more appropriate profile in the second five years of the 10 year forecast, which we cover later. The P0 adjustment that results from correcting for the CAA’s over-optimistic forecasts is a day one 10.7% (rounded to 11% elsewhere in this submission) increase in prices, on top of the resultant X.

12.6 bUIlDING blOCks Rab baseD pRICe

The revised business plan RAB based price is based on the CAA’s building blocks model, which calculates an annual aeronautical revenue allowance, which incorporates:

• Operating costs, as described in chapter 11;• Lower regulatory depreciation projection from the

Initial Business Plan, as described above;• Regulatory return, calculated as the RAB forecast

multiplied by the 6.5% Q5 cost of capital (pre-tax, real);

• Capital expenditure, as described in 7;• Less commercial and other revenues, as described

in chapter 10; and• A P0 adjustment of 11%.

The resulting profile is shown below. The 11% P0 adjustment is followed by an X of 3.3 (which is also applied in the first year on top of the P0 adjustment). This results in prices increasing from £8.80 per passenger in 2013/14 to £11.45 per passenger in 2018/19, after prices have been profiled into a smooth trajectory.

The CAA has also asked that we calculate a price without a P0 adjustment. This is shown in the table below and shows an X of 6.9. This results in prices increasing from £8.80 per passenger in 2013/14 to £12.25 per passenger in 2018/19.

Table 12.3 Illustrative RAB based price path (profiled with a P0 adjustment, 2013/14 prices)

beYOND q5 TO 2018/19

£m aT 13/14 pRICes2013/14

FOReCasT2014/15

FOReCasT2015/16

FOReCasT2016/17

FOReCasT2017/18

FOReCasT2018/19

FOReCasT

Regulatory price Cap (£/passenger) (pre-profiling)

8.80 10.15 10.73 10.99 11.03 10.70

Price Path x=3.3%

Regulatory price Cap (£/passenger) (post-profiling and P0 adjustment)

8.80 10.06 10.39 10.73 11.08 11.45

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

12 Regulation


128

12.7 5 YeaR peRIOD: 2019/20 TO 2023/24

The CAA has asked for a building block projection for the 5 year period, 2019/20 to 2023/24, to indicate a RAB based price for this period. The table below shows a high level projection of each of the building blocks at the same Q5 cost of capital rate of 6.5% (pre-tax, real), with a broad capital programme projection of £1.1bn across the 5 year period.

Given the difficulty in forecasting 6 to 11 years into the future, these projections are based on rolling forward known positions, rather than on bottom-up and detailed assessments of expected performance during the period. For this reason, these projections are provided without prejudice to any forecasts made closer to the period.

The key elements of this 5 year projection are as follows:

• Traffic;• Capital expenditure (not including second runway

costs);• Operating expenditure and non aeronautical

income derived by rolling forward the forecasts for the period beyond Q5; and

• Regulatory depreciation.

Regulatory depreciation for the 2019/20 to 2023/24 period has been projected based on the updated analysis, plus the recovery of depreciation not recovered during the 5 years beyond Q5.

Table 12.4 Illustrative RAB based price path (profiled without P0 adjustment, 2013/14 prices)

BeyoNd Q5 to 2018/19

£m At 13/14 PriCes2013/14

ForeCAst2014/15

ForeCAst2015/16

ForeCAst2016/17

ForeCAst2017/18

ForeCAst2018/19

ForeCAst


8.80 10.15 10.73 10.99 11.03 10.70

Price Path x=6.9%


8.80 9.40 10.04 10.73 11.47 12.25

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

12 Regulation

129

The table below shows the corresponding RAB forecast for the period 2019/20 to 2023/24.

The projection between 2019/20 and 2023/24 results in a broadly flat regulatory price cap, where the P0 increase is applied in 2014/15.

Table 12.5 Revised RAB forecast

Table 12.6 Illustrative RAB based price path (2013/14 prices)

further 5 year Period

£m At 13/14 PriCes2019/20

ForeCAst2020/21

ForeCAst2021/22

ForeCAst2022/23

ForeCAst2023/24

ForeCAst


11.39 11.35 11.49 11.54 11.49

Price Path x=0.0%


11.45 11.45 11.45 11.45 11.46

rab forecaSt beyond Q5 to 2018/19 further 5 year Period

£m 2014/15 forecaSt

2015/16 forecaSt

2016/17 forecaSt

2017/18 forecaSt

2018/19 forecaSt

2019/20 forecaSt

2020/21 forecaSt

2021/22 forecaSt

2022/23 forecaSt

2023/24 forecaSt

at 13/14 PriceS at 13/14 PriceS

The table below shows the building block composition for the period 2019/20 to 2023/24.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

12 Regulation


130

12.8 COMMITMeNTs VeRsUs Rab baseD pRICING

We believe that the Commitments represent the best way forward for our passengers, our airlines and the airport. Further, we believe that the proposed pricing reveals a better path, when the Commitments price for 7 years is compared with the RAB based prices that result from the building blocks model for the 5 years starting April 2014, as shown in the figure below.

We note that the opportunities for developing contracts once the Commitments have been accepted are significant and could represent a yet lower price for contracting airlines.

12.9 RIsks aND IssUes

Any business plan contains risks that could affect the projected returns; this is especially the case given the long term nature of the business plan for an airport. In our Initial Business Plan, we highlighted the risks that we saw facing our business in the forthcoming years and subsequently discussed these with our airlines during Constructive Engagement to obtain their insight as to how these should be reflected in our plans. Our conclusions are contained below:

• Traffic forecasting risk: we propose to retain traffic risk, without a traffic risk sharing mechanism;

• Asymmetric risk exposure: we propose that this is reflected in the cost of capital calculation;

• Increasing competition: we propose that risks flowing from increasing competition on Gatwick’s projections are reflected in the cost of capital calculation;

• Proposed level of charges and their impact on demand: we are content that the proposed level of charges will not impact demand;

• Environmental concerns: we have included investment to address our Decade of Change targets; and

• Security costs: we propose that the +S factor is retained.

12.0

11.5

11.0

10.5

10.0

9.5

9.0

8.5

8.0

X=1.3

X=3.3

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21

P0+11% increase

£8.80 Q5 end price


Ave

rage

Aer

onau

tical

Yie

ld (£

per

pas

seng

er)



5 years beyond Q5

Figure 12.1 Price path under Commitments and RAB-based price control.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

12 Regulation

131

12.10 OVeRlaYs ON CORe plaN

The RAB based price given above is based on the Revised Business Plan. However, we note a number of items which sit outwith the core plan yet need to be considered by the CAA in forming its initial proposals. None of these items is included within the RAB based price, but should be discussed, and could have an effect on a final price decision:

1) Second runway: Currently, Gatwick is analysing the feasibility of a second runway for the airport. The cost of this feasibility study is incorporated into the projected operating cost (c.£10m) and hence, into the RAB based price. However, should the Government decide to support a Gatwick new runway option, following the work of the Airports Commission, and Gatwick decided to proceed to a planning application, then the initial development costs could run to a significant amount in the five years beyond Q5. Given the uncertainty surrounding this decision at this stage, we have not included a forecast of these costs in this business plan. If a price control is imposed beyond Q5, then we would expect the CAA to re-open any price control settlement to account for such costs.

2) Tighter service quality requirements: Chapter 8 describes our proposals for an SQR regime in the five years beyond Q5. These do not seek to make the service requirement tighter or more difficult to achieve. However, if the CAA proposes to make the regime tighter then we will need to incur additional operating costs to achieve improvements.

3) Cost of capital: As mentioned above, the RAB based price is based on the continued Q5 cost of capital rate of 6.5% (pre-tax, real). As described in Appendix 9, Oxera has advised that the appropriate rate for the five years beyond Q5 should be 7.1% (pre-tax, real). This rate should be reflected in the CAA’s initial proposals. We note that no cost of capital for the second 5 year period has been estimated at this stage.

4) Pension commutation payment: Following the sale of the airport, Gatwick Airport Ltd made a one-off pension contribution of £104.7m to settle certain pension liabilities. This was recognised as an exceptional cost in Gatwick’s accounts. This has reduced the pension contributions that otherwise would have been payable by Gatwick beyond that point and as a result, in the absence of an appropriate adjustment, overall charges to airlines are lower than they otherwise would have been.

In Q5, the CAA made a RAB reduction to effect its interpretation of a Q3 pensions holiday. If this pension contribution was treated in an analogous fashion, we believe this would mean an increase to the RAB (in a regulated RAB-based regime) with a resulting impact on charges. We request the CAA include the pension commutation payment in the Gatwick RAB in its initial proposals;

5) Single European Sky RP2 costs: The Revised Business Plan does not include any costs needed to fulfil the requirements of the Single European Sky RP2 settlement on Gatwick. This could require additional operating or capital costs on Gatwick or NATS Services, our current air traffic control provider at the airport, depending on European decisions and the CAA’s implementation of required improvements. Such implications will not become apparent until 2013 and should be allowed for in the CAA’s final proposals;

6) Potential changes to the scope of the till: We believe that the Commitments Framework represents the most appropriate future for the airport and its airline customers. However, should the CAA decide to continue to regulate Gatwick using its traditional model, then we will wish to proposed appropriate changes to the scope of the single till. At this stage, we have not progressed this work but would seek, if appropriate, to bring proposals to the CAA ahead of final proposals in 2013. Any adjustment to the boundary of the till will also depend on the nature of any market power analysis provided by the CAA in April 2013.

7) Changes to specified pricing: Similarly, we have not progressed changes to the structure of specified pricing. However, we may seek to do this in consultation with all airport partners during 2013.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

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12 Regulation

133CHAPTER 13wAy FoRwARd

13.1 INTRODUCTION

This business plan sets out our plans for the airport to 2020, with initial indications for the period to 2024. This business plan is an evolution of the Initial Business Plan published in April 2012, having been informed by input from Constructive Engagement and updated forecasts.

In this business plan, we have set out our strategy for the airport, explaining how competition, rather than regulation, is the best way to secure the interests of passengers. We have forecast what traffic we expect to get at the airport over the period, defined our service proposition and resultant emerging capital programme and proposed a future service quality scheme. We then provide a forecast of commercial and other non-aeronautical revenue and operating costs. We propose that this business plan is delivered by way of Commitments on price and service quality to all of our airlines, which we expect to be supplemented by bilateral contracts with some of our airlines. To co-operate with the CAA’s process, we then illustrate a regulatory price path, (based on RAB-based “building block” approach), for two 5 year periods beyond Q5. We have also indicated what risks and overlays we perceive exist in the plans, and what issues we believe need to be addressed as part of this review.

13.2 NeXT sTeps

We believe that 2013 will be a key year in charting the future of the airport. Some key events are expected in the next few months:

1) Developing support for Commitments and Contracts: We believe that the Airport Commitments and Contracts represent the best way forward for passengers and airlines at Gatwick. Commitments provide us with the foundation to develop Contracts, which create the opportunity to seek value growth through win-win solutions. We will be continuing our discussions with airline partners at a senior level, to further develop support for the proposals.

2) Caa’s ‘minded to’ decision on Gatwick’s market power: Gatwick continues to take a different view to the CAA on the level of competition present in the market. In particular, Gatwick is strongly of the view that the CAA did not establish that Gatwick is dominant in London and the South East, in its February 2012 Initial Views document on market power. Furthermore, before coming to any conclusion on the appropriate form of regulation, the CAA would have first to articulate clearly – and evidence – its theory of harm and the risks of potential abuse that could arise from any dominance finding.

Following the CAA’s ‘minded to’ decision that Stansted has sufficient market power to warrant continued regulation, the CAA is due to publish its decision on Gatwick in April 2013. This will be the first new analysis on Gatwick’s market power published by the CAA since February 2012. In the period approaching this new publication, we will continue to make the case for competition and against continued regulation.

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CHAPTER 13WAY FORWARD

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3) second runway: We will be engaging with the Airports Commission and its study of future capacity needs in the South East. We continue to believe that a second runway at Gatwick represents the best long term future for the airport community and look forward to developing plans and making recommendations to the Commission;

4) Capital plan discussions with airline partners: Following the Constructive Engagement process in 2012, we have committed to continuing to develop our capital plans for the years beyond Q5 in discussion with our airline partners. This conversation will continue through the early part of the year and will input into a revised capital plan in July 2013, as requested by the CAA;

5) easyjet consolidation in south Terminal: This business plan still assumes easyJet remains split between North and South terminals. Other airlines at Gatwick have concerns about the increase in capital expenditure that may be required to facilitate this move, as well as about some operational impacts. Nevertheless, Gatwick remains keen to facilitate such a move if these issues can be resolved, as locating all easyJet’s passengers in one terminal would seem to be a significantly better offering for their passengers. Work will continue, including further consultation with the airline community;

6) Further revisions to the business plan: Following discussions with the CAA, it is possible that there could be further revisions to this business plan in July 2013, taking into account further discussions with airlines and more up to date information; and

7) Caa’s regulatory review: We commit to working with the CAA to evidence the efficiency and appropriateness of this business plan.

We hope you find our vision for the future of Gatwick compelling, and look forward to your views on the future for this airport.

If you have any queries on this document, please contact Kyran Hanks, Strategy and De-Regulation Director, at [email protected].

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aRea pROpOsal

parties Gatwick Airport Limited and all airlines operating at Gatwick Airport.

Regulatory background

The CAA has completed the three elements of the “Market Power Test” in accordance with the Civil Aviation Act 2012 (the Act) and has concluded that the Market Power Test is not met in relation to Gatwick Airport Limited as operator of Gatwick Airport.

Gatwick Airport Limited does not have, nor is likely to obtain, significant market power, and it operates in a competitive market where market forces will constrain its bargaining power. However, Gatwick Airport Limited has decided that it would be commercially expedient for it to put in place the Airport Commitments for the benefit of all airlines operating at Gatwick Airport.

Gatwick Airport Limited acknowledges:

• that the CAA in arriving at its decision that the market power test is not met, has inter alia taken into account the Airport Commitments that Gatwick Airport Limited intends to put in place for the benefit of all airlines operating at Gatwick Airport; and

• therefore should Gatwick Airport Limited fail to comply with the Airport Commitments interested parties may argue this constitutes a material change of circumstances for the purposes of Section 7(5) of the Act entitling interested parties to require the CAA to make a fresh market power test determination and that the CAA may, in any event, consider such circumstances provide grounds for it to undertake a fresh determination under Section 7(1) of the Act.

Gatwick Airport Limited remains subject to the provisions of Airport Charges Regulations 2011 (the ACR) and general competition law. The CAA will have concurrent powers under competition law through the framework of the Act.

Conditions of Use Gatwick Airport Limited undertakes to incorporate the Airport Commitments into Gatwick Airport Limited’s Conditions of Use, for the benefit of all airlines who may operate at Gatwick Airport during the period covered by the Airport Commitments.

Initial term of airport Commitments

7 years to 31 March 2021

extension of airport Commitments

It is envisaged that, over time, the number of airlines operating under bilateral contracts rather than under the Conditions of Use will increase, such that the majority of passenger traffic is under contract.

The scope of any future airport commitments will be a matter for commercial consideration by Gatwick Airport Limited and its airline customers prior to the end of the initial term of the Airport Commitments.

Gatwick Airport Limited will notify the CAA and the airlines operating at Gatwick at least 2 years prior to the end of the initial term of the Airport Commitments of its intention with regards to the modification, extension, termination, or otherwise of the Airport Commitments.

APPENdix 1dRAFt AiRpoRt coMMitMents

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Appendix 1draft airport commitments

138

bilateral airline-airport contracts

Airlines operating at Gatwick Airport will operate under the terms of either:

• the airport’s Conditions of Use which will incorporate a published airport tariff and set out airport wide service standards consistent with the Airport Commitments; or

• bilateral contracts setting out the commercial arrangements between the airport and airline, including price and service standards. Such bilateral contracts may contain additional service penalty/bonus mechanisms and may include prices that are at a discount or premium to the published airport tariff.

The charges for services rendered under the Conditions of Use and bilateral contracts will need to be consistent with the requirements of the ACR and the relevant provisions of competition law, but no prior regulatory approval of the detail of these contracts is required.

pricing principles Gatwick Airport Limited will provide users, from time to time, with a summary of the pricing principles it has adopted in setting the airport tariff and entering into bilateral contracts. At this time, Gatwick Airport Limited believes the following are relevant:

• In general, prices should be set: – to generate expected revenue for a service that is at least sufficient to meet the

costs of providing the service; – to include a return on investment in assets, commensurate with risks involved; and – to provide incentives to reduce costs or improve productivity.

• There will be price differentiation between different users of the infrastructure, based on commercially objective rationales, including, but not limited to: – responding to competition for airlines and passengers; – efficiently managing demand and promoting efficient investment in and use of

airport infrastructure, in particular the airfield through greater intensity of use of peak-period slots, extending slot season-lengths, and increasing off-peak operations;

– reducing the risk of a reduction in, or securing a commitment to, existing traffic volumes;

– incentivising, or securing a commitment to, traffic volume growth; – recognising differential contributions to ancillary commercial activities

and revenues; – encouraging or securing an increase in ancillary commercial activities

and revenues; – incentivising or securing cost reductions; and – promoting diversification of routes/destinations and market segments.

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Contractual remedies and independent adjudication

Normal contractual remedies will be available to airlines operating under the Conditions of Use, within which the Airport Commitments have been incorporated.

The right of redress would be to the courts but with an adjudication provision (of the type imposed by section 108 of the Housing Grants Construction and Regeneration Act 1996) built in to encourage speedy resolution of disputes by providing for non-binding adjudication by independent experts drawn from an agreed panel.

Airlines will continue to have separate rights of redress under the Airport Charges Regulations 2011 where the airport operator has failed to set airport charges in accordance with the Regulations. In addition the CAA will continue to have rights to investigate and make compliance orders in relation to the airport operator’s failure to comply with the Regulations.

Changes of law and regulation, and force majeure

To be defined, both in relation to price commitment and service commitment.

price commitment

published airport tariff

The published airport tariff will include the following elements:

(1) Core service Charges for commercial passenger flights receiving the Core Service Standard. This will include:

• landing fees• passenger fees• parking fees

The Core Airport Charges may include general discount and incentive structures available to all airlines operating under the Conditions of Use.

(2) premium service Charges for commercial passenger flights receiving Premium Service Products.

(3) Other airport Charges for cargo, general aviation and other non-passenger flights including related landing and parking fees.

(4) ancillary Charges for other services provided by the airport including for:

• PRM services• currently Specified Activities, namely:

– Check-in & Baggage Charges – Staff ID and airside licences – FEGP – Staff car parks – Facilities for bus & coach operators – Maintenance, Heating and Utilities (gas, water, electricity) – Cable Routing – Airside Parking – Hydrant Refuelling

Public interest conditions in relation to specified activities to be removed. Check-in & Baggage Charges and other charges for groundhandling activities remain subject to the provisions of the Groundhandling Regulations.

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scope of price commitment

Core service Charges in the published airport tariff will be set at a level such that the indicative price path condition is met (see below).

Indicative price path condition

Gatwick airport limited intends for Aggregate Core Service Revenue per Passenger (the “Core Service Yield”) to be set in line with an Indicative Yield profile (set out below). The actual yield may deviate from this indicative yield in any given year. Gatwick Airport Limited undertakes that, taking the period of the airport commitments as a whole, there will be no aggregate “over-recovery” in airport charges relative to the Indicative Yield profile.

The Indicative Yield profile in a relevant year t (Yt ) is defined as:

Yt = Ut + St + Rt

This is an indicative profile since, in any given year, the actual yield may be less than, or greater than, the Indicative Yield. Such phasing differences may be due to unanticipated circumstances (e.g. changes in actual vs. expected mix of traffic) or deliberate business decisions (e.g. to alter charges below/above that implied in the Indicative Yield profile taking into account factors such as: prior year under- or over-recoveries, economic conditions, competitive threats, growth opportunities, etc).

The amount by which the actual yield differs from the Indicative Yield in a relevant year t will generate a revenue difference which, over time, will give rise at the end of a relevant year t to a Cumulative Revenue Difference (CRDt), defined as

CRDt = (Tt – Qt ∙ Yt )+CRDt–1 (1+It–1)

Gatwick Airport Limited undertakes that at the end of the initial term of the Airport Commitments (i.e. 31 March 2021) the Cumulative Revenue Difference will be less than or equal to zero i.e.:

CRD2020/21 ≤ 0

adjustments to indicative price path upon airline approval

Amendments to the indicative price path may be made:

• following consultation by Gatwick Airport Limited with the Gatwick ACC; • if approved by Gatwick Airport Limited; and• if approved by airlines paying charges under the published tariff that together

account for at least 51% of the passengers travelling through the airport on airlines paying charges under the published tariff.

annual consultation on charges

Consultation on charges in the published airport tariff of the Conditions of Use, together with associated service standards and investment, will be undertaken annually in accordance with the Airport Charges Regulations 2011.

Definitions for the price Commitment

Set out below.

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aggregate Core service Revenue

Aggregate Core Service Revenue is the sum of:

(i) revenue arising from Core Service Charges for relevant commercial passenger services operated under the terms of the published airport tariff set out in the Conditions of Use; and

(ii) revenue arising from charges equivalent to the Core Service Charge for relevant commercial passenger services operated under the terms of bilateral contracts, as if such services had been offered under the published airport tariff.

For the avoidance of doubt, Aggregate Core Service Revenue does not include: revenue from Premium Service Charges, Other Airport Charges and Ancillary Charges arising under the terms of the published airport tariff; nor revenue arising from equivalent charges under the terms of bilateral contracts.

passengers For the purpose of the calculation of the Core Service Yield, “Passengers” includes all passengers, whether carried by an airline under the terms of the published airport tariff or a bilateral contract.

t The annotation “t” denotes the relevant year t, being a period of twelve months starting on 1 April and ending on 31 March in the following year, the annotation “t–1” denotes relevant year “t–1” immediately preceding relevant year “t”, and so forth. By way of example, the annotation “2014/15” denotes the year commencing 1 April 2014 and ending on 31 March 2015.

Ut Ut is the underlying yield in relevant year t, defined as:

Ut = Ut-1 (1+RPIt-1+Xt )

and,

U2013/14 = £8.777

RpIt-1 RPIt–1 means the percentage change in the Retail Price Index between that published with respect to August in relevant year t–1 and that published with respect to August in relevant year t–2.

Xt Xt is the percentage set out in the table below for each relevant year t:

Relevant year t Xt

2014/15 [•%]+[•%]2015/16 [•%]2016/17 [•%]2017/18 [•%]2018/19 [•%]2019/20 [•%]2020/21 [•%]

X2014/15 is higher than subsequent years reflecting the application of a first year (“P0”) adjustment to the yield.

st Stisthepermittedsecuritycostperpassengerinrelevantyeart,ifany.[Tobedefined.]

Rt Rt is the permitted second runway cost per passenger in relevant year t, if any. [Tobedefined.]

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Tt Tt is the Aggregate Core Service Revenue in relevant year t.

qt Qt is the total number of passengers using Gatwick airport in relevant year t. This includes all passengers, whether carried by an airline under the terms of the published airport tariff or a bilateral contract.

It-1 It–1 is the annual percentage interest rate equal to the sum of (i) the average of the UK Treasury Bill Discount Rate (expressed as an annual percentage interest rate) published weekly by the Bank of England, during the 12 months from the beginning of September in relevant year t–1 to the end of August in relevant year t; and (ii) if CRDt–1 has a positive value, 3%, otherwise, 0%.

service commitment

airport-wide standards to be monitored and subject to penalties/bonuses

The Core Service Standards are as set out in Table A (appended), together with Service Bonus Standards.

These are broadly based on the existing Q5 SQR scheme with some modifications as to:

• the inclusion of an outbound baggage availability target;• the inclusion of an airfield availability metric (which includes snow event readiness)

in place of the existing aerodrome congestion term;• symmetry in the airport’s exposure to rebates and bonuses such that:

– the maximum annual rebate amount is 7% of airport charge revenue; and – the maximum annual bonus amount is 7% of airport charge revenue.

• a single maximum potential rebate percentage for each service standard, equally applicable to a month or year. In Q5 a monthly maximum and a separate annual maximum is specified;

• Bonuses: – in the first instance, reduce the liability (if any) of Gatwick Airport Limited under

the Core Service Rebates; – thereafter, result in adjustments in airport charges in subsequent years (as in Q5).

• failure of an airline to meet certain Airline Service Standards will reduce the amount payable by Gatwick Airport Limited in any month to such airline under the Core Service Rebates.

adjustments to service standards upon airline approval

Amendments to the service standards may be made:

• following consultation by Gatwick Airport Limited with the Gatwick AOC & ACC;• if approved by Gatwick Airport Limited; and• if approved by airlines paying charges under the published tariff that together

account for at least 51% of the passengers travelling through the airport on airlines paying charges under the published tariff.

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airline service standards to be monitored and published, and subject to penalities and bonuses

Gatwick Airport Limited will monitor and publish the performance of individual airlines in relation to certain airport-wide activities. These include:

• Check-in queue performance;• Arrival bag performance; and• PRM service and pre-notification.

Gatwick Airport Limited may amend the airline service standards that it is monitoring and publishing from time-to-time, following consultation with the Gatwick AOC & ACC.

The first two of these standards are designated as Airline Service Standards for the purposes of determining the Core Service Rebate for individual airlines. These standards are set out in Table B (attached). The third standard (in relation to PRM) is already a factor that determines the PRM charges payable by individual airlines.

airport-wide standards to be monitored but not subject to penalties/bonuses

• Airlines and airports: On-time performance (departures and arrivals); • UKBF: Immigration performance; and• Airport: ASQ.

publication of standards

Gatwick Airport Limited to publish monthly report on achievement of Airport-wide standards and the Airline Standards.

payment of Core service Rebate

The Core Service Rebate is the amount payable by Gatwick Airport Limited for a failure by it to meet the Core Service Standards.

The Core Service Rebate will be paid quarterly, within 1 month of the end of each quarter (end June, September, December, March) to those airlines operating exclusively under the terms of the published airport tariff during the relevant period. An airline operating under the terms of a bilateral contract will not be entitled to the Core Service Rebate, unless otherwise provided for in such an agreement.

The rebates will be calculated by terminal by month, and then allocated to the relevant airlines that used the terminal pro-rata with the Core Service Charges payable by each airline in relation to that month. Service Bonuses earned by Gatwick Airport Limited will offset Core Service Rebates in a given month or, if not utilised, be carried forward for use in subsequent months or to adjust airport charges in a subsequent year.

