Air Traffic Service (ATS) providers are beginning to make their case for changes to the air traffic control (ATC) charging system, and more want the ability to build up cash reserves to use when traffic falls. Airlines, however, remain deeply sceptical.

ATS providers are floating the idea of creating rate stabilisation funds that they can dip into during bad times to offset revenue shortfalls. At present, under ICAO's cost-recovery principles for ATC, charges rise as traffic falls and vice versa, with service providers barred from making any profits.

"The charging system condemns us to being the ultimate cashflow operator," says Eric Kroese, chairman of the executive board of ATC Netherlands. "We are the only part in the value chain that does not obey normal rules of business practice." Despite decreasing the overall costs of its operation over the past five years, while delivering greater capacity, ATC Netherlands has had to increase its en route navigation charges by 11% for 2003, he says. Charges have gone up because the organisation is handling less traffic, with a fall of 4.9% in 2002 compared to 2001.

According to Kroese, under the cost-recovery regime ATS providers have no reserves or equity they can utilise as a "terrorism stabilisation buffer". He argues that such funds, probably established at a national level, should be considered, and that governments may have to help fill them in the first instance. A fund of 15% of annual turnover could be needed, he believes.

Airways Corp of New Zealand (ACNZ) and Nav Canada both have experience of such funds. However, Nav Canada used up its fund during the current crisis, while ACNZ's fund "evaporated" following the 1997 Asian crisis, says chief executive Ashley Smout. ACNZ met resistance from airlines to increase prices to refill it and so changed direction from creating one in a "risk-free environment", to create one by reducing costs, and hence earning the right to retain profits, he says.

Airlines do not agree that the formation of funds is the way forward, and believe that a more serious look at the cost-base of ATS operations is required in addition to finding a more efficient way to organise ATC, particularly in Europe. "It is too easy to ask for money in advance to put it aside to use during bad times," says Julian de la Camara, the IATA director looking after infrastructure charges.

"Our overall aim is to achieve substantial savings on ATC. We would prefer, if there is going to be a change, to go for proper regulation like in the UK where NATS is regulated by an independent, neutral body," he says.

Smout adds: "The fundamental problem the airlines will have with a fund is that it does not create an incentive to reduce costs. Perhaps if the airlines were to get a return on the fund they have created this may go some way to alleviating the problem."

In an attempt to close the gulf between the two sides, a meeting has been arranged in Europe for the end of June to brainstorm ideas about ATC charging. It will bring Eurocontrol, the ATS Performance Review Commission and the chief executives of several ATS operations, together with IATA and Europe's airline associations.


Source: Airline Business