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COMPetition for AIR traffic management

Periodic Reporting for period 3 - COMPAIR (COMPetition for AIR traffic management)

Reporting period: 2017-02-01 to 2017-07-31

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 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.
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.
This report covers the work done in the third half year of the project (1 February 2017-31 July 2017). At this stage of the project work focused on
- developing the first economic and network models (D3.2 and D4.1 and D4.2)
- gathering feedback from stakeholders during the first workshop.

In D3.2 we focus on 2 questions
- Can we link ANSP performance and ownership?
- What is the potential for unbundling?
To assess the relationship between performance and ownership we estimate the cost and the production function and develop a small economic model. From the economic model we learn that if public firms care more about national interest, this could lead to a lower effort level than a private firm with consumers in the board. If the private firm is mainly interested in profit, it is not clear if the effort would be larger or smaller than in the case of a public firm/private firm with board. From the econometric estimations we also find that ownership matters.
To assess the potential for unbundling we illustrate the main economic mechanisms using tower control as an example. There are 2 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 is transparency in the subsidies given to regional airports. One of the major drivers of liberalization were the airports. This does mean that the drivers of liberalization for other services might be less strong if airports are more indirectly involved than in tower control.

In D4.1 we developed a game theoretic modeling approach to analyze the market existing in 2014 and then ask what-if questions as to how the market may change were an auctioning system to be introduced. We assume that each country will organize their own auction or tender specifying the minimum level of service desired. We then undertook an analysis of six countries,that represents approximately 50% of the European aircraft movements. In modeling the companies, we assume that either for profit companies or non-profits will be created with the former maximizing profits for their shareholders and the latter maximizing capacity given a minimum level of profit. The models have been applied to 2014 and are now being run in order to analyze potential markets in 2035 and 2050. We plan to draw conclusions as to whether such a change in the managerial structure of the ATC provision in Europe could lead to lower levels of fragmentation (i.e. whether companies would win more than one airspace) and to lower prices due to the competition for the market and greater cost efficiencies resulting from the defragmentation. Finally, we intend to analyze under which managerial form it is more likely that the SESAR technologies will be adopted.

In D4.2 we developed an agent-based model to simulate the auctioning of licenses to operate ANS. We already obtained the first results of the model and we are working on its analysis. In parallel, we also worked on the specification of a second model which will be used to explore a hypothetical, more futuristic sector-less scenario in which air navigation services are provided on an origin-destination basis.

The COMPAIR workshop took place in Madrid on the 7th of March. The primary objectives of the workshop were to
• present the progress of the project
• receive feedback from the experts in the field
• align with the other SESAR 2020-ER projects on economics.
The project members presented the results achieved so far and initiated discussions with the attending audience.
Despite the limited amount of technical feedback, the inputs provided were positive and constructive, and the consortium members incorporated them in the further project work.
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.