Economic Regulation - IATA

02 - Economic Regulation 15
Why is independent economic
regulation needed?
Chapter 3 discusses the case for implementing
independent economic regulation of airports and ANSPs.
It outlines the significant market power enjoyed by many
airports and ANSPs and the potential and practice of
this power being exploited. It recognises that where
competition does exist it is preferable to regulation, but
where it doesn’t exist a robust regulatory framework is
needed. It also notes that well-constructed regulation
can have positive benefits for all parties.
What aspects should
regulation cover?
Chapter 4 discusses the scope of activities that
regulation can be used to cover. It argues that regulation
is more effective at an individual airport or ANSP level,
rather than on a system-wide basis, due to differences
in priorities and circumstances. It sets out the case
for a ‘single-till’ system of regulation and recognises
that where ‘dual-till’ regulation is chosen additional
safeguards are required to ensure that risks and rewards
are shared appropriately.
How can regulation
be implemented?
Chapter 5 discusses the different types of regulatory
regimes that can be implemented. It argues that pricecap
regulation is the most effective in improving
efficiency, though recognises that additional incentives
and consultative processes may be needed to encourage
timely and cost-effective new investment. Light-handed
regulation or price monitoring has been adopted
for some airports, but in all cases needs a credible
penalty mechanism in the event of abuse of market power
(e.g. a return to price-cap regulation) if it is to deliver any
sustainable benefits.
What experience do we have
of airport and ANSP regulation?
Chapter 6 discusses the experience, so far, of
independent economic regulation of airports and ANSPs
in several countries. It examines the different systems
that have been put in place and assesses the advantages
and disadvantages of each one. The different approaches
reflect different circumstances and objectives for
individual airports and ANSPs, but also highlight the
problem of regulatory inconsistency in some countries.
How can regulation be used
to improve efficiency?
Chapter 7 discusses how an effective regulatory
framework can be used to deliver efficiency improvements,
but notes how some forms of regulation can provide
little incentive towards greater efficiency. Regulation
should set clear targets for performance improvement
among the regulated companies, reflecting the different
objectives faced at individual airports or ANSPs.
These targets can be informed by clear and concise
benchmarking procedures. Benchmarking systems are
already used to great effect in other industries, such as
the electricity and gas markets in Europe, while IATA has
developed its own benchmarking scorecard that it uses
for airport or ANSP charges negotiations.
How can regulation be used
to attract new investment?
Chapter 8 discusses how the regulatory framework
can be flexible in order to attract timely and cost-effective
investment into the industry. It outlines options to improve
investment incentives for airports and ANSPs, but also
highlights the importance of open and constructive
consultation between the infrastructure providers and
airline users over the design, cost, timing and financing
of new investment.
Chapter 9 provides a final summary of the key conclusions
and recommendations.