In praise of hybrids

Abstract

In setting cost-based airport charges, there has been an extended debate on the relative merits of single till regulation (under which aeronautical charges are set to cover all costs less non-aeronautical income) and dual till regulation (under which aeronautical charges recover only aeronautical costs, with non-aeronautical income not taken into account). As non-aeronautical activities are often highly profitable, airlines typically strongly support single till approaches in order to benefit from these profits, while airports correspondingly typically support dual till. In this polarised arena, hybrid approaches tend to be portrayed by academics, airports and airlines as unsatisfactory second bests, lacking in rigour. In contrast, this paper explores the drawbacks in the extreme positions, and examines why hybrids may have significant practical advantages. In particular, a hybrid approach may reduce the setting difficulties and perverse incentives associated with single till, while offering the prospect of lower charges than dual till. The paper goes on to examine some of the practical implications of different approaches to deriving the commercial contribution and the benefits of hybrid approaches for transitional purposes. Overall, it concludes that hybrid approaches, despite their neglect, have major practical benefits and should form an important option in regulatory considerations.