Cost-efficiency - Latvia

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PRB monitoring

▪- The en route 2020/2021 actual unit cost of Latvia was 37.32 €2017, -6.9% lower than the determined unit cost (40.07 €2017). The ter-minal actual unit cost was 288.43 €2017, -4.2% lower than the determined unit cost (301.22 €2017).

▪ The en route 2021 actual service units (542K) were +4.8% higher than determined (517K).

▪ In 2021, actual total costs of Latvia were -1.7 M€2017 (-8.8%) lower than determined. The reduction was mainly driven by lower staff costs (-0.7 M€2017, or-6.2%) resulting from a reduction of 21 headcounts, and by lower other operating costs (-0.5 M€2017, or -13%) due to a decrease of trainings and business trips.

▪ LGS spent 5.7 M€2017 in 2021 related to costs of investments, -6.2% less than determined (6.0 M€2017), due to the fact that only ongoing projects proceeded as planned.

▪ The en route actual unit cost incurred by users in 2020/2021 was 41.61€, while the terminal actual unit cost incurred by users was 312.59€.

En route charging zone

Unit cost (KPI#1)

Actual and determined data
Total costs - nominal (M€) 2020-2021 2022 2023 2024
Actual costs 38 NA NA NA
Determined costs 40 20 23 23
Difference costs -2 NA NA NA
Inflation assumptions 2020-2021 2022 2023 2024
Determined inflation rate NA 10.0% 3.9% 3.1%
Determined inflation index NA 119.7 124.3 128.1
Actual inflation rate NA NA NA NA
Actual inflation index NA NA NA NA
Difference inflation index (p.p.) NA NA NA NA

AUC vs. DUC

In the combined year 2020-2021, the AUC was lower by -6.9% (or -2.75€2017) than the planned DUC. This results from the combination of higher than planned TSUs (+2.6%) and lower than planned en route costs in real terms (by -4.4%, or -1.7 M€2017).

En route service units

The difference between actual and planned TSUs (+2.6%) falls outside the ±2% dead band, but does not exceed the ±10% threshold foreseen in the traffic risk sharing mechanism. The resulting gain of additional en route revenues is therefore shared between the ATSP and the airspace users, with the ATSP (LGS) retaining an amount of +0.7 M€2017.

En route costs by entity

Actual real en route costs for 2020-2021 are -4.4% (-1.7 M€2017) lower than planned. This result is driven by the main ANSP, LGS (-4.7%, or -1.6 M€2017), the MET service provider (-0.2% or -0.002 M€2017) and the NSA/EUROCONTROL costs (-3.3%, or -0.1 M€2017).

En route costs for the main ANSP at charging zone level

Lower than planned en route costs in real terms for LGS in 2020-2021 (-4.7%, or -1.6 M€2017 lower) results from:
- lower staff costs (-3.3%), “due to reduced headcounts by 6.1% of FTEs. At the same time, LGS did increase remuneration of several staff categories due to enormous pressure from trade unions;”
- lower other operating costs (-7.8%), “mostly by scaling down of the training and business trips;”
- lower depreciation (-6.3%), “As in FY 2020 the ANSP did invest only in the critical part of the services and could not afford to undertake large scale investments with long-term benefits;”
- lower cost of capital (-6.9%), same as for depreciation;
- lower deduction for VFR exempted flights (-11.1%).

Actual unit cost incurred by the users (AUCU) (PI#1)

AUCU components (€/SU) – 2020-2021
Components of the AUCU in 2020-2021 €/SU
DUC 41.92
Inflation adjustment 0.16
Cost exempt from cost-sharing -0.60
Traffic risk sharing adjustment -0.15
Traffic adj. (costs not TRS) -0.17
Finantial incentives 0.00
Modulation of charges 0.00
Cross-financing 0.00
Other revenues 0.00
Application of lower unit rate 0.00
Total adjustments -0.76
AUCU 41.16
AUCU vs. DUC -1.8%
Cost exempt from cost sharing by item - 2020-2021 €'000 €/SU
New and existing investments -446.4 -0.45
Competent authorities and qualified entities costs 0.9 0.00
Eurocontrol costs -139.2 -0.14
Pension costs 0.0 0.00
Interest on loans 0.0 0.00
Changes in law 0.0 0.00
Total cost exempt from cost risk sharing -584.7 -0.60

The actual en route unit cost incurred by airspace users (AUCU) in respect of activities performed in combined year 2020-2021 for Latvia en route charging zone (41.61€) is -0.7% lower than the nominal DUC (41.92€) which includes DUC initially charged: 30.51€; and to be charged: 11.41€. The difference between these two figures (-0.31€/SU) is due to:
- the positive inflation adjustment resulting from higher than planned inflation (+0.16€/SU);
- the deduction of the traffic risk sharing adjustments (-0.15€/SU) and the traffic adjustment (-0.17€/SU) for the costs not subject to traffic risk sharing to be reimbursed in future years;
- and the impact of adjustments resulting from the costs exempted from cost-sharing mechanism (-0.14€/SU).
The share of regulatory result in the AUCU is 12.2%.

Regulatory result (RR)

LGS net gain on en route activity in the Latvia charging zone in the combined year 2020-2021
LGS’s net gain amounts to +2.4 M€, as a combination of a gain of +1.7 M€ arising from the cost sharing mechanism and a gain of +0.7 M€ arising from the traffic risk sharing mechanism.
LGS overall regulatory results (RR) for the en route activity
Ex-post, the overall RR taking into account the net gain from the en route activity mentioned above (+2.4 M€) and the actual RoE (+2.6 M€) amounts to +5.0 M€ (13.8% of the en route revenues). The resulting ex-post rate of return on equity is 12.7%, which is higher than the 6.6% planned in the PP.