Founded in 1960, EUROCONTROL has 41 member states and a budget of over €500 million. With the motto “Driving excellence in air traffic management (ATM) performance”, its remit runs from strategic and tactical air traffic flow management, controller training and regional airspace control to collecting air navigation charges.

One of EUROCONTROL’s long-held responsibilities is assessment of the performance and cost-effectiveness of country and regional air navigation service providers (ANSPs). With ATM and communications, navigation and surveillance (ATM/CNS) provisions costing almost €8 billion in 2014, even small savings make a huge difference to the industry.

Break it down

EUROCONTROL’s Performance Review Commission (PRC) published its most recent ‘ATM Cost-Effectiveness (ACE) Report’ in May 2016. The report showed that ANSP performance improved noticeably over the decade 2004–2014. Over those ten years, ATM/CNS provision costs rose by 0.4% annually, significantly less than the corresponding 1.4% annual increase in air traffic.

As a result, unit ATM/CNSprovision costs per composite flight hour decreased on average by 1.0% every year between 2004 and 2014. EUROCONTROL calculates composite flight hours by adding en-route flight hours to instrument-flight-rules airport movements, then weighting the sum based on the relative importance of the terminal and en-route costs in its cost base.

“This result means that the cost-effectiveness performance of the pan-European system significantly improved since 2004,” says Ralph Riedle, chairman of the PRC. “In 2014, unit ATM/CNS provision costs were 9.4% lower. This is a remarkable result.”

Breaking down those costs further over the decade, annual employment costs per air traffic control officer (ATCO) hour rose slightly more (2.1%) than ATCO productivity (1.8%). But, because support costs stayed fairly constant as traffic rose by an average of 1.4% annually, unit support costs fell by 1.5%. That’s where most of that 1.0% annual cost drop comes from.

The majority of ANSPs (22 of the 34 included in the long-term trend analysis) managed to reduce unit costs over the decade. Within these figures, there are a couple of outstanding performers, such as Spain’s ENAIRE (formerly Aena), which slashed its provision costs by 9.7% every year between 2009 and 2014.

“It is important to highlight the substantial improvement observed for the Spanish ANSP,” says Riedle. “This cost reduction significantly contributed to the improvement of the pan-European system cost-effectiveness performance.”

According to Riedle, the decrease of ENAIRE’s cost base mainly results from the introduction of a specific law (Law 9/2010) adopted in Spain in 2010. Beside a number of structural changes, this law introduced new working conditions for ATCOs, raising contractual working hours and thus significantly reducing the number of overtime hours – one of the main reasons for ENAIRE’s high ATCO costs in the past.

Ups and downs

One notable ACE finding is that ATCO hourly productivity across Europe converged over the decade. ANSPs starting with relatively low productivity levels in 2004 witnessed proportionally higher levels of ATCO-hour productivity by 2014, rising at 4.1% annually.

“A robust traffic growth for those ANSPs significantly contributed to the observed improvement but this was not the only factor,” says Riedle. “These ANSPs also managed to decrease ATCO hours on operational duty.”

The drop in hours meant that those ANSPs could serve the increasing traffic with the same or a reduced number of ATCOs. On the other hand, the productivity increase for the ANSPs that had relatively high levels in 2004 was much lower (only 0.6% a year) – hence the convergence in ATCO-hour productivity over the decade.

Expenditure on support represents 70% of all ATM/CNS provision spend, and so is the most influential driver of cost performance. The ACE report’s analytical framework splits support costs into four elements: support staff costs, non-staff operating costs, capital-related costs and exceptional costs. Over the 2004–2014 period, reductions in non-staff operating costs (down 1.1% a year) and capital-related costs (0.6% a year) contributed to the decrease in unit support costs.

The 2007–08 financial crisis rocked ANSPs as it did everyone else. Pan-European traffic volumes nosedived by 7%; unit costs then rose sharply by 9%, while ATCO productivity dropped by 6%.

“In 2009, there was an unprecedented traffic decrease,” says Riedle. “In the meantime, ATM/CNS provision costs continued to grow by 1.5%, reflecting short-term rigidities and the unavoidable lead time to adjust costs downwards. As a result, all the cost-effectiveness improvements achieved since 2004 were cancelled out.”

But this shock had a salutary effect on the world of ATM. By 2010, ATM/CNS provision costs had dropped by 4.6%, while traffic rebounded by 2%.

