Support study to the evaluation of cost allocation to marketable terminal air navigation services : executive summary.
Date: 2019-07-01
Institutions: Directorate-General for Mobility and Transport
Subjects: air traffic, air transport, airline, airport, charges for use of infrastructure, fixing of prices, liberalisation of the market, provision of services, transport infrastructure

Support study to the 
evaluation of cost allocation 
to marketable terminal air 
navigation services 

Executive Summary 

Study contract no MOVE/E3/SER/2018-333/SI2.789318 

2019 

Written by  
Martin Hawley (Winsland) 
Paul Christiansen (Winsland) 
Paul Cripwell (Winsland) 
Karol Götz (Winsland) 
Ioannis Giannelos (Ecorys) 
Umair Mehmood (Ecorys) 
Gijs Winters (Ecorys) 
Gilles Fartek (Integra) 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EUROPEAN COMMISSION 

EUROPEAN COMMISSION 

Directorate-General for Mobility and Transport 
Directorate E — Aviation 
Unit E3 — Single European Sky 

Contact: Frank Jost 

E-mail:  MOVE-STUDIES@ec.europa.eu 

European Commission 
B-1049 Brussels 

2019 

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EUROPEAN COMMISSION 

Support study to the 
evaluation of cost allocation 
to marketable terminal air 
navigation services 
Executive Summary 

Study contract no MOVE/E3/SER/2018-333/SI2.789318 

2019 

EUROPEAN COMMISSION 
Directorate-General for Mobility and Transport 
Directorate E — Aviation 
Unit DG MOVE E3 — Single European Sky 
Contact: Frank Jost 
E-mail:  Frank.Jost@ec.europa.eu 

European Commission 
B-1049 Brussels

3 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EUROPEAN COMMISSION 

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Luxembourg: Publications Office of the European Union, 2019 

ISBN 978-92-76-08754-0 
doi: 10.2832/087018 

© European Union, 2019 
Reproduction is authorised provided the source is acknowledged 

Written by  
Martin Hawley (Winsland) 
Paul Christiansen (Winsland) 
Paul Cripwell (Winsland) 
Karol Götz (Winsland) 
Ioannis Giannelos (Ecorys) 
Umair Mehmood (Ecorys) 
Gijs Winters (Ecorys) 
Gilles Fartek (Integra) 

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EUROPEAN COMMISSION 

2019 

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Support study evaluation of cost allocation to marketable terminal air navigation services

Executive Summary 

Executive Summary 

Introduction 

The  study  has  been  made  to  better  understand  the  transition  towards  market-based 
provision of Terminal Air Navigation Services (TANS). It is  intended to further inform 
the progression of liberalisation in air navigation services, a step already taken in the 
UK, Germany, Sweden, Spain, Norway and Switzerland. 

Main barriers identified 

The  main  barrier  to  marketable  TANS  is  the  decision  by  States  whether  to  liberalise, 
and this requires some impetus by airports and airlines. The need for this impetus also 
applies  to  States  where  there  is  only  partial  liberalisation.  With  the  competition  of 
Gatwick Airport, the arguments to reserve certain airports to the national provider are 
looking increasingly thin. The achieved cost savings of 30-40% appear to be the result 
of  challenger  air  navigation  service  providers  (ANSPs)  with  much  lower  overheads 
than  established  national  ANSPs.  As  a  consequence,  national  providers  are  finding  it 
difficult to compete in their own national market without changing their own cost base 
drastically.  They  are,  however,  seeking  overseas  markets  and  establishing  separate 
companies with lower cost bases. 

Beyond  the  decision  to  liberalise,  there  are  no  barriers  as  such  to  marketable  TANS, 
but  a  range  of  risks  perceived  by  the  airport  customers  and  challenger  ANSPs  that 
may impede the development of the market. These broadly concern:  

  Perceived risks to airports of a reduction in quality and/or continuity of service; 

  Risks  to  challenger  ANSPs  of  having  insufficient  information  to  make  an 

informed tender, which adds cost to their tender; 

  Risks  to  airports  and  their  airline  customers  of  higher  costs  by  not  managing 

the competition process well. 

The  essential  requirement  raised  by  ANSPs,  both  the  new  challenger  ANSPs  and 
established national ANSPs, is for a level playing field in competition. By example, the 
recent  competition  in  Norway  was  regarded  as  being  fair,  with  sufficient  information 
being  provided  by  Avinor  to  the  bidders.  By  comparison,  competitions  in  other 
markets  have  been  criticised  by  the  information  advantage  held  by  the  incumbent. 
These  risks,  however,  are  manageable  and  there  is  now  sufficient  experience  in 
Europe  for  airports  to  learn  of  each  other  in  best  practices  for  tendering  TANS 
services.  To  this  end,  this  document  has  developed  a  contract  check  list  that  covers 
much of the lessons learned to date. 