An airline that has not met the applicable Airline Standards (as set out in Table B) will have its entitlement to Core Service Rebates reduced. Further, Gatwick Airport Limited shall be under no obligation to pay the rebate to an airline if there are unpaid amounts outstanding from such an airline to Gatwick Airport Limited. If the entitlement of an individual airline to Service Rebates is so reduced, there will be no change in the entitlement of other airlines to the Core Service Rebate.

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Core service Rebate The amount (“Core Service Rebate”) payable by Gatwick Airport Limited to an airline “a” in month “j” for a failure to meet the Core Service Standard Levels will be calculated as:

Core Service Rebatea,j

= ∑ Net Rebate Percentagea,t,j ∙ Core Service Chargea,t,j

terminals t

Where:

Net Rebate Percentagea,t,j = Service Rebate Percentaget,j – Service Bonus Percentaget,j – Airline Standard Reduction Percentagea,t,j

Core Service Chargea,j,t = Core Service Charges payable by each airline “a”, in respect of terminal “t”, in relevant month “j”.

service Rebate percentage

Rebates and bonuses shall be calculated separately for each terminal based on the performance against the standards for that terminal; with the exception of airfield availability, which will be calculated at an airfield level and the same percentage applied to both terminals. As noted in Table A, the inter-terminal transit availability standards and potential rebate percentages relate only to the North Terminal.

For each terminal t, the Service Rebate Percentage for the month j shall be calculated as:

Service Rebate Percentaget,j

= ∑ pi,t ∙ xi,t,j standard i

Where: pi,t = the maximum potential service rebate percentage per month for standard “i”,

for terminal “t”, as set out in Table A.

xi,t,j = 0 if the standard “i”, for terminal “t”, in month “j” is greater than or equal to the service rebate level, as set out in Table A; or 1 if the standard “i”, for terminal “t”, in month “j” is less than the service rebate level, as set out in Table A.

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service bonus percentage

For each terminal t, the Service Bonus Percentage for the month j shall be calculated as:

Service Bonus Percentaget,j = ∑ qi,t ∙ yi,t,j standard i

Where: qi,t = the maximum potential service bonus percentage per month for standard “i”, for

terminal “t”, as set out in Table A.

yi,t,j = 1 if the standard “i”, for terminal “t”, in month “j” is greater than or equal to the service bonus level, as set out in Table A; or 0 if the standard “i”, for terminal “t”, in month “j” is less than the service bonus level, as set out in Table A.

airline standard Reduction percentage

For each airline “a”, Airline Standard Reduction Percentage for the month j shall be calculated as:

Airline Standard Reduction Percentagea,t,j = ∑ rk,t ∙ zk,t,j standard k

Where: rk,t = the maximum potential airline standard reduction percentage per month for

standard “k”, for terminal “t”, as set out in Table B.

zk,t,j = 0 if the standard “k”, for terminal “t”, in month “j” is greater than or equal to the standard reduction level, as set out in Table B; or 1 if the standard “k”, for terminal “t”, in month “j” is less than the standard reduction level, as set out in Table B.

premium service products

Gatwick Airport Limited may provide airlines and their customers with products and services over-and-above the Core Service Standard. These may be offered under the terms of the Conditions of Use or a bilateral agreement.

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service enhancement through investment

Gatwick Airport Limited shall retain sole responsibility for managing the capital investment programme to enable it to meet its obligations regarding airport-wide service standards.

As such:

• Gatwick Airport Limited will consult on capital expenditure in accordance with the consultation requirements of the Airport Charges Regulations 2011 (in lieu of Annex G of the March 2008 CAA Decision).

• Gatwick Airport Limited will publish: – annually a rolling five year Capital Investment Programme; and – every five years an Airport Master Plan.

• there is no binding programme of capital expenditure nor projects that are subject to capital expenditure triggers; and

• Gatwick Airport Limited commits to maintaining the airport to comply with all applicable safety and environmental requirements and to maintain the fabric of the airport to the standard required under the Airport-wide service standards.

Continuity of service plan and financial resilience

The Conditions of Use will include the following operational and financial resilience obligations to users:

• Gatwick Airport Limited will develop and maintain an operational resilience plan which will set how Gatwick Airport Limited intends to operate an efficient and reliable airport to the levels required by the Commitments or otherwise agreed with users. It will also contain best endeavours obligations on Gatwick Airport Limited in cases of disruption to minimise detriment to users on a non-discriminatory basis and to provide timely, accurate and clear information. Gatwick Airport Limited will consult annually on the resilience plan with the all interested parties including the CAA.

• Gatwick Airport Limited will undertake at all times not to take any action which would result in the loss of an investment level credit rating for Gatwick Airport Ltd.

• The Directors of Gatwick Airport Limited will provide an annual confirmation of adequate financial resources to operate the airport and provide the Core Services.

Information commitment

Financial performance • Information to be provided in accordance with Airport Charges Regulations 2011.

• No separate regulatory accounts will be maintained or published.

• Gatwick Airport Limited will continue to publish statutory accounts consistent with its status as a UK registered company, with debt securities listed on the London Stock Exchange, and falling within the Walker Guidelines relevant to a private equity owned company.

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TABLE A – AIRPORT SERVICE QUALITY TARGETS (REBATES & BONUSES)

standard “i” Metric service Rebate level

Maximum potential service rebate (both terminals, unless noted)

service bonus level

Maximum potential service bonus

(both terminals, unless noted)

quality of service Monitoring

tbd

Departure Lounge Seat Availability

Moving Average QSM Score

3.8 tbd 4.0 tbd

Cleanliness Moving Average QSM Score

4.0 tbd 4.2 tbd

Way-finding Moving Average QSM Score

4.1 tbd 4.2 tbd

Flight Information Moving Average QSM Score

4.2 tbd 4.3 tbd

security search tbd

Central Passenger Search

Times <5 Minutes 95% tbd 97% tbd

Times ≤15 Minutes 98% 99%

Transfer Passenger Search


Staff Search Times <5 Minutes (terminal)

95% tbd 97% tbd

Times <10 Minutes (crew)

95% 97%

External Control Posts Search


Terminal facilities tbd

Pier Service Moving average % passengers pier served

95% tbd 97% tbd

Passenger Sensitive Equipment (General)

% Time Available 99% tbd 99.5% tbd

Passenger Sensitive Equipment (Priority)


Outbound Baggage % Time Available tbd tbd tbd tbd

Arrivals Reclaim Belt (Baggage Carousels)


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airfield facilities tbd

Stands % Time Available 99% tbd 99.5% tbd

Jetties % Time Available 99% tbd 99.5% tbd

Fixed Electrical Ground Power


Airfield availability t.b.d t.b.d tbd tbd tbd

Transit facilities

Inter Terminal Transit System

% Time Two Cars Available

97% tbd 98% tbd

% Time One Car Available

99% 99.5% tbd

Total [7.0%]

[7.0%]

[7.0%]

[7.0%]

TABLE B – AIRLINE SERVICE QUALITY TARGETS

standard “k” Metric standard Reduction level Maximum potential airline standard Reduction percentage

Check-in performance – queue time

Times <30 Minutes 95% t.b.d

Arrivals bag performance – last bag on carousel

Times <45 Minutes 100% t.b.d

The check-in performance metric is not routinely measured. Gatwick Airport Limited will consult with the Gatwick AOC to determine the appropriate approach for implementing such a measurement.

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Airport Consultative Committee (ACC) GATWICK AIRPORT

1

CEWG End CE Review: Joint Submission to the CAA 28 December 2012 Reference Q5-‐065-‐LGW29

note: Appendices not included But AvAilABle iF ReQuested

151APPENdix 2cewG end ce Review: Joint suBMission to the cAA

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Appendix 2cewg end ce review: joint submission to the caa


2

CONTENTS

ITEM DESCRIPTION PAGE

1.0 Executive Summary 4 – 6 2.0 Introduction 7 3.0 Gatwick’s Consultative Framework 7 – 8 KEY STRATEGIC QUESTIONS & FINAL REPORT FROM KEY BUILDING BLOCK AREAS

4.0

Traffic

9 – 14

5.0 User Requirements (Service) 14 – 19 6.0 Major Airports Programmes (Capital) 19 – 26 7.0 Customer Priorities 26 – 28 8.0 Operating Expenditure 28 – 29 9.0 Non-‐Aeronautical Revenues 29 – 31 10.0 Risks and Issues 31 11.0 Price control beyond Q6 and indicative price path for any subsequent

quinquennium 31

12.0 Terminal Occupancy – easyJet consolidated into South Terminal 31 -‐ 32 13.0 Next Steps 32 TABLES 1 September 2012 Traffic Forecasts 10 – 11 2 ACC GDP Forecast comparison 11 – 12 3 Capital projects changes during constructive engagement 20 – 21 4 Capital projects ACC agreed to progress through to TG3 21 5 Passenger feedback – most important areas for focus 27 6 Passenger feedback -‐ Investment to reduce queuing 27 7 Passenger feedback – Interest in passenger segmentation in Departure

Lounge 28

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APPENDICES 1 Core attendees to constructive engagement meetings 2 Website document filing log 3 Issues tracker – final 4 Decisions, agreements and disagreements log – final 5 Action log – final 6 Asset Stewardship consultation proposal 7 Document agreeing ACC Q6 Consultants funding 8 Terms of Reference for the 2013 Capital consultation meetings 9 Initial Business Plan traffic forecast presentation by ICF SH&E 10 ICF response (30th November) to ACC follow up questions on September

traffic refresh

11 ICF SH&E September 2012 traffic forecast refresh presentation 12 Capacity Analysis RAG matrices for North Terminal, South Terminal and

Airfield as published in CIP2012

13 Service priorities presentation by Isobel Knox 14 Service Matrix pack 15 Pricing implications for service scenarios for Pier service and Security 16 Initial YouGov research 17 Accent’s presentation on willingness to pay research 18 Accent’s report on willingness to pay research 19 Project Business Cases – all, index provided on appendix cover page 20 GAL’s business plan January 2013 capital projects presentation (5 years

with indicative ACC support)

21 ACC letter stating view on capitalisation of Q6 development costs 22 ACC’s initial view on capital programme (given prior to Appendix 21) 23 Agreed terms of reference for ongoing capital consultation in 2013 24 ACC split capital discussion document (page 3) 25 All Operating Costs documents and presentations released to ACC 26 GAL Risks & Issues summary document 27 ACC feedback on risk and issues summary document as extract from

transcript of 6th December – pages 40-‐46

28 GAL’s 10 year capital programme 29 CEWG reports to JSG

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1.0 Executive Summary:

1.1 This report is the output of the Constructive Engagement Working Group, (CEWG) a joint forum consisting of ACC (Airline) members and GAL members and formally endorsed by the Joint Steering Group (JSG). The CEWG was formed in order to constructively engage on GAL’s initial business plan issued on 1st April 2012.

1.2 GAL and the ACC have agreed a constructive engagement (CE) process, with all CE

discussions being channelled through the CEWG. There has also been agreement on a facilitation process and a facilitator for this process. It has not been found necessary to activate the facilitator during the CE period.

1.3 The CEWG has held 33 meetings of the main group and also a further 17 documented

meetings of the sub-‐groups; Pier Service; Asset Stewardship and Service Standards, plus further more informal information sharing meetings which are not documented – in particular this happened with the Pier Service work between GAL and the key ACC members involved in the analysis.

1.4 In total 504 documents have been generated and uploaded onto the confidential website – which was set up to allow easy access for the CEWG members; other ACC airlines who had signed non-‐disclosure agreements and the ACC’s consultants. A separate submission to the CAA will include a full record of all the material provided as part of CE.

1.5 This comprehensive meeting structure has allowed GAL and the ACC to fulfil the terms set

out in the CAA’s CE mandate. The meetings have covered the building block areas as set out by the CAA of Traffic; Service; Capital; Operating Costs and Aeronautical Revenues and also the strategic questions, which are answered in the body of this report. The ACC viewed detailed discussions on operating costs and commercial revenues as part of the CE process as set out by the mandate, and are disappointed that meaningful engagement has not been possible on these issues. On this basis the ACC believes that GAL has failed to meet the constructive engagement mandate.

1.6 Attendance has been consistent, with GAL represented by five senior team members (plus

topic presenters) and the ACC regularly represented by three airlines and Simon Elliott; bringing in others from their organisations and consultants as required.

1.7 The ACC did agree that the base traffic forecast from the initial business plan was

appropriate for use. Although, following the traffic forecast refresh in September, there is currently no agreement on the traffic forecasts. However, the ACC have agreed that the economic situation has worsened since publication of the initial Business Plan and given the relationship between GDP and traffic forecasts, accept that the forecasts should reduce. GAL is using the high case forecasts for capital planning to provide capacity for growth and resilience to the airport operation. The ACC disagree that the high case forecast should be used.

1.8 Including the working groups, there has been 18 sessions to discuss service during CE.

However, the ACC has been unable to provide feedback to GAL on the required target

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levels for all of the key passenger service measures. There is currently no agreement on the final service quality proposal for the period beyond Q5.

1.9 There is potential for agreement on some of the capital programme and progress has been

made in this area over the past 9 months. Agreement has been reached to further develop, via a programme approach, during the period February to July 2013 and update the CAA on progress at that point. This meets the CAA’s requirement of any update to the GAL business plan being concluded by 20th July 2013. It is noted by GAL that the ACC has on a number of occasions stated that they will not support any capital programme unless they have more detail on each project and see a full analysis of the requirement. GAL has made repeated requests to understand the criteria for achieving support, however we have been unsuccessful in gaining clarity from the ACC. GAL also notes that the ACC have shifted their position on the level of detail required. Initially the request was for tollgate 3 status, then at an advanced tollgate status and most recently for tollgate 4, wherever possible.

1.10 The ACC outlined its criteria for support for capital projects on several occasions. These were that the benefits of the projects outweighed the costs; that commercial projects are NPV positive and does not increase the price cap in Q6; and that the projects are value for money. The ACC also made it clear from the beginning that it would not be able to sign off any projects until an advanced tollgate stage.

1.11 The ACC submitted a presentation for discussion which would entail a smaller core capital programme, agreed up front and any subsequent capital spend only brought forward with express airline agreement. This effectively gives the power of a veto on airport investment to the current airlines who are engaged in the consultation process. In addition the presentation considered that the CAA would need to provide annual endorsement to changes in the capital plan. GAL made clear during the discussion that such an outcome would be unacceptable.

1.12 The ACC has proposed that the future consultation process would include the employment

of consultants by the ACC to provide expert input into project development. GAL welcomes this proposal and is happy to facilitate the ACC’s payment of the consultants using the same method as agreed for the constructive engagement process.

1.13 There is currently no agreement on the appropriate level of operating costs for the beyond

Q5 period. GAL notes that they have provided the ACC with significantly more data on operating costs that has ever been produced for the price control consultations previously. There were detailed discussions on key areas, including productivity of security, where GAL demonstrated that its productivity was higher per passenger than Heathrow.

1.14 The ACC remains disappointed at the level of data provision by GAL, which fell significantly short of that requested by the ACC. The ACC notes the difference between the level of detail provided by GAL for capital projects and that for the operating costs. The ACC viewed operating costs as part of the CE process, and is disappointed that meaningful engagement was not possible on this issue. This has led to the ACC being unable to provide detailed comments on operating costs, as it did not have any meaningful access to data.

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1.15 GAL has taken the unprecedented step of opening its commercial retail books to

consultants appointed by the ACC and to provide access to the Commercial Director and his senior team for cross-‐examination. The ACC is awaiting the final output of their consultants, Javelin, expected in early January, before commenting fully on the level of agreement to GAL’s non-‐aeronautical revenues submission.

1.16 The ACC’s consultants draft report has concluded that GAL’s non-‐aeronautical revenue forecast significantly understated the airport’s retail revenue growth potential, by +10-‐15%. Furthermore Javelin concluded that this ignores the potential upside relating to Gatwick’s gap in performance that has emerged in Q5. Addressing this gap in Q6 could provide additional upside.

1.17 There is a fundamental disagreement between the airlines and the airport on price. The airlines have explained that the proposed price from the airport is too high. The ACC believes a Q6 settlement can be achieved that delivers real terms reduction in prices for passengers and allows for efficient investment which generates a clear return for airlines and consumers.

1.18 GAL notes the ACC’s comment on a real terms reduction in prices, however the ACC has not given any proposals during CE to suggest how this may be realistically realised. Due to the level of investment required in Gatwick Airport, GAL is of the strong view that this could not be achieved.

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2.0 Introduction:

2.1 The CAA has requested the CEWG to submit a final report to them by end December 2012. This report addresses the key strategic questions as set out by the CAA in their constructive engagement mandate dated April 2012.

2.2 The report details all points of agreement and disagreement on each of the RAB based

building blocks. Where a paragraph cannot be agreed, the ACC paragraph will be highlighted in blue typeface and the GAL paragraph in red typeface. Included within the text are the reasons behind the decisions with any relevant evidence attached in the appendices.

2.3 In the CAA’s letter to the ACC and GAL on 5 October, it was requested to consider “the

extension of the price control beyond Q6 and the indicative price paths for subsequent quinquennium” within this report.

2.4 A facilitation process was agreed for constructive engagement with a facilitator appointed

– however there has not been a need to engage the facilitator during this period. 3.0 Gatwick’s Consultative Framework:

3.1 GAL and the Gatwick airlines have agreed a simplified consultative framework, which has evolved during Q5. The key point being that the only decision making forum is the JSG (Joint Steering Group) which meets monthly and is co-‐chaired by Stewart Wingate and Alan Peever (ACC chair). Outside of this forum GAL have their own internal governance and the airlines use the ACC (Airport Consultative Committee, which also meets monthly) to make their internal decisions.

3.2 The weekly Constructive Engagement Working Group, reported each month to the JSG

(reports attached at Appendix 29), its recommendations which are then ratified or not by both the ACC and GAL members of the forum and formally recorded in the minutes of the meeting. The meetings are jointly chaired by Kyran Hanks, GAL and Chris Gadsden, easyJet or their deputies. For the purposes of this document, the JSG has empowered its working group members to agree the wording outside of the normal JSG cycle in order for it to be at its most up to date version for submission to the CAA by the end of December.

3.3 In the period April to December 2012, thirty three constructive engagement meetings were

held. Attendance has been consistent, with GAL represented by five senior level team members (plus topic presenters) and the ACC regularly represented by three airlines and Simon Elliott; bringing in others from their organisations as required. There was only one meeting where airline attendance was very low, with one airline and Simon Elliott attending. The CAA has attended all or part of ten of these meetings with various representatives. A list of the core attendees and the number of meetings attended is attached at Appendix 1.

3.4 During the period, 504 documents were uploaded on to the confidential website (set up to

allow ease of access to all the information) and the filing log of these is attached at

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Appendix 2. A full record of all material provided as part of CE will be submitted separately to the CAA.

3.5 The CEWG kept a record of the issues raised, which were resolved and which were

disagreed. The final version is attached at Appendix 3; there is only one outstanding issue around a departures baggage service measure which both GAL and the ACC have agreed to keep discussing the metrics for during 2013.

3.6 From the end of September, the CEWG also developed and then kept up to date a log of all

key decisions, agreements and disagreements during Constructive Engagement. The final version of this is attached at Appendix 4.

3.7 In total there were 382 actions raised during the period, 277 for GAL, 93 for the ACC and

12 joint actions. None of these remain outstanding. The full log of actions is attached at Appendix 5.

3.8 Three sub-‐groups to the main constructive engagement meeting were set up to look in

more detail at the following topics: • 95% Pier Service – monthly meetings to go through the analysis were held from July

2012 however, at the end of CE this process the ACC requested that the analysis was revisited and parameters agreed for completing further modelling. GAL has agreed to facilitate this further work, which is due to report early January.

• Asset Stewardship – at the end of the CE process GAL proposed a consultation approach for asset stewardship during the period beyond Q5. (Attached at Appendix 6). Pending the ACC’s consultant’s report their view was that this approach seemed logical. The consultant’s final report is due after the submission of this document.

• Future service standards and scheme – at the end of CE, some agreement was documented (outlined in section 5), however it was acknowledged that significant progress had not been made and that the ACC had not yet arrived at a collective view which it could share with GAL. Therefore GAL advised that its revised business plan would be similar to the initial (April) business plan with respect to the service outcomes to be delivered.

3.9 On 9th July, GAL and the ACC finalised agreement for a funding mechanism to enable the

ACC to directly employ consultants to work on their behalf, with the ACC’s payment method facilitated via GAL. (Appendix 7) The consultants have been active since October and have reported to the ACC their draft findings with their final reports due early January. The areas they have been focusing upon are Asset Stewardship and the IDL projects in both Terminals. The reports will then be shared by the ACC with GAL and the CAA.

3.10 GAL and the ACC have agreed to continue consultation on the capital programme during

the first half of 2013, following the submission by GAL of their revised business plan to the CAA on 31 January 2013. There will be four separate meetings each month, two being on the same day. Three of these sessions will consult on the development of the three capital programmes – North Terminal, South Terminal, Airfield and the fourth meeting will focus on GAL’s work on the 2nd runway debate. Terms of reference for these meetings have been agreed and are attached to this document as Appendix 8.

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KEY STRATEGIC QUESTIONS FROM CE MANDATE & FINAL REPORT FROM BUILDING BLOCK AREAS: 4.0 Demand (Traffic)

4.1 What is the appropriate traffic forecast (high, low and base cases) on a financial year annual basis, between 2014 and 2019?

4.1.1 GAL produced a forecast in their initial business plan which was debated with the

airlines. (Attached at Appendix 9), ICF SH&E who provided the forecasts for GAL attended two meetings to explain these to the ACC and have answered all questions posed at that time.

4.1.2 In producing the forecast, there are two distinct methodologies used, splitting out the near term, where commercial assumptions and understanding of airlines route plans have been made, and the medium to long term where a reliance on economic trends is more appropriate.

4.1.3 The ACC believe that without transparency of the short term assumptions and the

medium term adjustments made, it is difficult to assess the robustness and therefore accuracy of this approach. Particularly as the initial year of the forecast which has a significant impact to the overall number has been supplied by the airport. The ACC’s understanding was that SH&E produced the bottom up forecast for the first three years. However, in the latest forecast the airlines understand that GAL provided the first year of the forecast which was revised down significantly from the number used in the initial business plan.

4.1.4 In the forecasts used for the initial business plan GAL provided the first year of the

forecast as it contained 9 months of actuals for the year 2011/12. In the September refresh of the forecasts, GAL also provided the first year, this time with actuals for the first 5 months and with the knowledge of airlines plans for the coming winter season.

4.1.5 The ACC agreed that the base case forecast used in the initial business plan was appropriate. However, the ACC had concerns over the assumptions used to derive the high case. Furthermore, the ACC is not comfortable with GAL using the high case forecast to inform the capital projects in the business plan. GAL views it as essential that future capital planning for the airport provides sufficient infrastructure to meet future demand. The high case forecast provided by ICF SH&E is a reasonable approach to ensuring capacity is provided in a timely manner whilst maintain the operational resilience of the airport.

4.1.6 The ACC have not agreed the traffic forecasting methodology. This is partly

because due to confidentiality of each other’s data they do not have transparency of the first 3 years of the forecast (as those years have been forecast on a bottom up basis by GAL in the first year and ICF SH&E after that) and therefore do not feel able to comment on its accuracy. As well as a bottom up view on airline plans, SH&E explained the first 3 years are also based on a number of commercial and

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economic assumptions which rely heavily on judgement. The ACC also feel that the assumptions made to combine the short and medium term forecasts are unclear.

4.1.7 GAL’s initial response to this concern was to offer that all airlines share their 3 year

traffic forecasts on a bi-‐lateral basis. This was refused by the ACC on two grounds: firstly that some of the ACC were engaged in potential contract discussions with GAL and therefore this would be commercially sensitive information (a point GAL was sympathetic to) and secondly, that some airlines do not have 3 year traffic forecasts disaggregated for Gatwick.

4.1.8 GAL then offered for the ACC airlines to provide their 3 year forecasts confidentially to ICF SH&E, with only the outputs being made available to GAL. This is a comparable approach to commercial revenues agreed by GAL with the ACC, providing an independent 3rd party with sufficient data to allow both parties to reach a consensus view. Three submissions from airlines have been received by ICF SH&E to date.

4.1.9 The original forecast was refreshed in September to take into account the

prevailing economic trends; this was shared with the ACC in October. Questions on the latest forecasts from the ACC were answered by ICF SH&E in writing and also a meeting was set up to explore the specific question the ACC had of the appropriate GDP forecast. The ACC have recently proposed that using the Treasury’s Comparison of Independent forecasts (of which the long-‐term forecasts are shown quarterly) would be acceptable and likely to produce a result that they felt they could agree with. These are the forecasts that GAL stated are the basis for the RPI and CPI indices in their business plan. Responding to this request ICF SH&E produced a comparison of the traffic forecasts, using the Treasury’s GDP forecasts.

4.1.10 The forecast data that GAL is using to inform its January business plan for the

period beyond Q5 is detailed in Table 1. GAL uses the high case to plan the capital projects and the base case to identify impacts on costs and revenues. The low case is produced for sensitivity testing as required.

Table 1 September 2012 Forecasts HIGH BASE LOW Pax Pax Pax 12/13 33.9 33.8 33.4 13/14 34.7 34.0 32.8 14/15 35.8 34.5 33.0 15/16 36.6 34.7 32.8 16/17 37.4 35.0 32.7 17/18 38.2 35.4 32.8 18/19 39.2 35.9 32.9 19/20 40.4 36.6 33.2

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20/21 41.0 37.2 33.7 21/22 41.6 38.1 34.1 22/23 42.2 39.0 34.7 23/24 42.8 40.1 35.2 Source ICF SH&E Sep 2012

4.1.11 One of the key elements in driving down the new forecast has been a significant downward revision of GDP forecasts, both the short term forecast, but also in the long term – as a much slower recovery is now being used in the forecast than was previously the case. However, this seems to be driven, in the most part, by a change in the way independent forecasts are used in the assessment.

4.1.12 In the base case, the previous forecast (provided in May) was a straight average of

a range of independent forecasts (calculated from the information SH&E provided). However the new forecast (shared in October) just uses an EIU (Economist Intelligence Unit) forecast, which is also the lowest of those collected by SH&E. This is despite both GAL and SH&E stating in a meeting that there had been no change in the way independent forecasts was used in the assessment.

