1

PERFORMANCE GOALS AND TARGETS AS PART OF ECONOMIC REGULATION

OF ANSPsThe UK experience of economic regulation

Presented by

Harry Bush CBGroup Director Economic Regulation

UK Civil Aviation Authority

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CONTENTS

Incentive regulation – price and quality

Getting therethe process

assembling the evidence

A balanced view on price and service incentives

some principles

applying them in practice

The importance of customer consultation

Results and lessons

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INCENTIVE REGULATION –PRICE AND QUALITY

UK issueshigh cost

project overruns

delay performance in 2002 Regulation incentives

efficiency – RPI-X

better service quality – delay performance

Consultation with customers a key element

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GETTING THERE:The process

1½ years

could it be shortened?

transparency

several rounds of consultation

Assembling the evidencescrutinising the company business plan

efficiency studies

benchmarkingwith wider industry

with other ANSPs – Eurocontrol data

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A BALANCED VIEW ON INCENTIVES: PRINCIPLES

Pricingtrade off between

bearing down in short-term given risks and uncertainties

realising benefits from over-performance later

Servicecriteria for incentives

scope for management influence

capable of measurement

assess potential for unintended consequences

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A BALANCED VIEW ON INCENTIVES: PRACTICE

Delay performance introduced at PPP in 2001

strengthened in 2003

amended 2006 – further strengthened and additional weighting to early flights and longer delays

issues: does NATS have sufficient control

should it better reflect costs of delay to airlines

Timely capex potential for “trigger” incentives tied to milestones

precedent in airports regulation

CAA considered fully

decided against: price cap already incentivised timely capex to deliver efficiency and

service

measurement issues

alternative possibilities – review of project management capability

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THE IMPORTANCE OF CUSTOMER CONSULTATION

A theme of CAA regulation

Service and Investment Plan future capacity plan, manpower plan and service

and delay targets

performance of existing projects and details of future investment programme/projects

Operational Partnership Agreement joint NATS/airline working on airspace and traffic

management issues

NATS appears to have become more responsive to customer needs through consultation processes

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RESULTS Prices reducing in real terms by 3.4% p.a. from

2006 to 2010

NATS attributable delay per flight reduced from 2.5 mins in 2002 to 24 secs in 2006

Improved consultation with stakeholders/customers

How much of this is due to regulationother factors – eg: traffic recovery from 2001

: completion of Swanwick

but regulation provides a framework for

transparency

incentives

building of trust with customers