Economic Regulation - IATA
Economic Regulation - IATA
Economic Regulation - IATA
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Republic of Ireland<br />
Price-cap regulation was initially established for the public<br />
sector airport operator, Aer Rianta, that operated Dublin,<br />
Cork and Shannon airports. Following the break-up of<br />
Aer Rianta in 2004, price-cap regulation concentrates<br />
only on the Dublin Airport Authority. Ireland shows that<br />
regulation can be both needed and beneficial for public<br />
sector airports, it isn’t just a requirement for privatised<br />
airports. In particular, it shows that a stable regulatory<br />
framework is beneficial in advance, rather than after, any<br />
eventual privatisation of the airports.<br />
The Commission for Aviation <strong>Regulation</strong> currently<br />
sets maximum levels of airport and aviation terminal<br />
services charges at Dublin Airport. The Commission is<br />
independent, but must comply with recommendations<br />
made by the government (similar to the ACCC and PC in<br />
Australia). Its statutory duties are to facilitate the efficient<br />
and economic development of the airport, to protect the<br />
reasonable interests of current and prospective users<br />
and to enable the airport to operate and develop in a<br />
sustainable and financially viable manner.<br />
The CAR uses a CPI-X price cap and a single-till system.<br />
It has been relatively successful in delivering efficiency<br />
improvements and minimising charges, with strong traffic<br />
growth and airport commercial revenues benefiting both<br />
the airport and airlines. However, as in the UK, the focus<br />
is now shifting towards the need for capital investment. In<br />
2005, the CAR determined charges at Dublin Airport for<br />
the period to 2009 with a CPI-4% price-cap. However,<br />
the further development of a major capital investment<br />
plan for Dublin airport since then has led the regulator to<br />
propose an interim review. The review would allow them<br />
to closely scrutinise the latest capital expenditure plans<br />
for the airport, allowing them and users to challenge the<br />
assumptions and estimates made by the airport. This<br />
demonstrates flexibility within the system to cope with<br />
major changes without removing underlying regulatory<br />
principles, but it must ensure that any interim review is<br />
seen as an exceptional case rather than an expectation<br />
in the event of any future shocks.<br />
Germany<br />
The privatisation of some airports in Germany, or even<br />
just a more commercial operating focus, has encouraged<br />
the introduction of some form of regulation. However, it<br />
has tended to be regional or airport specific (largely due<br />
to legal restrictions under Germany’s federal structure),<br />
with no national regulatory authority in place. In addition,<br />
where local regulators are established they are typically<br />
part of, rather than independent of, local governments<br />
– many of whom still have an ownership stake in the<br />
airport, creating potential conflicts of interest.<br />
Though regulation has been introduced it has taken<br />
different forms for different airports:<br />
Hamburg airport (price-cap).<br />
Hamburg airport has faced regulation since its partial<br />
privatisation in 2000, covering both a price-cap on charges<br />
and service quality targets. It is a dual-till CPI-X system,<br />
with X related to the projected growth in productivity.<br />
It prevents the airport from earning any windfall profits<br />
through a sliding scale of further reductions in charges<br />
based upon passenger growth beyond a trigger point. For<br />
example, the first regulatory period saw charges fixed at<br />
CPI-2%, but with further increases in X of 0.5% for every<br />
percentage point of traffic growth above 3%. If traffic<br />
growth is less than 3% there is no change to the CPI-<br />
2% formula. However, flexibility is built in to the system<br />
to cope with external shocks, with an agreed temporary<br />
abandonment of the sliding scale after 9/11 to allow the<br />
airport to recover faster from a sudden decrease in traffic.<br />
The system does not cover major investments, with each<br />
project subject to a separate public review.<br />
Düsseldorf airport (rate-of-return).<br />
The privatisation of Düsseldorf airport following a major<br />
fire in 1996 concentrated on restoring operations quickly<br />
rather than an appropriate regulatory structure. As such,<br />
regulation was based on a loose cost-plus principle.<br />
The cost-plus nature contains similar disadvantages in<br />
terms of weak efficiency incentives and over-investment<br />
as discussed above for US airports. It has also led to<br />
protracted legal battles between the airport and airlines<br />
over proposed charge increases, for example in 2000<br />
when a 7.1% increase in charges was granted by the<br />
local Government but was considered excessive by<br />
airlines.