4.1.13 GAL and ICF SH&E explained that the methodology had remained consistent. This

was to use the most up to date independent forecasts, and where there were more than one, to use a blend of these. At the time of the refreshed forecasts, only one GDP forecast was recent enough (given the volatility in the economy over the period) to be used.

4.1.14 The table below summarises the impact on the GDP forecast from these different methods:

Table 2

Jan base case GDP

Jul base case GDP

Sept base case GDP using previous averaging methodology

HMT independent average (Nov)

2012 0.84% -0.50% 0.3% -0.2

2013 2.09% 0.50% 1.5% 1.1

2014 2.07% 1.60% 2.3% 1.7

2015 2.28% 1.20% 1.9% 2.0

2016 2.07% 1.00% 1.8% 2.1

2017 2.17% 1.30% 2.1% -

2018 2.27% 1.60% 2.2% -

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2019 2.32% 1.90% 2.3% -

2020 2.27% 2.10% 2.2% -

4.1.15 In response to the questions asked by the ACC SH&E have stated that they have

changed the forecast assumptions used and that the first year of the forecast has been provided to them by GAL. A copy of this response has also been sent to the CAA.

4.1.16 As illustrated by point 4.1.4, the forecast methodology has not changed in terms of the first year of the forecasts, where actuals and the knowledge of airlines plans for the remaining months of the year are used.

4.1.17 The ACC agrees with GAL that the revised traffic forecast should be lower than that initially presented in April. However, it thinks that if a consistent methodology were applied this fall is likely to be between 1% and 2% rather than the 4% fall outlined by SH&E. The ACC has asked for the forecast to be recalculated on the basis of a consistent set of GDP data. The ACC will use as its current traffic forecast for Q6, the forecast presented by SH&E using the treasury independent forecast and the same forecasting methodology. (This forecast was shown in response to the ACC questions on the updated forecast. It can be found in the confidential website on page 5 of the document produced by SH&E on 30th November, ‘response to airline questions’).

4.1.18 This forecast was shown as scenario in response to the ACC’s questions. It is not a

base case forecast that ICF SH&E believe is credible, as stated in their document referred to in 4.1.17 and attached at Appendix 10.

4.2 What are the patterns of traffic and shifts in these patterns projected between 2014 and

2019, and what implications might these have for airports’ delivery of capacity and service levels?

4.2.1 The traffic forecasts demonstrate growth in all sectors, short haul European

growing the most volume overall during this period of time with long haul increasing by the greatest proportion, although from lower base. The presentation given by ICF SH&E detailing the changes in the September forecast is attached at Appendix 11.

4.2.2 The ACC’s concerned that the forecast overemphasises the potential increase in long-‐haul traffic and underestimates the potential for short-‐haul traffic. Given that Gatwick over the last few years has been growing its share of the London market’s short-‐haul traffic at a faster rate than long-‐haul traffic, the ACC is not convinced there is any justification for this pattern reversing.

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4.2.3 GAL’s view of the impact of the traffic forecasts, and the mix of those forecasts on capacity, are articulated in the capacity analysis RAG matrix. Those attached at Appendix 12, are the last update shared in the CIP 2012.

4.2.4 Capital projects, where they are capacity or service driven, are linked back to the

traffic forecasts and the market sector trends. These links are articulated in each project’s business case.

4.2.5 The ACC is concerned that GAL has relied on the use of the high case traffic

forecast in its development of its capital plan. The ACC recognises that it may be appropriate to base individual capital projects on a forecast higher than the base case, to ensure resilience; however, it is not clear the high case is always appropriate.

4.2.6 95% Pier service for NT is the largest capital project under consultation which is

linked to both service levels and capacity. GAL’s modelling, which has been extensively shared at the pier service sub-‐group (see section 6 and appendices for more detail), shows a requirement for development by 2017 at the latest.

4.2.7 The ACC has carried out separate analysis on pier service, modelling 36 different scenarios. This has produced a range of results and there is currently further work between the ACC and GAL to agree a schedule for use moving forward.

4.2.8 The work on pier service did not conclude before the end of constructive

engagement, however, GAL confirm that the project ‘delivery of 95% pier service in North Terminal’ will be included in their January 2013 business plan submission to the CAA.

4.3 Traffic Forecasting Summary

4.3.1 Agreements: 4.3.1.1 The ACC agreed that the initial business plan base forecast was appropriate

for constructive engagement.

4.3.1.2 For the extra modelling being carried out for the ‘95% pier service in NT’ project, it has been agreed to use the base forecast from the initial business plan.

4.3.2 Disagreements:

4.3.2.1 There is disagreement over the appropriate forecast to use for the Q6

period and also the use of the high case forecast in capital planning.

4.3.2.2 The ACC do not agree that the high case forecast should be used by GAL to plan its capital projects. However, the ACC do accept that sensitivity analysis above the base case is sometimes required to ensure operational resilience of the airport. GAL believes that it is appropriate and prudent to

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plan future capacity requirements by understanding the full potential of passenger and ATM growth.

4.3.2.3 The ACC has not signed off the methodology used by ICF SH&E partly because they cannot agree with the assumptions around the first 3 years of the base and low forecasts as they are not transparent (due to airline commercial sensitivities). GAL offered, and three ACC airlines have taken the opportunity, to provide their short term forecasts to ICF SH&E for validation. These have been received within the last month, so will inform the next set of forecasts. However, these numbers only form part of the bottom up view.

4.3.2.4 The ACC have disagreed the GDP forecast used by ICF SH&E for the

September forecast refresh and have therefore disagreed the forecasts.

4.3.3 Outstanding: 4.3.3.1 The outcome of the further pier service working groups is expected in

January. The output will be confirmed ACC and GAL positions with regard to the timing requirement of this project.

4.3.3.2 It is expected that the traffic forecasts will be reviewed and updated in spring 2013 to inform the 20 July GAL business plan refresh to the CAA.

5.0 User Requirements (Service)

5.1 What is the user requirement for service delivery priorities during Q6? • Service quality • Operational resilience

5.1.1 For the purposes of constructive engagement, Gatwick Airport users are the

Airlines and the Passengers.

5.1.2 GAL carried out extensive analysis at the request of the ACC to better understand the trade-‐offs between cost and service. The scenarios proposed by the airlines differed from the service goals set out by GAL in their initial business plan. A service matrix taking into account low, base and high forecasts and low, business plan and high service levels was developed to meet the ACC requirements for sensitivity testing of service, traffic forecasts, capital costs, operating cost and revenues. GAL completed the sharing of indicative costs (operational, capital and revenue assumptions) for the 18 different scenarios. (Appendix 13) – The last group of scenarios was for baggage; however the ACC has not yet requested a sensitivity test in this area and further meetings will occur in 2013.

5.1.3 Airline feed back has focused on ways to enhance the service quality scheme by strengthening the incentives and reviewing the elements. ACC consensus on exactly what its service delivery priorities are was not forthcoming during CE, albeit early thoughts were given to GAL and are attached in Appendix 14. The ACC have stated that this is an area they wish to continue discussing in 2013.

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5.1.4 A further request from the ACC for the detailed price implications for scenarios

involving Security and Pier Service was also shared. (Appendix 15). GAL is disappointed that although significant analysis was carried out and provided to the ACC, this does not seem to have been used. The ACC welcomes the work that GAL has done and will continue to use this to inform their position for future work on service.

5.1.5 The GAL initiative to undertake detailed passenger research using YouGov last year

continued during this CE period. The initial research has been used to inform airport requirements and service priorities and these have been shared and debated with the ACC. (Appendix 16) A further set of focus groups occurred during July, observed by members from the ACC and CAA, with the early results being shared at a joint meeting. These were used to inform the formulation of the methodology for a quantitative survey and a willingness to pay survey; representatives from the CAA and ACC were involved in the supplier selection for this piece of work. The results of the survey arrived and were shared in early December. (Appendix 17 & 18)

5.1.6 Airlines have not had sufficient time to review or discuss the Willingness to Pay

research findings during constructive engagement. Moreover there are significant issues which the airlines are still working through. There is also broader airline and CAA research about the priorities of passengers for their whole journey. Furthermore:

a) the research is based largely on stated preference techniques that may overestimate the amount that passengers would, in reality, be likely to pay (revealed preference is a better technique though difficult to use for a study with such a broad scope as this); and

b) the research focuses on elements of the passenger experience that are not the main determinant of their choice of airport. Research by the CAA and airlines, and indeed Gatwick’s own work, demonstrates that there are several more important factors than the airport experience when it comes to a passenger buying an airline seat to fly from and to particular airports. Much more important factors, for example, are the destinations, flight timings and prices. Therefore airport experience is not a strong indicator of overall passenger interest, although it is one of the factors.

5.1.7 GAL passenger research has also been undertaken with other forums, such as PAG (Passenger Advisory Group), the Gatwick Independent Passenger Panel, and via specific airlines feedback from their passenger surveys. In addition GAL monitors all feedback given to Gatwick which includes written comment cards and Twitter.

5.1.8 Operational resilience; there has been discussion around the different costs of

different service levels. In particular, dialogue has occurred around ‘event’ based measures – specifically for departures (outbound) baggage and the airfield. The

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premise put forward by the ACC for the need for event based measures is to provide a further incentive to GAL to rectify any major issues quickly, so that the operation is affected as minimally as possible, and to provide airlines with meaningful rebates where significant operational disruption occurs. GAL has an event based measure for the airfield (ACT) but has stated to the ACC that it is open to reviewing this. GAL has agreed with the ACC that an event based measure will be put in place for outbound baggage, the details of which are still to be determined as the ACC continue to review the initial proposal by GAL given in October.

5.2 What is the user requirement for service performance measures and target values for Q6

metrics?

5.2.1 In GAL’s view, all of the passenger research it has carried out clearly indicates that passenger views of the airport experience are not limited to those services provide by an airport operator. Indeed the check-‐in queue, the immigration processing and the wait for arrivals baggage now tend to be seen as the most time consuming part of the journey by passengers.

5.2.2 GAL’s business plan reflects its view that passenger feedback covering all areas of the passenger journey must be measured and reported to drive improvement. This has led to proposals in GAL’s business plan for measurement and reporting of some of the airline and government agency controlled parts of the passenger journey. Specifically, check-‐in queues; last bag time to reclaim belts; on time performance and UKBF queuing. GAL believes that it is in the passenger’s best interests that they are fully informed about the entire airport experience and that it will only serve to enhance competition between airlines once the actual quality of experience they provide is measured and made public.

5.2.3 The ACC does not agree that the airport should seek to standardise services

provided by airlines in a bid to offer a uniform “Gatwick” experience. This would deny airlines the opportunity to differentiate their services and compete for the airport related part of the journey (e.g. check-‐in or baggage handling). Airlines do not consider that passengers choose an airport independently of a flight. Passengers are concerned with the end to end journey and the airport experience at one end of the route is therefore just one element of a much wider choice set. For the main part of their purchase – the flight and other services provided by the airline – passengers can choose from competing airlines. Therefore the ACC see no basis for regulating the airline services and this could distort competition by artificially constraining choice to passengers. Moreover the CAA has no power to regulate the airlines in this way.

5.2.4 The parts of the journey that are not subject to market disciplines should, in principle, be regulated. Therefore the ACC consider that a service performance regime is needed for key services provided by the airport. In the absence of a

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b) Ensuring that speculative developments are not progressed in a way that offloads all the risk to airlines and passengers

c) Recognising that the overwhelming majority of future passengers will be either existing passengers or passengers of existing airlines.

5.3.6 GAL has continued to stress that the passenger research is an important but not

only point of reference as to the needs of the Airport customers in the future. Senior GAL representatives regularly meet with the largest airline operators at Gatwick; discuss needs and requirements with airlines wishing to operate in future at Gatwick and of course continue to debate the future requirements with the airlines engaged within the consultative forums at the Airport.

5.4 Service Quality Summary

5.4.1 Agreements: 5.4.1.1 For GAL to monitor and publish the performance of UKBF queues at the

airport.

5.4.1.2 To include monitoring & tracking of Gatwick performance against the ASQ measures

5.4.1.3 To add a departures (outbound) baggage metric to the service quality

scheme.

5.4.2 Disagreements: 5.4.2.1 Despite extensive discussions, there is disagreement between the airport

and the ACC on some of the areas within the SQR scheme.

5.4.2.2 The inclusion of airline service measures within the Gatwick Airport scheme is not agreed by the ACC

6.0 Major Airports programmes

6.1 What is the appropriate GAL capital programme during Q6? 6.1.1 GAL has provided substantially more information at this stage of a regulatory

review that has ever been provided previously. GAL published the capital programme of £1.15 billion in the initial business plan and the individual business cases, on the templates previously agreed with the ACC, were provided for each project. (The most up to date shared project business cases are attached at Appendix 19). In GAL’s view this set out an appropriate capital programme that enables continued investment in the asset integrity of the airport; delivers a step change in the service offered to passengers; enables Gatwick to compete; provides opportunity for airlines to reduce their operating costs and improves the non-‐aeronautical revenues that subsidise the aeronautical charges at Gatwick.

6.1.2 The constructive engagement process has served to refine the capital programme and following the ACC’s feedback an update was given to the Airlines on 29th

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November of GAL’s intentions for the January Business Plan submission to the CAA. The total value of the capital programme now stands at £985 million. (Appendix 20).

6.1.3 The ACC expressed its concerns about the size of the capital programme at the

publication of the initial plan, particularly as the airport will receive a forecast investment of circa £1,172m across the six years of Q5. The ACC has focussed on the business cases of each project assessing these individually to understand the benefits to passengers and / or airlines. In assessing these benefits the ACC has been cognisant of the costs associated with each project and to ensure that these are as cost effective as possible.

6.1.4 The ACC has agreed to further development (to TG3) of the majority of projects

presented. However it is noted that this does not constitute agreement by the ACC to any of the specific projects. The ACC has asked GAL to develop projects to as advanced level as possible to assist in the decision making process, however both the ACC and GAL accept that this has not been possible for all projects. The ACC would like to see the information that projects developed to TG4 provides wherever practicable, and TG3 in those where this is not possible. GAL notes that they have constantly asked the ACC for a clear decision making criteria, in order that GAL can provide clarity around what is required by the ACC to come to a decision, but the ACC has been unable to provide this.

6.1.5 The ACC has advised GAL that it would only support projects where it felt that the project benefits warrant the cost associated with the project. As each project is unique and benefits can be quantified in a number of different ways according to the need being addressed, it was therefore not practicable to offer GAL a template for decision making.

6.1.6 The projects presented to the ACC through the Q6 CE process have changed as a

result of consultation and project development since the April business plan. Changes have included the addition and removal of projects. To enable the CAA to track the progress of the capital plan being discussed these changes are listed within Table 2 below. In all cases the most up to date business cases are attached in the appendices.

Table 3 Projects removed or re-‐phased in the 10 year plan during constructive engagement Pier 3 Modernisation NT Energy Centre Additional long stay car parking

and capacity (decking) moved to Q7

NT Short stay car park moved to Q7

ST Baggage Reclaim – moved to Q7

Hangar facilities – moved to Q7

ST IDL capacity £44m of the project re-‐phased to Q7

Additional projects brought to constructive engagement

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Stand reconfiguration (includes Pier 2 north side, Pier 3, stands 45-‐49 and parking stands)

Noise attenuation wall (wavy wall) – note, not in GAL’s January Business Plan

Potential ST Coaching gates – note, not in GAL’s January Business Plan

Gate room seating Decade of Change NT Arrivals Transformation Projects with significant scope change during constructive engagement PTI and Surface Transport has been amended to: ST Public Transport and DDA and Additional NT Coaching Bays

Arrivals Border Zones, has been amended to NT Arrivals Border Zone

Runway safeguarding has increased scope / budget to cover development of plans for Runway 2.

Passenger improvements through IT has changed scope to become Business Systems Transformation

Car Rental and the Consolidated motor transport project have been combined together

6.1.7 Furthermore, due to jointly agreed programme approach, a significant reduction in

the cost of the NT IDL project has been identified. The revised business case can be found at Appendix 20. The ACC has challenged GAL to be able to deliver the project offering a price reduction per passenger within Q6 and GAL are currently reviewing alternative solutions. GAL notes this recent challenge from the ACC that income generating projects are less likely to be supported if they do not reduce the price within the quinquennium that they are built.

6.1.8 During constructive engagement the ACC have documented agreement for GAL to proceed with the projects specified in Table 3 below through to TG3; however, this does not constitute as agreement to any particular project, but a requirement for more information on projects that at the time of judgement the ACC felt merited further work.

Table 4 NT Security Borders Project (NT) ST/NT check-‐in upgrade and bag

drop Delivery of 95% Pier Service (NT)

IT Asset Stewardship* CIP Arrivals & Departures lounges

ST IDL capacity NT baggage reclaim NT IDL reconfiguration ST Public Transport and DDA Runway safeguarding ST Baggage & Pier 1 completion Facilities Asset Stewardship* Airfield Asset Stewardship* Commercial Asset Stewardship* Compliance & Risk* Digital Media NT early bag store Consolidated Car Rental & Motor Transport facility

Business Systems Transformation

Decade of Change

Stand reconfiguration (includes Pier 2 north side, Pier 3, stands 45-‐49 and parking stands)

Noise attenuation wall (wavy wall)

Potential ST Coaching gates

Gate-‐room seating Additional NT Coaching Bays *Covered as Asset Stewardship in ACC’s comments below

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6.1.9 GAL will be spending £5.5m to bring these projects to TG3 stage in the development process. Whilst the ACC support the development of these projects, as per their letter dated 30th May 2012, (attached at Appendix 21) the ACC do not support this sum being added to the Q5 RAB. It has instead pointed out that their view of the proper treatment of these costs would lead to them being recognised in the Q6 RAB as projects are delivered. GAL has confirmed that they are following appropriate accounting rules for capitalisation and therefore capitalising expenditure as it occurs.

6.1.10 The ACC have agreed that GAL should develop a programme approach (as presented at 2nd August CEWG), firstly developing this for North Terminal and South Terminal interdependent projects.

6.1.11 The ACC have given its views as to which of the projects they are likely to support

within the agreement section; those that it is unlikely to support within the disagreement section and those projects requiring further work or information are covered in outstanding actions. (Projects that are not stated by the ACC within this document as supported should be treated as unsupported until such time as there is agreement). The presentation given by the ACC to GAL is attached at Appendix 22; this is the source document GAL used to inform its revised capital expenditure business plan attached at Appendix 21.

6.1.12 The ACC would like to clarify that where it has indicated support for a project, it has

not yet indicated support for the costs. In addition this does not indicate support for a specific design solution. The expectation from GAL and the ACC is that the programmes will be further developed during the period before 20th July 2013 – the deadline for any changes to the business plan as set out in the CAA’s letter of 5th October – and that this may result in changes to the ACC or GAL position on projects. As a result the capital expenditure included in the January 2013 business plan may change.

6.2 What is the response to GAL’s proposal for risk and contingency built into the capital

programme for CE?

6.2.1 GAL presented the methodology of risk and contingency within the projects on 24th May. The ACC is carrying out further work on this issue and has appointed consultants, Faithful & Gould, to examine this process on its behalf.

6.2.2 GAL has shared the requested detail around the approach to risk and contingency with the ACC’s consultants (Faithful & Gould).

6.2.3 Faithful and Gould are due to give their final report in early January, the ACC will

include their conclusions within the separate update they intend to submit to the CAA in January.

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6.3 Capital Investment Summary 6.3.1 Agreements:

6.3.1.1 The ACC and GAL agreed to engage in a separate working group to understand the data and modelling behind the need for a Pier 6 South Extension. The working group has been unable to reach a conclusion and further work is on-‐going. It is currently agreed that should the need for additional wide bodied stands be proved, that the location of Pier 6 is the right place for a solution. The terms of reference including timetable for this work is attached at Appendix 23.

6.3.1.2 North Terminal Security – The ACC support the development of this project within Q6. The project offers an improved customer experience and a reduction in GAL operating costs. The ACC notes that this project will be developed towards Tollgate 3 over the next 6 months and that during this period the design of the solution will be discussed.

6.3.1.3 Consolidated Car Rental and Motor Transport Facility is supported by the

ACC.

6.3.1.4 The ACC and GAL agree that the airport will require an appropriate level of capital spend to ensure that it is able to operate safely and efficiently in Q6 (asset stewardship projects). The ACC has employed Faithful & Gould to undertake an assessment of the correct level of spend required at the airport and the ACC will make its recommendation to the CAA based upon the output of this work which is expected in mid-‐January 2013.

6.3.1.5 The South Terminal Baggage and Pier 1 project has increased in cost (Q6) by £20m, it has been explained by GAL to the ACC that this is not a project cost increase and that £20m scope has been moved from Q5+1 into Q6 as a result of the updated programme.

6.3.1.6 Decade of Change – the ACC support this project provided it does not

increase prices in Q6.

6.3.2 Disagreements:

6.3.2.1 GAL intends to capitalise the monies being spent on developing the programme of capital works. The ACC whilst supporting the development does not believe these funds should be capitalised until and if these projects become live in the next regulatory period. (See ACC letter dated 30th May 2012 – Appendix 21)

6.3.2.2 The ACC have proposed that the future capital programme be split into core and development projects. Their discussion document provided to GAL through constructive engagement is attached at Appendix 24). GAL has confirmed it does not support the split capital discussion document put forward by the ACC. A veto of capital expenditure by existing airlines, with that decision then confirmed by the CAA, represents move towards, rather

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than away from, interventionist regulation. At this stage therefore, GAL has confirmed that the basis of the capital submission in the January business plan is that all of the capital is core.

6.3.2.3 The ACC believe that a more customer focused outcome could be achieved

by allowing a more flexible approach to capital planning. It is the ACC’s belief that this would benefit passengers, airlines and the airport. The ACC believe that core and flexible capital approach is a credible vehicle to begin these discussions and is open to alternative proposals. The ACC is disappointed that GAL has been unwilling to enter into a meaningful discussion on alternative capital programme options.

6.3.2.4 ST/NT Check-‐in upgrade and bag drop -‐ The ACC do not support the full

redevelopment of the check in areas within each terminal and believe a solution to improve these areas could be found at a lower cost than that proposed by GAL. The ACC acknowledges that its member’s airlines are currently engaged with GAL in the development of a number of check-‐in and passenger processing innovations and that if any of these proceeded to implementation then a capital solution would be required. The ACC and GAL anticipate that discussions on the size and shape of this solution will be concluded by July 2013.

6.3.2.5 NT Baggage Reclaim – The ACC believes there is no requirement for this project after its analysis has shown that there is currently enough capacity within the North Terminal to cover the anticipated growth in passenger numbers in Q6, this includes the possibility of A380 operations at Gatwick.

6.3.2.6 NT Early Bag Store – The ACC analysis has shown that there is currently no requirement for an EBS as there is enough capacity to meet the anticipated demand in Q6. Significant extra capacity has recently been provided by the upgrade to the main baggage hall. The ACC understands that the South Terminal does offer an EBS, however, in the ACC’s view this does not warrant the unnecessary capital costs required.

6.3.2.7 NT Arrivals Transformation – this project was brought to the ACC in December and in the ACC’s view the expenditure in this area is not reflected in the level of additional benefits offered to passengers.

6.3.2.8 NT Arrivals Border Zone – The ACC has been in lengthy discussions with the airport and also UKBF on this subject. It does not support the funding of this project from airport charges. UKBF are not willing to make any commitments to the passenger throughput levels stated in the business case. UKBF has advised that they have budget to replace the existing e-‐gates in late 2015. UK airlines have very clearly stated that it is not their role to fund changes in UKBF manning levels by the implementation of e-‐gates.

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6.3.3 Outstanding Issues

6.3.3.1 Additional pier served stands – as mentioned above, the work on this project continues.

6.3.3.2 South Terminal IDL Capacity – this project is part of the ST Programme approach and will be developed further over the next few months.

6.3.3.3 South Terminal IDL Reconfiguration – this project is part of the ST

Programme approach and will be developed further over the next few months.

6.3.3.4 South Terminal stand changes and linked projects. A project to make a

number of changes to the South terminal stands (Stand Reconfiguration including Pier 2 north side, Pier 3, Stands 45-‐49 and parking stands) has been brought forward during constructive engagement. The ACC believe that the changes put forward may offer an opportunity to create stand capacity within the South Terminal at a relatively inexpensive cost. Work is on-‐going to understand if these stands are required to meet pier service levels in the South Terminal and also to understand the operational implications of using the stands proposed.

6.3.3.5 ST Public Transport and DDA. The ACC has requested this project be

developed to tollgate 3 to understand the solution.

6.3.3.6 NT IDL Reconfiguration – GAL has stated that the NT IDL requires an extension within Q6 due to the increase in passenger numbers. The ACC disagrees with GAL’s view on capacity and therefore the ACC support for this project will depend on its commercial revenue impact and is less likely to support this project if it leads to higher charges in Q6.

6.3.3.7 Digital media -‐ The ACC is awaiting the outcome of the Javelin commercial

analysis before taking a position on support. The ACC notes that the cost of this project appears to be too high and increases the cost per passenger within Q6.

6.3.3.8 Runway 2 – The ACC understands that this project has moved from the £4m required to continue safeguarding for a 2nd Runway to £10m for development of 2nd runway options at Gatwick. As noted in 6.1.9, the ACC would only support capitalisation of expenditure for projects in Q6.

6.3.3.9 Business systems transformation – The ACC has requested this project to

be developed to tollgate 3 to further understand the proposed solutions.

6.3.3.10 CIP Arrivals and Departures lounges – as per the business case the ACC will support these projects provided customers are identified prior to the settlement and it does not increase price in Q6.

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6.3.3.11 Gate-‐room seating – The ACC has recently requested GAL to progress this project to tollgate 3. On delivery of this the ACC will take a position.

6.3.3.12 NT Coaching Bays – The ACC has recently requested GAL to progress this project to tollgate 3. GAL is updating the business case and will provide this to the ACC in January where the ACC will take a position.

6.3.3.13 Consultancy support – funds will be required by the ACC in Q6 the

details of which will be agreed in 2013.

6.4 Capital Efficiency Summary

GAL presented to the CEWG on 24 May 2012 the details of how they undertake capital efficiency. This included explaining the tollgate process, treatment of risk, procurement of contracts and benchmarking.

6.4.1 Agreements:

6.4.1.1 GAL and the ACC agreed a funding mechanism for the ACC to appoint consultants to look at the capital efficiency of the individual projects and capital programme as a whole.

