GERMAN AVIATION
GERMAN AIRPORT
BENCHMARKING
PERFORMANCE
Internet: www.gap-projekt.de
Contact: info@gap-projekt.de
How to break the vicious circle? Monopoly bidding for
public service obligation route networks in Norway
Branko Bubalo
GAP Research Project
partner/sponsor:
branko.bubalo@googlemail.com
GAB Final Project Meeting
Berlin, June 20th 2012
GAB Meeting Berlin – 20.06.2012 – Branko Bubalo
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GERMAN AIRPORT
PERFORMANCE
GERMAN AVIATION
BENCHMARKING
Contents
1.
2.
3.
4.
Introduction
Problem description and available data
Set up of the matrices
Iterations and results for case study on Finnmark and
North-Troms Network
5. Conclusions and further research
GAB Meeting Berlin – 20.06.2012 – Branko Bubalo
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GERMAN AIRPORT
PERFORMANCE
GERMAN AVIATION
BENCHMARKING
Introduction
• Norway has the largest PSO network in Europe
• The Norwegian Ministry spends increasingly more subsidies
for PSO routes each year (More than it receives from
Dividends)
• For the majority of the tenders there is only one bidder (with
two minor bidders for individual city-pairs)
• Tender for 16 separate Networks
• There are two main limitations for competition:
– Mostly STOL runways (<1200 meters)
– Demanded level-of-service in the tender documents (minimum
aircraft size/number of seats and pressurized cabin)
GAB Meeting Berlin – 20.06.2012 – Branko Bubalo
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GERMAN AVIATION
BENCHMARKING
GERMAN AIRPORT
PERFORMANCE
Motivation
• Which routes require the most subsidies (per passenger)?
• What causes increasing subsidies (with stable demand)?
• Are the compensations/subsidies justified and how do the
airline costs compare with other carriers?
Operating Year
Year-on-Year change
2007
-
2008
+7.6%
2009
+15.7%
2010
+11.4%
2011
+5.5%
Increase 2007 to 2011
+46.1 %
GAB Meeting Berlin – 20.06.2012 – Branko Bubalo
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GERMAN AIRPORT
PERFORMANCE
GERMAN AVIATION
BENCHMARKING
Prerequisites
• Tender documents with historic data on O/D passengers
and revenues
• Annual subsidy paid for each PSO network segment
-> Objective:
• Calculating operating costs and subsidies by city-pair
• Calculating average ticket fare
GAB Meeting Berlin – 20.06.2012 – Branko Bubalo
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GERMAN AIRPORT
PERFORMANCE
GERMAN AVIATION
BENCHMARKING
Set up of the Origin-Destination Matrices
• Given:
• Key:
PAX-[#]*
Revenue- [#]
Km-Distances-[#]
*[#]: n x n-Matrix
• Formulas:
Average Fare = Revenue- [#] / PAX-[#]
Revenue-Passenger Kilometer (RPK)-[#] = PAX-[#] x Km-Distances-[#]
Revenue per RPK-[#] (RRPK; Yield) = Revenue- [#] / RPK-[#]
Profit (“-”) or Subsidy (“+”) per RPK = Cost per RPK (CRPK) - RRPK
GAB Meeting Berlin – 20.06.2012 – Branko Bubalo
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GERMAN AIRPORT
PERFORMANCE
GERMAN AVIATION
BENCHMARKING
Overview Finnmark and North-Troms PSO Network
• 1/3 of the Total Subsidies
• Around 135.000 PAX p.a.
• Average Fare about 490 NOK
(65 Euro)
• 1,500 NOK Subsidy per PAX
(200 Euro)
Distances in Kilometers
TO
FROM ALF
BJF
BVG
HFT
HVG
HAA
KKN
MEH SOJ
TOS
VAW VDS
ALF
246
232
79
145
71
252
203
95
174
293
246
BJF
246
38
221
146
279
98
82
341
418
58
60
BVG
232
38
196
116
256
131
46
325
400
94
94
HFT
79
221
196
86
61
257
156
143
211
275
240
HVG
145
146
116
86
147
206
73
226
297
204
180
HAA
71
279
256
61
147
304
217
89
151
331
292
KKN
252
98
131
257
206
304
165
344
423
83
38
MEH
203
82
46
156
73
217
165
292
365
140
131
SOJ
95
341
325
143
226
89
344
292
79
388
341
TOS
174
418
400
211
297
151
423
365
79
466
420
VAW
293
58
94
275
204
331
83
140
388
466
55
VDS
246
60
94
240
180
292
38
131
341
420
55
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GERMAN AIRPORT
PERFORMANCE
GERMAN AVIATION
BENCHMARKING
