Lorenzo Castelli DEEI - University of Trieste Via Valerio 10 I Trieste - Italy Phone: Fax: DIPARTIMENTO DI ELETTROTECNICA ELETTRONICA INFORMATICA 1 STUDY OF THE IMPACT OF INNOVATIVE ROUTE CHARGE SCHEMES CONSIDERING ATC AND AIRLINES NEW PERSPECTIVES CARE Innovative Action Project EUROCONTROL Brussels 24 th January 2002

Lorenzo Castelli 2 Contents Preliminary study –Motivations –Objectives –Results Proposal for further work –Objectives –Work plan

Lorenzo Castelli 3 The ATM system EUROCONTROL & ANS PROVIDERS EUROPEAN AIRSPACE USERS EUROPEAN AIRSPACE

Lorenzo Castelli 4 Motivations Effective capacity has matched traffic growth in the last ten years (+80%). However, capacity has been lagging behind demand. Airline and ATFM were the main primary delay causes in ATFM delays were mostly due to lack of ATC en-route capacity (68%) Source: 4 th Performance Review Report, EUROCONTROL, April 2001

Lorenzo Castelli 5

6 The ATM system EUROCONTROL & ANS PROVIDERS EUROPEAN AIRSPACE USERS Route charges EUROPEAN AIRSPACE

Lorenzo Castelli 7 Route Charges They recover the costs incurred by states to provide en-route services and the costs incurred by EUROCONTROL

Lorenzo Castelli 8 Route charges – Airline Side No direct link exists between the level of service provided to flights (in terms of, e.g., imposed delay or deviations from the optimal route chosen) and route charges to be paid by carriers This situation provides to airlines little incentives to manage their operations in a way to allow the best use of the system capacity

Lorenzo Castelli 9 Route charges – ATC Side The charging system based on a full cost recovery mechanism does not seem to give the necessary signals for ATC providers to supply the optimal amount of capacity at the right time and at the right location

Lorenzo Castelli 10 Our proposal Investigation of economic measures to match air traffic services demand and supply for an efficient usage of the available capacity

Lorenzo Castelli 11 General aim of the study To define and study the impact of alternative route charging pricing schemes that could increase the performance of ATC providers and of airspace users, and stimulate a more efficient use of ATC capacity

Lorenzo Castelli 12 Aims of the Preliminary Study To identify a general framework for evaluating different scenarios and different alternatives To provide sensible approaches, feasible methodologies and suitable techniques To identify the basic steps of a possible further and longer project

Lorenzo Castelli 13 Main results of the Preliminary Study Extensive literature review Deeper understanding of the ATM system Preliminary results on: –Passenger demand for air transportation –ATS market segmentation

Lorenzo Castelli 14 A first question How does an airspace user react to a variation of one of its exogenous costs like, e.g., route charges? IT DEPENDS…… on the characteristics of the airspace user.

Lorenzo Castelli 15 Over 95% of the total EUROCONTROL Route charges revenues

Lorenzo Castelli 16 The ATM system Extension EUROPEAN AIRSPACE USERS PASSENGERS SHIPPERS EUROCONTROL & ANS PROVIDERS Airfares Route Charges

Lorenzo Castelli 17 Open issue To understand airline and passenger behaviours with respect to the current ATC charging mechanism, i.e., –the direct impact on airline demand in terms of, e.g., aircraft movements or Km flown –the indirect impact on the final passenger demand

Lorenzo Castelli 18 Impact of Route Charges Direct impact on the different airspace users –by characterizing the main categories of such users and model their behaviour induced by a variation in route charges Indirect impact on the final passenger (or shipper) demand –by assessing the price elasticity of demand for air transportation for the different groups of airspace users.

Lorenzo Castelli 19 General aim of the study Revisited To investigate the application of economic measures to promote status and ways of operations positively affecting the behaviour of the system, both from the point of view of ATS suppliers and of the customers

Lorenzo Castelli 20 Supply side Incentives for ANS providers: investigation on the applicability of performance based regulation techniques for the ATC centers Frontier benchmarking methods (e.g., Data Envelopment Analysis) to evaluate the performance of ATC centers

Lorenzo Castelli 21 Passenger demand for air transportation EUROPEAN AIRSPACE USERS PASSENGERS SHIPPERS EUROCONTROL & ANS PROVIDERS Airfares Route Charges WP 1

Lorenzo Castelli 22 Passenger demand To provide a deep and sound knowledge of the behaviour of the demand for air transportation –WP1: Analysis of the demand for passenger air transportation

Lorenzo Castelli 23 Analysis of the demand for passenger air transportation Preliminary study on 4 routes of Air Dolomiti in May 1999, 2000 and 2001 Encouraging results Model extension Model refinement

Lorenzo Castelli 24 Air-Rail Modal Choice Important issue in the European context High speed trains compete with air transport for medium range distances Exploitation of WP 1 results Random utility models are likely to be used Need of further data collection