6.4.2 Disagreements: 6.4.2.1 None to date.

6.4.3 Outstanding issues:

6.4.3.1 The final output of the consultancy work into this area has not yet been received by the ACC, so will inform their separate submission to the CAA in January.

7.0 Customer Priorities

7.1 What are the user and passenger priorities, where options exist in the areas of service, future service delivery, given cost trade-‐offs (e.g. service requirement versus cost)? 7.1.1 The ACC have stated that their key priorities in terms of service are those that

enable a punctual operation; those that drive airline and passenger efficiency and then those that ensure airlines and passengers get what they pay for. (See Appendix 13).

7.1.2 In the passenger research carried out by GAL via YouGov and attached in Appendices 16-‐18, the key service requirements are to pass through the airport with minimal queuing and maximum ease, also to have segregated areas both going through Security and within the departure lounges. The latter in particular to cater for different passenger segments, such as families, business travellers (without access to business class lounge) and travellers without young children.

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The extracts from YouGov’s work below illustrate these points in tables 5, 6 and 7, albeit for full detail please see appendices:

Table 5

Table 6

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Table 7

8.0 Operating Expenditure

8.1 Agreements 8.1.1 None

8.2 Disagreements 8.2.1 GAL believes that it has followed the CAA’s CE mandate to provide relevant

information, which was supplied in the Initial Business Plan in April 2012. Following the airlines’ request for further information, GAL provided a breakdown of assumptions behind key operating cost areas and has followed the Mandate’s direction by inputting into the CAA’s consultants reviewing more complex areas. The information provided by GAL during CE is attached at Appendix 25. GAL continues to believe that CE’s focus should have been on the CAA’s strategic questions, which has been enabled by the data released by GAL to the ACC. The mandate was clear that operating expenditure was to be a CAA led work stream.

8.2.2 The ACC was disappointed at the level of information provided by GAL, this meant that meaningful constructive engagement was not possible. Furthermore the ACC believes that GAL has significantly overstated its required operating costs for Q6. It notes that GAL does not plan to improve its operating efficiency through Q6 and instead expects its unit operating costs to increase with inflation. This is unrepresentative of the efficiency gains the rest of the aviation industry is making.

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8.2.3 The ACC expects GAL at a minimum to achieve the unit cost efficiencies being achieved by the rest of the aviation industry. The ACC suggests that GAL should hold unit costs flat at nominal levels going forward.

8.2.4 The level of data shared by GAL is not up to that which was part of the information

request provided by the ACC. The ACC believes that without this level of data it has not been able to analyse the business plan to the level required by constructive engagement, consistent with the mandate agreed. Detailed analysis is necessary to enable airlines to support projects, standards and prices that meet customer needs with the infrastructure they want at a price they are willing to pay.

8.2.5 The ACC also notes that current operating costs are at unjustified levels, given

GAL’s acceptance that their security staff are paid above market average rates. Therefore there needs to be a one-‐off reduction in the operating cost baseline to reflect this.

8.2.6 GAL does not recollect making this statement and having checked the transcripts of

the CEWG meetings cannot find this point recorded.

8.2.7 Using the limited data that GAL made available to the ACC its analysis has shown that efficiencies could be achieved through roster improvements for the Security areas. It should also be noted that the ACC is unclear as to how savings in Security manpower from the Q5 and Q6 capital projects are accounted for.

8.2.8 The ACC will carry out further work on operating costs in 2013, particularly in light

of the analysis being carried out by the CAA. In the absence of data from GAL to justify its level of operating costs, the ACC will not support any increasing in unit costs for Q6.

9.0 Non-‐Aeronautical revenue

9.1 Agreements: 9.1.1 To use Javelin as an independent body to review the commercial revenues in GAL’s

business plan and to report back to the ACC, GAL and CAA the outputs of their work. The final report is expected in January 2013, so will inform the ACC’s separate submission to the CAA.

9.1.2 Revenue figures from the business plan are based on the base case traffic forecast

9.2 Disagreements: 9.2.1 The airlines consider that scrutiny of non-‐aeronautical revenues is part of

constructive engagement and we disagreed with the airports decision not to release detailed data in response to our data request in July 2012. Airlines took a pragmatic decision to accept GAL’s compromise proposal – to share the data with Javelin on a confidential basis – but this has constrained our ability to scrutinise key assumptions and trends or to work closely with Javelin on the report that we commissioned and are paying for. It is therefore important that this is not taken as

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a precedent or an acknowledgment by airlines that the current arrangements are acceptable.

9.2.2 GAL believes that it has fulfilled the provision of non-‐aeronautical revenues data as required under the mandate. In order to fulfil this GAL have provided a significant amount of information to Javelin for analysis.

9.3 Outstanding issues: 9.3.1 CE has not addressed either property revenues or revenues from specified

activities. We understand that GAL would like to discuss specified activities for Q6 within the Charges Group. Airlines intend to make further submissions on these two areas during 2013.

9.3.2 The ACC believes that non aeronautical forecasts are too low as shown by the Javelin draft report. In summary, it is Javelin’s view that there is opportunity to significantly increase Q6 retail revenue to above the levels proposed by Gatwick. This can be achieved by optimising the space mix, improving margin performance and addressing Q5 under-‐performance, considering the strategy to move to a more upper mid-‐market specialty offer.

9.3.3 Although not clearly quantified, there is potential that the existing forecasts are

unduly negative due to the following issues highlighted by GAL as impacting performance: • The economy will be subdued in Q6. However, the economy should be

considerably more stable than it was in Q5 with consistent growth throughout the Q6 period. The economy will be less of a potential issue in Q6 than Q5.

• Tobacco sales are in decline. However, tobacco sales have been in steady consistent decline for over a decade and now only make up a relatively small percentage of Duty Free operator sales. This argument is no more pertinent to Q6 than Q5.

• The impact of ecommerce: GAL believes that the impact of ecommerce will be more significant in Q6. The UK ecommerce market grew more rapidly in Q5 and is now maturing and developing more into a support channel to stores than a direct competitor. Ecommerce likely to be less of an impact in Q6 than Q5.

9.3.4 Javelin’s draft report has also highlighted that sales per passenger and income density growth were lower than Gatwick’s peer group throughout Q5. This indicates that GAL’s and subsequently Javelin Group’s forecasts are starting from a lower base than should have been achieved by this point in time. This upside should give more confidence to the fact that the headroom to further grow GAL’s forecasts in Q6 is achievable.

178

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

14 Appendices


31

9.3.5 The ACC notes that Javelin have stated as a prudent view that there is an opportunity to grow GAL’s Q6 income forecasts for the year 2018 /19 by +10-‐15%. Furthermore this ignores the potential upside relating to Gatwick’s gap in performance that has emerged in Q5. Addressing this gap in Q6 provides additional upside.

9.3.6 Javelin has also carried out work with ACTM on car park and advertising revenues. The draft report will be available in January. We understand that this report will also show that these revenues have also been under forecast by GAL.

9.3.7 The ACC therefore believes that the evidence produced to date show that GAL’s forecast lacks ambition and the ACC will provide alternative forecasts to the CAA in January.

9.3.8 GAL has not had the opportunity to review the draft report submitted by Javelin.

10.0 Risks and Issues 10.1 GAL presented the key risks and issues that it believes will impact on the Business Plan to

the ACC. The ACC requested a summary of these which is attached at Appendix 26. The ACC’s response was given verbally during the CEWG of 6 December and the extract from that transcript, pages 40-‐46, is attached at Appendix 27.

11.0 Price control beyond Q6 & Indicative price path

11.1 Late in the CE process the CAA indicated that it wanted to see a 10 year projection of capital expenditure, operating costs, revenues and an indicative price path. Given the late nature of this request, only a high level summary was given at CE of the 10 year Capital Programme, attached at Appendix 28. This outlook includes the two variant Terminal occupancy scenarios which continue to be discussed with the ACC members; easyJet split between both Terminals as at today, or easyJet consolidated into South Terminal.

11.2 An indicative price path will be provided in GAL’s January Business Plan submission to the CAA.

12.0 Terminal Occupancy – easyJet consolidated into South Terminal

12.1 Immediately before GAL published the initial business plan on 1 April 2012, easyJet submitted a request to investigate the feasibility of their consolidation in South Terminal.

12.2 Therefore, during the constructive engagement period easyJet and GAL were carrying out a collaborative piece of work to assess the feasibility of whether easyJet could be consolidated into South Terminal. The communications to other ACC members whilst the project was ongoing was undertaken by both easyJet and GAL, primarily via bi-‐lateral meetings and the JSG.

179

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

14 Appendices



32

12.3 GAL concluded that it was indeed feasible for easyJet to consolidate into South Terminal,

albeit with a number of factors which needed to be addressed. These included the capacity requirements for both Terminals and the Airfield and the movement of other airlines between Terminals to enable the consolidation.

12.4 With the agreement of the JSG, GAL commenced consultation on the capital projects required to facilitate this move.

12.5 In the bi-‐lateral meetings that GAL held with other airlines, since announcing the feasibility

of a consolidation, it became clear that there was a high level of uneasiness and a need for more time in order to consult the prospective move more thoroughly. GAL therefore made the decision, communicated with easyJet and at the JSG that the business plan submission to the CAA in January would be on the basis of easyJet split – with an overlay being provided for the capital programme should easyJet consolidated into South Terminal be the agreed way forward.

13.0 Next Steps 13.1 GAL will submit its revised Business Plan to the CAA on 31st January 2012. This plan will be

aligned to the current terminal occupancy of easyJet split between the Terminals. Consultation on the impacts of easyJet consolidating within South Terminal will continue with the ACC and directly impacted Airlines into 2013. GAL will provide an alternative scenario in its Business Plan submission to show the impacts if easyJet were to consolidate into South Terminal.

13.2 Following this GAL will officially launch the business plan to the community in the same way the initial business plan was launched. The date planned for the launch is 14th February 2013. GAL will then commence the agreed capital consultation meetings with the ACC around the NT, ST and Airfield programme of projects. Time will also be set aside to discuss any updates on the 2nd Runway submission from GAL in response to the ongoing Government sponsored review of airport capacity in the South East.

13.3 It is planned that any changes to the programmes or projects which emerge during

consultation in the first two quarters of 2013 will be officially submitted to the CAA prior to 20th July 2013.

13.4 The ACC will submit a more detailed report in January 2013 setting out further evidence on

the key points raised in this document.

Alan Peever Stewart Wingate Joint JSG Chairman (ACC) Joint JSG Chairman (GAL)

180

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

14 Appendices

Appendix 3ECONOMIC ASSUMPTIONS

183

Three main economic indices are used in this business plan:

• RPI which drives the Q5 price path, the Q5 closing RAB calculation and operating cost forecasts;

• CPI which influences commercial income forecasts; and

• COPI which underpins capital costs.

The first two of these indices are sourced from the Office of Budget Responsibility’s (“OBR”) economic and fiscal outlook, December 201225. Inflation forecasts are available from the OBR through to 2017; thereafter the CPI forecast is based on the Bank of England’s 2% inflation target. The OBR has assessed the long-run difference between RPI and CPI inflation at around 1.3 percentage points, which drives the RPI forecast rate beyond 2017 at 3.3%26.

COPI forecasts were sourced from Davis Langdon, as an update on the figures used in the Initial Business Plan27.

INDICES USED IN THIS BUSINESS PLAN

The forecast indices therefore used in this business plan are therefore:

forecaSt (%) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

RPI (4thQ) 3.2% 2.5% 2.9% 3.2% 3.5% 3.7% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3%

CPI (4thQ) 2.6% 2.3% 2.1% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

COPI 3.3% 0.2%

Table A3.1 Economic indices

25 Downloaded from http://budgetresponsibility.independent.gov.uk/pubs/December-2012-EFO-economy-supplementary-tables2343.xls

26 OBR. Economic and fiscal outlook: December 2012. Paragraph 3.94.

27 Davis Langdon. External Benchmarking for Gatwick Airport Assessment of COPI 2012-19. February 2012

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

14 Appendices

0 ic

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Pre

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Gat

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APPENdix 4GAtwick lonG teRM tRAFFic FoRcAsts

185

Appendix 4Gatwick LonG term traffic forecasts

1 ic

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info

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rec

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corr

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out

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pend

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the

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pro

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are

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ased

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su

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at

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proj

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ill o

ccur

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and

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ly th

at th

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por

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and

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port

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ithou

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prio

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ten

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f the

aut

hor n

or m

ay it

be

used

for a

ny p

urpo

se b

y an

yone

ex

cept

for t

he c

lient

. Th

e au

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abili

ty fo

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clie

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limite

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rep

aym

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of t

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onsu

ltant

's f

ee f

or t

hat

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ent

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out

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186

2 ic

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W

hat h

as c

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the

inpu

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R

esul

ts a

nd C

ompa

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187


3 ic

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upd

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SEC

TIO

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188

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Bac

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airli

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final

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bmis

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ref

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mos

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traf

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Jan

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201

2 ha

ve b

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late

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las

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the

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lo

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likel

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ever

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is

show

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ter,

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se s

cena

rios

do n

ot f

orm

par

t of

the

bas

e ca

se.

189


5 ic

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ews

0.0%

0.5%

1.0%

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2.0%

2.5%

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2011

2012

2013

2014

2015

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Real UK GDP Growth, Percent

Apr

-11

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Jul-1

2

IMF

Fore

cast

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DP

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inan

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N

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190

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WIC

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2012

: “A

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furth

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on

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sses

” A

ug 2

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: “LH

redu

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201

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as C

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rther

job

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an

d fle

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”

Mar

201

2: V

irgin

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ce w

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ns –

an

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loss

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impa

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ct h

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bee

n ne

gativ

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pact

ing

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oss

the

Lond

on a

irpor

ts

–15

mon

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of c

ontin

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LF

grow

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as b

een

seen

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BAA

traffi

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d 2%

dow

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Aug

ust

192

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413

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Year

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3.8m

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upco

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thus

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wic

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OR

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G

atw

ick

has

bene

fitte

d si

gnifi

cant

ly in

rec

ent y

ears

from

suc

cess

in w

inni

ng c

arrie

rs fr

om S

tans

ted

W

ith s

igni

fican

t spa

re c

apac

ity, a

ny f

utur

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ner

will

be

mot

ivat

ed to

reg

ain

lost

mar

ket s

hare

. Hea

thro

w is

le

ast l

ikel

y to

be

affe

cted

by

this

, with

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wic

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d Lu

ton

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reat

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isk

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r an

agg

ress

ive

Sta

nste

d gr

owth

str

ateg

y

If

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beco

mes

a p

art-

owne

r, it

is li

kely

to

grow

sig

nific

antly

at S

tans

ted,

pot

entia

lly r

educ

ing

its

serv

ices

from

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wic

k. P

ress

rep

orts

aro

und

the

curr

ent I

M s

ugge

st th

e ai

rpor

t will

rea

ch 2

5mpp

a by

201

9 bu

t thi

s is

con

side

red

very

am

bitio

us, p

artic

ular

ly in

the

curr

ent c

limat

e.

The

Bas

e ca

se d

oes

not i

nclu

de a

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nste

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LH SH

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196

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If

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fu

ll m

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will

not

be

perm

itted

at L

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.

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exp

ect t

his

situ

atio

n to

cha

nge

for

the

dura

tion

of th

is g

over

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in th

e be

st c

ase,

fo

r se

vera

l yea

rs o

f the

nex

t gov

ernm

ent a

s a

new

co

nsul

tatio

n pr

oces

s w

ould

be

requ

ired.

LHR

dep

slot

s re

ques

ted

LHR

dep

slot

s al

loca

ted

440

460

480

500

520

540

560

Tod

ayW

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197


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SEPT

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Rec

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Top-

Dow

n

0500

1,00

0

1,50

0

2,00

0

2,50

0

050100

150

200

250

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

GDP, Real

Pax, Millions

LON

Do

m, S

H L

H

LON

Do

m +

SH

LON

Do

m

IMF

IMF

ON

SO

NS

US

EIA

US

EIA

IPS

UK

ON

SO

NS

Depe

nden

t Var

iabl

esIn

depe

nden

t Var

iabl

es

Yea

rLO

N L

HLO

N S

HLO

N D

omLO

N T

otal

UK

GD

P(t)

UK

GD

P (t

-1)

Vol

ume

of

expo

rts,

rea

l

Vol

ume

of

impo

rts,

re

alO

il Pr

ice.

R

eal

Ker

osen

e,

real

Avg

Far

es

(Rea

l)

Gen

eral

Pric

e In

dex

(RPI

, all

item

s)

UK

C

onsu

mer

Ex

pend

iture

Pass

enge

rsPa

ssen

gers

Pass

enge

rsPa

ssen

gers

£ bi

llion

£ bi

llion

£ m

illion

£ m

illion

$ pe

r ba

rrel

Cen

ts p

er g

allo

n£

Inde

x, 1

974=

100

1987

843,

572

806,

765

174,

474

200,

136

4152

234

402

478,

664

1988

886,

020

843,

572

168,

791

213,

864

3147

219

422

515,

360

1989

20,0

61,7

1654

,563

,007

13,0

45,2

4187

,669

,964

906,

236

886,

020

179,

700

227,

674

3555

203

455

533,

408

1990

21,6

10,7

8755

,182

,805

13,8

77,4

7090

,671

,062

913,

299

906,

236

181,

367

214,

528

4276

187

498

537,

618

1991

20,3

47,5

1651

,215

,602

12,6

47,1

6884

,210

,286

900,

580

913,

299

174,

034

191,

151

3467

180

527

528,

946

1992

23,2

56,0

7558

,660

,508

12,7

10,0

4794

,626

,630

901,

901

900,

580

174,

093

195,

156

3159

167

546

531,

358

1993

24,8

09,3

0862

,155

,835

13,1

96,3

1310

0,16

1,45

692

1,94

590

1,90

119

4,18

821

4,94

627

5516

055

554

5,24

219

9426

,305

,808

69,1

98,3

1214

,086

,776

109,

590,

896

961,

407

921,

945

209,

644

226,

903

2550

157

569

560,

463

1995

28,7

13,8

1972

,106

,674

15,1

20,1

3311

5,94

0,62

699

0,75

196

1,40

723

0,26

124

8,28

726

5115

558

857

0,83

019

9631

,475

,766

73,3

54,3

7716

,396

,413

121,

226,

556

1,01

9,33

799

0,75

124

4,77

126

4,86

030

6415

960

259

3,93

019

9734

,202

,662

79,8

96,5

7817

,278

,147

131,

377,

387

1,05

4,23

21,

019,

337

243,

896

261,

497

2758

158

621

616,

065

1998

36,8

55,6

5087

,887

,953

18,0

64,6

4814

2,80

8,25

11,

094,

704

1,05

4,23

222

5,02

325

5,03

718

4115

264

364

5,65

119

9938

,987

,525

93,9

15,0

7518

,746

,946

151,

649,

546

1,13

4,72

31,

094,

704

224,

474

263,

616

2452

151

653

680,

852

2000

41,3

18,4

4710

0,83

4,06

619

,872

,855

162,

025,

368

1,18

5,30

51,

134,

723

246,

567

289,

927

3888

154

672

718,

644

2001

38,5

08,6

8010

3,67

8,52

220

,356

,633

162,

543,

835

1,22

2,65

01,

185,

305

243,

792

296,

910

3274

148

684

748,

122

2002

38,2

82,1

9910

7,80

0,09

722

,162

,907

168,

245,

203

1,25

5,14

21,

222,

650

236,

547

297,

024

3270

138

695

781,

860

2003

38,3

96,8

4911

5,24

7,63

824

,056

,078

177,

700,

565

1,29

9,38

11,

255,

142

232,

117

291,

959

3685

125

715

807,

653

2004

43,0

16,3

0612

3,66

4,85

225

,443

,103

192,

124,

261

1,33

7,78

21,

299,

381

228,

451

301,

421

4612

012

073

783

2,69

020

0545

,228

,164

131,

804,

154

26,2

64,3

5520

3,29

6,67

31,

365,

685

1,33

7,78

224

6,29

632

6,39

764

170

120

757

851,

338

2006

46,8

14,8

4113

7,90

6,41

026

,029

,643

210,

750,

894

1,40

1,29

01,

365,

685

274,

855

361,

261

7419

411

878

286

7,08

220

0748

,908

,110

142,

366,

617

25,5

75,0

5021

6,84

9,77

71,

449,

861

1,40

1,29

023

8,43

433

6,47

778

214

106

815

890,

872

2008

47,9

82,3

9614

1,13

2,84

924

,387

,047

213,

502,

292

1,43

3,87

11,

449,

861

262,

205

360,

209

101

302

101

848

878,

024

2009

45,5

51,4

1713

0,07

8,09

522

,377

,152

198,

006,

664

1,37

1,16

31,

433,

871

238,

653

325,

328

6516

910

084

384

6,96

120

1044

,907

,689

127,

034,

154

20,4

68,3

7419

2,41

0,21

71,

395,

312

1,37

1,16

326

5,71

436

4,17

680

211

107

882

855,

302

His

toric

al ti

me

serie

s of

traf

fic, G

DP,

avg

fare

s, o

il pr

ices

, im

port

s, e

xpor

ts, c

onsu

mer

spe

ndin

g, R

PI

OLS

Reg

ress

ion

anal

ysis

iden

tifyi

ng lo

ng ru

n hi

stor

ical

cor

rela

tion

betw

een

traf

fic a

nd d

river

s

For

ecas

ts fo

r in

depe

nden

t va

riabl

es

+ e

last

icity

re

latio

nshi

p +

m

atur

ity a

nd

adju

stm

ents

=

unco

nstr

aine

d fo

reca

st o

f SH

, LH

an

d D

om T

raffi

c

Unc

onst

rain

ed lo

ng te

rm d

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d fo

reca

sts

for

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on m

arke

t as

a w

hole

Allo

catio

n of

unc

onst

rain

ed d

eman

d by

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don

airp

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base

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sur

face

acc

ess,

dem

and

prof

ile

01020304050

LH SH Doms

Unc

onst

rain

ed lo

ng te

rm d

eman

d fo

reca

sts

for

Gat

wic

k

0

10

20

30

40

50

60

11/12

12/13

13/14

14/15

15/16

16/17

17/18

18/19

19/20

20/21

21/22

22/23

23/24

24/25

25/26

26/27

27/28

28/29

29/30

30/31

31/32

32/33

33/34

34/35

35/36

Millions

0.8

0

0.8

5

0.9

0

0.9

5

1.0

0

1.0

5

1.1

0

1.1

5

1.2

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Ap

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Jun

Jul

Aug

Sep

Oct

No

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Jan

Feb

Mar

LH

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nth

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tio

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Spr

eadi

ng

Spill

and

Rec

aptu

re

05

10

15

20

25

30

35

40

45

50

Onb

oard

Gat

wic

k S

egm

ent P

ax

LH

SH

Do

ms

Top-

Dow

n C

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orec

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k

198

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the

nega

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out

look

T

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GD

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sub

stan

tially

lo

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.

20

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s no

w e

xpec

ted

to e

nd t

he y

ear

with

neg

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e gr

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d

the

cons

ensu

s ap

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s to

be

for

sub-

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row

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or t

he n

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. T

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is 0

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elow

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ecta

tions

eve

n ni

ne m

onth

s ag

o.

T

here

is

no h

isto

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com

para

ble

of s

uch

a su

stai

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per

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of

low

eco

nom

ic g

row

th.

Pre

viou

s re

cess

ions

hav

e ty

pic

ally

ret

urne

d

to g

row

th w

ithin

2-4

yea

rs.

P

ost

2020

, so

me

of t

his

lost

gro

wth

is

expe

cted

to

be r

egai

ned,

w

ith h

ighe

r G

DP

fore

cast

for

the

2020

s de

cade

T

his

dela

y to

gro

wth

is

not

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cien

t to

com

pens

ate

for

the

near

an

d m

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term

re

duct

ion,

re

sulti

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in

low

er

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and

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s ov

er th

e lo

ng te

rm

-1.0

%

-0.5

%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

201020112012201320142015201620172018201920202021202220232024202520262027202820292030203120322033203420352036

UK GDP Forecast, Annual Percentage Change

May

-11

Dec

-11

Aug

-12

GD

P Fo

reca

sts

unde

rpin

ning

Lon

don

Traf

fic F

orec

asts

020406080

1990199319961999200220052008201120142017202020232026202920322035

OLD

NE

W

Long

Hau

l

050100

150

1990199319961999200220052008201120142017202020232026202920322035

OLD

NE

W

Sho

rt H

aul

05101520

OLD

NE

W

Dom

estic

Unc

onst

rain

ed F

orec

asts

by

Segm

ent,

Prev

ious

and

Rev

ised

199


15

icfi.

com

/avi

atio

n |

0500

1,00

0

1,50

0

2,00

0

2,50

0

050100

150

200

250

199019921994199619982000200220042006200820102012201420162018202020222024202620282030203220342036

UK GDP, Bn

Passengers, Million

Do

m +

SH

+ L

H

Do

m +

SH

Do

mes

tic

SEPT

EMBE

R 2

012

GAT

WIC

K F

OR

ECAS

T U

PDAT

E

Unc

onst

rain

ed G

row

th, f

rom

whi

ch A

irpor

t-spe

cific

dem

and

is d

eriv

ed,

is fo

reca

st to

gro

w a

t jus

t und

er 2

% p

er a

nnum

T

his

is a

com

bina

tion

of:

•D

omes

tic d

eman

d gr

owin

g co

nsid

erab

ly

mor

e sl

owly

tha

n U

K G

DP

•S

hort

-hau

l de

man

d gr

owin

g at

ar

ound

th

e sa

me

rat

e a

s G

DP

•Lo

ng-h

aul g

row

ing

slig

htly

fas

ter

than

UK

G

DP

ow

ing

to t

he p

ositi

ve i

nflu

ence

of

less

m

atur

e in

boun

d (a

nd

som

e ou

tbou

nd)

long

hau

l flo

ws

Ass

umed

GD

P F

orec

ast:

C

AG

R 1

.8%

His

toric

al

GD

P G

row

th:

C

AG

R 2

.3%

Even

the

unco

nstra

ined

gro

wth

ass

umes

mar

ket

mat

urity

, whi

ch re

sults

in a

dec

linin

g m

ultip

lier

rela

tive

to G

DP.