Conclusions 

The study conclusions are based on case studies of TANS provision in Europe, Canada, 
the US, Australia and New Zealand. These case studies have provided insight into the 
practical  issues  around  marketable  TANS,  particularly  concerning  the  tendering 
process and the transition to a new provider. The case studies reflect a strong interest 
in  Tower  services,  with  few  findings  on  ancillary  services  (CNS,  MET,  AIS).  Whilst 

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Support study evaluation of cost allocation to marketable terminal air navigation services

ancillary  services  should  be  amenable  to  market  liberalisation  there  appears  to  have 
been  no  appetite  to  do  this.  Reasons  for  this  include  the  fact  that  ‘national’  ANSPs 
have  no  choice  but  to  source  MET  services  from  their  national  MET  provider.  The 
resilience of air traffic services is also a factor in ANSPs decision to keep CNS in house. 

Market development 

To develop the market further we recommend: 

Recommendation 1 :  A  regular  conference  is  held  to  promote  lessons  learned 
between airports, ANSPs and NSAs. In the US there are regular conferences held 
in  relation  to  the  contract  tower  programme  from  the  FAA  (Federal  Aviation 
Authority). 

The case studies have not shown any real demand to expand marketable services to 
ancillary  services  (CNS,  MET,  AIS).  Whilst  the  ancillary  services  (CNS,  MET,  AIS) 
should in theory be amenable to market liberalisation there has been no appetite to do 
this  and  none  was  detected  in  our  case  study  interviews.  We  understand  that  the 
issues are: 

  A lack of control over MET services, which is seen as a matter for the State. 

  ANSPs seeing CNS services as integral to resilient operations. 

  ANSPs not seeing potential cost savings through outsourcing. 

Requirements for National Supervisory Authorities (NSA)  

The  study  has  also  looked  at  the  information  requirements  by  NSAs  in  developing 
policy towards liberalisation.  

A key observation is that National Supervisory Authorities (NSA) do not routinely have 
access to information that shows the operating costs and cost allocations of each ATS 
unit. We therefore recommend: 

Recommendation 2 :  NSAs request cross tabulated reports of the Route Tables, 
particularly  ‘Detail  by  Service’  and  ‘Detail  by  Nature’.  In  some  States  NSAs  have 
access  to  this  information  by  requests  to  their  ANSP,  so  this  recommendation  is 
not a radical departure from current practices. 

Cost allocation 

Across ANSPs there are different approaches to cost allocation but broadly using some 
or all of the following steps:  

  Allocation of costs to activities / lines of service. 

  Allocation of activities/lines of service to ATS. 

  Application  of  cost  sharing  /  allocation  keys  to  allocate  the  costs  of  shared 

activities such as overheads, shared staff, equipment and facilities. 

  Cost  allocation  to  charges,  a  high-level  allocation  of  the  costs  of  approach 

services to terminal and enroute, often following CRCO guidance. 

Most ANSPs have gone to significant efforts to create detailed cost allocation methods 
that link to the nature of their operations. ANSPs have commented that cost allocation 
should  reflect  the  specific  operations  of  the  State  and  that  little  would  be  gained  for 

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Support study evaluation of cost allocation to marketable terminal air navigation services

airspace  users  if  a  single  harmonised  approach  to  cost  sharing  was  introduced.  I.e. 
they believe that a single approach to cost allocation would create price distortions. 

Nevertheless, there are a number of issues with the present methods. 

  There  is  a  distinct  lack  of  clarity  on  the  composition  of  approach  costs,  which 
are  a  major  component  of  TANS.  Given  that  Approach  and  Aerodrome 
operations  are  distinctly  different  greater  transparency  would  result  if  their 
costs were separately reported. 

  The  descriptions  in  the  Route  Tables  are  mostly  high  level  and  rarely  give 
precise  details  on  sharing  keys  and  how  they  are  applied.  Assuming  that  the 
Route  Tables  associated  with  the  Performance  Plan  should  be  the  definitive 
source of information, we would argue that greater detail is needed to meet the 
requirements of the Charges Regulation for transparency on the cost base and 
allocation  of  costs.  This  said,  there  appears  to  be  little  guidance  on  the  detail 
that  is  required,  and  an  intermediate  action  could  be  to  report  against  a 
template defined by the PRB, supported by the outputs of this study. 

  Some  ANSPs  allocate  costs  based  on  revenues,  which  is  a  circular  approach. 
So, for example, if enroute revenues grow at a higher rate than terminal, more 
costs  will  be  apportioned  to  enroute  charges  and  cross  subsidy  is  likely  to 
occur. 

  There  appears  to  be  overuse  of  the  non-statistical  basis  of  allocation  between 
terminal  and  enroute  defined  in  the  CRCO  Principles.  By  default,  the  CRCO 
principle of allocating Approach costs to Enroute leads to a cross subsidy from 
overflights. Several ANSPs pointed to cost allocation decisions being influenced 
by  government  policy,  which  we  interpret  as  the  desire  to  shift  costs  of 
terminal to enroute to benefit regional airports. Bundling of airports to create a 
common charge for TANS services across the group has a similar effect and is 
also widely applied. 

