Middle East moves towards greater transparency

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Recently back from our Dubai office, We noticed that the increasing commercialisation of airlines and airports in the region is also driving enquiries relating to cost transparency and charging. Why now?

Charges for airports and air navigation services are governed by four guiding principles set out by ICAO:

  • cost-reflectiveness: users only pay for the services they use and costs should be properly allocated
  • transparency: costs should be transparent to users
  • user consultation: changes in charges should be made in consultation with airspace users
  • non-discriminatory: users should not be charged different prices for using the same service

Airport operators and air navigations service providers follow these guidelines in principle, but how they are applied in practice can be mixed.

In Europe, a combination of EUROCONTROL principles, EU regulations and economic regulation of charges has pushed airports and ANS providers to be more transparent and cost-reflective in setting charges.

The situation is different in the Middle East, where ANS service providers and airport operators are often State agencies, financed from the same State budget. Owners of the airlines and airport are often the same. The drive for greater cost transparency and cost-reflectiveness has therefore been largely absent. Now, however, we are beginning to see aviation providers in the Middle East move towards greater commercialisation, with a view to becoming semi-corporatised entities.

This move away from being fully State-funded has meant that authorities are now interested in the cost of providing different ANS services (area, approach and tower services) and charging users for the actual services they use.

Potential issues faced by authorities include fragmentation in service provision, for example, area control services may be provided by different service providers than those providing terminal and approach services, which can present institutional barriers to change in charging structures. There are also issues related to cost allocation. How do you define the boundary between en route and terminal services so that costs allocation reflects operational practice? How do you allocate costs in a cost-reflective way, particularly for shared infrastructure and assets?

These are some of the questions that we are helping clients to answer as they deal with the consequences of structural change. However, we also need to keep in mind that any changes in cost structure and allocation should not end up disincentivising users. There are options. Airports can choose to offset aeronautical charges by non-aeronautical revenue (for example, retail), reducing the charge for airspace users. States can choose to subsidise services, particularly where these provide economic or social benefits. Regardless of their choices, to meet the ICAO principles, those subsidies or offsets should be transparent.

The Helios team will present at the ACI Airport Economics & Finance Conference and Exhibition,

taking place 26-27 February 2015 in London. To meet our airport economics and efficiency experts,

call by the Helios stand #4 during the conference breaks.

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