Subsidies per route for two Scenarios
Profit/Loss per Route in NOK (thousands) April 2008 – March 2009 Route areas 1 and 2
TO
FROM ALF
BJF
BVG
HFT
HVG
HAA
KKN
MEH
SOJ
TOS
VAW
VDS
Totalt
ALF
-116
-112
-2
-731
0
0
-3,562
-4524
BJF
1
-597
-5
115
-6
-10
2
41
-618
BVG
-8
0
-338
-2
-1
-9
0
-38
-396
HFT
-156
-261
-232
695
-75
-536
-113
-1
-9
-1,864
-3247
HVG
-1
2
636
-78
-6
-5
-115
-204
HAA
28
0
2
-22
10
40
-2
-24
KKN
-575
143
33
-821
-62
-180
-9
41
1,303
-1647
MEH
-84
-3
2
-261
-3
-61
-1
-90
-85
-589
SOJ
9
1
1
-48
-20
-20
276
-21
-109
TOS
-575
-346
-3
-90
-295
182
-3
-1310
VAW
-351
9
1
-553
10
17
-904
VDS
-2,094 17
-11
-1,739 -63
953
-221
-10
15
-4137
Total
-3268
-956
-701 -4382
-135
-165 -1429
-841
-21
-113
-12 -5687
-17710
Profit/Loss per Route in NOK (thousands) April 2008 – March 2009 Route areas 1 and 2
TO
FROM ALF
BJF
BVG
HFT
HVG
HAA
KKN
MEH
SOJ
TOS
VAW
VDS
Totalt
ALF
-633
-618
-93
-8,258
-9
-3
-26,574
-36187
BJF
-5
-4,473 -57
-1,553 -65
-1,213 -4
-832
-8200
BVG
-39
-12
-1,963
-1,087 -9
-109
-3
-964
-4184
HFT
-1,937 -1,626 -1,426
-3,849 -1,349 -4,652 -6,011 -10
-62
-14,105
-35027
HVG
-11
0
-4,145
-525
-67
-30
-920
-5698
HAA
-176
-30
-23
-735
-80
-2,458
-125
-3627
KKN
-5,488 -2,240 -1,327 -6,978 -864
-2,133 -78
-2,915 -3,121
-25146
MEH
-528
-38
-15
-8,158 -133
-441
-7
-962
-1,108
-11390
SOJ
2
-21
-8
-982
-116
-101
-3,810
-201
-5241
TOS
-4,866 -3,255
-11
-1,471
-4,126 -4,313
-12
-18053
VAW
-2,136 -28
-24
-2,904
-2,670
-138
-7900
VDS
-20,017 -434
-175
-12,334 -916
-2,537 -1,735 -59
-551
-38758
Total
-30321 -9940 -6875 -42764 -5830 -2820 -21918 -14248 -4475 -8582 -3550 -48087
-199410
Scenario I:
Operating costs of 4 NOK
per RPK (0.53 EURO per
RPK)
Result in 17.7 million
Kroners (2.35 million
Euro) in subsidies.
Scenario II:
Operating costs of 13.6
NOK per RPK (1.81 EURO
per RPK)
Result in 199.4 million
Kroners (26.5 million
Euro) in subsidies.
GAB Meeting Berlin – 20.06.2012 – Branko Bubalo
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GERMAN AVIATION
BENCHMARKING
GERMAN AIRPORT
PERFORMANCE
Results for Finnmark and North-Troms PSO Network
250,000,000
Assumptions:
133,000 Passengers
64,846,000 NOK Revenues
199.5 million Kroners
Route Network Subsidiy in Norwegian Kroners
200,000,000
y = 11,658x4 - 442,745x3 + 6,073,989x2 - 16,197,609x + 10,652,720
R² = 1
150,000,000
100,000,000
50,000,000
17.7 million Kroners
13.6 NOK per RPK
4 NOK per RPK
0
0.00
1.00
2.00
3.00
5.00
6.00
7.00
8.00
9.00
10.00
11.00
12.00
13.00
14.00
15.00
Operating Costs in Norwegian Kroners per Revenue Passenger-Kilometer
(Source: Own Illustration)
2010
CRPK in NOK
4.00
Wideroe
4.02
Blue1
1.05
GAB Meeting Berlin – 20.06.2012 – Branko Bubalo
SAS
1.40
Norwegian
0.61
Fed Ex
1.26
Southwest
Airlines
0.54
Ryanair
0.30
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GERMAN AIRPORT
PERFORMANCE
GERMAN AVIATION
BENCHMARKING
Conclusions
• Wideroe may have considerably lower operating expenses,
as what is stated in the tender application.
• Since Wideroe is the sole bidder, because of its unique fleet
of Dash-8 aircraft, it could claim whatever costs.
• The current tender rules have no mechanism to deal with
monopoly bidders and abuse.
-> The Essential Air Services (EAS) system in the US awards
new carriers with the tender, in cases where this airline can
provide the service with lower or without subsidies, even
during the tender period (see Isabel Santana 2007).
-> More research needed in direct comparisons of the two
systems, the legal background and the required network
subsidies.
GAB Meeting Berlin – 20.06.2012 – Branko Bubalo
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GERMAN AVIATION
BENCHMARKING
GERMAN AIRPORT
PERFORMANCE
Thank you for your attention! Questions?
Suggestions and Comments are welcome.
branko.bubalo@googlemail.com
www.gap-projekt.de
GAB Meeting Berlin – 20.06.2012 – Branko Bubalo
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