Economic Regulation - IATA

04 - Economic Regulation 29
A greater constraint on market power.
By calculating allowable revenues on the basis of total
airport costs (including capital costs), it ensures that airport
operators earn a reasonable return on total assets, while
preventing them from exploiting their market power. A
dual-till system leads to the derivation of monopoly rents,
with an over-recovery of costs as commercial revenues
are maximised and kept in full and aeronautical costs are
fully recovered from airline users.
Practical to apply.
Airport operators are free to recover costs through any
charging structure they deem suitable. By contrast, under
a dual-till system it is difficult, in practice, to allocate both
investments and operating costs between aeronautical
and non-aeronautical activities. To the extent that some
of the judgements that have to be made are arbitrary,
future disputes about cost allocation could harm relations
between the airport and its users.
No clear evidence that it acts as a barrier
to investment.
Single-till regulation can mean that charges are relatively
low at capacity-constrained airports but, by itself, this
does not produce a barrier to new investment. Indeed,
other factors such as planning constraints are likely to
have a larger impact on investment decisions 12 . Instead,
the single-till increases the efficiency and attractiveness
of airports and ensures that operators take into account
the total, not partial, returns from new investment
Investment and/or secondary slot-trading, not
a dual-till system, better address congestion.
Under the single-till, as traffic grows over time, increased
retail profits would see the price cap set at a lower level in
each review, even at congested airports. Therefore, it can
lead to a situation where one of the busiest airports in the
world has low and declining charges. However, higher
demand volumes should provide a sufficient trigger for
new investment decisions while other schemes, such as
secondary slot-trading, may help to ease congestion in
the short-term. There is no clear evidence that a dual-till
system would automatically relieve congestion, instead it
would provide greater monopoly rents to the airport.
Nevertheless, dual-till regulation has been adopted
in some countries. Indeed, the objectives of some
governments to maximise revenue from the lease or
sale of airport infrastructure often results in their support
for the dual till. The outcome often observed under the
dual till system is consistent with some degree of overrecovery
of costs.
A dual-till system may encourage greater dynamic
efficiency in the provision of non-aeronautical services,
but this can sometimes create the risk of lower service
quality standards on the aeronautical side. For example,
if an airport devotes too much space to commercial
activities it can negatively impact upon the speed and
comfort of passengers using the terminal.
It can also negatively impact on allocative efficiency, as
price sensitive airline customers are deterred by higher
fares as a result of higher user charges (i.e. airline load
factors are reduced).
In such cases, the user charges will be higher than
otherwise, so it is important that the regulatory framework
contains sufficient credibility to pursue greater efficiency
and productivity from airports, with mechanisms to share
improvements with users and to punish poor performance.
It is not sufficient to believe that the dual-till approach acts
as an effective incentive by providing ‘something to lose’
(i.e. by a return to single-till in the future), as experience
in Australia and elsewhere has shown that these threats
are often not viewed credibly.
If a dual till is adopted, the airport operator must commit
to a service charter that sets out the general performance
principles, criteria and measures to be adopted to ensure
that no deterioration of service standards occur. As airlines
deliver customers to airports, a dual-till framework could
also provide an option for airlines to invest (e.g. take an
equity stake) in non-aeronautical investments to ensure
that they are appropriate for user needs and to share the
risks and rewards.
12
See D. Starkie, “Investment Incentives and Airport Regulation”, in the December 2006 edition of the Utilities Policy Journal. In addition, in 2003
the UK Competition Commission found no evidence that the single till system has led to under-investment in aeronautical assets at the three
BAA London airports in the past, nor did it have any expectation that it would do so over the next regulatory period.