Lorenzo Castelli 25 Passenger modal choice EUROPEAN AIRSPACE USERS PASSENGERS SHIPPERS EUROCONTROL & ANS PROVIDERS AirfaresRoute Charges MEDIUM RANGE TRAIN TRIPS WP 3 WP 1

Lorenzo Castelli 26 Passenger demand To provide a deep and sound knowledge of the behaviour of the demand for air transportation –WP1: Analysis of the demand for passenger air transportation –WP3: Analysis and modelling of passenger choice between air and rail transportation modes for a specific city pair. Interactions with airlines are necessary…

Lorenzo Castelli 27 Air Dolomiti Regional airline –Fleet: 15 turbo-props, 3 jets –More than 600 flights per week (Summer 2001) –30 National & international routes –24 European destinations Business Traveller Market Oriented

Lorenzo Castelli 28 Awards: –Customer Satisfaction Award 1999 –1998/99 ERA Airline of the Year Award –1998 ATR Award for Excellence –Sapphire Award 1998 & 2001 –Emerald Awards 1997 –Gold Mercury Award 1996 UNI EN ISO 9001 certification of quality (2000) Air Dolomiti

Lorenzo Castelli 29 Air Dolomiti Not too small to be not significant; Not too large to be sluggish in producing data and information; Complete availability of information, including operational and tactical strategies; Immediate access to the historical data of the company databases; The collaboration has already been successfully tested during the preliminary study.

Lorenzo Castelli 30 ATS demand segmentation EUROCONTROL & ANS PROVIDERS AirfaresRoute Charges PASSENGERS SHIPPERS MEDIUM RANGE TRAIN TRIPS WP 3 WP 1 EUROPEAN AIRSPACE USERS WP 2 SEGMENTATION

Lorenzo Castelli 31 ATS demand segmentation Identification of relatively homogeneous families for which similar attitudes and behaviours may be expected.

Lorenzo Castelli 32 Percentage of route charges paid by category of users, Years 1999 and 2000

Lorenzo Castelli 33 Airlines demand To provide a deep and sound knowledge of the behaviour of airlines –WP 4: at the operational level (e.g., how they react to traffic restrictions) –WP 5: at the tactical level (e.g., how they react to exogenous price changes in terms of flight frequencies and route coverage)

Lorenzo Castelli 34 Airlines demand EUROPEAN AIRSPACE USERS EUROCONTROL & ANS PROVIDERS Route Charges PASSENGERS SHIPPERS MEDIUM RANGE TRAIN TRIPS WP 3 WP 1 WP 4 WP 5 WP 2

Lorenzo Castelli 35 To define and study the impact of economic demand management measures to: –Limit the demand for access to busy airfields or to congested airspace –Modify the spatial and temporal distribution of this demand to bring it closer to the available capacity Economic demand management strategies

Lorenzo Castelli 36 Economic demand management strategies EUROPEAN AIRSPACE USERS EUROCONTROL & ANS PROVIDERS Route Charges PASSENGERS SHIPPERS MEDIUM RANGE TRAIN TRIPS WP 3 WP 1 WP 4 WP 5 WP 2 WP 6

Lorenzo Castelli 37 Work plan WP1: Analysis of the demand for passenger air transport; WP2: ATS demand segmentation; WP3: Analysis and modelling of passenger choice between air and rail transportation modes; WP4: Analysis of airlines operational attitudes and behaviours; WP5: Study of ATS demand elasticity of airspace users; WP6: Design of economic demand management strategies.

Lorenzo Castelli 38 Work plan structure

Lorenzo Castelli 39 University of Padova Application of Operations Research to Airports and Air Traffic Flow Management: –TAPE, OPAL and THENA EU projects –Transportation Science, Operations Research, Air Traffic Control Quarterly, Journal of Air Transport Management, etc. Collaboration with MIT International Center for Air Transportation

Lorenzo Castelli 40 TRIESTE PADOVA Air Dolomiti HQ

Lorenzo Castelli 41 Airlines demand analysis University of Trieste University of PadovaAir Dolomiti

Lorenzo Castelli 42 Route charges - Formula The total charge per flight (R) is where r i is the charge generated in the FIRs of State i, and is calculated as: where d i is the great circle distance flown, expressed in hundreds of kilometres, MTOW is the Maximum Take Off Weight, expressed in metric tons, and t i is the unit rate.

Lorenzo Castelli 43 Results of regression analysis Explanatory variable CoefficientEstimated coefficientT-statistic Constantα Population (POP)β1β GDP per-capita (GDP)β2β Frequency of flights (FREQ)β3β Airfare (FARE)β4β Aircraft seat capacity (CAPA)β5β Year (YEAR)β6β Hub airport (HUB)γ1γ Tourist market (TOUR)γ2γ Direct competition (COMP)γ3γ Observations3793 R 2 adj Fisher Test Durbin-Watson Test1.817

Lorenzo Castelli 44 Drivers for Air Travel Demand

Lorenzo Castelli 45 The econometric model

Lorenzo Castelli 46 Operating costs, Year 2000, IATA