If lo

ng te

rm h

istor

ical

re

latio

nshi

ps w

ere

mai

ntai

ned

the

Lond

on a

rea

fore

cast

wou

ld re

ach

alm

ost 3

60 m

illion

by

2035

, eq

uiva

lent

to a

CAG

R o

f 4.1

%

Sou

rce:

IC

F S

H&

E A

naly

sis

CA

GR

Long

Hau

lSh

ort H

aul

Dom

estic

Tota

l19

90-2

001

5.1%

4.7%

3.9%

4.7%

2001

-201

11.

7%2.

3%(1

.8%

)1.

7%

2011

-201

60.

6%0.

8%(0

.2%

)0.

7%20

16-2

021

2.5%

1.8%

1.2%

2.0%

2021

-202

62.

9%2.

3%1.

8%2.

4%20

26-2

031

2.3%

2.2%

1.7%

2.2%

2031

-203

61.

8%1.

8%1.

4%1.

7%

2011

-203

62.

0%1.

8%1.

2%1.

8%

GDP

and

Unc

onst

rain

ed L

ondo

n De

man

d Fo

reca

sts

200

16

icfi.

com

/avi

atio

n |

SEPT

EMBE

R 2

012

GAT

WIC

K F

OR

ECAS

T U

PDAT

E Fa

ctor

s ot

her t

han

econ

omic

gro

wth

als

o af

fect

traf

fic g

row

th; t

hese

ar

e re

flect

ed a

s fa

r as

poss

ible

In

par

ticul

ar, t

he fi

rst t

hree

yea

rs a

re n

ot b

ased

on

GDP

or o

ther

mac

ro fo

reca

sts

20

12/1

3 to

201

4/15

are

pro

duce

d on

an

airli

ne-b

y-ai

rline

bas

is, u

sing

the

late

st a

vaila

ble

sche

dule

, fle

et,

finan

cial

per

form

ance

and

mar

ket i

nsig

hts

from

ICF

SH

&E

and

GA

L B

usin

ess

Dev

elop

men

t Tea

m

Dom

estic

, Sho

rt H

aul a

nd L

ong

Hau

l seg

men

ts

are

fore

cast

alo

ng m

ain

airli

ne g

roup

ings

In th

e ne

ar te

rm (B

ase

- Yr3

) Sho

rt

Haul

pro

duce

s th

e gr

eate

st in

crea

se

in P

ax (m

ix o

f ATM

s, L

F &

S/AT

M)

Yr

s 1-

3 is

mor

e ba

lanc

ed w

ith L

H &

Dom

s co

ntrib

utin

g m

ore

than

SH

Th

e Ba

se, H

igh

and

Low

Cas

es a

re

fully

wor

ked-

up s

cena

rios

base

d on

sp

ecifi

c ro

utes

and

car

riers

Sou

rce:

IC

F S

H&

E A

naly

sis

Low

Base

High

28,0

00

29,0

00

30,0

00

31,0

00

32,0

00

33,0

00

34,0

00

35,0

00

36,0

00

37,0

00

FY

08/0

9F

Y09

/10

FY

10/1

1F

Y11

/12

FY

12/1

3F

Y13

/14

FY

14/1

5

Year

3 ‘v

s’ Y

ear 1

GAL

For

ecas

t

0

5,00

0

10,0

00

15,0

00

20,0

00

25,0

00

30,0

00

35,0

00

40,0

00

FY

08/0

9F

Y09

/10

FY

10/1

1F

Y11

/12

FY

12/1

3F

Y13

/14

FY

14/1

5

His

toric

Bas

eB

ott

om

up

Sho

rt h

aul+

0.9%

Long

Hau

l+1.

2%D

om

s+2.

1%

33,0

00

33,5

00

34,0

00

34,5

00

35,0

00

35,5

00

FY12/13

ATMs

LF %

S/ATM

ATMs

LF %

S/ATM

ATMs

LF %

S/ATM

FY14/15

Do

ms

+14

5kLo

ng h

aul

+25

7kS

hort

Hau

l+

365k

201


17

icfi.

com

/avi

atio

n |

SEPT

EMBE

R 2

012

GAT

WIC

K F

OR

ECAS

T U

PDAT

E B

ecau

se o

f the

Lon

don

syst

em’s

cap

acity

con

stra

ints

, bey

ond

2018

ca

paci

ty u

tilis

atio

n is

the

mai

n in

fluen

ce o

n gr

owth

Lond

on R

unw

ay a

ssum

ptio

ns:

LGW

- S

ingl

e R

unw

ay, A

TM

Cap

of 2

90k

with

cre

ep

LHR

- N

o 3r

d ru

nway

or

mix

ed m

ode,

AT

M

Cap

of 4

78k

with

lim

ited

cree

p

STN

- S

ingl

e R

unw

ay, 3

5m p

asse

nger

cap

in

201

5 &

gro

win

g to

war

ds 4

0m (

Sta

nste

d M

aste

r pl

an)

LTN

- S

ingl

e R

unw

ay, 2

0m p

asse

nger

s ca

p w

ith c

reep

LCY

– S

ingl

e R

unw

ay, 5

m p

asse

nger

s ca

p w

ith c

ree

p

Oth

er a

irpo

rt d

eman

d n

ot

cap

ture

dLo

cal d

eman

d S

pilt

Co

nstr

aine

d D

eman

d

Cap

acity

Co

nstr

aint

Unc

ons

trai

ned

Mar

ket

Tim

e

AirportDemand

Oth

er A

irpor

t spi

ll is

not

ca

ptur

ed b

y e.

g. L

GW

Unc

onst

rain

ed d

eman

d gr

ows

beyo

nd c

apac

ity li

mit

resu

lting

in s

pill/

lost

dem

and

Illus

trat

ive

Impa

ct o

f Cap

acity

con

stra

int:

For G

atw

ick,

this

has

a tw

o-fo

ld e

ffect

: 1)

It b

enef

its fr

om s

pill

from

Hea

thro

w a

s th

at a

irpor

t re

ache

s its

ass

umed

cap

acity

lim

its

2)It

lose

s po

tent

ial t

raffi

c to

oth

er a

irpor

ts o

r fr

om th

e sy

stem

as

it ca

nnot

acc

omm

odat

e ad

ditio

nal

volu

mes

Sou

rce:

IC

F S

H&

E A

naly

sis

202

18

icfi.

com

/avi

atio

n |

18

Res

ults

and

Com

paris

on

Late

st F

orec

asts

SEC

TIO

N 3

203


19

icfi.

com

/avi

atio

n |

SEPT

EMBE

R 2

012

GAT

WIC

K F

OR

ECAS

T U

PDAT

E

The

fore

cast

s ha

ve d

eclin

ed ~

4% in

the

Med

ium

Ter

m

G

row

th s

et b

ack

~3

year

s

20

18/1

9 do

wn

1.4m

at 3

5.9m

25.0

30.0

35.0

40.0

45.0

06/0707/0808/0909/1010/1111/1212/1313/1414/1515/1616/1717/1818/1919/2020/2121/22

SH

&E

Low

SH

&E

Bas

e

SH

&E

Hig

hS

H&

E J

an 2

012

Late

st G

atw

ick

Fore

cast

s

SH

&E

Bas

e S

H&

E

Ja

n 20

12

Dif

(%)

Dif

(Abs

)

11/1

2 33

.8

33.7

0.

4%

0.1

12

/13

33.8

34

.3

-2.3

%

-0.5

13/1

4 34

.0

35.2

-3

.6%

-1

.3

14/1

5 34

.5

35.7

-3

.3%

-1

.2

15/1

6 34

.7

36.0

-3

.8%

-1

.4

16/1

7 35

.0

36.4

-4

.0%

-1

.4

17/1

8 35

.4

36.8

-3

.9%

-1

.4

18/1

9 35

.9

37.2

-3

.7%

-1

.4

19/2

0 36

.6

38.1

-4

.1%

-1

.6

20/2

1 37

.2

39.1

-4

.8%

-1

.9

21/2

2 38

.1

40.2

-5

.3%

-2

.1

22/2

3 39

.0

41.1

-5

.2%

-2

.1

Ann

ual P

ax (

m)

Not

e: Y

ear 1

Jan

’12

fore

cast

stil

l inc

lude

s e.

g. D

L (e

xpla

ins

diffe

renc

e fro

m G

AL

fore

cast

v1)

N

ote:

Yea

r 1 (F

Y ‘1

2/13

) pro

vide

d by

GA

L S

ourc

e: I

CF

SH

&E

Ana

lysi

s

204

20

icfi.

com

/avi

atio

n |

SEPT

EMBE

R 2

012

GAT

WIC

K F

OR

ECAS

T U

PDAT

E

As

with

any

fore

cast

, the

pro

ject

ions

are

bas

ed o

n th

e be

st

and

late

st a

vaila

ble

info

rmat

ion

at th

e tim

e of

pre

para

tion

U

ncer

tain

ly o

ver

futu

re G

DP

is o

ne o

f th

e m

ajor

unk

now

ns

E

ven

com

pare

d to

one

yea

r ag

o, th

e co

nsen

sus

GD

P fo

reca

sts

are

at o

r ev

en o

utsi

de th

e pr

evio

us lo

wer

bo

unds

O

ver

the

long

er te

rm th

ere

is m

ore

cons

ensu

s th

at G

DP

gro

wth

will

st

abili

se a

roun

d a

low

sin

gle

digi

t al

thou

gh in

the

near

term

furt

her

revi

sion

s sh

ould

be

expe

cted

. The

se

may

be

posi

tive

or n

egat

ive.

T

he s

hort

term

, bot

tom

-up

fore

cast

ta

kes

adva

ntag

e of

the

mor

e de

taile

d in

form

atio

n av

aila

ble

rega

rdin

g ai

rline

be

havi

our

and

is fa

vour

ed o

ver

the

GD

P-le

d ap

proa

ch

OBR

Cen

tral C

ase

0%

3%

6%

-3%

Base

High

GDP

leve

ls

Low

GDP

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Rang

e of

GDP

fore

cast

s, 2

011

Sou

rce:

IMF

, O

BR

, BoE

, IC

F S

H&

E A

naly

sis

ICF

Base

Cas

e

0%

3%

6%

-3%

Prev

ious

Bas

e

Prev

ious

Hig

h

Prev

ious

Low

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Curr

ent G

DP fo

reca

sts

com

pare

d to

205


21

icfi.

com

/avi

atio

n |

Ove

rvie

w o

f Low

Cas

e an

d H

igh

Cas

e SE

PTEM

BER

201

2 G

ATW

ICK

FO

REC

AST

UPD

ATE

In

sho

rt r

un, w

e as

sum

e a

wea

kene

d re

turn

of

dem

and

refle

ctin

g fu

rthe

r m

arke

t unc

erta

inty

and

fin

anci

al r

ecov

ery

–T

his

lead

s to

33.

0 m

illio

n pa

x by

201

4/15

, a

CA

GR

of -

0.8%

O

ver

the

long

run

, we

assu

me

a m

ore

subd

ued

grow

th in

dem

and

driv

en b

y w

eake

r G

DP

gro

wth

, hi

gher

oil

pric

es a

nd m

ore

taxa

tion

than

in th

e ba

se c

ase.

–T

his

lead

s to

34.

1 m

illio

n pa

x by

202

1/22

, a

CA

GR

of 0

.1%

–A

nd 4

3.1

mill

ion

pax

by 2

036/

37, a

CA

GR

of

1.0%

T

his

is a

mor

e pe

ssim

istic

fore

cast

but

incr

ease

d le

vels

in th

e co

st o

f fly

ing

and

prol

onge

d w

eak

econ

omic

con

ditio

ns c

ould

com

bine

to p

rodu

ce a

su

stai

ned

perio

d of

lim

ited

grow

th

In

sho

rt r

un, w

e as

sum

e a

stro

ng

reco

very

fro

m c

urre

nt

dip

with

ope

rato

rs a

ddin

g fu

rthe

r ye

ar r

ound

cap

acity

at

Gat

wic

k

–T

his

lead

s to

35.

8 m

illio

n pa

x by

201

4/15

, a C

AG

R o

f 2%

O

ver

the

long

run

, we

assu

me

the

mar

ket c

ontin

ues

to

grow

thr

ough

str

onge

r ec

onom

ic g

row

th b

ut o

ffse

t by

a m

atur

ing

and

wea

keni

ng r

elat

ions

hip

betw

een

GD

P

and

pass

enge

r de

man

d

–T

his

lead

s to

41.

6 m

illio

n pa

x by

202

1/22

, a C

AG

R o

f 2.

1%

–A

nd 4

7.9

mill

ion

pax

by 2

036/

37, a

CA

GR

of 1

.4%

T

his

scen

ario

is c

onsi

dere

d ac

hiev

able

and

are

co

nsid

erab

ly b

elow

the

prev

ious

Hig

h C

ase,

ref

lect

ing

wea

kene

d m

arke

t con

ditio

ns. T

hese

leve

ls o

f gro

wth

ar

e ce

rtai

nly

belo

w p

revi

ous

sust

aine

d gr

owth

rat

es

and

we

belie

ve a

re a

ppro

pria

te fo

r co

nsid

erat

ion

in th

e co

ntex

t of c

apac

ity p

lann

ing

scen

ario

s

Low

Cas

e H

igh

Cas

e

Als

o no

te t

hat

sign

ifica

nt c

hang

es in

the

rel

ativ

e co

st o

f op

erat

ing

at t

he d

iffer

ent

Lond

on a

irpor

ts a

re n

ot a

ssum

ed in

the

Bas

e C

ase.

Pos

itive

or

nega

tive

impa

cts

may

be

seen

fro

m

com

petit

ive

pric

ing

or c

hang

es in

airp

ort

char

ge s

truc

ture

s –

how

ever

the

se a

re e

xpec

ted

to f

all w

ithin

the

ran

ge o

f th

e H

igh

and

Low

Cas

es m

odel

led.

206

22

icfi.

com

/avi

atio

n |

SEPT

EMBE

R 2

012

GAT

WIC

K F

OR

ECAS

T U

PDAT

E LG

W g

row

th ra

tes

have

typi

cally

dec

lined

, eve

n be

yond

the

shor

t ter

m b

otto

m u

p fo

reca

st

Late

st G

atw

ick

Gro

wth

Rat

es

Ann

ual v

LY

Ann

ual v

LY

Ann

ual v

LY

*Not

e : H

igh

case

vLY

s in

Med

ium

term

ab

ove

Jan

fore

cast

s du

e to

whe

n LG

W

reac

hes

capa

city

cap

Base

(Sep

)B

ase

(Jan

)Hi

gh (S

ep)

Hig

h (J

an)

Low

(Sep

)Lo

w (

Jan)

10/1

1-2

.2%

-2.2

%10

/11

-2.2

%-2

.2%

10/1

1-2

.2%

-2.2

%11

/12

4.3%

3.8%

11/1

24.

3%4.

0%11

/12

4.3%

3.7%

12/1

3-0

.1%

2.7%

12/1

30.

2%4.

5%12

/13

-1.1

%0.

6%13

/14

0.6%

2.0%

13/1

42.

6%4.

3%13

/14

-1.9

%0.

4%14

/15

1.6%

1.3%

14/1

53.

1%2.

9%14

/15

0.5%

0.6%

15/1

60.

5%1.

0%15

/16

2.1%

2.6%

15/1

6-0

.5%

0.5%

16/1

70.

8%1.

0%16

/17

2.2%

2.5%

16/1

7-0

.2%

0.6%

17/1

81.

2%1.

1%17

/18

2.2%

1.7%

17/1

80.

1%0.

7%18

/19

1.5%

1.4%

18/1

92.

6%1.

8%18

/19

0.5%

0.8%

19/2

01.

8%2.

2%19

/20

2.9%

1.5%

19/2

00.

9%1.

1%20

/21

1.8%

2.6%

20/2

11.

5%1.

5%20

/21

1.3%

1.2%

-2.0

%

0.0%

2.0%

4.0%

BA

SE vL

YsTo

tal A

ug B

ase

Tota

l Jan

Bas

e

-2.0

%

0.0%

2.0%

4.0%

HIG

H vL

Ys

To

tal A

ug

Hig

hT

ota

l Jan

Hig

h

-2.0

%

0.0%

2.0%

4.0%

LOW

vLYs

To

tal A

ug

Lo

wT

ota

l Jan

Lo

w

207


23

icfi.

com

/avi

atio

n |

SEPT

EMBE

R 2

012

GAT

WIC

K F

OR

ECAS

T U

PDAT

E

Tota

l tra

ffic

reac

hes

46m

by

the

end

of th

e Fo

reca

st p

erio

d

05101520253035404550

06/0708/0910/1112/1314/1516/1718/1920/2122/2324/2526/2728/2930/3132/3334/3536/37

Dom

s

Sho

rtH

aul

Long

Hau

l

Ann

ual P

ax (

m)

A

gain

, gro

wth

tre

nds

to a

roun

d 46

m a

nnua

l pas

seng

ers

by t

he e

nd o

f th

e fo

reca

st p

erio

d w

ith a

sim

ilar

mix

of

unde

rlyin

g tr

affic

Gat

wic

k Fo

reca

sts

Pax,

Gro

wth

& M

ix

Pax

(m)

LHS

HD

oms

Tota

l11

/12

5.0

25.0

3.8

33.8

16/1

75.

325

.83.

935

.021

/22

5.9

28.0

4.2

38.1

26/2

77.

030

.64.

542

.131

/32

7.9

32.1

4.5

44.5

36/3

78.

733

.04.

446

.1

Pax

(m) C

AGR

LHS

HD

oms

Tota

l11

/12

- 16

/17

1.0%

0.6%

1.0%

0.7%

11/1

2 -

21/2

21.

6%1.

1%1.

1%1.

2%11

/12

- 26

/27

2.3%

1.4%

1.2%

1.5%

11/1

2 -

31/3

22.

3%1.

3%0.

9%1.

4%11

/12

- 36

/37

2.2%

1.1%

0.6%

1.2%

Pax

Mix

LHS

HD

oms

Tota

l11

/12

15%

74%

11%

100%

16/1

715

%74

%11

%10

0%21

/22

16%

73%

11%

100%

26/2

717

%73

%11

%10

0%31

/32

18%

72%

10%

100%

36/3

719

%72

%9%

100%

208

24

icfi.

com

/avi

atio

n |

SEPT

EMBE

R 2

012

GAT

WIC

K F

OR

ECAS

T U

PDAT

E

Gro

wth

is e

stim

ated

at a

roun

d 75

add

ition

al d

aily

ser

vice

s by

203

5/36

, tak

ing

annu

al A

TMs

to a

roun

d 30

0k

Gat

wic

k G

row

th

LH

Gro

wth

: •

3.7m

gro

wth

•E

quiv

alen

t to

~17

ser

vice

s

•R

etur

n to

200

7 (8

.7m

) le

vels

tow

ard

end

of f

orec

ast

SH

Gro

wth

•

8.0m

gro

wth

•E

quiv

alen

t to

57 s

ervi

ces

(e.g

U2

curr

ently

has

~11

5)

D

omes

tic G

row

th:

•0.

6m g

row

th

•Li

mite

d A

TM

gro

wth

(dr

iven

by

AL/

AC

/LF

mix

ass

umed

in fu

ture

seg

men

t)

209


25

icfi.

com

/avi

atio

n |

SEPT

EMBE

R 2

012

GAT

WIC

K F

OR

ECAS

T U

PDAT

E

The

long

er te

rms

show

s a

retu

rn to

pre

viou

s ou

tput

as

spill

an

d ca

paci

ty a

ssum

ptio

ns d

rive

the

fore

cast

s

253035404550

06/0707/0808/0909/1010/1111/1212/1313/1414/1515/1616/1717/1818/1919/2020/2121/2222/2323/2424/2525/2626/2727/2828/2929/3030/3131/3232/3333/3434/3535/3636/37

SH

&E

Low

SH

&E

Bas

e

SH

&E

Hig

h

SH

&E

Jan

201

2

Ann

ual P

ax (

m)

Long

Ter

m G

atw

ick

Fore

cast

s

210

26

icfi.

com

/avi

atio

n |

211

Gat

wic

k B

usin

ess

Plan

Va

lidat

ion

Res

earc

h:

Find

ings

from

a s

urve

y of

airp

ort

cust

omer

s –

Sept

embe

r 201

2

G

avin

Elli

son

(020

701

2 60

08)

ga

vin.

ellis

on@

youg

ov.c

om

APPENdix 5 custoMeR suRveys: youGov

213

Sum

mar

y 1

Appendix 5Customer surveys: youGov

214

Met

hod

2,

060

onlin

e in

terv

iew

s (Au

gust

/ Se

ptem

ber)

:

UK

base

d pa

ssen

gers

trav

ellin

g th

roug

h at

leas

t one

Lon

don

airp

ort i

n th

e la

st 1

2 m

onth

s.

Sa

mpl

ed fr

om se

lect

ed p

ostc

ode

area

s of S

outh

-Eas

t Eng

land

mat

chin

g th

e Ga

twic

k fo

otpr

int.

Th

e su

rvey

sou

ght t

o qu

antif

y le

vels

of in

tere

st a

nd re

ason

s fo

r and

aga

inst

se

ts o

f con

cept

s and

idea

s for

serv

ices

and

pro

duct

s. It

follo

wed

an

‘airp

ort

neut

ral’

appr

oach

for t

he m

ajor

ity o

f the

surv

ey, r

evea

ling

it w

as a

bout

Ga

twic

k fo

r som

e qu

estio

ns to

war

ds th

e en

d.

Th

ese

idea

s wer

e ex

plor

ed a

nd te

sted

thro

ugh

a se

ries o

f 10

focu

s gro

ups i

n Ju

ly. T

he id

eas w

ere

divi

ded

betw

een

four

ver

tical

cus

tom

er se

gmen

ts:

prem

ium

, bus

ines

s, fa

mily

and

core

, but

with

som

e cu

ttin

g ac

ross

the

vert

ical

s.

Th

e su

rvey

sam

pled

993

cor

e, 3

49 p

rem

ium

(firs

t and

bus

ines

s cla

ss

cust

omer

s), 3

68 b

usin

ess e

cono

my

flyer

s and

350

who

had

flow

n w

ith

child

ren

unde

r the

age

of 1

2. T

he sa

mpl

e ha

d be

en b

oost

ed fo

r pre

miu

m,

busin

ess a

nd fa

mily

sub-

grou

ps to

pro

vide

suffi

cien

t num

bers

for a

naly

sis, b

ut

the

bala

nce

was

then

wei

ghte

d ba

ck d

own

to a

repr

esen

tativ

e sp

lit b

etw

een

the

four

ver

tical

s.

3

215

Sum

mar

y –

Impa

ct o

n lik

elih

ood

to fl

y al

l con

cept

s by

all

segm

ents

4

Stag

eCo

ncep

tPr

emiu

mBu

sine

ssFa

mily

Core

Chec

k-in

at c

ar d

rop

off

15%

Com

mon

bag

dro

p27

%Co

mm

on ch

eck-

in (a

ll ai

rline

s)26

%Co

mm

on ch

eck-

in (l

ow co

st o

nly)

19%

Com

mon

self-

tag

and

bag

drop

23%

Ente

rtai

nmen

ts a

t che

ck-in

(Fam

ily)

20%

Prem

ium

par

king

with

chec

k-in

faci

lity

21%

Rem

ote

chec

k-in

22%

29%

26%

Segr

egat

ed ch

eck-

in15

%44

%Se

curit

ySe

greg

ated

secu

rity

lane

51%

17%

44%

Busi

ness

cent

re12

%M

assa

ge &

rela

xatio

n ch

airs

5%Pe

rson

al sh

oppi

ng2%

Reta

il po

ds3%

Out

side

spac

e37

%Se

greg

ated

zone

27%

32%

43%

Show

ers &

spa

trea

tmen

ts17

%Ac

tiviti

es in

gat

e ro

oms (

Fam

ily)

36%

Child

ren'

s pla

y ar

ea36

%Bu

sine

ss fa

cilit

ies a

t the

gat

e15

%Pr

emiu

m se

atin

g ar

ea a

t gat

e36

%Ba

ggag

e re

clai

m fa

cilit

ies

27%

Bags

del

iver

ed to

hom

e or

hot

el23

%Fa

mily

por

ter s

ervi

ce (a

rriv

als)

12%

Prem

ium

arr

ival

s lou

nge

24%

Prio

rity

bag

iden

tific

atio

n13

%Pu

shch

airs

/ pr

ams a

t airc

raft

on

arriv

al22

%Re

clai

m m

eet a

nd g

reet

8%Se

greg

ated

lane

thro

ugh

imm

igra

tion

51%

44%

Airp

ort f

requ

ent f

lyer

rew

ard

card

11%

6%19

%Fa

mily

par

king

zone

s27

%

Chec

k-in

IDL

Gat

e

Arriv

al

Mis

c


216

Sum

mar

y - I

mpa

ct o

n lik

elih

ood

to fl

y C

heck

-in a

nd s

ecur

ity

5 Stag

eCo

ncep

tPr

emiu

mBu

sine

ssFa

mily

Core

Chec

k-in

at c

ar d

rop

off

15%

Com

mon

bag

dro

p27

%Co

mm

on ch

eck-

in (a

ll ai

rline

s)26

%Co

mm

on ch

eck-

in (l

ow co

st o

nly)

19%

Com

mon

self-

tag

and

bag

drop

23%

Ente

rtai

nmen

ts a

t che

ck-in

(Fam

ily)

20%

Prem

ium

par

king

with

chec

k-in

faci

lity

21%

Rem

ote

chec

k-in

22%

29%

26%

Segr

egat

ed ch

eck-

in15

%44

%Se

curit

ySe

greg

ated

secu

rity

lane

51%

17%

44%

Chec

k-in

217

Sum

mar

y - I

mpa

ct o

n lik

elih

ood

to fl

y ID

L &

Gat

e

6 Stag

eCo

ncep

tPr

emiu

mBu

sine

ssFa

mily

Core

Busi

ness

cent

re12

%M

assa

ge &

rela

xatio

n ch

airs

5%Pe

rson

al sh

oppi

ng2%

Reta

il po

ds3%

Out

side

spac

e37

%Se

greg

ated

zone

27%

32%

43%

Show

ers &

spa

trea

tmen

ts17

%Ac

tiviti

es in

gat

e ro

oms (

Fam

ily)

36%

Child

ren'

s pla

y ar

ea36

%Bu

sine

ss fa

cilit

ies a

t the

gat

e15

%Pr

emiu

m se

atin

g ar

ea a

t gat

e36

%

IDL

Gat

e


218

Sum

mar

y - I

mpa

ct o

n lik

elih

ood

to fl

y A

rriv

al &

Mis

c

7 Stag

eCo

ncep

tPr

emiu

mBu

sine

ssFa

mily

Core

Bagg

age

recl

aim

faci

litie

s27

%Ba

gs d

eliv

ered

to h

ome

or h

otel

23%

Fam

ily p

orte

r ser

vice

(arr

ival

s)12

%Pr

emiu

m a

rriv

als l

oung

e24

%Pr

iorit

y ba

g id

entif

icat

ion

13%

Push

chai

rs /

pram

s at a

ircra

ft o

n ar

rival

22%

Recl

aim

mee

t and

gre

et8%

Segr

egat

ed la

ne th

roug

h im

mig

ratio

n51

%44

%Ai

rpor

t fre

quen

t fly

er re

war

d ca

rd11

%6%

19%

Fam

ily p

arki

ng zo

nes

27%

Arriv

al

Mis

c

219

Impa

ct o

n Li

kelih

ood

to fl

y fr

om L

GW

Sum

mar

y –

Top

thre

e co

ncep

ts b

y se

gmen

t

8 F

amily

seg

men

t in

this

sum

mar

y on

ly f

ocus

ses

on th

ose

with

chi

ldre

n un

der

5.