“It should be emphasised that, before 2010, ATM/CNS provision costs had not declined during the [2004−2014] decade,” says Riedle. “This reflects the impact of the cost-containment measures implemented by a majority of ANSPs in the wake of the sharp traffic decrease in 2009. As a whole, the ATM industry was reactive and showed flexibility.”

By introducing this rigorous cost-control approach, EUROCONTROL hopes ANSPs will be more flexible in adapting when traffic volumes fluctuate.

The measures initiated by most ANSPs through 2009–2010 were mainly designed to lower support costs and drive productivity improvements. Many decided to postpone non-crucial investments to future years, for example, reducing capital expenditures and capital-related costs. Some reviewed staffing levels for support functions and initiated staff reduction programmes.

Adapt to thrive

Productivity improvements also flowed from more effective ops-room management and from a better use of existing resources, such as through the adaptation of rosters and shift times, effective management of overtime and the adaptation of sector opening times to traffic demand patterns. These productivity and cost-cutting initiatives continued to generate savings years after their implementation.

The Single European Sky (SES) performance scheme implemented in 2012 has also played a major role in changing ANSP behaviour. The SES scheme sets binding cost-efficiency targets for national ANSPs or the functional airspace blocks (FABs) in which they participate. To help encourage the ANSPs to better control costs and hit the target, an incentive mechanism is embedded in the charging scheme – the so-called ‘determined costs’ method.

“This comprises specific risk-sharing arrangements aiming at incentivising ANSPs’ economic performance,” says Riedle. “The costs planned for the reference period are set in advance and frozen for its length. If actual costs are lower, the state or ANSP can keep the difference.”

But if actual costs are higher than planned, the state or ANSP has to take the loss. By introducing this rigorous cost-control approach, EUROCONTROL hopes ANSPs will be more flexible in adapting when traffic volumes fluctuate. The ACE report is vital in demonstrating any progress here.

“The core processes of the SES are under European Commission responsibility,” says Riedle. “The ACE benchmarking analysis complements target-setting and monitoring activities at state and FAB levels by providing a detailed comparison of cost-effectiveness performance at ANSP level. That includes a trend analysis of three main economic drivers (productivity, employment costs and support costs) over the 2009–2014 period.”

Those figures suggest that the SES performance scheme is working. During the first three-year reference period, ending 2014, union-wide air traffic was 4.9% lower than predicted. Over the same period, actual en-route costs were, on average, 4.1% lower than planned.

“This result indicates that SES states showed a certain degree of reactivity to adjust costs downwards in order to adapt to the lower traffic volumes,” says Riedle.

Look ahead

The ACE report also builds in a cost for ground (not airborne) ATFM delays. This shows that ANSPs reduced overall ATFM delays by 35% by 2014. The main reason was greater system capacity due to 2009’s sharp traffic drop, plus better adaption of available ATC capacity to traffic patterns.

“Air traffic volumes are not expected to be above 2008 levels before 2017,” says Riedle. “Over the 2010–14 period, there was an opportunity to increase productivity and cost-effectiveness performance without affecting the quality of service.”

Slightly worryingly, though, the unit costs of ATFM delays rose by 11.4% in 2014. Riedle points to higher delays at nine ANSPs (DHMI, HCAA, PANSA, DSNA, MUAC, DFS, LVNL, NAV Portugal and Croatia Control) as the reason.

Unit provision costs in 2014 also rose at many ANSPs; significantly so at four of them (BULATSA, M-NAV, PANSA and SMATSA). Higher staff and operating costs, including exceptional charges for maintenance and non-contractual use of land, lie behind this. Rerouting following the downing of Malaysia Airlines Flight 17 in Ukraine in 2014 was a big driver here too, with Bulgaria’s air traffic increasing by 20% and Macedonia’s by 32%.

Looking to the future, EUROCONTROL expects ANSPs to continue to keep a tight grip on ATCO productivity and costs as traffic volumes slowly recover to 2008 levels. The ACE report predicts that annual ATM/CNS provision costs will drop 1.6% by 2019 as annual traffic volumes grow faster (2.6%) than ATM/CNS provision costs (1.0%).

Riedle concludes, “There should be an opportunity to improve productivity and cost-effectiveness performance without significantly affecting the quality of service provided in the coming years.”