Schiphol Group pursues a sound financial policy in order to ensure the current and future independence of its operations. The company is independently financed, mainly through the capital market. If we are to retain this level of independence, it is crucial that economic regulations continue to offer the necessary leeway.
The rates for Amsterdam Airport Schiphol's aviation activities are regulated: the maximum returns on these activities are periodically determined in accordance with legal provisions. Our non-aviation activities are not regulated. These include all activities in the area of retail, catering establishments, leases, media, real estate development and parking charges. This category also includes our international activities. The revenues from our non-aviation activities allow us to generate economic profit. This is referred to as the dual-till system.
Regulated revenue stream
The airlines are charged take-off and landing fees for each landing and take-off. They are charged a passenger service charge and security service charge for each departing passenger, and pay aircraft parking fees when they park an aircraft at the airport. Schiphol currently sets these charges on an annual basis. This process involves extensive consultations with the airlines, and is conducted under the supervision of the Dutch Authority for Consumers and Markets (ACM).
The procedure for setting airport charges for the Schiphol location is set out in the Aviation Act. The emphasis is on ensuring a cost-related and transparent rate structure. The costs charged on to airport users must be directly related to Schiphol´s primary airport operations, infrastructure and security. Attributable costs are not determined on the basis of IFRS. As a result, the costs we charge on are actually lower than Schiphol Group´s actual costs. Returns from aviation activities are capped to the regulated average cost of capital of the regulated asset base (the accountable airport infrastructure). If revenue retrospectively proves to exceed or fall short of the permitted level - generally as a result of discrepancies between actual volumes and estimates - this will be factored into the charges for the coming period.
In 2013, a 3.8% regulated weighted average cost of capital (regulated WACC) was applied. Actual returns on aviation activities proved considerably lower, partly due to Schiphol Group´s voluntary contributions from non-aviation activities. As a result of the above and other factors, returns from the Aviation business area have been extremely low for several years now, with a 2013 RONA of 2.0% (2012: 2.3%). This is considerably lower than the average figure for Schiphol Group as a whole, which was 6.1% in 2013.
At the same time, Schiphol Group conducts its business as efficiently as possible in order to minimise operating costs per passenger and to improve the return on its regulated asset base. This helps to keep our rates for airlines at a competitive level.
Non-regulated revenue stream
Schiphol Group also realises substantial revenues from non-regulated activities: retail sales, concession income from shops, catering facilities and services, leases, media, real estate development, parking fees and international activities. Airport charges at regional airports are also non-regulated. Our non-regulated revenue stream substantially contributes to the group's financial results, allowing us to maintain a healthy financial position.
Economic regulation according to the Aviation Act
The Aviation Act, which regulates Amsterdam Airport Schiphol's economic activities, basically prescribes a hybrid dual-till system given that it leads to cross-subsidisation from our non-aviation activities. This is due to the fact that the legislator requires Schiphol to apply accounting rules that diverge from IFRS with respect to the allocation of investments and costs. The legislator also prescribes a regulated average weighted average cost of capital in order to determine a capped return instead of the higher, market-based weighted average cost of capital.
Since the introduction of the regulation in 2006, Schiphol has voluntarily refrained from applying the maximum permitted airport charges in order to further strengthen its competitive position in the long term. In the past years, we have not incorporated the full increase in costs resulting from investments in the 70MB baggage handling programme and in the new security measures in the airport charges, even though it was permitted to do so under the statutory regulations. The total amount of non-realised income from airport charges over the period 2007-2013 is 187 million euros. In view of the challenging circumstances facing the aviation industry over the past few years, we view this as a logical decision that serves the interests of Dutch aviation. This gradual increase of airport charges can only be sustained if contributions from successful non-aviation activities are used to support the group's return.
The Aviation Act has been evaluated intensively over the past few years, and we expect the Lower House of the Dutch Parliament to reach further decisions on an amended act in 2014.
The evaluation of the Aviation Act will yield several adjustments to the existing regulations. One key change concerns the period for which airport charges will be set. Currently this is one year, but under the amended act this will change to three years. Setting airport charges for a multiple-year period will help ensure more stable and predictable levels, benefiting both the airlines and Schiphol itself.
The existing hybrid dual-till system will continue to exist in future. However, a mandatory contribution from non-aviation activities will come to replace the current system of voluntary contributions currently applied by Schiphol. The underlying principle is that Schiphol should be able to achieve a benchmark return over the three-year period, should remain capable of independently funding its own operations at acceptable credit conditions and must retain its current credit rating. In determining the mandatory contribution, aspects such as Schiphol's competitive position and current market conditions will also be taken into account.
An efficiency incentive will also be introduced for major investment projects. In the event of budget overruns during the implementation of a major investment project, additional costs incurred during the rate period concerned will be borne by Schiphol; if the costs of implementation prove to be lower, the resulting cost advantage will be equally distributed between the airlines and Schiphol.
Other amendments to the law relate to improving the consultation process, periodic reporting on quality and efficiency, the procedure for setting off differences in previous years and the way the regulated WACC will be determined.