AIR TRANSPORT TAXES, FEES AND CHARGES

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AIR TRANSPORT TAXES, FEES AND CHARGES A CHALLENGE IN DEVELOPING COUNTRIES Fourth ICAO/McGill Pre- Assembly Symposium Dr. Charles E. Schlumberger Lead Air Transport Specialist World Bank Montreal, 22 September 2013

OUTLINE 1 The Problem Air Transport Fees 2 The Analysis Airport Economics in Latin America 3 The Bad Examples Lack of Governance 4 How to address the issue Aspects of Regulation

THE PROBLEM - AIR TRANSPORT FEES AIRPORT CHARGES PER PASSENGER * Nairobi Johannesburg Sal Addis Ababa Bujumbura Cotonou Lagos Freetown Lome Bamako Banjul Ouagadougou Niamey Douala Conakry Abidjan Dakar Accra Kinshasa National Regional International $- $20 $40 $60 $80 $100 $120 $140 $160 * Using Airbus A319 with 80 passengers on board Source: ACI, Airport Database

THE PROBLEM - AIR TRANSPORT FEES LOWEST ECONOMY FARE FOR KEY ON ROUTES (2102) Source: Senegal Airlines, Arik Air and Air Cote d Ivoire

AN ANALYSIS OF AIRPORTS FEES AIRPORT ECONOMICS IN LATIN AMERICA Comprehensive study of how the airports in the LAC region have evolved during the period of transition in the late 1990ies: Are Latin American airports technically efficient? How has efficiency evolved? How has the level and structure of airport tariffs changed in recent years? How do independent regulators compare with government agencies in accountability, transparency, and autonomy? Free download: http://www.ppiaf.org/sites/ppiaf.org/files/publication/airport-economics-lacbenchmarking-regulation-pricing.pdf

THE ANALYSIS OF AIRPORTS FEES AIRPORT ECONOMICS IN LATIN AMERICA Who is charged how much where? Example of turnaround cost of an Airbus A320: Turnaround cost fluctuate fivefold between $1000 to $5000 Passengers are charge directly 80 to 90 percent of cost Large airports with more traffic are benefitting from economics of scale however, charges remain relatively high

THE ANALYSIS OF AIRPORTS FEES AIRPORT ECONOMICS IN LATIN AMERICA How efficient are private versus public airports? A look at the number of passengers per airport employee: Large fluctuation between large and small airports Public airports seem less efficient (less passengers per airport employee) But there are good examples of efficient public airports

THE ANALYSIS OF AIRPORTS FEES AIRPORT ECONOMICS IN LATIN AMERICA How profitable are private versus public airports? A look at the operating cost per passengers: Public airports generally are less profitable (higher operating cost per passengers) Higher number of passengers does not always lead to better profitability in neither, private and public airports

THE ANALYSIS OF AIRPORTS FEES AIRPORT ECONOMICS IN LATIN AMERICA How expensive are private versus public airports? A look at aeronautical revenue per aircraft movement : No clear picture on revenue difference between private versus public airports Higher number of passengers leads to higher revenues per aircraft, but type of aircraft might be larger

AIR TRANSPORT FEES GOVERNANCE OVERFLIGHT FEES AS NATIONAL INCOME Example: Central Asian Country Poor country, which suffered war and occupation for decades 40,000 over-flights per year, but only procedural ATC provided ATC Income of $40 million is most important source for foreign currency and single largest sector in the country by GDP impact Not one dollar goes to the aviation sector, airports, ATC, or to finance the Civil Aviation Authority of the country Note: Picture was not taken in the country described

AIR TRANSPORT FEES GOVERNANCE HIDDEN SUBSIDIES TO NATIONAL CARRIER Example: Poor Middle Eastern Country Poor country, which suffered from civil war and unrest for decades Large state-owned airline operating an ageing fleet, being overstaffed and inefficient, resulting in huge losses In average, the carrier suffers from about $50 million negative cash flow every year Published air traffic control income suggests for about $50 million unaccounted income given current level of service Income from foreign carriers paid into IATA accounts is directly used to pay for ATC expenses of the national carrier Note: Picture was not taken in the carrier described

AIR TRANSPORT FEES GOVERNANCE EMBEZZLEMENT OF INCOME Example: Small Caribbean Island State Poor country. which suffered natural disasters and political unrest One major international airport with about one million passengers Passenger tax of $25 generate about $25 million per year, but $20 million are unaccounted for Complex scheme of additional embezzlement discovered Embezzled is money used to finance political party, personal travel of officials and their families, and goes directly to airport executives and government officials Note: Picture was not taken in the country described

HOW TO ADDRESS THE ISSUE ASPECTS OF REGULATION Air Transport charges must be regulated, be it by a public or private regulator. The following aspects need to be considered to ensure best possible governance of the sector: Aspects Autonomy of decision making Transparency Accountability Quality of bureaucracy Components - Regulatory powers (e.g., tariffs, quality of service) - Status of agency - Procedures to appoint/remove board members - Budget sources - Civic engagement in rule making - Consultations - Publication of agency s decisions - E-government - Registry of board meetings and decisions - Publication of job vacancies - Appeals of agency s decisions - Effects of consultations - Evaluation of agency s performance - Accountability instrument - Performance instrument - Structure of staff positions within the agency - Educational levels of agency s staff - Publication of vacancies