Economic Regulation - IATA

SINGLE-TILL VS DUAL-TILL REGULATION
The range of airport and ANSP revenues and costs that are subject to economic regulation is a crucial influence
on regulatory decisions and outcomes. There is no uniform agreement on the scope of revenues and costs that are
included, with actual and proposed regulatory systems typically adopting one of the following approaches:
Single-till regulation
Under a single-till, all costs and revenues are taken into
account in determining allowed rates of return and/or a
general price cap, irrespective of whether those services
can be defined as aeronautical or non-aeronautical or
whether those services are considered to be contestable
or not.
The regulated airport or ANSP determines its individual
charges for aeronautical and non-aeronautical services
within this overall revenue constraint. Examples of use
of the single till system include the United Kingdom,
Singapore’s Changi airport and most airports in the
United States.
Dual-till regulation
Under a dual-till, aeronautical and non-aeronautical
services are treated as distinct.
For aeronautical services, allowable revenues cover the
directly attributable costs (including a return on assets)
of providing these services, as well as a contribution
to costs that are common to both aeronautical and
non-aeronautical services.
Non-aeronautical services that are deemed not to be
contestable are subject to the same regulation, i.e.
revenues cover directly attributable costs and a contribution
toward common costs. Non-aeronautical services that are
considered to be contestable are not subject to regulation.
Examples of use of the dual-till system include Australia,
New Zealand and some airports in Germany.
IATA recommends a single till approach that determines the level of revenue and return required and
the user charges to be set on the basis of all services at an airport, irrespective of whether they are
aeronautical or non-aeronautical.
The approach is justified because there is an interdependency between the passengers airlines bring
to airports and the non-aeronautical revenues (e.g. retail) they provide for airports. As airlines have
delivered the customers to make non-aeronautical operations at airports profitable, it is reasonable
that they should also share in their benefits.
The dual-till is more consistent with systems in place in other regulated utility sectors (e.g. electricity), but
these other industries do not have the characteristics of interdependency seen in the aviation sector.
A single-till approach is recommended for the following reasons:
Greater productive efficiency.
Other things being equal, the single-till would lead to lower
airport user charges over the longer-term than the dualtill,
with the difference reflecting a proportionate share of
non-aeronautical profits. This ensures that operators are
incentivised to minimise costs on both the aeronautical
and non-aeronautical sides 11 . Lower charges are also
passed on to airline customers through lower fares,
encouraging more productive use of an airport’s capacity.
A switch to a dual till system would see a significant
transfer of income to airports from airlines and/or their
passengers, potentially undermining regulatory credibility
and creating regulatory uncertainty.
11
A Zhang, “Alternative Forms of Economic Regulation and their Efficiency Implications for Airports”, concludes that airports under a single-till
price cap have significantly higher capital input productivity. The paper also argues that single-till is less effective for dynamic efficiency (i.e. new
investment) though this argument is not fully supported by evidence in other articles (see next footnote).