Regulation of Charges at
Small Airports in Austria
Team Charges Berlin
Jürgen Müller, Marius Barbu, Peter Schröder
Outline
1. Austrian Price Cap
2. Recommendations for a better Price
Cap
3. Theoretical Excursus: Perfect Price
Cap
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Introduction of the Price-Cap
in 2001
• 1998: AUA wanted to participate from the
passenger growth and decreasing average
cost (economies of scale) of the airports.
• So far the airports had not shared any of the
higher revenues (Zambelis, AUA)
• Planning security (5–3–1 Years) for airports,
airlines and owners
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Negotiation of the formula
• The parties involved (plus UK-Experts) spend
a lot of time in negotiations
• Negotiation between airlines and airports in
the user council (Nutzerausschuss) was very
tough, almost every propostion of airlines was
declined. In the second phase public authority
entered the process.
• Many compromises made airlines unhappy.
Authority tends to be on the airports side.
(Zambelis, AUA)
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How does the price cap look
like?
If T > 0 :
L = -0,35*T+I+0,5
If T < 0:
L = I+0,5
key:
• Maximum increase is:
inflation + 0.5.
• No floor for decrease
• Growth incl. PAX and
MTOW of Current
year and the forecast
of next year.
L = Maximum Increase in Charges
T = Traffic Growth
I = Inflation
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Diagramm Price Cap
3,0
Indexmodell Flughafentarife
(L = -0,35*T+I+0,5)
L
2,0
• There is no bottom
when passanger growth
increases
1,0
T
15,0
14,0
13,0
12,0
11,0
10,0
9,0
8,0
7,0
6,0
5,0
4,0
3,0
2,0
1,0
0,0
-1,0
-2,0
0,0
• Absolute Price-Cap is
2,7
• Viennas Price-Cap is
lower (...+0.25)
-1,0
-2,0
-3,0
Legende:
L = höchstzulässige Tarifanpassung
T = Verkehrswachstum bzw. -verringerung
I = Inflationsrate (WIFO-Prognose; 2009 = + 2,2% per 15.10.2008)
-4,0
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Assessment
• 2009 gap for growth forcasts was to big for
the AL
• No compromise in the first place. Public
authority accepted to cease the price cap
regime.
• Eventually, the parties accepted to have the
price cap for another year because in 2009
the directive will be implemented.
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The Airlines Suggest:
• The increase in the formula (0.5) should be
deleted.
• The share of passenger growth of 35%
should be higher or more flexible
• AP should have single till. Klagenfurt could
not survive with aviation revenues but makes
a lot of money from non aviation (for example
parking) this revenues don’t affect the level of
charges under dual-till.
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The Future of Regulation in
Austria
• Ministry argues: Good regulation doesn’t
have a positve macroeconomic effect
• An important element that is accepted and
will be applied is the weighted average cost
of capital (WACC)
• In general it is difficult to implement new
concept that are accepted by all parties
• Try to achieve state of the art in the medium
term
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Impact of EU-Charges
Directive
• It doesn‘t contain much information but it is a
at least a legal basis
• There are 3 possible outcomes:
1.EU directive will be copied into Austrian law without any
revision. This would leave a lot of unclear space for
negotiation and conflict
2.The former price cap will be introduced into Austrian law,
this would disappoint the airlines because it’s very
unfavourable for them.
3.The idea of more transparency and non discrimination
could be introduced in a reasonable way. The AL would
welcome that.
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A better Price-Cap
• The actual level that was present at the time
was just accepted.
• The beginning level should be calculated
form an independent and competent party
from a zero-budget-level
• An accurate benchmark-study would be
mandatory
• a better more complex price-cap means cost
increase
• the easier the regulation the easier is the
acceptance
in the industry
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Theoretical Excursus: The
Perfect Price Cap
Conditions:
1. Recover inflation
2. Stable total revenues
3. Price elasticity of – 1
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Theoretical Excursus: The
Perfect Price Cap
• L = -T + I
• L = max increase charges level,
T = passenger growth, I = inflation
• Price elasticity is –1 now. Should result
in constant total revenues.
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Theoretical Excursus: The
Perfect Price Cap
• Problem
• Relation cost / revenue must be stable
• Total cost will increase with increasing
passengers (disincentive to increase pax?)
• Which charges will be increased according to
the price cap? Total price or per passenger?
Assumably, total price since condition 2
relates to revenues.
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Scenario 1
• margin between total costs and total
revenues gets bigger and bigger.
Airports make higher and higher profits.
Eventually, the new (lower) level of
costs have to be incorporated in the
initial level for the next year in order to
curb the profit development
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Scenario 2
• the efficiency gains of the airports
compensate the increasing total costs
that are inevitable because of
passenger growth. Airports have neither
profits nor a loss. This situation is more
or less stable. No need for adjustments.
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Scenario 3
• passenger growth is negative. Airports have
the same revenues but less costs, the
positive profit development is even reinforced
by the efficiency gains. Airlines have higher
average costs per passenger (economies of
scale) and have to pay higher charges not
only per passenger but in total numbers.
Profits will be cut drastically. Level of costs
have to be incorporated.
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Questions
• How probable are the scenarios?
• Is it a problem that airports want to have less
passengers according to charges revenues?
• We have to think more about the execution of
the price increases: which charges make
sense? maybe only passenger related
revenues should be affected
• Is this the perfect price cap?
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