An assessment of delivery changes for UK terminal air navigation services
Introduction
The air traffic management (ATM) industry globally is under government and airline pressure to improve its operational effectiveness while at the same time reducing service delivery costs. Within Europe, the European Commission (EC) has established the Single European Sky (SES) performance scheme to provide a legislative framework to address these issues. The SES performance scheme requires that each member state achieves service performance and cost efficiency targets.
The United Kingdom Civil Aviation Authority (CAA), as the designated National Supervisory Authority (NSA) for the United Kingdom, is required to establish national targets and plans to meet EC goals for the delivery of air traffic services (ATS). These UK obligations under the SES are addressed in two ways. First, for monopolistic en-route services, it involves having the ATM service provider achieve performance improvements plus a 3.3% per annum real cost reduction during the period 2015 to 2019. This comprises a cost reduction of 2.1% per annum, with a corresponding increase in traffic of 1.2% per annum.
The second initiative is to achieve contestability in the domestic market for terminal air navigation services (TANS). UK airports with more than 70,000 instrument flight rules (IFR) movements annually fall within the SES performance scheme. In the absence of a competitive market CAA is required to establish cost efficiency targets for TANS at these airports. A report conducted by CAA into the competitive environment for UK TANS concluded that market conditions did not exist (CAA, 2013). As a consequence, CAA set a cost efficiency target of 2.3% per annum in TANS service delivery between 2015 and 2019 (CAA, 2015a, CAA, 2015b, CAA, 2015c). There is no obligation to impose market contestability in order to achieve this cost efficiency target. (CAA, 2015a, CAA, 2015b, CAA, 2015c), in a subsequent report, found that market conditions now exist for TANS. This means that the cost efficiency target is no longer required.
In the past, NATS Services Limited (NSL) was the sole provider of TANS at the nine UK airports that fall under the SES performance scheme. Recently Gatwick Airport Ltd (GAL) awarded its aerodrome control service to Air Navigation Solutions Ltd (ANS), the United Kingdom subsidiary company of Deutsche Flugsicherung Gmbh (DFS), the German ANSP. Birmingham Airport Limited (BAL) also decided to self-supply its TANS service. BAL commenced its self-supply service on 1 April 2015, while the ANS service at Gatwick commenced on 1 March 2016. (CAA, 2015a, CAA, 2015b, CAA, 2015c) concludes that these changes in service delivery provide evidence that market conditions for TANS have been created.
This paper provides insights into the underlying structure of the TANS market in the United Kingdom at the nine airports which fall within the SES performance scheme. In particular it examines the competitive pressures that are impacting NSL, the long term supplier of these services. It also critically examines the existing competitive market for TANS and whether this will foster competition, the desired service delivery, and cost reductions. Porter's five forces model is used to provide an effective framework for this analysis. Outcomes from the creation of a competitive market for TANS in the United Kingdom will be monitored closely within Europe and elsewhere, thereby providing an important justification for this paper.
Porter's Five Forces model has been chosen for this paper since it is the most widely used framework for analyzing competition (Grant, 2016 p68). It provides a structured framework to analyse the various competitive elements that influence TANS service delivery. Although the five forces model presents a somewhat static picture of the competitive market, it enables analysis of the TANS industry at these nine UK airports as service delivery alternatives to NSL are adopted for the first time.
This is the first academic paper exploring the competitive market conditions for TANS at the nine largest United Kingdom airports. The analysis contained in this paper, based on Porter's Five Forces model, provides the foundation for other researchers to explore the efficacy of CAA initiatives to create competition. It also provides a foundation for determining how the forces impacting the competitive environment have changed over time.
Data for this paper has been obtained from:
- 1)
Publicly available publications, particularly studies undertaken by CAA for the Department of Transport about the market conditions for TANS; and
- 2)
Interviews undertaken with senior representatives from CAA (3), NATS (3), Gatwick Airport Ltd (1), Birmingham Airport Ltd (1) and Heathrow Airport Ltd (1). These interviews took place between March and May 2016.
Interviewees were selected purposively due to their direct involvement in the TANS service changes. Interviews were semi-structured and were recorded and transcribed. The data was then analysed thematically. Fieldwork was approved through the relevant ethics process, with the main consideration being the confidentiality of participants.
The paper begins by presenting the operational context of TANS within the United Kingdom air traffic management industry. An overview of the operational and commercial context of NATS is then provided. We then explore the competitive structure of the United Kingdom TANS market analyzing each of Porter's Five Forces. The paper concludes by providing strategic implications from this analysis.
Section snippets
Operational context
Air traffic control operations can be categorised into three areas, namely, aerodrome, approach and en-route control (CAA, 2015a, CAA, 2015b, CAA, 2015c). Aerodrome control provides services to aircraft landing and taking-off at an airport and manoeuvring on the ground. It generally extends for 10 nm around an airport and up to 4,000 ft above the ground.
Approach control sequences aircraft for arrival at an airport, and assumes responsibility from aerodrome control for departing aircraft. The
Overview of NATS operational and commercial context
NATS is the most significant ANSP in the UK. It is a privatised company with shareholding that includes the government, a consortium of airlines, pension funds, staff and Heathrow Airport Limited (HAL). There is light-handed government influence over its activities. Although the Department of Transport provides some policy input into NATS activities, commercial shareholders are able to appoint the majority of board members, have greatest control over the appointment of senior management and
Competitive structure of UK TANS market
Porter's five forces model (Porter, 2008) has been used to examine the various industry forces and their impact on the functions of strategic planning and competitor analyses. This model provides a strategic framework to analyse the underlying competitive structure of TANS service provision at the nine largest UK airports. In brief, (Porter, 2008, p3) considers that in any industry the mix, interaction and impact of five forces defines an industry structure and shapes the competitive
Strategic implications
This review of the strategic factors and competitive forces impacting TANS service delivery in the United Kingdom has implications both for within and outside the aviation sector. Legislative changes on their own appear insufficient to create a competitive marketplace in a sector that features a high quality supplier in an industry with significant levels of specialisation and service risk. Considerable pressure is required from airline users and airport owners to lower service costs. It also
Conclusion
This paper has used Porter's five forces model as an analytical tool to explore the industry forces at play in this complex TANS landscape at airports with more than 70,000 IFR movements annually. The market can be characterised as having intense competition between a long standing sophisticated supplier and the subsidiary of another international ANSP. There is also competition for NSL from airport operators that might elect to self-supply. Existing UK TANS suppliers originating from small
Acknowledgements
The authors gratefully acknowledge the support of the people from BAL, CAA, GAL and NATS for their availability for this research. Opinions expressed in this paper are those of the authors.
Ian Thompson is an aviation consultant specialising in air traffic management strategy and operations. He also writes about these topics for Air Traffic Management and Australian Aviation magazines. Ian is a PhD candidate in the La Trobe Business School at La Trobe University, Melbourne, Australia. Contact
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