Economic Regulation - IATA

06 - Economic Regulation 49
OTHER REGIONS
Latin America
Many Latin American airports have been privatised
without proper independent economic regulation. In
most cases the governments actually benefit from the
privatisation by extremely high concession fees required
from the concessionaire.
One exception is Mexico where most privatised airports
have a Federal economic regulation that only allows their
charges to rise with inflation minus an efficiency factor
(similar to the UK system). The major flaw in that system
however is there is no requirement for airports to consult
their customers on the level of investment. Airports
are allowed to recover their investment costs with high
rates of return through the regulated charges eventually
leading to excessive pricing.
Asia
Most airports and ANSPs in Asia are still publicly owned
and tightly controlled. However, some of the key gateway
airports (such as Hong Kong and Singapore) have
established, or are in the process of establishing, a form
of economic regulation.
The Indian government also plans to establish an Airport
Economic Regulatory Authority in 2007, in response to
the increased privatisation of airports. Its role will be to
regulate user charges and to establish uniform quality
standards across airports.
No regulation
In addition, there are several cases across the regions
where the lack of independent economic regulation
has led to excessive and unjustified user charges. For
example, in advance of its privatisation, the French
government allowed Aeroports de Paris to increase its
charges by 5% in real terms for five years without any
justification or transparency for the decision.
In Argentina, a failed concession leaves airlines with
unacceptable charges levels and full freedom for
the airport to raise more revenue through additional
charges. Instead of independent economic regulation the
government became a business partner with the airport
at the expense of airlines and passengers.
In Germany, the government’s proposals for privatising
its ANSP, DFS, include plans to increase charges by 11-
12% and allow a return on capital of 9.4%, far too high
for a low-risk, monopoly provider.
Examples like these highlight the need for an independent
regulatory structure that takes into account the interests
of customers, protecting them against artificial and
unjustified increases in charges, including where these
are used to boost the value of an airport or ANSP prior
to privatisation.
Even in some of the examples above where a form of
regulation is in place, if the regulator is not independent
from national or local governments it can lead to arbitrary
decisions with little transparency or consultation.