The ‘Single Till’ and the ‘Dual Till’ Approach to the Price Regulation of Airports

In October 2000 the Civil Aviation Authority (CAA) published a Position Paper on the airport quinquennial reviews 1. The paper confirmed the CAA's intention to " undertake a fundamental review of its approach to the economic regulation of designated airports " and reaffirmed its commitment to the criterion of economic efficiency in assessing trade-offs between its statutory objectives under s.39 of the Airports Act. This paper is part of the CAA's initial programme of work. Its purpose is to set out an initial analysis of the key arguments for and against using the single till to set charge caps at the designated airports, and to discuss some of the issues which would be raised if a dual till approach were to be implemented. The application of the single till approach has been widespread custom in international airport regulation. In previous quinquennial reviews, the CAA has used the single till approach to determine the maximum level of airport charges. The distinct characteristic of the approach is that it takes account of the costs and revenues of both aeronautical and commercial activities of an airport when determining the price cap for the airport charges. In contrast, a dual till would only focus on the core 'aeronautical' activities, and therefore would not consider an airport's performance in its other 'commercial' activities when setting a price cap for airport charges. The most basic argument against the single till approach is that it is aeronautical charges relating to services provided by a firm with substantial market power which should be subject to economic regulation, not the commercial side of the business. To incorporate the commercial costs and revenues into the equation therefore widens the scope of the regulatory framework beyond the basket of services for which a robust diagnosis of market dominance is possible and for which price controls have therefore been deemed appropriate. Regulation is subject to a range of problems and can create its own undesirable distortions. There should therefore be a presumption against a wider regulatory scope except where there are compelling arguments for it. One argument used in favour of the single till is that airports only get the benefits from the commercial side of their business because airline passengers are using the facilities, and that it is therefore reasonable for profits made on the commercial side to be used to reduce aeronautical charges. It is the CAA's view that trade-offs …