  We  note  that  many  ANSPs  consult  airspace  users  on  their  cost  allocation 
methods and that these are accepted. One interpretation is that airspace users 
see that they may win and lose on cost allocations through round trips. Figure 
2-4  shows  the  progression  of  a  flight  across  3  charging  zones.  With  ATC 
charges  recovered  through  airport  landing  fees,  any  uneven  allocation  of 
charges  may  cancel  out  in  a  round  trip,  although  this  cannot  be  said  for 
overflights.    Another  is  that  local  carriers  dominate  the  consultations  and 
favour lower costs at their home base. 

We conclude that actions could be taken to improve the transparency and accuracy of 
cost allocation methods and recommend the following: 

Recommendation 3 :  For  the  purposes  of  reporting  in  the  Route  Tables, 
separate  TANS  into  Terminal  and  Approach  services  to  clearly  identify  them  and 
support consultations with airspace users. 

Recommendation 4 :  The  creation  of  a  template  and  guidance  to  support  the 
Route  Tables  Additional  Information  1(a).  Within  this  guidance,  establishing  the 
information to be reported to NSAs and standard cost allocation/sharing keys. This 
is described further in Section 0. 

Recommendation 5 :  Clarify  the  CRCO  principles  concerning  the  usage  of  non-
statistical basis of allocation between terminal and enroute. 

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Any inappropriate or inaccurate method of cost allocation will lead to an implicit cross 
subsidy between users. From the case studies cross subsidy is apparent as follows: 

  Non-transparent  subsidy  from  enroute  to  approach.  In  cases  where  any 
amount of approach costs is charged to enroute, an implicit subsidy arises from 
overflights as they will not consume any approach services. 

  Groups  of  towers  (with  or  without  approach)  with  mixed  profitable  and 

unprofitable units are bundled into a single charging zone.  

In  this  case  the  profitable  aerodromes  with  a  higher  number  of  flights 
effectively subsidise the unprofitable ones. 

Whilst the costs of many towers are recovered through airport charges, the bundling 
of  tower  costs  into  a  single  rate  appears  to  be  a  globally  accepted  practice.  In  the 
context of bidding for tower contracts, a concern raised by bidders was the extent that 
inaccurate  cost  allocations  may  deflate  the  costs  of  services  provided  by  the 
incumbent.  I.e.  cost  allocations  by  the  national  ANSP  could  lead  to  lower  costs  than 
actual being allocated to an airport under tender action. 

A  concern  is  that  the  incumbent  ANSPs  should  not  change  their  cost  allocation 
methods as a defensive measure, although this should be easy to spot by NSA. Hence, 
we conclude that transparent and accurate cost allocation is an essential component of 
the market liberalisation process. 

Our further recommendations are therefore: 

Recommendation 6 :  Require  explicit  reporting  of  the  amount  of  cross  subsidy 
between TANS (unit level profit and losses). 

Recommendation 7 :  Require  explicit  reporting  of  the  amount  of  cross  subsidy 
from overflights to TANS. 

Recommendation 8 :  Subject  to  the  success  of  the  preceding  actions  we 
recommend  that  a  further  action  would  be  to  require  all  Approach  costs  to  be 
allocated to TANS to remove cross subsidy by overflights. 

Whilst  the  recommendations  above  have  been  developed  in  the  context  of 
liberalisation  of  terminal  air  traffic  services,  they  are  also  relevant  to  States  not 
liberalising  this  market.  In  particular,  recommendations  3-8  on  cost  allocation, 
transparency  and  cross  subsidy  already  reflect  expected  actions  from  the  Service 
Provision  Regulation1  and  the  Charging  Scheme2.  In  particular,  States  are  already 
expected to provide details of cost allocation methods and to identify cross-subsidies, 
but  the  information  provided  in  support  of  the  Route  Charges  tables  lacks  sufficient 
detail  to  develop  an  understanding  of  exactly  how  the  allocations  are  done.  Several 
ANSPs  noted  that  their  user  consultations  were  positive  towards  their  cost  allocation 
methods,  however,  in  developing  their  Performance  Plans,  States  may  find  a  better 
quality of consultation based on more detail on cross subsidy and cost allocation. 

1   Regulation  (EC)  No  550/2004  on  the  provision  of  air  navigation  services  in  the  single 

European sky. 10 March 2004. 

2   Commission  Implementing  Regulation  (EU)  No  391/2013  of  3  May  2013  laying  down  a 

common charging scheme for air navigation services. 

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Support study evaluation of cost allocation to marketable terminal air navigation services

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ISBN : 978-92-76-08754-0 

doi: 10.2832/087018