12

3Pr

emiu

m Im

mig

ratio

n la

nePr

emiu

m S

ecur

ity la

nePr

emiu

m S

eatin

g at

Gat

e51

%51

%36

%Fa

mily

Sec

urity

Lane

Fam

ily Im

mig

ratio

nFa

mily

Che

ck in

48

%47

%46

%O

utsi

de S

pace

Qui

et Z

one

Bagg

age

Recl

aim

Fac

ilitie

s 43

%37

%27

%Re

mot

e Ch

eck-

inQ

uiet

Zon

eBu

sine

ss S

ecur

ity La

ne29

%27

%17

%

Prem

ium

Busi

ness

Core

Fam

ily

(kid

s und

er 5

yrs)

12

3Pr

emiu

m Im

mig

ratio

n la

nePr

emiu

m S

ecur

ity la

nePr

emiu

m S

eatin

g at

Gat

e91

%90

%78

%Fa

mily

Sec

urity

Lane

Child

ren'

s Pla

y Ar

ea

Fam

ily Im

mig

ratio

n La

ne89

%82

%82

%Q

uiet

Zon

eO

utsi

de S

pace

Bagg

age

Recl

aim

Fac

ilitie

s 80

%77

%70

%Q

uiet

Zon

eRe

mot

e Ch

eck-

inBu

sine

ss F

acili

ties a

t Gat

e59

%58

%51

%

Core

Fam

ily

(kid

s und

er 5

yrs)

Prem

ium

Busi

ness

Inte

rest

in c

once

pts

(per

cent

age

‘ver

y in

tere

sted

’ or ‘

quite

inte

rest

ed’ i

n co

ncep

t)


220

Sum

mar

y: re

actio

n to

con

cept

s –

Prem

ium

Pr

emiu

m c

usto

mer

s are

mos

t int

eres

ted

in:

A

dedi

cate

d la

ne th

roug

h im

mig

ratio

n’ (9

1%)

A

dedi

cate

d la

ne th

roug

h se

curit

y (9

0%)

A

prem

ium

seat

ing

area

at t

he d

epar

ture

gat

e (7

8%)

Th

ese

thre

e se

rvic

es a

re m

ost l

ikel

y to

impa

ct o

n th

eir c

hoos

ing

Gatw

ick

in th

e fu

ture

. In

fact

51%

bel

ieve

that

lane

s thr

ough

sec

urity

and

imm

igra

tion

wou

ld

affe

ct th

eir d

ecisi

on m

akin

g an

d 36

% b

elie

ve a

pre

miu

m se

atin

g ar

ea w

ould

be

an

also

be

an in

fluen

ce .

Ha

lf fe

el th

at a

ded

icat

ed la

ne th

roug

h im

mig

ratio

n w

ould

be

an e

xpec

tatio

n of

a

busin

ess o

r firs

t cla

ss ti

cket

serv

ice.

Pe

rhap

s sur

prisi

ngly,

17%

of f

requ

ent p

rem

ium

flye

rs fe

el th

at a

n ai

rpor

t rew

ard

card

wou

ld m

ake

a di

ffere

nce

in th

eir c

hoic

e of

airp

ort.

Re

lativ

ely

few

pre

miu

m fl

yers

use

rail

(14%

use

nat

iona

l rai

l & 1

8% u

se e

xpre

ss) t

o tr

avel

to th

e ai

rpor

t mak

ing

the

rem

ote

chec

k-in

opt

ions

less

att

ract

ive.

O

ver h

alf a

re in

tere

sted

in p

rem

ium

par

king

and

21%

thin

k it

mig

ht in

fluen

ce

airp

ort c

hoic

e. O

f tho

se w

ho d

rive,

71%

are

inte

rest

ed.

9

221

Sum

mar

y: re

actio

n to

con

cept

s –

Bus

ines

s

In

gen

eral

bus

ines

s eco

nom

y cu

stom

ers a

re le

ss in

tere

sted

in th

e id

eas,

the

ones

th

at w

ere

best

rece

ived

wer

e:

Q

uiet

zone

(59%

);

Re

mot

e ch

eck-

in (5

8%);

Bu

sines

s fac

ilitie

s at t

he g

ate

(51%

);

Bu

sines

s cen

tre

(50%

).

Re

mot

e ch

eck-

in a

nd q

uiet

zone

s are

the

mos

t lik

ely

to in

fluen

ce c

hoic

e.

A

third

wan

t a ‘q

uiet

, bus

ines

s-lik

e ar

ea to

wor

k in

’ hen

ce a

hig

h de

gree

of s

uppo

rt

for t

he b

usin

ess c

entr

es id

ea.

11

% o

f fre

quen

t bus

ines

s fly

ers f

eel t

hat a

n ai

rpor

t rew

ard

card

wou

ld in

fluen

ce

thei

r cho

ice

of a

irpor

t. 45

% fe

el th

at th

e re

war

d ca

rd w

as to

o ex

pens

ive

at

£150

/yea

r and

34%

feel

that

it is

not

wor

th it

if li

mite

d to

one

airp

ort.

A

fifth

feel

that

a b

usin

ess c

heck

-in a

rea

wou

ld b

e im

prac

tical

/ un

enfo

rcea

ble

A

quar

ter f

ed b

ack

that

the

cost

for u

sing

a bu

sines

s sec

urity

lane

wou

ld b

e to

o ex

pens

ive

at £

5 pe

r flig

ht.

10


222

Sum

mar

y: re

actio

n to

con

cept

s –

Fam

ily

Th

e id

eas a

nd se

rvic

es fo

r fam

ilies

wer

e be

st re

ceiv

ed b

y th

ose

with

chi

ldre

n un

der 6

ye

ars o

ld a

nd b

ecam

e sig

nific

antly

less

rele

vant

for t

hose

with

old

er c

hild

ren.

Th

e id

eas o

f mos

t int

eres

t are

:

Play

are

a (8

3% -

unde

r2s,

81%

- 2

to 5

s);

Fa

mily

lane

thro

ugh

imm

igra

tion

(83%

- un

der2

s, 8

0% -

2 to

5s)

;

Fa

mily

zone

(81%

- un

der 2

s, 7

3% -

2 to

5s)

; and

Fa

mily

secu

rity

lane

(81%

- un

der 2

s, 8

5% -

2 to

5s)

.

M

any

belie

ve th

at d

edic

ated

fam

ily la

nes b

enef

it ot

her p

asse

nger

s, n

ot ju

st

them

selv

es.

Fa

mili

es a

re e

spec

ially

like

ly to

trav

el to

the

airp

ort b

y ca

r, bu

t onl

y 27

% th

ough

t the

fa

mily

par

king

zone

s wou

ld in

fluen

ce a

irpor

t cho

ice.

Th

ose

idea

s ass

ocia

ted

with

lim

iting

que

ues s

uch

as im

mig

ratio

n la

ne, s

ecur

ity la

ne

and

chec

k-in

zone

are

the

mos

t lik

ely

to in

fluen

ce a

irpor

t cho

ice

(all

44%

).

Th

e le

ast i

nflu

entia

l con

cept

was

the

fam

ily p

orte

r ser

vice

(12%

), w

ith 3

4% p

refe

rrin

g to

look

afte

r the

ir ow

n lu

ggag

e, 2

6% b

elie

ving

it to

be

an u

nnec

essa

ry se

rvic

e an

d 26

%

perc

eivi

ng it

to b

e to

o ex

pens

ive

at £

5.

11

223

Sum

mar

y: re

actio

n to

con

cept

s –

Cor

e

Co

re c

usto

mer

s are

ent

husia

stic

abo

ut o

utsid

e sp

ace

(80%

) and

qui

et zo

nes (

77%

). Th

ere

is su

bsta

ntiv

e, b

ut n

ot o

verw

helm

ing

supp

ort f

or:

Co

mm

on b

ag d

rop

(66%

);

Co

mm

on c

heck

-in fo

r all

airli

nes (

60%

);

Co

mm

on se

lf-ta

g an

d ba

g dr

op (5

6%);

and

Br

ande

d ch

eck-

in fo

r ful

l ser

vice

, com

mon

for l

ow c

ost (

55%

).

Th

ose

with

the

grea

test

pot

entia

l inf

luen

ce o

n ai

rpor

t cho

ice

are

the

quie

t zon

e (4

3%)

and

outs

ide

spac

e (3

7%).

Th

e ai

rpor

t rew

ard

card

is o

f int

eres

t to

39%

of c

ore

freq

uent

flye

rs –

a su

b-gr

oup

that

co

nstit

utes

15%

of t

he c

ore

cust

omer

bas

e. 1

9% o

f fre

quen

t fly

ers f

eel t

hat a

rew

ard

card

mig

ht in

fluen

ce th

eir c

hoic

e of

airp

ort.

40%

of t

hem

feel

it is

too

expe

nsiv

e at

£1

50 p

er y

ear.

34

% fe

el th

at c

ost o

f che

ck-in

at c

ar d

rop

off i

s too

exp

ensiv

e an

d 29

% re

ject

it

beca

use

they

onl

y ra

rely

or n

ever

driv

e to

the

airp

ort.

W

hen

cons

ider

ing

com

mon

met

hods

of c

heck

-in, a

fift

h pr

efer

a re

pres

enta

tive

of

thei

r airl

ine

to b

e ch

ecki

ng th

em in

. 12


224

Sum

mar

y: s

atis

fact

ion

and

choi

ce

W

hen

cons

ider

ing

expe

rienc

es a

cros

s all

5 Lo

ndon

airp

orts

it is

the

ambi

ence

and

tim

e sp

ent q

ueui

ng w

hich

hav

e th

e gr

eate

st im

pact

on

over

all s

atisf

actio

n. C

reat

ing

a ‘w

elco

min

g fe

el’ i

s also

impo

rtan

t but

this

tend

s to

be a

n as

pect

of r

elat

ivel

y lo

w

satis

fact

ion.

Fo

r Gat

wic

k sp

ecifi

cally

, tim

e sp

ent q

ueui

ng a

nd a

‘wel

com

ing

feel

’ are

impo

rtan

t.

Pr

emiu

m c

usto

mer

s giv

e He

athr

ow a

sign

ifica

ntly

hig

her r

atin

g th

an G

atw

ick,

bus

ines

s ec

onom

y cu

stom

ers a

gree

d bu

t the

diff

eren

ce w

as su

bsta

ntia

lly n

arro

wer

. Sen

timen

t to

war

ds G

atw

ick

was

hig

her t

han

Heat

hrow

for c

ore

and

fam

ily v

ertic

als.

He

athr

ow is

pre

ferr

ed d

ue to

‘am

bien

ce /

feel

’, sho

ppin

g, re

stau

rant

s / c

afes

and

pu

blic

tran

spor

t lin

ks. G

atw

ick

is be

tter

for ‘

past

exp

erie

nces

’, lay

out a

nd e

ase

of

pick

ing

up a

nd d

ropp

ing

off.

50

% o

f pre

miu

m fl

yers

wou

ld m

ost l

ike

to fl

y fr

om H

eath

row,

com

pare

d to

23%

Ga

twic

k. T

he sa

me

was

true

for b

usin

ess (

39%

vs.

22%

). Ag

ain

Gatw

ick

edge

s He

athr

ow fo

r fam

ilies

and

cor

e cu

stom

ers.

13

225

Prem

ium

Con

cept

s 2


226

Rel

ativ

e in

tere

st in

con

cept

s

5 6 9 9 14 21

21

24

25 35

44

63 67

16 22

24

24 21

27

30

25 33

30

34

27 24

020

4060

8010

0

Pers

onal

shop

ping

Reta

il po

dsM

assa

ge &

rela

xatio

n ch

airs

Recl

aim

mee

t and

gre

etAi

rpor

t fre

quen

t fly

er re

war

d ca

rdRe

mot

e ch

eck-

inSh

ower

s & sp

a tr

eatm

ents

Bags

del

iver

ed to

hom

e or

hot

elPr

emiu

m p

arki

ng w

ith c

heck

-in fa

cilit

yPr

emiu

m a

rriv

als l

oung

ePr

emiu

m se

atin

g ar

ea a

t gat

ePr

emiu

m se

curit

y la

nePr

emiu

m la

ne th

roug

h im

mig

ratio

n

%

Very

inte

rest

ed

Qui

te in

tere

sted

Inte

rest

in re

mot

e ch

eck-

in

high

er a

mon

g tu

be /

trai

n us

ers (

62%

).

Inte

rest

in p

arki

ng h

ighe

r am

ong

regu

lar d

river

s (7

1%).

Bas

e: a

ll pr

emiu

m: (

349)

S

ourc

e Y

ouG

ov S

ept

2012

15

Q. H

ow in

tere

sted

or n

ot a

re y

ou in

eac

h id

ea?

(ver

y an

d qu

ite in

tere

sted

)

10

12

13

65

Busi

ness

Prem

ium

Fam

ily

Core

227

Impa

ct o

n lik

elih

ood

to fl

y fr

om G

atw

ick

29

2 3 5

8 11

17 21

22

23

24

36

51

51

010

2030

4050

60

Non

e of

thes

ePe

rson

al sh

oppi

ngRe

tail

pods

Mas

sage

& re

laxa

tion

chai

rsRe

clai

m m

eet a

nd g

reet

Airp

ort f

requ

ent f

lyer

rew

ard

card

Show

ers &

spa

trea

tmen

tsPr

emiu

m p

arki

ng w

ith c

heck

-in fa

cilit

yRe

mot

e ch

eck-

inBa

gs d

eliv

ered

to h

ome

or h

otel

Prem

ium

arr

ival

s lou

nge

Prem

ium

seat

ing

area

at g

ate

Prem

ium

secu

rity

lane

Prem

ium

lane

thro

ugh

imm

igra

tion

%

17%

of f

requ

ent f

lyer

s fel

t th

at th

e re

war

d ca

rd w

ould

ha

ve a

n im

pact

, com

pare

d to

7%

who

had

flow

n ju

st o

nce.

Bas

e: t

hose

tha

t w

ere

inte

rest

ed in

eac

h co

ncep

t, b

ased

on

all p

rem

ium

(342

) S

ourc

e Y

ouG

ov S

ept

2012

16

Q. W

hich

, if a

ny, o

f the

follo

win

g id

eas o

r ser

vice

s m

ight

mak

e yo

u m

ore

likel

y to

fly

from

Gat

wic

k Ai

rpor

t in

the

futu

re?

(mul

tiple

cho

ice)

10

12

13

65

Busi

ness

Prem

ium

Fam

ily

Core


228

Why

inte

rest

ed a

nd w

hy n

ot?

(1)

17

Why

inte

rest

ed?

Why

not

inte

rest

ed?

Prem

ium

par

king

with

ch

eck-

in

Dr

op-o

ff ba

gs e

arly

as

poss

ible

(34%

)

Conv

enie

nt (3

3%)

×Ra

rely

/ ne

ver d

rive

(23%

) ×

Don’

t tru

st v

alet

par

king

w

ith c

ar (1

3%)

Rem

ote

chec

k-in

Rid

of h

eavy

lugg

age

(28%

)

Less

stre

ss (1

9%)

Co

nven

ient

(25%

)

Less

que

uing

at c

heck

-in

(27%

)

×Do

n’t u

se p

ublic

tr

ansp

ort t

o ai

rpor

t (2

9%)

×Ri

sk o

f los

ing

lugg

age

(20%

)

Prem

ium

secu

rity

lane

Expe

cted

for b

usin

ess o

r fir

st c

lass

(65%

)

Qui

cker

(65%

)

Bas

e: a

ll bu

sine

ss (

349)

S

ourc

e Y

ouG

ov S

ept

2012

229

Why

inte

rest

ed a

nd w

hy n

ot?

(2)

18

Why

inte

rest

ed?

Why

not

inte

rest

ed?

Prem

ium

seat

ing

area

at

the

gate

Mor

e co

mfo

rtab

le th

an

stan

dard

(57%

)

A fir

st o

r bus

ines

s cla

ss

serv

ice

(50%

)

×Do

n’t w

ant t

o sp

end

time

at th

e ga

te (1

3%)

×Pr

efer

to b

e in

bus

ines

s or

firs

t cla

ss lo

unge

(1

1%)

Prem

ium

lane

thro

ugh

imm

igra

tion

So

unds

qui

cker

(67%

)

Conv

enie

nt (5

1%)

Ex

pect

this

with

a fi

rst o

r bu

sines

s cla

ss se

rvic

e (5

0%)

Prem

ium

arr

ival

s lo

unge

Fres

hen

up b

efor

e w

ork

(39%

)

Expe

ct th

is w

ith a

firs

t or

busin

ess c

lass

serv

ice

(39%

)

×Al

way

s hea

d st

raig

ht

hom

e af

ter a

flig

ht (2

7%)

×Ra

rely

or n

ever

hav

e co

nnec

ting

fligh

ts (1

5%)

Bas

e: a

ll bu

sine

ss (

349)

S

ourc

e Y

ouG

ov S

ept

2012


230

Why

inte

rest

ed a

nd w

hy n

ot?

(3)

19

Why

inte

rest

ed?

Why

not

inte

rest

ed?

Airp

ort F

requ

ent F

lyer

ca

rd

Ai

rpor

t exp

erie

nce

less

st

ress

ful (

21%

)

Acce

ss sa

me

serv

ices

as

whe

n fly

ing

busin

ess o

r fir

st (1

8%)

He

lp o

n tr

ips w

hen

can’

t ju

stify

bus

ines

s or f

irst

(20%

)

Cove

rs a

frie

nd o

r fam

ily

mem

ber a

s wel

l (18

%)

×To

o ex

pens

ive

(36%

) ×

Not

wor

th it

if li

mite

d to

on

e ai

rpor

t (31

%)

×N

early

alw

ays t

rave

l firs

t or

bus

ines

s any

way

(2

2%)

Bas

e: a

ll bu

sine

ss (

349)

S

ourc

e Y

ouG

ov S

ept

2012

231

Busi

ness

Con

cept

s 3


232

Rel

ativ

e in

tere

st in

con

cept

s

4

11

12

13

13

15 19

24

15

39

30

27

22

36 39

35

020

4060

8010

0

Airp

ort f

requ

ent f

lyer

rew

ard

card

Busi

ness

cen

tre

Busi

ness

secu

rity

lane

Sepa

rate

bus

ines

s che

ck-in

Prio

rity

bag

iden

tific

atio

n

Busi

ness

faci

litie

s at t

he g

ate

Rem

ote

chec

k-in

Qui

et zo

ne

%

Very

inte

rest

ed

Qui

te in

tere

sted

Bas

e: a

ll bu

sine

ss (

368)

S

ourc

e Y

ouG

ov S

ept

2012

21

Q. H

ow in

tere

sted

or n

ot a

re y

ou in

eac

h id

ea?

(ver

y an

d qu

ite in

tere

sted

)

10

12

13

65

Busi

ness

Prem

ium

Fam

ily

Core

233

Impa

ct o

n lik

elih

ood

to fl

y fr

om G

atw

ick

43

6

12

13

15

15

17

27

29

020

4060

8010

0

Non

e of

thes

e

Airp

ort f

requ

ent f

lyer

rew

ard

card

Busi

ness

cen

tre

Prio

rity

bag

iden

tific

atio

n

Sepa

rate

bus

ines

s che

ck-in

Busi

ness

faci

litie

s at t

he g

ate

Busi

ness

secu

rity

lane

Qui

et zo

ne

Rem

ote

chec

k-in

%

Bas

e: t

hose

tha

t w

ere

inte

rest

ed in

eac

h co

ncep

t, b

ased

on

all b

usin

ess

(337

) S

ourc

e Y

ouG

ov S

ept

2012

22

Q. W

hich

, if a

ny, o

f the

follo

win

g id

eas o

r ser

vice

s mig

ht m

ake

you

mor

e lik

ely

to fl

y fr

om G

atw

ick

Airp

ort i

n th

e fu

ture

? (m

ultip

le

choi

ce)

10

12

13

65

Busi

ness

Prem

ium

Fam

ily

Core

11%

of f

requ

ent f

lyer

s fel

t th

at th

e re

war

d ca

rd w

ould

ha

ve a

n im

pact

, com

pare

d to

1%

who

had

flow

n ju

st o

nce.


234

Why

inte

rest

ed a

nd w

hy n

ot?

(1)

23

Why

inte

rest

ed?

Why

not

inte

rest

ed?

Sepa

rate

bus

ines

s ch

eck-

in

Le

ss q

ueui

ng /

quic

ker

(28%

)

Avoi

ds fa

mili

es a

nd

child

ren

(21%

)

×Im

prac

tical

/ un

enfo

rcea

ble

(21%

)

Rem

ote

chec

k-in

Less

que

uing

at c

heck

-in

(34%

)

Conv

enie

nt (3

2%)

Le

ss c

arry

ing

of h

eavy

lu

ggag

e (3

1%)

×Pr

efer

to k

eep

lugg

age

with

me

(16%

) ×

Risk

of l

osin

g lu

ggag

e (1

5%)

Busin

ess s

ecur

ity la

ne

Q

uick

er (3

5%)

Q

ueue

s are

ofte

n lo

ng

(25%

)

×Tr

eat e

very

one

equa

lly

(28%

) ×

Too

expe

nsiv

e (2

5%)

Bas

e: a

ll bu

sine

ss (

368)

S

ourc

e Y

ouG

ov S

ept

2012

235

Why

inte

rest

ed a

nd w

hy n

ot?

(2)

24

Why

inte

rest

ed?

Why

not

inte

rest

ed?

Busin

ess c

entr

e

Nee

d qu

iet,

busin

ess-

like

spac

e to

wor

k in

(3

3%)

Re

ason

able

cos

t (28

%)

×Ra

rely

nee

d to

wor

k at

ai

rpor

t (22

%)

×Do

n’t n

eed

to a

cces

s eq

uipm

ent (

18%

) Bu

sines

s fac

ilitie

s at t

he

gate

Chan

ce to

do

som

ethi

ng

in o

ther

wise

‘dea

d tim

e’

(39%

)

Appr

ecia

te th

e fa

cilit

ies

ther

e (3

2%)

×W

ant t

o sp

end

as li

ttle

tim

e at

gat

e as

pos

sible

(2

3%)

×N

ot n

eces

sary

to h

ave

anot

her b

usin

ess c

entr

e th

ere

(22%

) Pr

iorit

y ba

g id

entif

icat

ion

Le

ss w

aitin

g ar

ound

(2

5%)

Re

ason

able

cos

t (16

%)

×Ju

st m

ake

all b

ags c

ome

out q

uick

er (3

6%)

×Do

n’t w

ant a

lot o

f pa

yabl

e ex

tras

(33%

)

Bas

e: a

ll bu

sine

ss (

368)

S

ourc

e Y

ouG

ov S

ept

2012


236

Why

inte

rest

ed a

nd w

hy n

ot?

(3)

25

Why

inte

rest

ed?

Why

not

inte

rest

ed?

Airp

ort F

requ

ent F

lyer

ca

rd

M

ake

airp

ort e

xper

ienc

e le

ss st

ress

ful (

9%)

Fl

y a

lot f

rom

one

ai

rpor

t so

wor

th it

(8%

)

Cove

rs fr

iend

or f

amily

m

embe

r as w

ell (

8%)

×To

o ex

pens

ive

(45%

) ×

Not

wor

th it

if li

mite

d to

on

e ai

rpor

t (34

%)

×Do

n’t w

ant t

o fe

el

cons

trai

ned

to o

ne

airp

ort (

27%

)

Bas

e: a

ll bu

sine

ss (

368)

S

ourc

e Y

ouG

ov S

ept

2012

237

Fam

ily C

once

pts

4


238

Rel

ativ

e in

tere

st in

con

cept

s

26

45 47

58

69

40

71

63

64

62

39

60

71

80

81

60

85

73

81

80

31

56

68

76 79

79 81

81 83

83

020

4060

8010

0

Fam

ily p

orte

r ser

vice

(arr

ival

s)

Ente

rtai

nmen

ts a

t che

ck-in

Fam

ily p

arki

ng zo

nes

Activ

ities

in g

ate

room

s

Fam

ily c

heck

-in zo

ne

Push

chai

rs /

pra

ms a

t airc

raft

on

arriv

al

Fam

ily se

curit

y la

ne

Fam

ily zo

ne

Child

ren'

s pla

y ar

ea

Fam

ily la

ne th

roug

h im

mig

ratio

n

%

Child

ren

unde

r2 Ch

ildre

n 2

to 5

Child

ren

6 to

12 Rele

vanc

e de

clin

es w

ith a

ge

of ch

ildre

n, b

ut

reta

ins s

tren

gth

for 2

to 5

yea

r old

gr

oup.

Bas

e: a

ll bu

sine

ss (

368)

S

ourc

e Y

ouG

ov S

ept

2012

27

Q. H

ow in

tere

sted

or n

ot a

re y

ou in

eac

h id

ea?

