Competition and Regulation in Network Industries

Fragmentation has been suspected of contributing to inefficiencies in the European Air Traffic Management (ATM) system. Heterogeneities between providers may contain multiple aspects, such as airspace structure, staff rostering, or systems used for flow management. Applying the scientific approach of data envelopment analysis, this article provides a new outlook on the relationship between airspace fragmentation and efficiency in the admittedly complex and highly dynamic environment of European ATM. We show that there are airspaces that might benefit from economies of scale, but that there is a tipping point where diseconomies of scale occur. Subsequently, the current approach of functional airspace blocks might inhere inefficiencies for some air navigation service providers.

The European Air Traffic Management (ATM) system is highly fragmented. It consists of 37 air navigation service providers (ANSPs) whose areas of responsibility are, in most cases, limited to national borders. ATM fragmentation impacts air traffic operations in Europe in several ways. One of them is reflected through the current route charging system, which is designed and adapted to the fragmented ATM system to recover air navigation service provision costs at the level of individual ANSPs. Differences in unit rates have led to the phenomenon of aircraft taking detours around expensive charging zones, resulting in additional fuel consumption and emissions, as well as traffic shifts caused by varying unit rates. In this article, we analyze the differences in the unit rates across Europe and their evolution over the past few years. The main focus of the article is the analysis of the route charge variability on an airport-pair level, measured by an airport-pair variability indicator, which we suggest as a metric. We show the route charge variability for different flight distances, geographic areas, and flight directions, and we also identify airport pairs with the highest route charge variability. Finally, we discuss selected alternatives to the current route charging system, such as the uniform charge method and different approaches to airport-pair charging.

The Single European Sky (SES) legislation is intended to have a major impact on the fragmentation in the European Air Traffic Management and Communications, Navigation and Surveillance (ATM/CNS) system. A fundamental aspect of the SES initiative is functional airspace blocks (FABs), which have the goal of reducing the inefficiencies—in terms of safety, capacity, and cost—that result from the fragmentation of European airspace. FABs are seen as an explicit bottom-up first step toward the ultimate integration of European airspace. In this article, we focus on the analysis of the evolution of the cost-effectiveness in the provision of ATM/CNS services at FABs. We proceed in two stages. First, we develop a theoretical framework that allows us to decompose the change in cost-effectiveness of FABs into its basic sources. Second, we use stochastic frontier analysis techniques to estimate the cost equations and decompose the change in the cost-effectiveness of the nine European FABs into several components. Our analysis sheds light on (1) the drivers of changes in the air navigation service providers (ANSPs) and FABs cost-effectiveness from 2006 to 2016, (2) the role that FABs play in enhancing cooperation between ANSPs to obtain operational efficiency gains, and (3) the existence of economies of scale in the European ATM/CNS service provision.

This article explores the impact that flight-centric air traffic control (ATC), a concept under development, has on ATC market structure and ATC business models. Flight-centric operations bring forth changes in how the stakeholders adapt their roles to the emerging ATC market. We compared current ATC and market structures with the emerging flight-centric concept and analyzed the market changes in structure and competition from the emergence of flight-centric operations using Porter’s five forces model. Four potential business models for flight-centric ATC are identified and described: current air navigation service providers adapt, vertical integration by airlines, new ATC providers, and the network manager as capacity-demand manager. In the final chapter, we briefly describe the future regulation of the market for flight-centric operations. We conclude that new concepts and technologies, such as flight-centric operations, create the necessary dynamics for change in the current market structure by unbundling of the market.