Economic Regulation - IATA

07 - Economic Regulation 55
The airport model is based upon four main Key
Performance Areas (KPAs), each with four key indicators:
Financial.
This provides information on profitability and on the
share of aeronautical revenues within total revenues.
It illustrates areas where financial practices may have
impact on the cost base, whether or not they are under
the direct control of the airport.
Productivity.
This provides an indication of productive efficiency, with
information on the level of passengers and air transport
movements per employee and per unit of capital
employed, while giving an indication of the potential for
improved internal practices.
Cost effectiveness.
This quantifies the cost per unit of output of services
including on assessment of unit cost for staff and
operations.
Quality of service.
This provides an indication of available capacity and
of the quality of existing service levels. It measures
available terminal stand capacity per movement as well
as passenger satisfaction.
The ANSP model follows a similar structure though with
slightly different indicators. Each individual airport or
ANSP is measured in its performance on each indicator
against a relevant peer group, either in terms of region
or size. It is given a red, amber or green signal for each
indicator dependent on its performance relative to its
peer group.
ALTERNATIVE ALLOCATION MECHANISMS
As discussed above, where airports or ANSPs are capacity
constrained, charges that are set in line with productive
efficiency may be well below the market clearing level.
For example, London Heathrow airport has relatively low
charges, largely as a result of price-cap regulation since
the mid-1980s, but also has significant excess demand.
In such a situation it is apparent that price structures
alone, whatever the form of regulation, are not sufficient
to ration capacity effectively. Therefore, additional
mechanisms may be needed to help improve allocative
efficiency; such as administrative rationing systems,
mixed-mode runway operations or the trading of slots in
a secondary market.
Regulation must therefore recognise its limits as well
as its benefits. It should not be used as the prime tool
to improve allocative efficiency if other mechanisms
can be more effective. Regulation should firstly ensure
that it is not a barrier to investment (discussed further
in the next chapter). Consequently, higher demand
volumes and open negotiations with airline users should
provide a sufficient trigger for new investment decisions.
It should then provide the flexibility to incorporate other
mechanisms used to ease congestion in the short-term.
Discussion of the merits or otherwise of schemes such
as secondary slot-trading is beyond the scope of this
paper. The key concern is that regulation does not inhibit,
or attempt to duplicate, other mechanisms that may be
more effective at responding to capacity constraints at
certain airports or ANSPs.
The benchmarking model is not exhaustive and cannot
fully take into account operational differences across
different airports or ANSPs. However, it does provide a
concise and consistent view of performance in key areas,
highlighting areas for greater improvement. Regulatory
frameworks can benefit from a similar benchmarking
exercise designed to assess how the regulated company
currently performs, improvements it has made and the
potential for further efficiency and productivity gains.