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Air Navigation Service Providers Increase Prices in Europe

Regardless of recommendations to the contrary, some European air navigation service provider (ANSP) unit rates were recently hiked to cover rising costs. A robust, transparent framework must be implemented to determine future changes

Despite IATA calls for all air navigation service providers (ANSPs) in Eurocontrol to freeze or reduce rates in 2010, no fewer than 19 states have proposed increases over 2009 levels. Adjusting for the amount of traffic handled, the greatest impact of the price rises will come in Poland (+18%), Romania (+17%), Austria (+14%), France (+6%), the UK (+5%) and Italy (+4%). In all, it will add $360 million to the airline bill.

Fifteen other states have managed to avoid increases, with seven—Bulgaria, Croatia, Finland, Greece, Malta, Moldova and Portugal—proposing reductions compared to 2009 levels.

“I applaud the 15 states that plan to reduce or freeze their en route air navigation charges,” says Giovanni Bisignani, IATA Director General and CEO. “But the savings they delivered were wiped out by the out-of-control monopolists. Completely divorced from reality, 19 European states have proposed increases for their ANSPs in the middle of an unprecedented industry crisis.”

The real problem is the cost recovery mechanism, according to Jeff Poole, IATA Director, Industry Charges, Fuel and Taxation. “Cost recovery is simply not something you see in proper commercial businesses,” he says. “It means an ANSP can incur whatever costs they like, and the airline has to pay their bill. There is absolutely no incentive to be efficient.”

Moreover, Poole argues the rises could translate into a long-term problem. Some ANSPs may continue to argue that under-recovery during the worst of the economic crisis means prices have to increase beyond costs. In addition, a return to economic growth could also act as an excuse for charges hikes.

“Improving efficiency is the key point,” says Poole. “If that principle holds, then prices will come down in both the short and long term.”

State control

The Civil Air Navigation Services Organization (CANSO) argues the reduction in flights—which averages 6.3% in Europe—has simply outstripped the ANSP cost-cutting efforts, inevitably resulting in a cost increase per flight. It highlights the average 3% reduction in charges since 2003, and the fact that ANSP fees are set by the state, and not the ANSP itself.

Guenter Martis, Director of European Affairs at CANSO, adds that some ANSPs—particularly those in Eastern Europe—face a problem with staff retention. “Controllers in this region are looking elsewhere for employment as salaries are comparatively low,” he says. “So the cost base is rising as ANSPs struggle to hang on to their staff.”

Martis describes this as an industry problem, created by calls for greater mobility of staff. “We all supported the EU law that increased staff mobility as it was thought this would help decrease costs,” he says. “But in fact, we all have to admit that the opposite is true.”

An additional problem created by the global recession has been fluctuations in currency exchange rates. Some smaller currencies have weakened dramatically in comparison to the euro and this has further increased cost pressures on certain ANSPs, which must convert local costs into euros under Eurocontrol regulations.

Poole insists, however, that these specifics cannot hide the overriding inefficiency and poor business models that are forcing prices above “normal” levels.
“Fundamental problems have to be addressed before any specific variations are accounted for,” he says.

Robust thinking

Fortunately, both sides are in agreement on the solution. A robust performance framework, set up under the second package of the Single European Sky regulations (SES II), would provide a transparent guide to both ANSP efficiency and charges. The concept  was adopted by the European Council in September 2009. The challenge now is implementation.

In November, the Performance Review Commission of Eurocontrol issued a discussion paper, which focuses on Key Performance Areas (KPAs) and target setting. This is currently the subject of intense debate.

“We fully support the idea of a framework,” says Martis. “This is being debated at various levels, and CANSO is a full participant in every discussion. We want a robust system because it would support the future growth of the business.”

However, while Bisignani has called for the urgent introduction of a performance framework, Martis warns industry negotiations have a lot of ground still to cover. “There are so many issues that need work, some of them major,” he says. “Risk sharing is an obvious one.”

CANSO says ANSPs are ready to accept greater risk, but not total risk. Any incentive scheme to address this issue needs to be appealing but, because the boundaries between state and ANSP are unclear, tackling the problem will not be easy.

In any case, Poole observes that airspace users currently bear total risk, and insists that “this must change”. IATA’s vision is to incentivize the financial and operational performance of ANSPs through regulation, governance and performance measurement/review in order to drive cost efficiency, ensure appropriate sharing of risk and reward, and encourage collaboration with industry partners.

“Importantly, it must be clear that there are penalties for non-performance,” adds Poole.

Four proposals cover the possible risk sharing options:

  • Full cost recovery in which the airspace users bear the entire risk
  • Hybrid price cap regulation, where the risk associated with traffic volumes are shared with airspace users but the states/ANSPs bear all the risks associated with costs increases
  • Risk sharing regulation, where both the risks associated with costs and traffic volumes are shared between states/ANSPs and airspace users; and
  • Pure Price Cap regulation, where the risks associated with costs and traffic volumes are all borne by the state/ANSPs.

It is unclear yet where the solution will be found, and what timeline will be involved.

Debate aside, Martis concludes that ANSPs are doing all they can to assist airlines in developing a sustainable industry. “We fully understand the need to work together and are committed to finding solutions that benefit all partners,” he says.

Poole appreciates the efforts, but he notes that the proof is in the numbers. “The 19 proposal for rate increases indicate that there is still a gap between good efforts and acceptable results,” he concludes.

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