Cost-efficiency - Latvia

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PRB monitoring

▪ The en route 2022 actual unit cost of Latvia was 35.77 €2017, -6.0% lower than the determined unit cost (38.04 €2017). The terminal 2022 actual unit cost was 171.28 €2017, +17% higher than the determined unit cost (145.91 €2017).

▪ The en route 2022 actual service units (466K) were equal to the determined service units.

▪ The en route 2022 actual total costs were 1.1 M€2017 (-6.0%) lower than determined. The reduction in total cost was due to the lower staff (-0.8 M€2017, or -8.1%) and other operating costs (-0.5 M€2017 or, -12%) mainly as a result of higher inflation than anticipated and cost containment measures due to Russia’s war of aggression against Ukraine.

▪ LGS spent 6.2 M€2017 in 2022 related to costs of investments, +6.6% more than determined (5.8 M€2017). The NSA explained that the increase was mainly due to commissioning of several investments.

▪ The en route actual unit cost incurred by users in 2022 was 44.43€, while the terminal actual unit cost incurred by users was 174.54€.

En route charging zone

Unit cost (KPI#1)

Actual and determined data
Total costs - nominal (M€) 2020-2021 2022 2023 2024
Actual costs 38 20 NA NA
Determined costs 40 20 23 23
Difference costs -2 0 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 17.2% NA NA
Actual inflation index NA 127.5 NA NA
Difference inflation index (p.p.) NA +7.8 NA NA

AUC vs. DUC

In 2022, the en route AUC was -6.0% (or -2.27 €2017) lower than the planned DUC. This results from the combination of significantly lower than planned en route costs in real terms (-6.0%, or -1.1 M€2017) and TSUs that are in line with the plan. It should be noted that actual inflation index in 2022 was +7.8 p.p. higher than planned.

En route service units

The difference between actual and planned TSUs (-0.1%) falls inside the ±2% dead band. Hence loss of en route revenues is borne by the ANSPs .

En route costs by entity

Actual real en route costs are -6.0% (-1.1 M€2017) lower than planned. This is the result of lower costs for the main ANSP, LGS (-5.8%, or -0.9 M€2017), the NSA/EUROCONTROL (-7.4%, or -0.2 M€2017) and the MET service provider (-6.6%, or -0.02 M€2017).

En route costs for the main ANSP at charging zone level

Significantly lower than planned en route costs in real terms for LGS in 2022 (-5.8%, or -0.9 M€2017) result from:
- Significantly lower staff costs (-9.1%), mainly due to the war in Ukraine, which did not allow a return to pre-COVID situation and had an impact on staff plan and on reallocation of costs between En-route and Terminal, based on Activity Based Costing method.
- Significantly lower other operating costs (-13.1%), resulting from austerity measures required by the new crisis situation (ATCOs training courses cancelled, reduction of direct spending for ATCOs…).
- Significantly higher depreciation (+7.4%), due to the commissioning of several large investment projects, mostly related to ATS and launched before the pandemic. A number of unplanned investments for the ACC also resulted in higher-than-expected costs.
- Significantly higher cost of capital (+6.4%). This can be explained by the fact that a number of investments were commissioned slightly earlier than planned, resulting in higher costs.
- Significantly lower deduction for VFR exempted flights (-12.4%).

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

AUCU components (€/SU) – 2022
Components of the AUCU in 2022 €/SU
DUC 43.03
Inflation adjustment 1.99
Cost exempt from cost-sharing -0.09
Traffic risk sharing adjustment 0.00
Traffic adj. (costs not TRS) 0.01
Finantial incentives 0.00
Modulation of charges 0.00
Cross-financing 0.00
Other revenues -0.36
Application of lower unit rate 0.00
Total adjustments 1.54
AUCU 44.57
AUCU vs. DUC + 3.6%
Cost exempt from cost sharing by item - 2022 €'000 €/SU
New and existing investments 112.1 0.24
Competent authorities and qualified entities costs -61.0 -0.13
Eurocontrol costs -92.6 -0.20
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 -41.5 -0.09

The actual en route unit cost incurred by airspace users (AUCU) in respect of activities performed in 2022 (44.43 €) is +3.3% higher than the nominal DUC (43.03 €). The difference between these two figures (+1.40 €/SU) is due to:
- the positive inflation adjustment resulting from higher than planned inflation (+1.99 €/SU);
- the impact of adjustments resulting from the costs exempted from cost-sharing mechanism (-0.23 €/SU);
- the addition of the traffic adjustment (+0.01 €/SU) for the costs not subject to traffic risk sharing; and
- the deduction of the other revenues (-0.36 €/SU).
The share of the regulatory result in the AUCU (before the deduction of other revenues) is 11.2%.

Regulatory result (RR)

LGS net gain on activity in the Latvia en route charging zone in the year 2022

LGS reported a net gain of +1.3 M€, as a combination of a gain of +1.3 M€ arising from the cost sharing mechanism, with a loss of -0.01 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 (+1.3 M€) and the actual RoE (+1.1 M€) amounts to +2.3 M€ (12.6% of the en route revenues). The resulting ex-post rate of return on equity is 10.8%, which is higher than the 5.0% planned in the PP.