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COMPAIR Report Summary

Project ID: 699249
Funded under: H2020-EU.

Periodic Reporting for period 2 - COMPAIR (COMPetition for AIR traffic management)

Reporting period: 2016-08-01 to 2017-01-31

Summary of the context and overall objectives of the project

The COMPAIR project starts from the observation that air transport is facing many challenges such as increasing demand, larger airports, increased network congestion which need to be reconciled with environmental issues. Hence there is a need for smarter solutions at service, operational and technical levels. One of the important actors in the aviation supply chain are the Air Traffic Management (ATM) service providers.
Since 2004, the European Union has invested in research and development in the area of ATM. The main objective of the EU is to reform the European ATM system in order to cope with sustained air traffic growth under safe, cost-efficient and environmentally friendly conditions. The Single European Sky (SES) initiative aims to re-structure the European airspace as a function of air traffic flows, create additional capacity and increase the overall efficiency of the ATM system. The European Commission set ambitious goals for the SES in 2013 to be achieved by 2020, including a 3-fold increase in airspace capacity and a cost reduction of at least 50% in the provision of ATM services.
However, today’s progress towards SES objectives is perceived as slow: the steps taken towards enhanced collaboration between various air navigation service providers (ANSPs) are sometimes considered ineffective, the implementation of functional airspace blocks (FABs) to defragment the European landscape of national ANSPs and enable economies of scale has had limited success, and the Research & Innovation cycle is still too long. In this context, the question of how to provide the appropriate organizational structures, institutions and incentives for new operational concepts and technologies to yield the expected results stands high on the European policy agenda. The introduction of competition has been proposed as a means to provide incentives for the realization of the high-level objectives of the SES, by speeding up the innovation cycle and the fostering of more efficient operations. On the other hand, competition does not prevent every market failure (e.g. negative externalities) and, depending on market conditions, liberalization can also have undesired outcomes, such as the emergence of oligopolies or monopolies. Besides, competition does not exist abstractly and is influenced by the legal and regulatory framework. Hence, the successful introduction of competition requires a comprehensive impact analysis to evaluate different regulatory approaches along a variety of dimensions.
The main research question of COMPAIR is “how to introduce competitive incentives in the ATM sector so as to best contribute to the achievement of the European high-level policy objectives for aviation.” In reply to this, the project pursues the following objectives:
1. propose a set of new institutional market designs for the introduction of competition in the European ATM sector;
2. define a framework allowing a comprehensive assessment of the impact of different institutional market designs on ATM stakeholders and society at large;
3. develop a variety of economic and network models for the evaluation of the proposed regulatory approaches;
4. assess the feasibility and acceptability of proposed institutional changes for various market actors;
5. propose a vision and derive policy recommendations for the implementation of those new institutional structures identified as most beneficial for the European ATM system.

Work performed from the beginning of the project to the end of the period covered by the report and main results achieved so far

This technical report covers the work done in the second half year of the project (1 August 2016 - 1 February 2017). At this stage of the project work focused on incorporating the comments received on the first set of deliverables (Administrative deliverables and D2.1, D2.2 and D3.1) and developing the first economic and network models.

Work in this reporting period focused on D3.2 - Report on economic analysis. In this deliverable we focus on two questions
- Can we link ANSP performance and ownership?
- What is the potential for unbundling?
To assess the relationship between performance and ownership we econometrically estimate the cost function and the production function and develop a small economic model.
With respect to the cost function and economies of scale we find a difference in whether we control for airspace size or not. A 10% increase in traffic corresponds, on average, to a cost increase of around 6% in costs, if traffic levels rise keeping the current airspace structure. If we let airspace size also increase with 10% (such as in a merger of two ANSP airspaces in a FAB) we find that costs rise by around 8%, indicating lower economies of scale. For terminal control activities, this effect seems to be even stronger.

In the production function on the other hand, we did not find economies of scale for en-route. However, this could be linked to the fact that European ANSPs only governs relatively small airspaces. Providers handing more complex traffic are more efficient, while providers with a lot of seasonality are less efficient. This last aspect is probably linked to high fixed costs. With respect to terminal control we observe the same tendencies. Overall, however, terminal ATC seems less efficient than en-route.

The econometric estimates did not show significant coefficients for ownership form, although the economic model suggests that effort will be higher in the case of public companies with a board of stakeholders and in the case of a private company where stakeholders are also shareholder.

To assess the potential for unbundling we illustrate the main economic mechanisms using tower control as an example. In this section we analyzed the potential of introducing competition for tower control services. There are two motivations for the opening of the market for smaller airports. The first is a reduction of costs; factual information suggests that cost reductions of 50% or more could be possible. The second motivation is transparency in the subsidies given to regional airports in many countries. One of the major drivers of liberalization were the airports when they are private or when they face strong competition.

Progress beyond the state of the art and expected potential impact (including the socio-economic impact and the wider societal implications of the project so far)

The main goal of the COMPAIR project is to increase insight into potential institutional and market structures that may lead to an uptake of new technologies and more performance based business models. The expected impact of changing the institutional form in the ATM sector is vast. We expect beneficial effects on:
• increased uptake of technologies,
• improved cost-efficiency of ATM services,
• better management of ATC capacity and
• more efficient flight routes and hence decreased emissions.
These effects will likely lead to lower prices and waiting time for passengers, the ultimate end-users of air traffic services for civil aviation.
At this stage of the project, the main work – the modelling and assessment of the potential impacts - still needs to be performed. The first qualitative assessment however already provides some insights and lessons learned from other industries.

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