Cost-efficiency - Latvia

Download Report

Terminal charging zone

Unit cost (KPI#1)

Actual and determined data
Total costs - nominal (M€) 2020-2021 2022 2023 2024
Actual costs 12 6 7 NA
Determined costs 12 6 7 7
Difference costs 0 0 0 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% 9.1% NA
Actual inflation index NA 127.5 139.2 NA
Difference inflation index (p.p.) NA +7.8 +14.8 NA

AUC vs. DUC

In 2023, the terminal AUC was +15.6% (or +20.53 €2017) higher than the planned DUC. This results from the combination of significantly lower than planned TNSUs (-20.3%) and significantly lower than planned terminal costs in real terms (-7.9%, or -0.5 M€2017). It should be noted that actual inflation index in 2023 was +14.8 p.p. higher than planned.

Terminal service units

The difference between actual and planned TNSUs (-20.3%) falls outside the ±10% threshold foreseen in the traffic risk sharing mechanism. The resulting loss of terminal revenues is therefore shared between the ANSP and the airspace users .

Terminal costs by entity

Actual real terminal costs are -7.9% (-0.5 M€2017) lower than planned. This is the result of lower costs for the main ANSP, LGS (-7.6%, or -0.4 M€2017) and the MET service provider (-50.1%, or -0.1 M€2017) and higher costs for the NSA (+10.3%, or +0.03 M€2017).

Terminal costs for the main ANSP at charging zone level

Significantly lower than planned terminal costs in real terms for LGS in 2023 (-7.6%, or -0.4 M€2017) result from:
- Lower staff costs (-2.1%) in real terms, reflecting primarily the impact of the inflation index (+14.8 p.p.) since, in nominal terms, staff costs are significantly higher than planned (+9.6%), which is explained by increase in “salaries for Air Traffic Control Officers (ATCOs) and other staff categories”.
- Significantly lower other operating costs (-12.1%), reflecting primarily the impact of the inflation index since, in nominal terms, costs were only slightly below planned (-1.6%).
- Significantly lower depreciation (-15.2%), explained by “commissioning of investments for terminal with longer depreciation schedules”.
- Higher cost of capital (+4.3%), which, since LGS is entirely financed through equity, reflects higher actual asset base used to calculate the cost of capital.

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

AUCU components (€/SU) – 2023
Components of the AUCU in 2023 €/SU
DUC 149.20
Inflation adjustment 13.22
Cost exempt from cost-sharing −7.01
Traffic risk sharing adjustment 26.30
Traffic adj. (costs not TRS) 4.52
Finantial incentives 0.00
Modulation of charges 0.00
Cross-financing 0.00
Other revenues −23.54
Application of lower unit rate −6.54
Total adjustments 6.94
AUCU 156.13
AUCU vs. DUC +4.6%
Cost exempt from cost sharing by item - 2023 €'000 €/SU
New and existing investments −282.5 −7.71
Competent authorities and qualified entities costs 25.5 0.69
Eurocontrol costs 0.0 0.00
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 −257.0 −7.01

The actual terminal unit cost incurred by airspace users (AUCU) in respect of activities performed in 2023 (156.13 €) is +4.6% higher than the nominal DUC (149.20 €). The difference between these two figures (+6.94 €/SU) is due to:
- the positive inflation adjustment resulting from higher than planned inflation (+13.22 €/SU);
- the impact of adjustments resulting from the costs exempted from cost-sharing mechanism (-7.01 €/SU);
- the addition of the traffic risk sharing adjustments (+26.30 €/SU);
- the addition of the traffic adjustment (+4.52 €/SU) for the costs not subject to traffic risk sharing;
- the deduction of the other revenues (-23.54 €/SU); and
- application of a lower unit rate as foreseen in Art. 29(6) in year 2023 (-6.54 €/SU); and
The share of the regulatory result in the AUCU (before the deduction of other revenues) is 8.5%.

Regulatory result (RR)

LGS net gain on activity in the Latvia terminal charging zone in the year 2023

LGS reported a net loss of -0.1 M€, as a combination of a gain of +0.2 M€ arising from the cost sharing mechanism, with a loss of -0.3 M€ arising from the traffic risk sharing mechanism.

LGS overall regulatory results (RR) for the terminal activity

Ex-post, the overall RR taking into account the net loss from the terminal activity mentioned above (-0.1 M€) and the actual RoE (+0.5 M€) amounts to +0.5 M€ (7.2% of the terminal revenues). The resulting ex-post rate of return on equity is 4.4%, which is lower than the 5.0% planned in the PP.