(ver

y an

d qu

ite in

tere

sted

)

10

12

13

65

Busi

ness

Prem

ium

Fam

ily

Core

239

Impa

ct o

n lik

elih

ood

to fl

y fr

om G

atw

ick

23

12 20

22 27

32 36

36 44

44

44

020

4060

8010

0

Non

e of

thes

e

Fam

ily p

orte

r ser

vice

(arr

ival

s)

Ente

rtai

nmen

ts a

t che

ck-in

Push

chai

rs /

pra

ms a

t airc

raft

on

arriv

al

Fam

ily p

arki

ng zo

nes

Fam

ily zo

ne

Activ

ities

in g

ate

room

s

Child

ren'

s pla

y ar

ea

Fam

ily c

heck

-in zo

ne

Fam

ily se

curit

y la

ne

Fam

ily la

ne th

roug

h im

mig

ratio

n

%

Fam

ily zo

nes,

faci

litie

s at t

he

gate

and

pus

hcha

irs o

n ar

rival

ver

y at

trac

tive

for

thos

e w

ith u

nder

2s.

Fam

ily se

curit

y la

ne o

f pa

rtic

ular

inte

rest

for t

hose

w

ith ch

ildre

n 2

to 5

.

Bas

e: t

hose

tha

t w

ere

inte

rest

ed in

eac

h co

ncep

t, b

ased

on

all f

amily

(33

2)

Sou

rce

You

Gov

Sep

t 20

12

28

Q. W

hich

, if a

ny, o

f the

follo

win

g id

eas o

r ser

vice

s mig

ht m

ake

you

mor

e lik

ely

to fl

y fr

om G

atw

ick

Airp

ort i

n th

e fu

ture

? (m

ultip

le

choi

ce)

10

12

13

65

Busi

ness

Prem

ium

Fam

ily

Core


240

Why

inte

rest

ed a

nd w

hy n

ot?

(1)

29

Why

inte

rest

ed?

Why

not

inte

rest

ed?

Fam

ily p

arki

ng zo

nes

Ea

sier w

ith c

hild

ren

(48%

)

Less

stre

ssfu

l (26

%)

×N

ot re

ally

nec

essa

ry

(18%

) ×

Rare

ly /

neve

r driv

e to

ai

rpor

t (12

%)

Fam

ily c

heck

-in zo

ne

Le

ss q

ueui

ng (4

2%)

M

ore

conv

enie

nt (3

8%)

Fe

els l

ike

airp

ort d

oing

so

met

hing

spec

ial (

38%

)

×N

ot n

eces

sary

/ ne

ver

usua

lly h

ave

prob

lem

s th

ere

(10%

) ×

Don’

t wan

t sep

arat

e tr

eatm

ent (

8%)

Ente

rtai

nmen

t at

chec

k-in

Gets

jour

ney

off t

o fu

n st

art (

32%

)

Use

ful /

hel

pful

for

pare

nts (

32%

)

×N

ot n

eces

sary

/ ne

ver

usua

lly h

ave

prob

lem

s th

ere

(19%

) ×

Too

dist

ract

ing

for

child

ren

(17%

)

Bas

e: a

ll fa

mily

(35

0)

Sou

rce

You

Gov

Sep

t 20

12

241

Why

inte

rest

ed a

nd w

hy n

ot?

(2)

30

Why

inte

rest

ed?

Why

not

inte

rest

ed?

Fam

ily se

curit

y la

ne

Be

nefit

s oth

er p

asse

nger

s as

wel

l as f

amili

es (4

9%)

Re

duce

stre

ss (4

7%)

Q

uick

er (4

5%)

×N

ot n

eces

sary

/ do

n’t

need

hel

p th

ere

(8%

) ×

Trea

t eve

ryon

e eq

ually

(7

%)

Fam

ily a

reas

Good

if d

elay

ed o

r hav

e lo

ng w

ait (

40%

)

Help

ful f

or p

aren

ts (3

6%)

Be

nefit

s all

pass

enge

rs

(34%

)

×N

ot n

eces

sary

(7%

)

Dedi

cate

d la

ne th

roug

h im

mig

ratio

n

Que

uing

ther

e is

stre

ssfu

l (4

8%)

He

lpfu

l for

par

ents

(47%

)

×N

ot n

eces

sary

/ no

t us

ually

a p

robl

em th

ere

(12%

) ×

Trea

t eve

ryon

e eq

ually

(1

0%)

Bas

e: a

ll fa

mily

(35

0)

Sou

rce

You

Gov

Sep

t 20

12


242

Why

inte

rest

ed a

nd w

hy n

ot?

(3)

31

Why

inte

rest

ed?

Why

not

inte

rest

ed?

Fam

ily p

orte

r ser

vice

Can

be d

iffic

ult w

ith

lugg

age

(23%

)

Reas

onab

le c

ost (

18%

)

Help

ful f

or p

aren

ts

(17%

)

×Pr

efer

to lo

ok a

fter o

wn

lugg

age

(34%

) ×

Not

nec

essa

ry (2

6%)

×To

o ex

pens

ive

for w

hat i

t is

(26%

)

Bas

e: a

ll fa

mily

(35

0)

Sou

rce

You

Gov

Sep

t 20

12

243

Core

Con

cept

s 5


244

Rel

ativ

e in

tere

st in

con

cept

s

7

17

17 21

26

27

28

30 43

44

25

38

33

18

30 32

42

36

37

33

050

100

Chec

k-in

at c

ar d

rop

off

Bran

ded

chec

k-in

for f

ull s

ervi

ce,

com

mon

for l

ow c

ost

Rem

ote

chec

k-in

Airp

ort f

requ

ent f

lyer

rew

ard

card

Com

mon

self-

tag

and

bag

drop

Com

mon

che

ck-in

for a

ll ai

rline

s

Bagg

age

recl

aim

faci

litie

s

Com

mon

bag

dro

p

Out

side

spac

e

Qui

et zo

ne

%

Very

inte

rest

ed

Qui

te in

tere

sted

Bas

e: a

ll co

re (

993)

, ex

cept

rew

ard

card

– t

hose

fly

ing

mor

e th

an 3

tim

es in

last

yea

r (1

52)

Sou

rce

You

Gov

Sep

t 20

12

33

Q. H

ow in

tere

sted

or n

ot a

re y

ou in

eac

h id

ea?

(ver

y an

d qu

ite in

tere

sted

)

10

12

13

65

Busi

ness

Prem

ium

Fam

ily

Core

Very

or q

uite

inte

rest

ed

easy

Jet

BA

Virg

in

Com

mon

che

ck in

for a

ll 66

%

61%

55

%

Bran

ded

chec

k-in

for f

ull

serv

ice,

com

mon

for l

ow-

cost

50

%

59%

63

%

84%

of P

RMs i

nter

este

d in

qui

et zo

nes.

44%

of b

oth

easy

Jet a

nd B

A fr

eque

nt

flyer

s int

eres

ted

in th

e re

war

d ca

rd.

245

Impa

ct o

n lik

elih

ood

to fl

y fr

om G

atw

ick

22

15 19

19 23

26

26

27

27 37

43

020

4060

8010

0

Non

e of

thes

e

Chec

k-in

at c

ar d

rop

off

Airp

ort f

requ

ent f

lyer

rew

ard

card

*

Bran

ded

chec

k-in

for f

ull s

ervi

ce, c

omm

on fo

r low

cos

t

Com

mon

self-

tag

and

bag

drop

Com

mon

che

ck-in

for a

ll ai

rline

s

Rem

ote

chec

k-in

Com

mon

bag

dro

p

Bagg

age

recl

aim

faci

litie

s

Out

side

spac

e

Qui

et zo

ne

%

47%

of V

irgin

and

42%

BA

cust

omer

s fee

l tha

t qui

et

zone

s wou

ld in

fluen

ce th

eir

choi

ce.

30

% o

f BA

and

20%

or V

irgin

cu

stom

ers f

eel t

hat r

emot

e ch

eck-

in w

ould

als

o in

fluen

ce th

em.

Bas

e: t

hose

tha

t w

ere

inte

rest

ed in

eac

h co

ncep

t, b

ased

on

all c

ore

(99

3)

Not

e: a

irpor

t re

war

d fr

eque

nt f

lyer

car

d ad

just

ed t

o be

bas

ed o

n fr

eque

nt f

lyer

s on

ly (

152)

S

ourc

e Y

ouG

ov S

ept

2012

34

Q. W

hich

, if a

ny, o

f the

follo

win

g id

eas o

r ser

vice

s m

ight

mak

e yo

u m

ore

likel

y to

fly

from

Gat

wic

k Ai

rpor

t in

the

futu

re?

(mul

tiple

cho

ice)

10

12

13

65

Busi

ness

Prem

ium

Fam

ily

Core


246

Why

inte

rest

ed a

nd w

hy n

ot?

(1)

35

Why

inte

rest

ed?

Why

not

inte

rest

ed?

Chec

k-in

car

dro

p of

f

Conv

enie

nt (2

0%)

Ap

prec

iate

dro

ppin

g ba

gs o

ff ea

rly (1

8%)

×To

o ex

pens

ive

(34%

) ×

Rare

ly /

neve

r driv

e to

ai

rpor

t (29

%)

Co

mm

on c

heck

-in fo

r al

l airl

ines

Mig

ht m

ean

less

qu

euin

g (4

6%)

So

unds

qui

cker

(41%

)

Mak

es se

nse

to m

ove

staf

f to

busie

st a

reas

(3

5%)

×Pr

efer

som

eone

from

ai

rline

(18%

) ×

Mig

ht m

ake

chec

k-in

lo

nger

(15%

) ×

Mig

ht in

crea

se c

hanc

e of

ba

gs st

olen

(15%

) Br

ande

d ch

eck-

in fo

r fu

ll se

rvic

e ai

rline

s,

com

mon

for l

ow c

ost

M

ight

mea

n le

ss

queu

ing

(31%

)

Conv

enie

nt (2

9%)

Q

uick

er (2

6%)

×M

ight

mak

e ch

eck-

in

long

er (1

7%)

Bas

e: a

ll co

re (

993)

S

ourc

e Y

ouG

ov S

ept

2012

247

Why

inte

rest

ed a

nd w

hy n

ot?

(2)

36

Why

inte

rest

ed?

Why

not

inte

rest

ed?

Com

mon

bag

dro

p

Soun

ds q

uick

er (4

7%)

M

ight

mea

n le

ss q

ueui

ng

(44%

)

Mor

e co

nven

ient

(42%

)

×M

ight

incr

ease

cha

nce

of

bags

bei

ng st

olen

(16%

) ×

Risk

to se

curit

y (1

3%)

×Pr

efer

som

eone

from

ai

rline

(13%

)

Com

mon

self-

tag

bag

and

drop

Soun

ds q

uick

er (3

9%)

M

ight

mea

n le

ss q

ueui

ng

(34%

)

Mor

e co

nven

ient

(33%

)

×Pr

efer

som

eone

from

ai

rline

(19%

) ×

Risk

to se

curit

y (1

7%)

Rem

ote

chec

k-in

Appr

ecia

te d

ropp

ing

bags

of

f ear

ly (3

1%)

M

ight

mea

n le

ss q

ueui

ng

(31%

)

Qui

cker

(24%

)

×M

ight

incr

ease

risk

of

losin

g lu

ggag

e (2

5%)

×Pr

efer

to k

eep

lugg

age

with

me

(21%

) ×

Don’

t usu

ally

trav

el b

y ra

il or

bus

(20%

)

Bas

e: a

ll co

re (

993)

S

ourc

e Y

ouG

ov S

ept

2012


248

Why

inte

rest

ed a

nd w

hy n

ot?

(3)

37

Why

inte

rest

ed?

Why

not

inte

rest

ed?

Airp

ort f

requ

ent f

lyer

re

war

d ca

rd

M

ake

airp

ort e

xper

ienc

e le

ss st

ress

ful (

26%

)

Fly

a lo

t fro

m o

ne

airp

ort s

o w

orth

it (2

3%)

Co

vers

frie

nd o

r fam

ily

mem

ber (

21%

)

×To

o ex

pens

ive

(40%

) ×

Not

wor

th it

if li

mite

d to

on

e ai

rpor

t (21

%)

Bas

e: a

ll co

re h

avin

g flo

wn

4 or

mor

e tim

es in

the

last

12

mon

ths

(152

) S

ourc

e Y

ouG

ov S

ept

2012

249

Desi

gn a

nd a

mbi

ence

6


250

Impa

ct o

n lik

elih

ood

to fl

y fr

om G

atw

ick

12

5

14

12

24

13

27

26

16

21

17

20

47

59

39

41

1 2 3 2

020

4060

8010

0

Prem

ium

Busin

ess

Fam

ily

Core

%

Muc

h m

ore

likel

ySo

mew

hat m

ore

likel

yA

little

mor

e lik

ely

No

mor

e lik

ely

Don'

t kno

w

Bas

e: t

hose

tha

t w

ere

inte

rest

ed in

eac

h co

ncep

t, b

ased

on

all c

ore

(987

) S

ourc

e Y

ouG

ov S

ept

2012

39

Q. A

fter

seei

ng th

at v

ideo

of t

he fu

ture

look

of G

atw

ick

Airp

ort a

nd b

earin

g in

min

d al

l of t

he th

ings

to c

onsi

der w

hen

book

ing

a fli

ght,

to w

hat e

xten

t, if

any,

doe

s it m

ake

you

mor

e lik

ely

to fl

y fr

om G

atw

ick?

10

12

13

65

Busi

ness

Prem

ium

Fam

ily

Core

251

The

vide

o sh

own

in th

is s

urve

y re

ceiv

ed a

mor

e po

sitiv

e re

spon

se th

an th

e 20

11 im

ages

52 57

63 80

68 79

26 28

28

15

26 17

21 13

9 3 6 3 1 3 2 2

020

4060

8010

0

Look

s new

and

diff

eren

t fro

m o

ther

Lon

don

airp

orts

(201

1)

Look

s new

and

diff

eren

t fro

m o

ther

Lon

don

airp

orts

(20

12)

The

'look

' of t

he a

irpor

t is a

mov

e in

the

right

dire

ctio

n (2

011)

The

'look

' of t

he a

irpor

t is a

mov

e in

the

right

dire

ctio

n (2

012)

The

'look

' of t

he a

irpor

t is a

ppro

pria

te fo

r aLo

ndon

airp

ort (

2011

)

The

'look

' of t

he a

irpor

t is a

ppro

pria

te fo

r aLo

ndon

airp

ort (

2012

)

%

Agre

eN

eutr

alDi

sagr

eeDo

n't k

now

‘New

and

diff

eren

t’ co

mes

acr

oss t

o fa

mily

and

core

flye

rs, l

ess s

o to

the

busi

ness

ver

tical

.

Bas

e: 2

012

(all:

2,0

60);

201

1 (a

ll 2,

047)

S

ourc

e Y

ouG

ov S

ept

2012

40

Q. T

o w

hat e

xten

t do

you

agre

e, o

r dis

agre

e, w

ith th

e fo

llow

ing

stat

emen

ts?

The

vide

o sh

owin

g th

e fu

ture

look

of

Gat

wic

k ai

rpor

t is …

79%

of p

rem

ium

and

71%

of b

usin

ess

segm

ent f

eel i

t’s a

mov

e in

the

right

dire

ctio

n fo

r Gat

wic

k. C

ore

mos

t pos

itive

(81%

)


252

Driv

ers o

f sat

isfac

tion

and

choi

ce

7

253

Am

bien

ce, a

wel

com

ing

feel

and

tack

ling

queu

es h

elp

to d

rive

impr

ovem

ents

in s

atis

fact

ion

acro

ss L

ondo

n ai

rpor

ts in

gen

eral

(B

ased

on

resp

onse

s to

one

of t

he 5

Lon

don

Airp

orts

)

Adj

uste

d r

squa

red

.629

, bas

ed o

n n=

2,06

0 42

Incr

ease

s in

thes

e as

pect

s wou

ld h

ave

the

grea

test

effe

ct o

n ov

eral

l sat

isfa

ctio

n

* S

hopp

ing

was

rem

oved

due

to n

ot b

eing

st

atis

tical

ly s

igni

fican

t


254

Tim

e sp

ent q

ueui

ng a

nd c

reat

ing

a ‘w

elco

min

g’ fe

el w

ould

driv

e im

prov

ed o

vera

ll sa

tisfa

ctio

n w

ith G

atw

ick

spec

ifica

lly

(Ans

wer

ed o

n th

e ba

sis

of G

atw

ick

whi

ch w

as th

e ai

rpor

t the

y ha

d us

ed m

ost r

ecen

tly)

Adj

uste

d r

squa

red

.617

, bas

ed o

n n=

755

43

* S

hopp

ing

and

ente

rtai

nmen

ts r

emov

ed d

ue

to n

ot b

eing

sta

tistic

ally

sig

nific

ant

Incr

ease

s in

thes

e as

pect

s wou

ld h

ave

the

grea

test

ef

fect

on

over

all s

atis

fact

ion

255

Con

veni

ence

def

ines

airp

ort p

refe

renc

e (a

ll ai

rpor

ts)

13

14 17

15

15

16

27 32

35 39

77

10 12

13 15

15

16

17 19

26

27

35 40

72

020

4060

8010

0

For p

eopl

e lik

e m

e

Rest

aura

nts /

caf

es

Wel

com

ing

Wal

king

tim

es

Car p

arki

ng

Que

uein

g

Clea

nlin

ess

Ambi

ence

/ fe

el

Layo

ut

Easy

to p

ick

up a

nd d

rop

off

Publ

ic tr

ansp

ort l

inks

Past

goo

d ex

perie

nce

Conv

enie

nce

- dis

tanc

e

%

2012

2011

Stan

sted

wel

l re

gard

ed fo

r lay

out,

wal

king

tim

es a

nd

queu

ing.

Past

goo

d ex

perie

nce,

tim

e sp

ent w

alki

ng a

nd

dist

ance

s ver

y im

port

ant f

or P

RMs.

Bas

e: 2

012

(all:

2,0

10);

201

1 (a

ll: 2

,047

) S

ourc

e Y

ouG

ov S

ept

2012

44

Q. T

hink

ing

abou

t the

Lon

don

airp

ort

you

plac

ed f

irst,

whi

ch o

f the

fol

low

ing

reas

ons

why

you

mad

e th

at c

hoic

e? (

Tic

k al

l tha

t app

ly)

Heat

hrow

stan

ds o

ut fo

r re

stau

rant

s, sh

oppi

ng, f

ares

poo

rly

for p

arki

ng a

nd co

nven

ienc

e.

Den

otes

sta

tistic

ally

si

gnifi

cant

diff

eren

ces


256

Top

of m

ind

opin

ion

(the

5 Lo

ndon

airp

orts

com

pare

d)

Bas

e: a

ll (2

,060

) S

ourc

e Y

ouG

ov S

ept

2012

45

Q. W

hat i

s yo

ur g

ut fe

elin

g to

war

ds e

ach

of th

e fo

llow

ing

airp

orts

on

a sc

ale

of e

xtre

mel

y co

ld (

1) to

ext

rem

ely

war

m (

10)?

Mea

n va

lues

3.70

4.20

4.70

5.20

5.70

6.20Pr

emiu

m

Busin

ess

Fam

ily

Core

Gatw

ick

Heat

hrow

Luto

n

City

Stan

sted

Heat

hrow

stan

ds o

ut fo

r Pre

miu

m tr

avel

lers

and

ed

ges G

atw

ick

for b

usin

ess e

cono

my.

Gat

wic

k st

rong

est f

or co

re a

nd fa

mily

.

Prem

ium

Bu

sine

ss

Fam

ily

Core

Gatw

ick

5.65

5.

74

6.45

6.

34

Heat

hrow

6.

27

5.84

6.

21

6.01

Luto

n 3.

76

4.23

4.

79

4.44

City

5.

55

5.45

5.

68

5.52

Stan

sted

4.

26

5.00

5.

47

5.08

Gatw

ick

rate

d at

6.3

4 by

eas

yJet

cus

tom

ers,

6.1

3 by

BA

and

6.28

by

Virg

in.

Heat

hrow

rate

d at

5.8

4 by

eas

yJet

cu

stom

ers,

6.3

9 by

BA

and

6.24

by

Virg

in.

257

Wha

t mak

es a

goo

d ai

rpor

t exp

erie

nce?

Bas

e: a

ll ha

ving

pre

viou

s go

od e

xper

ienc

es a

t th

e ai

rpor

t th

ey u

sed

last

(79

7)

Sou

rce

You

Gov

Sep

t 20

12

46

Q. Y

ou h

ad g

ood

expe

rienc

es a

t tha

t airp

ort,

wha

t w

as it

that

mad

e it

a go

od a

irpor

t to

fly f

rom

?

“Eas

e of

trav

el, e

asy

to

navi

gate

aro

und,

all

shop

s an

d ba

rs e

tc. i

n on

e pl

ace.

” Ga

twic

k

“It f

eels

like

staf

f rea

lly m

ake

an

effo

rt to

be

wel

com

ing”

Ga

twic

k

“Ter

min

al 5

is g

reat

, bu

t I d

on't

like

the

othe

r ter

min

als a

nd

wou

ld lo

ok a

t fly

ing

from

a sm

alle

r airp

ort

if I w

asn'

t fly

ing

from

Te

rmin

al 5

” He

athr

ow

“Eff

icie

ntly

run

and

stra

ight

forw

ard

pass

age

from

car p

ark

to fl

ight

. Had

a

prob

lem

with

secu

rity

once

whi

ch w

as

reso

lved

by

man

ager

w

ho w

ent a

bove

that

w

hich

she

was

re

quire

d to

do.

” St

anst

ed


258

Whe

n m

ade

to c

hoos

e on

e, a

cle

ar p

refe

renc

e fo

r H

eath

row

am

ong

prem

ium

and

bus

ines

s cu

stom

ers

4

7 8 7

9

12 14

10 12

16

13

11

23

22

31

36

50

39

32

33

020

4060

8010

0

Prem

ium

Busi

ness

Fam

ily

Core

% He

athr

ow

Gatw

ick

City

Stan

sted

Luto

n

Bas

e: P

rem

ium

(34

9);

Bus

ines

s (3

68);

Fam

ily (

350)

; C

ore

(993

) S

ourc

e Y

ouG

ov S

ept

2012

47

Q. W

hich

ON

E a

irpor

t wou

ld y

ou m

ost l

ike

to f

ly f

rom

?

Clea

r sig

nific

ant d

iffer

ence

s bet

wee

n Pr

emiu

m a

nd

othe

r seg

men

ts in

the

pref

eren

ce fo

r Hea

thro

w.

In

cont

rast

the

Core

and

the

Fam

ily se

gmen

ts fa

vour

G

atw

ick

and

Heat

hrow

fairl

y eq

ually

.

259

Why

they

pre

fer G

atw

ick

or H

eath

row

15

12

5

8

11 17

14 20

11

19 23

37

37

68

8 9 10

11 13

15

15 18

20

27 29

35

42

77

020

4060

8010

0

Shop

ping

For p

eopl

e lik

e m

eW

alki

ng ti

mes

Que

uein

gW

elco

min

gRe

stau

rant

s / c

afes

Clea

nlin

ess

Ambi

ence

/ fe

elCa

r par

king

Layo

utEa

sy to

pic

k up

and

dro

p of

fPu

blic

tran

spor

t lin

ksPa

st g

ood

expe

rienc

eCo

nven

ienc

e - d

ista

nce

%

Gatw

ick

Heat

hrow

The

geog

raph

ical

dis

trib

utio

n of

the

sam

ple

favo

urs

Gat

wic

k, le

adin

g to

hig

her r

atin

gs fo

r con

veni

ence

fo

r exa

mpl

e.

It

is n

otab

le th

eref

ore

whe

re H

eath

row

exc

eeds

G

atw

ick

is in

shop

ping

, res

taur

ants

, am

bien

ce,

publ

ic tr

ansp

ort l

inks

and

in th

e se

nse

that

it is

an

airp

ort ‘

for p

eopl

e lik

e m

e.’

Bas

e: G

atw

ick

pref

erre

d (6

27);

Hea

thro

w (

757)

S

ourc

e Y

ouG

ov S

ept

2012

48

Q. T

hink

ing

abou

t the

Lon

don

airp

ort

you

plac

ed f

irst,

whi

ch o

f the

fol

low

ing

reas

ons

why

you

mad

e th

at c

hoic

e? (

Tic

k al

l tha

t app

ly)

Den

otes

sta

tistic

ally

si

gnifi

cant

diff

eren

ces


260

Secu

rity

and

pass

port

con

trol

figu

re p

rom

inen

tly in

ch

ange

s, fe

atur

es a

nd id

eas

that

cus

tom

ers

wan

t to

see

49

Q. N

ow p

leas

e th

ink

abou

t you

r id

eal a

irpor

t of t

he f

utur

e. W

hat f

eatu

res,

ser

vice

s or

idea

s w

ould

you

like

to s

ee?

Ple

ase

type

in u

p to

fiv

e.

“Any

thin

g to

spee

d up

secu

rity

and

redu

ce

inco

nven

ienc

e”

“Pas

seng

ers a

ble

to u

ploa

d de

dica

ted

iPad

type

in

form

atio

n ab

out e

very

thin

g co

nnec

ted

with

th

eir f

light

and

des

tinat

ion.

”

“Mor

e en

tert

ainm

ent f

or

youn

g ch

ildre

n”

“Str

aigh

t ont

o fli

ght o

nce

fligh

t is c

alle

d”

Bas

e: 2

012

(all:

2,0

60)

Sou

rce

You

Gov

Sep

t 2

012

“Bet

ter s

pace

s fro

m w

hich

to w

atch

the

plan

es a

rriv

e an

d de

part

”

261

Inve

stm

ent p

riorit

ies:

200

9 to

201

2 –

Dep

artu

res

18

18

25

24

50

37

45

55

16 18

18

19

36 39

45

61

14 19

14 17

32

40

48

59

050

100

Jour

ney

to th

e ai

rpor

t

The

depa

ture

loun

ge (s

hops

, toi

lets

, caf

es &

bar

s)

Info

rmat

ion

/ si

gnag

e ar

ound

the

airp

ort t

o he

lpea

se y

our j

ourn

ey

Ente

ring

the

airp

ort f

rom

tran

spor

t int

erch

ange

s

Chec

king

bag

gage

in

The

jour

ney

from

dep

artu

re lo

unge

out

to th

ega

te

Wai

ting

to b

oard

the

plan

e at

the

gate

Goin

g th

roug

h th

e se

curit

y se

arch

pro

cess

%

2012

2011

2009

Secu

rity

proc

ess,

wai

ting

at th

e ga

te

and

the

jour

ney

to th

e ga

te a

re k

ey

prio

ritie

s. C

heck

ing

bagg

age

cont

inue

s to

dec

line

in im

port

ance

as e

ver m

ore

pe

ople

che

ck-in

onl

ine

and

trav

el

with

out h

old

bagg

age.

