Economic Regulation - IATA

06 - Economic Regulation 47
Denmark
Frankfurt airport (long-term contracts).
The airport has entered into five-year contracts with
airlines, covering all aviation charges and defining how
they will change over time. The contract is based on a
risk-sharing model that inversely links, on a sliding scale
with no threshold, the growth in charges to the growth
in passenger traffic (i.e. if traffic growth is higher than
expected, charges growth will be lower). The model does
provide a degree of certainty over future charges for both
sides that can encourage investment. However, it does
require open and transparent negotiations from both
sides, for which a common will may exist at Frankfurt but
may not elsewhere (e.g. Lufthasa holds a 9.1% equity
stake in Fraport, the Frankfurt airport managing company).
Risk-sharing does allow airlines to share the benefits of
growth and to provide flexibility against external shocks.
However, it is not yet clear how the system will impact
upon efficiency and whether it contains sufficient
incentives to reduce costs.
Given the complexity of airport regulation, the existence
of several local regulators is both expensive and
potentially inefficient, lacking the ability to use regulatory
benchmarking and potentially less effective at driving
efficiency gains. The example of other sectors in Germany
(e.g. telecoms and post) shows that an independent
national regulator can be introduced.
Copenhagen airport has a light-handed regime over its
aeronautical charges, with a high-level price cap and
voluntary agreements. This regime was implemented
in 2000 when majority control was transferred to the
private sector and revised in 2003 for a provisional fiveyear
period.
Aeronautical charges are determined at Copenhagen
airport by two main methods; negotiation and regulation.
The airport authority is obliged to negotiate on a charges
agreement with users in advance of the next regulatory
period, and if agreement is reached this is the cap that is
set. However, if no agreement is reached, the cap is set
by CPI-X regulation from the Ministry of Transport.
The regime has been relatively successful at encouraging
negotiation between airports and airline users. The
threat of CPI-X regulation is credible and encourages
more open participation in negotiations from the airport.
Negotiations also allow for a greater degree of flexibility
on charges and coverage of service quality issues too.
However, the focus on negotiation can provide relatively
weak incentives for efficiency, with the focus on actual
rather than potential cost levels.
Austria
Vienna airport is subject to regulation by the Austrian
Civil Aviation Authority (ACAA), an independent body but
one that is not obliged to consult with users or to publish
its reports. The ACAA set an initial price cap in 1994 for
a three year period, based on the single-till principle, and
has rolled forward this cap since then. The price cap is
applied to a basket of charges and not an average per
passenger charge as elsewhere.
The price-cap system has produced improvements in
efficiency. It also incorporates a degree of flexibility, with
a basic risk adjustment mechanism that adjusts charges
on a sliding scale relating to the actual rate of growth in
traffic at the airport. However, the lack of transparency
and consultation with users, combined with little change
in the price cap over time, has tended to encourage
investment that is expensive and beyond that required
by airline users.