Economic Regulation - IATA
Economic Regulation - IATA
Economic Regulation - IATA
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
04 - <strong>Economic</strong> <strong>Regulation</strong> 27<br />
REGULATION BY INDIVIDUAL<br />
AIRPORT OR ANSP<br />
<strong>Economic</strong> regulation will be most effective on an individual<br />
airport or ANSP basis, with the decisions made on a basis<br />
appropriate to the key objectives in each case. It should<br />
reflect the difference in circumstances or objectives for<br />
each regulated entity – for example, a capacity constrained<br />
airport will primarily need new investment, an inefficient<br />
airport will primarily need improved productivity.<br />
System regulation, that sets a price cap for more than<br />
one airport or ANSP, can lead to sub-optimal decisions.<br />
Users at one airport may face higher charges in order to<br />
cross-subsidise users at an another airport in the system.<br />
Alternatively, a company that is constrained in investing at<br />
one airport may do so at another even if the commercial<br />
returns are not feasible.<br />
Cross-subsidisation is neither economically or<br />
operationally efficient. For example, evidence has<br />
shown that BAA has previously used its market power<br />
at Heathrow airport to develop new capacity at Stansted<br />
airport, well in advance of when it was needed, even<br />
though it was not commercially justified 10 . The use of<br />
an airport’s own asset base and risk profile to set its<br />
allowable return reduces the ability of an airport owner to<br />
subsidise premature or gold-plated investment either at<br />
the airport or elsewhere within its group.<br />
Nevertheless, regulation at an individual entity level<br />
does not mean a separate regulator for each entity. The<br />
significant resources and expertise involved in airport<br />
and ANSP economic regulation mean that there are<br />
economies of scale from having a single national aviation<br />
regulator to conduct reviews of each individual entity<br />
or, in the case of small countries, a national regulator of<br />
utility industries that includes regulatory jurisdiction over<br />
airports and ANSPs.<br />
A “supra-national” regulator (e.g. one Europe-wide aviation<br />
regulator) is likely to be less efficient, potentially reducing<br />
average regulatory costs but also weakening the focus on<br />
the objectives and efficiency targets within each country.<br />
However, as discussed in the next section, a “supranational”<br />
forum can be useful in terms of benchmarking<br />
regulatory performance and sharing best practice.<br />
REGULATORY BENCHMARKING<br />
Regulatory frameworks, like the companies they<br />
regulate, will benefit from a performance assessment.<br />
This can minimise the risk of regulatory failure and<br />
provide an incentive for improved performance. As such,<br />
an international or regional forum can provide a useful<br />
role in benchmarking performance and in sharing new<br />
approaches to regulation and established best practice<br />
techniques. Benchmarking could assess the progress<br />
made by Governments in ensuring that an appropriate<br />
and independent regulatory framework is established. It<br />
could also assess the performance of regulators once in<br />
place, though with a focus on efficiency and investment<br />
outcomes rather than specific price-cap or service quality<br />
targets.<br />
The European gas and electricity market provides an<br />
example of regulatory benchmarking. The European<br />
Commission produces an annual scorecard on each<br />
country’s progress in liberalising its gas and electricity<br />
markets and in regulating distribution networks. It<br />
“names and shames” those countries that are slow in<br />
implementing liberalisation and whose markets are not<br />
efficient or not cost-effective. A forum is also established<br />
for European gas and electricity regulators to meet<br />
regularly and to share best practice.<br />
A similar structure can be envisaged for the airport and<br />
ANSP sector. This is particularly relevant for Europe in<br />
light of a proposed airport charges directive, but could<br />
also apply to other regions. In the European case, the<br />
key is ensuring that the directive is both strong (focusing<br />
on the need for greater efficiency and cost-effective<br />
investment) and appropriate (covering only airports or<br />
ANSPs that can exercise market power). However, once<br />
a directive is in place, procedures can be established to:<br />
• Provide annual reports on the functioning of the airport<br />
market and the implementation of the directive.<br />
• Name and shame the countries that have not fully<br />
implemented the directive and whose airport markets<br />
are not efficient and cost effective.<br />
• Publish benchmark costs and charges. If the airports<br />
or ANSPs disagree with the figures they should<br />
publicly explain why.<br />
• Establish a European airport and ANSP regulators<br />
group.<br />
10<br />
Starkie, D (2004), “Testing the Regulatory Model: The Expansion of Stansted Airport”, Fiscal Studies, vol.25, no.4.