Bas

e: 2

012

(all:

2,0

60);

201

1 (a

ll:2,

047)

, 20

09 (

unkn

own)

S

ourc

e Y

ouG

ov S

ept

201

2

50

Q. F

irstly

, he

re a

re s

ome

of th

e m

ain

aspe

cts

of y

our

depa

rtur

e jo

urne

y. P

leas

e tic

k th

e 3

area

s fr

om th

e fo

llow

ing

list,

whe

re y

ou f

eel

that

the

airp

orts

you

hav

e ex

perie

nced

mos

t nee

d to

impr

ove

thei

r se

rvic

e by

foc

usin

g th

eir

effo

rt a

nd in

vest

men

t. Y

ou c

an p

ick

up to

3

from

the

list

belo

w.

Thi

s sl

ide

com

pare

s an

swer

s gi

ven

to id

entic

al in

vest

men

t que

stio

ns a

sked

in t

his

surv

ey a

nd p

revi

ousl

y in

200

9 an

d 20

11.

Den

otes

sta

tistic

ally

si

gnifi

cant

diff

eren

ces

betw

een

2012

and

201

1


262

Inve

stm

ent p

riorit

ies:

200

9 to

201

2 –

Arr

ival

s

13

21 25

41

49

49

81

14

13

14

33

48 52

66

10 16

10

27

47

60

60

020

4060

8010

0

The

jour

ney

hom

e fr

om th

e ai

rpor

t

Gett

ing

thro

ugh

cust

oms h

all

Info

rmat

ion

/ si

gnag

e ar

ound

the

airp

ort t

ohe

lp e

ase

your

jour

ney

Gett

ing

out o

f the

airp

ort b

ack

onto

pub

lictr

ansp

ort /

car

The

jour

ney

from

the

plan

e ba

ck to

pas

spor

tco

ntro

l

Pass

port

con

trol

Wai

ting

in th

e ba

ggag

e ha

ll fo

r lug

gage

%

2012

2011

2009

The

wel

l pub

licis

ed is

sues

with

pas

spor

t co

ntro

l at H

eath

row

hav

e ha

d an

effe

ct

on tr

avel

ler c

once

rns a

nd n

ow ri

vals

the

wai

t for

lugg

age

as a

key

prio

rity

on

arriv

al.

51

Q. F

irstly

, he

re a

re s

ome

of th

e m

ain

aspe

cts

of th

e ar

rival

s pr

oces

s. P

leas

e tic

k th

e 3

area

s fr

om th

e fo

llow

ing

list,

whe

re y

ou f

eel t

hat

the

airp

orts

you

hav

e ex

perie

nced

mos

t nee

d to

impr

ove

thei

r se

rvic

e by

foc

usin

g th

eir

effo

rt a

nd in

vest

men

t. Y

ou c

an p

ick

up to

3 f

rom

th

e lis

t be

low

.

Bas

e: 2

012

(all:

2,0

60);

201

1 (a

ll:2,

047)

, 20

09 (

unkn

own)

S

ourc

e Y

ouG

ov S

ept

201

2

Thi

s sl

ide

com

pare

s an

swer

s gi

ven

to id

entic

al in

vest

men

t que

stio

ns a

sked

in t

his

surv

ey a

nd p

revi

ousl

y in

200

9 an

d 20

11.

Den

otes

sta

tistic

ally

si

gnifi

cant

diff

eren

ces

betw

een

2012

and

201

1

263

Anne

xes

A


264

Segm

ent d

efin

ition

s

Prem

ium

Th

ose

who

hav

e flo

wn

first

or b

usin

ess c

lass

in th

e la

st 1

2 m

onth

s.

Busin

ess

Thos

e w

ho h

ave

flow

n fo

r bus

ines

s pur

pose

s bu

t not

in b

usin

ess o

r firs

t cl

ass i

n th

e la

st 1

2 m

onth

s.

Fam

ily

Thos

e w

ho h

ave

flow

n in

the

last

12

mon

ths w

ith c

hild

ren

aged

12

or

unde

r.

Core

Al

l tho

se w

ho h

ave

flow

n fo

r lei

sure

in th

e la

st 1

2 m

onth

s and

did

not

fit

any

of t

he th

ree

cate

gorie

s abo

ve.

Freq

uent

flye

r Th

ose

who

hav

e flo

wn

4 or

mor

e tim

es in

the

last

12

mon

ths.

Fam

ily (y

oung

est)

Th

ose

trav

ellin

g w

ith a

chi

ld u

nder

2 y

ears

old

in la

st 1

2 m

onth

s.

Fam

ily (m

iddl

e)

Thos

e tr

avel

ling

with

a c

hild

age

d 2

to 5

yea

rs in

the

last

12

mon

ths.

Fam

ily (o

lder

) Th

ose

trav

ellin

g w

ith a

chi

ld a

ged

6 to

12

year

s in

the

last

12

mon

ths.

53

265

Sam

ple

brea

kdow

n

Sub-

grou

ps

n

Gend

er

Mal

e 12

93

Fem

ale

767

Age

18-2

9 15

3

30-3

9 39

6

40-4

9 38

0

50-5

9 37

5

60-7

0 54

5

70+

211

PRM

Pers

on w

ith R

estr

icte

d M

ovem

ent (

PRM

) 15

1

Not

a P

RM

1,90

9

Soci

o-Ec

onom

ic C

lass

ifica

tion

ABC1

16

48

C2DE

41

2

54

Sub-

grou

ps

n

Fam

ily

Trav

elle

d w

ith c

hild

ren

unde

r 2

118

Trav

elle

d w

ith c

hild

ren

2 to

5

117

Trav

elle

d w

ith c

hild

ren

6 to

12

115

Not

trav

elle

d w

ith c

hild

ren

1,71

0

Freq

uenc

y of

flyi

ng (l

ast 1

2 m

onth

s)

Onc

e

627

Two

or th

ree

times

83

0

Four

or m

ore

times

60

7

Type

of f

light

s (la

st 1

2 m

onth

s)

Long

hau

l onl

y 38

1

Shor

t hau

l onl

y 10

56

Both

long

and

shor

t hau

l 65

3


266

Airl

ines

use

d

55

5 5 5 6 8 9

14

14

36

44

020

4060

8010

0

Air F

ranc

e /

KLM

Flyb

e

Luft

hans

a

Thom

as C

ook

Thom

son

/ TU

I

Mon

arch

Ryan

air

Virg

in A

tlant

ic

Easy

jet

Briti

sh A

irway

s

%

Not

e: a

ll w

ith 5

% u

sage

or

abov

e ar

e di

spla

yed

B

ase:

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REDACTED

APPENDIX 6BUSINESS CASES

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

14 Appendices

APPENDIX 7PENSIONS

REDACTED

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

14 Appendices

275APPENDIX 8COST OF CAPITAL: PRINCIPLES PAPER

REDACTED

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

14 Appendices

APPENDIX 9COST OF CAPITAL: METHODOLOGY AND ESTIMATION

REDACTED

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

14 Appendices

277

a10.1 INTRODUCTION

Chapter 12 provided the RAB based price based on the CAA’s building blocks model for the five year period beyond Q5 and the subsequent 5 year period. These details were provided in 2013/14 prices, to allow for a comparison to the Initial Business Plan. However, the CAA has asked for these details to be provided in 2011/12 prices to allow for a comparison with business plans written by other airports subject to regulation. This appendix translates the illustrative price path tables from chapter 12 into 2011/12 prices.

a10.2 FIVe YeaR peRIOD beYOND q5

The table below shows the illustrative RAB based price path for the five year period beyond Q5 in 2011/12 prices:

beyond Q5 to 2018/19

£m at 11/12 PriceS 2014/15 forecaSt

2015/16 forecaSt

2016/17 forecaSt

2017/18 forecaSt

2018/19 forecaSt

Total Passengers 34.5 34.7 35.0 35.4 35.9

Regulatory price Cap (£/passenger) (pre-profiling) 9.58 10.13 10.37 10.41 10.10

Price Path X=3.3%

Regulatory price Cap (£/passenger) (post profiling and p0 adjustment) 9.50 9.81 10.13 10.46 10.81

Table A10.1 Illustrative RAB based price path (profiled with a P0 adjustment, 2011/12 prices)

a10.3 5 YeaR peRIOD: 2019/20 TO 2023/24

Similarly, the table below shows the illustrative RAB based price path for the five year period 2019/20 to 2023/24, in 2011/12 prices, where the P0 increase is applied in 2014/15:



2020/21 forecaSt

2021/22 forecaSt

2022/23 forecaSt

2023/24 forecaSt



Price Path X=0.0%


Table A10.2 Illustrative RAB based price path (profiled with a P0 adjustment to the closing 2013/14 price, 2011/12 prices)

APPENdix 10RAB BAsed pRice in 2011-12 pRices

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

14 Appendices

279

a11.1 INTRODUCTION

This Appendix sets out the recent history of the easyJet consolidation workstream and current status of the proposal. Formal multilateral consultation is on-going with our airlines, to ensure that all stakeholders have an opportunity to understand the drivers, implications and benefits of consolidating easyJet into the South Terminal.

a11.2 baCkGROUND

The April 2012 business plan was published with the assumption that easyJet would remain as a split operation through to 2020 as indicated by them in December 2011. Following the publication of this business plan, easyJet made a formal request for further work to be undertaken to evaluate the potential consolidation of their operations into the South Terminal. This proposal has been raised by easyJet a number of times since 2008, resulting in a number of options being explored. None of the previous conclusions were endorsed by easyJet and they remain as a split operation today, with only minor terminal balancing moves having to take place at each schedule change.

The approach by easyJet in March was following their appointment of Atkins to carry out initial conceptual design. This information was shared with ourselves and we agreed to collaboratively complete an assessment of the work and feasibility of such a move.

Atkins had prepared a series of layout options for South Terminal stands and provided outline costs for each. The preferred option for easyJet was to reconfigure the north side of Pier 2 to accommodate more code C aircraft and a similar reconfiguration to Pier 3. The preferred option is shown below. This option would result in a “cap” of overnight based aircraft in South Terminal, due to the availability and proximity of contact and remote stands. It is further limited due to away based code E arriving aircraft during the early hours of the morning.

It is worth noting that when the proposal was originally presented, easyJet assumed that additional stands would be provided to them by the use of North Terminal Pier 4 stands as remote, non-pier served stands. This would allow them growth beyond the “cap” envisaged above. As we did not have complete clarity on the predicted easyJet growth profile, the analysis has been undertaken utilising a sensitivity analysis of 55–65 overnight based aircraft in Summer 2018.

Following three months of joint review and development of the concept designs, our initial review of the easyJet scheme demonstrated that the proposed move was feasible within certain constraints; it would not restrict our ability to grow the airport to 45mppa on a single runway but would require a full review of the April 2012 business plan as published. The key results were shared with all other airlines through the JSG in June 2012. At a high level, the report highlighted changes to capital expenditure, non-aero revenues, operational processes and operating costs that would be required to enable the consolidation of easyJet operations. The consolidation would also lead to a number of airline moves across terminals to balance capacity.

It was agreed at the June JSG that Gatwick would continue the joint work with easyJet to further explore their proposal, reporting results back to the JSG in September 2012. It was also agreed that bilateral discussions should take place with each airline to explore the implications of the proposal. A number of bilateral meetings took place at the time and the topic continues to be a key one in on-going bilateral meetings today. The capital projects that were developed during this process were then shared with our airlines during the latter stages of the Constructive Engagement process.

Throughout the process, easyJet have requested the consolidation to take place at the earliest possible opportunity. Taking into account the current capital plan delivery timescales, in particular the airfield and pier works, the consolidation date for assessment was set at Summer 2015. If the consolidation is to take place, a detailed sequential programme will need to be developed to ensure minimised impact on the operation and, in particular, the resilience of the airport.

APPENdix 11eAsyJet consolidAtion into south teRMinAl

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

14 Appendices

Appendix 11easyJet CONsOLIDatION INtO sOUtH teRMINaL

280

Figure A11.1 Proposed South Terminal stands layout

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

14 Appendices

281

a11.3 TeRMINal OCCUpaNCY

The assessment of the consolidation of easyJet operations shows this will change the pattern of passenger flows through the terminals and aircraft movements across the airfield. It also concluded that it requires the relocation of Monarch, Thomas Cook and Aer Lingus from South Terminal to North Terminal in order to provide sufficient capacity in South Terminal.

This will result in a significant change in the utilisation of both terminals, with North Terminal becoming more seasonal as all the main charter carriers will be based there and South Terminal having a higher, all year, utilisation. On completion of the move easyJet will have 60-65% of the South Terminal volume on a passenger basis. This would suggest the following terminal occupancies:

Following the forecast refresh in September 2012 and updated preliminary information on the Summer 2013 schedule, these predicted occupancies are now likely to change. For instance, Norwegian has decided to set up an operating base at Gatwick, starting

with three overnight based aircraft from Summer 2013. If the consolidation proposal were to proceed, Norwegian would also need to move to North Terminal to balance airfield flows.

2018WITh easYjeT CONsOlIDaTeD IN sOUTh TeRMINal

2012WITh easYjeT splIT

Figure A11.2 Initial assessment of Terminal occupancy (N.B. For representation purposes, not all airlines are shown on the above figure)

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

14 Appendices

Appendix 11easyJet CONsOLIDatION INtO sOUtH teRMINaL

282

a11.4 keY ChaNGes TO The bUsINess plaN

CAPITAL

We have assessed the impact of an easyJet consolidated operation on all areas of the passenger journey at a high level, with the initial outcomes shared with the airlines through Constructive Engagement. Following the latest update to our traffic forecast, the impact on our capital plan from the consolidation activities and associated balancing moves has been reduced. The following changes to the plan are now as follows:

• Increase of £144m for 95% Pier Service for building a Pier 7 option as an alternative to the Pier 6 extension (see below);

• Increase of £7m for stand reconfiguration; • £5m for a new project to construct additional

coaching facilities in South Terminal;• £7m for a new project to facilitate the airline moves• Increase of £40m for asset stewardship for airfield

pavement works; and• £10m for a new project to construct an extension

to the noise attenuation wall (subject to planning consent and environmental assessment).

We are currently in the process of modelling the detailed implications of the airfield changes, using a sequential process, assessing the implication this would have on schedules and stand plans and then simulation modelling of the flows on the taxiways and runway. As we do this, we are sharing this information with our airlines, so there is transparency of inputs and outputs, in a collaborative approach. It should be noted that we are also looking at options involving the towing of aircraft that could potentially mean we could revert back to the Pier 6 extension project. However, we have yet to confirm that there are no adverse implications on airfield resilience or unacceptable delays created by the towing of aircraft from Tower stands to the Piers 1, 2 and 3 in the peak hours. Therefore, we have currently included Pier 7 as an alternative to the Pier 6 extension.

The change to the stand reconfigurations project will increase the number of Code C stands in close proximity to South Terminal, enabling the easyJet consolidation and protecting future growth of overnight based aircraft. As six of these new stands are adjacent to the noise attenuation wall, there may be a need to extend this wall. Additional coaching gates will also be required to meet demand in the South Terminal.

COMMERCIAL REVENUE

Assessment of the airlines moves on commercial revenue has been completed at a high level. We have concluded that there is around a 2.5% potential downside to income in the period covered by this business plan.

For both terminals, retail spend per passenger would change to reflect the movement of airlines between terminals, along with their associated spend profiles, and the seasonal differential in terminal utilisation.

Potential Impact on North Terminal retail spend:

• EU/Non EU mix assumed not to change;• Sales revenues reduced in line with passenger

numbers;• Assumed dilution of margins, due to longer quiet

periods which will impact retailer profitability, or in some cases cause seasonal closures of stores;

• Peak days being more crowded due to change in airline mix (more charter traffic), leading to a drop in service quality and an inability to maximise income; and

• Dilution of advertising income due to lower passenger numbers.

Potential impact on South Terminal retail spend:

• Sales increased in line with growth in passenger numbers, with potential peak over-crowding thereafter particularly in catering and airside specialist shops; and

• Increasing advertising revenue as passenger numbers drive growth, but diluted by perception of easyJet passenger profile.

The impact on car parking and property income is deemed to be neutral and no additional car parking capacity is driven by consolidation.

OPERATING COSTS

There are some risks to operating costs from the consolidation activities. These primarily relate to the rebalancing of security resources, to the revised demand in each terminal, and to airfield management enhancements need to manage the revised ground movement operation. These risks could be in the region of £1m-£2m per annum but as this analysis has not been concluded, these have not been built into the regulatory price calculation in Appendix 12.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

14 Appendices

283

a11.5 RIsks aND IssUes FOR FURTheR CONsIDeRaTION

The issues of split terminal pricing or terminal based development decisions have been raised by a number of airlines during bilateral discussions. We have been clear that we do not support such an approach and any move would be contingent on this position being agreed.

Who pays for the potential additional cost of an easyJet consolidated operation has yet to be resolved. During bilateral discussions a number of airlines have made clear that they do not wish to see the costs being borne by the whole airline community. Furthermore, some airlines have pointed out that a move to a different terminal may result in consequential losses for them due to increased taxi time and hence fuel cost, a degradation in their business model as they will have lower pier service than currently enjoyed and would impact business passengers who would now be a shuttle distance from the mainline railway station. The cap on overnight based aircraft in South Terminal will not be required if towing of aircraft takes place from/to the Tower and North West Zone stands to the South Terminal contact stands has no impact on airfield operations or resilience. However, as this has yet to be modelled and any impact determined, the cap currently remains with the solution for providing 95% pier service a Pier 7 solution (as an alternative to the Pier 6 southern extension).

a11.6 CONClUsION

The consolidation of easyJet into South Terminal would certainly bring passenger service benefits to our largest carrier. Enjoying a single terminal operation as all other Gatwick carriers do, would remove the current issues of passengers stranded in the wrong place, landing in a different terminal from that they took off from and allow easyJet to provide a clear, strong brand presence for their passengers.

Furthermore, easyJet believe there will be operational benefits by reducing the number of aircraft changes required at short notice between terminals, by reducing the management and supervisory headcount in their handling agent and allowing a more efficient use of resources overall.

Although a number of concerns have been raised by other airlines it is worth noting that none have yet formally objected to this consolidation proposal. We believe that a consolidated easyJet operation has its attractions, but for the purposes of producing a business plan at this point in time, considering where we are currently in the consultation process we have opted to keep the easyJet operation split across the two terminals in our January Business Plan.

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

14 Appendices

285

a12.1 INTRODUCTION

This Appendix illustrates the RAB-based price for the scenario relating to the consolidation of the easyJet operation into the South Terminal during the five years beyond Q5. The building blocks model and illustrative price path are provided in both 2013/14 prices, and at the CAA’s request, 2011/12 prices. In addition, this Appendix provides illustrative price paths for the five year period between 2019/20 and 2023/24 in both 2013/14 and 2011/12 prices.

a12.2 Rab-baseD pRICe FOR peRIOD 2014/15 – 2018/19

In this easyJet consolidated scenario, our initial analysis has identified that some of the building block components will remain unchanged from our business plan. These are:

• Operating costs; and

• Car Park income, Property Income and Other income, as described in Chapter 10.

We have also used the same Q5 cost of capital of 6.5% (pre-tax, real) assumption, as instructed by the CAA.

However, as described in the previous Appendix, this scenario results in changes to the projected capital programme for the five years beyond Q5, which in turn affects the regulatory depreciation on new assets. In addition, this scenario also changes the retail income projections.

The regulatory price cap per passenger (pre- and post-profiling) is calculated as the aeronautical revenue allowance divided by expected passengers, as shown in the table below:



2015/16 forecaSt

2016/17 forecaSt

2017/18 forecaSt

2018/19 forecaSt



Price Path X=4.1%


Table A12.1 Illustrative RAB-based price path for easyJet consolidated scenario (profiled with a P0 adjustment, 2013/14 prices)

This scenario results in a profiled annual increase in the regulatory price cap of RPI +4.1%, after including a P0 increase in the price cap in 2014/15 of 11%

APPENdix 12RAB-BAsed pRice FoR eAsyJet consolidAted scenARio

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

14 Appendices

Appendix 12RAB-BASED PRICE FOR EASYJET CONSOLIDATED SCENARIO

286

The table below shows the resultant profiled regulatory price cap without a P0 adjustment:

beyond Q5


2015/16 forecaSt

2016/17 forecaSt

2017/18 forecaSt

2018/19 forecaSt



Price Path X=7.7%


Table A12.2 Illustrative RAB based price path for easyJet consolidated scenario (profiled, 2013/14 prices)

This shows a profiled annual increase in the regulatory price cap of RPI +7.7%, for this five year period.

The CAA has asked for information to be provided in 2011/12 prices. The table below provides the illustrative price path in 2011/12 prices, assuming a P0 increase in the price cap in 2014/15 of 11%.



2015/16 forecaSt

2016/17 forecaSt

2017/18 forecaSt

2018/19 forecaSt



Price Path X=4.1%


Table A12.3 Illustrative RAB based price path for easyJet consolidated scenario (profiled with a P0 adjustment, 2011/12 prices)

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

14 Appendices

287

a12.3 Rab-baseD pRICe FOR peRIOD 2019/20 TO 2023/24

The CAA has also asked for a building block projection and illustrative RAB-based price for the 5 year period 2019/20 to 2023/24. The table below shows a forecast of each of the building blocks under this scenario, with an assumed capital programme projection of £1.1bn across the 5 year period. It also uses the same Q5 cost of capital rate of 6.5% (pre tax, real).

Given the uncertainty inherent in forecasting between 6 and 11 years henceforth, the operating cost and non aeronautical forecasts for this period are the same as those used in the Business Plan (see Chapter 12) , however, the RAB and regulatory depreciation forecast reflect the impact of the forecast changes to the capital plan in the previous five year period. As with the business plan projections, these projections are provided without prejudice to forecasts made closer to the period.



2020/21 forecaSt

2021/22 forecaSt

2022/23 forecaSt

2023/24 forecaSt



Price Path X=0.1%


Table A12.4 Illustrative RAB based price path for easyJet consolidated scenario (profiled with a P0 adjustment to the closing 2013/14 price, at 2013/14 prices)

The projection between 2019/20 and 2023/24 results in a broadly flat price cap, assuming the P0 increase is applied in 2014/15.

Similarly, the table below shows the illustrative RAB based price path for the five year period 2019/20 to 2023/24, in 2011/12 prices, again assuming the P0 increase is applied in 2014/15:



2020/21 forecaSt

2021/22 forecaSt

2022/23 forecaSt

2023/24 forecaSt



Price Path X=0.1%


Table A12.5 Illustrative RAB based price path for easyJet consolidated scenario (profiled with a P0 adjustment to the closing 2013/14 price, 2011/12 prices)

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

14 Appendices

289

meAsure (ACross AirPort) BAsis 2008/09 2009/10 2010/11 2011/12 APr-deC 2012

NO

N q

sM s

qR

Ta

RG

eTs

Stands Mth 0 0 1 0 0

Jetties Mth 0 0 1 0 0

Pier Service YTD 12 0 0 0 0

FEGP Mth 1 0 1 0 0

PSE Priority Mth 8 4 1 0 0

PSE General Mth 3 3 0 0 0

Inter Terminal Transit Mth 5 0 2 3 0

Security Queuing: < 5 mins Mth 9 10 0 0 0

Security Queuing: < 15 mins Mth 0 0 0 0 0

Arrivals Reclaim Mth 0 0 0 0 0

Transfer Search <=10 min Mth 0 0 0 0 0

Staff Search <=5 min Mth 0 0 0 0 0

Staff Search - Jubilee/Concorde House <=10 min Mth 0 0 0 0 0

Control Posts Search <=15 min Mth 0 0 0 0 0

Aerodrome Congestion Term Mth 0 0 0 0 0

qsM

sq

R

TaR

Ge

Ts

Deps Lounge Seat Availability YTD 24 2 0 0 0

Cleanliness YTD 21 2 6 1 0

Wayfinding YTD 12 11 12 0 0

Flight Information YTD 3 0 0 0 0

Total 98 32 24 4 0

APPENdix 13sQR peRFoRMAnce

a13.1 INTRODUCTION

This Appendix provides detailed performance data from the CAA’s service quality regime.

Table A13.1 shows each of the SQR metrics across the airport, together with the number of failures per year, during Q5 to December 2012

Table A13.1: SQR failures Q5 – December 2012

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

14 Appendices

Appendix 13SQR PERFORMANCE

290

(£ outturN) 2008/09 2009/10 2010/11 2011/12 APr-deC 2012

Departure Lounge Seat Availability 844,231 126,564 – – –

Cleanliness 844,231 160,820 486,929 86,051 –

Wayfinding 439,327 482,461 486,929 – –

Flight Information 219,664 – – – –

Central search Security queues (less than 5 min) 1,347,801 1,572,935 – – –

Passenger Sensitive Equipment (Priority) 666,185 402,051 69,504 – –

Passenger Sensitive Equipment (General) 237,815 230,086 – – –

Stands – – 78,855 – –

Jetties – – 78,855 – –

Pier Service 450,118 – – – –

Fixed Electrical Ground Power 50,889 – 56,403 – –

Inter Terminal Transit: 1 car 290,744 – 107,747 194,646 –

Total 5,391,004 2,974,917 1,365,222 280,697 –

(£ outturN) 2008/09 2009/10 2010/11 2011/12 APr-deC 2012

Pax Sensitive Equip. (general) 253,269 440,656 496,458 588,014 398,572

Arrivals Reclaim 504,975 533,258 664,745 821,945 600,333

Departure Lounge Seating – 133,428 178,570 269,684 146,348

Way Finding – – – – 44,084

Cleanliness – – – 20,975 104,123

Flight Info – 107,769 246,646 155,971 2,799

Total 758,244 1,215,111 1,586,418 1,856,589 1,296,259

Table A13.2 shows the total bonus paid against the relevant SQR metrics.

Table A13.3 shows the total rebate paid against the relevant SQR metrics.

Table A13.2: SQR bonus paid – Q5 to December 2012

Table A13.3: SQR rebates paid – Q5 to December 2012

1Strategy

2 Competition

3 Service

4 Gatwick’s

Offer

5 Business

Plan

6 Traffic

7 Capital

8 Service Quality

9 Environment

10 Revenue

11 Costs

12 Regulation

13 Forward

14 Appendices

14 Appendices

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cctinonne G london to the woRld - Home | Gatwick Airport...foreord by Steart ingate 4 London Gatwick has now been under new ownership for over three years. 2013 is going to be a defining