Changi Airport revenue yield caps for first regulatory cycle determined
01-Oct-2009 With the corporatisation of Changi Airport, a forward looking economic regulation framework was put in place to strengthen Changi Airport’s position as a competitive international air hub while incentivising its operator - the newly formed Changi Airport Group (CAG) - to be more innovative and efficient in its operations and achieve sustainable economic returns.
A key element of the economic regulation framework is the pricing regulation framework to ensure that aeronautical charges at Changi Airport are kept competitive.
Under the framework, caps [Revenue Yield Cap (RYC)] on the total aeronautical revenue per passenger that CAG will be allowed to collect each year will be set. The RYC is to cover CAG's aeronautical costs and cost of capital less CAG's contribution from a portion of its profits earned through non-aeronautical revenue3 activities. Pegging the RYC to the number of passengers will drive CAG to increase passenger traffic at Changi Airport, which will enable greater cost efficiency through economies of scale.
Having CAG contribute a portion of its non-aeronautical profits will ensure aeronautical charges to airlines and passengers remain competitive. At the same time, allowing CAG to keep the remaining profits will incentivise it to innovate and operate efficiently. As part of the pricing regulation framework, CAG is required to conduct formal consultations with designated airport users on its business plan, including RYCs.
The objectives are to help verify and/or improve the assumptions and forecasts used in the RYC calculations; obtain constructive feedback on the proposed business plan and RYCs; and align the interests of CAG and airport users in relation to maintaining competitive aeronautical charges while continuing to improve services and facilities at Changi Airport. Determination of RYCs for First Regulatory Period CAAS has reviewed the proposed business plan and RYCs submitted by CAG for the first regulatory period from 1 July 2009 to 31 March 2012, following consultations conducted by CAG with designated airport users, and has determined the RYCs for this period.
The RYC determination also took into account the freeze on Changi Airport's aeronautical charges till 31 March 2011 (ie. FY09/10 and FY10/11) due to the corporatisation, which was announced by Minister in the Prime Minister's Office and Second Minister for Finance and Transport, Mrs Lim Hwee Hua, in April 2009.