Our Ref: 3377:MB Your Ref: Enquiries: Telephone: 07 49368 309 Facsimile: 07 49277 523 Email: [email protected] 19 September 2005

Ms Margaret Arblaster General Manager œ Transport & Prices Oversight Australian Competition & Consumer Commission GPO Box 520J Melbourne Vic 3001

Dear Ms Arblaster,

AVIATION RESCUE AND FIRE FIGHTING SERVICE REVIEW OF THE OPTIONS FOR CHARGING

We refer to your email of 26 August 2005 enclosing the ACCC‘s issues paper regarding a review of Airservices Australia‘s (AsA‘s) proposed options for the charging of Aviation Rescue Fire Fighting (ARFF) services.

We wish to commend AsA for their pricing options submission and to acknowledge the ACCC‘s assistance in providing clear direction to AsA as to how this issue should be resolved. We view AsA‘s ”Options Paper‘ as their first real attempt to address the numerous concerns of regional airports.

Though the ARFF service is not provided directly to airport, the current unsubstantiated and anticompetitive cost of the provision of this service (based on the Location Specific Pricing model) has a direct impact on the operating costs attributed to all airports.

We note your issues paper states —The focus of the ACCC‘s assessment of Airservices‘ forthcoming price notification will be the efficiency of Airservices‘ proposed charging model, and whether it addresses the concerns about the existing charging methodology expressed by the ACCC in Airservices‘ previous pricing proposals.“

AIRSERVICES‘ CHARGING OPTIONS In response to the abovementioned request, we understand that AsA proposes the following charging options:

• Location Specific Pricing, based on two (2) options:

1. Single location

2. Incremental cost, aircraft category charge

• Location Specific & Category Pricing, based on two (2) options:

3. Location specific for ports with greater than 6 million passenger movements

4. Base level service charge plus incremental category cost charge

• Category Pricing - 2 - MB 19 September 2005

ISSUES ON WHICH THE ACCC SEEKS COMMENT We will attempt to address the ACCC‘s specific concerns in relation to ARFF pricing options:

1. Is the charging option economically efficient? Issues that are relevant to considering whether a charging option is economically efficient could include: Do the prices in the charging option have a strong relationship with the drivers of Airservices‘ ARFF costs, such as: - The establishment criteria; and - The costs of providing different categories of service? Will the charging option affect the investment decisions of Airservices and users of its services?

Will the charging option have a significant effect on activity levels at and between locations?

In relation to the establishment criteria question; this is determined by government regulations, rather than by any commercial requirement. As such, every airport that exceeds 350,000 RPT passengers per annum is required to have an ARFF service and AsA is currently the monopoly provider of this service. The cost of providing the service is determined internally by AsA and we are unaware of any instance where the location specific costs have been subject to any form of market price review.

• Location Specific Pricing - Single location

As discussed in previous submissions to the ACCC, is opposed to this cost recovery model due to numerous flaws in the way the model is administered by AsA.

The apportionment of costs associated with the ARFF service is disadvantageous to regional and emerging airports. Examples of this inequity have been cited in our previous submissions. For example, Rockhampton Airport ARFF charges are currently 14 times and 7 times higher than Sydney and Airport‘s respectively. This price disparity makes it very difficult for regional airports to compete with major destinations, resulting in a profound negative effect on regional tourism and many other regional activities. Additionally, it provides a severe commercial disadvantage to airports within close proximity to major gateway airports (e.g. Sunshine Coast Airport / Gold Coast vs. ).

Rockhampton Bolsover Street PO Box 243 Telephone (07) 4936 8000 Rockhampton Rockhampton Email [email protected] Qld 4700 Facsimile (07) 4922 1700 City Council

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Should this particular model be favoured by the ACCC, we implore the ACCC to give serious consideration to the following issues: - The development of a fair and equitable method for reviewing the landed tonnes at individual airports, rather than on a network basis. Coupled with this, a regular review process of the projected landed tonnes at each airport. We see this as an opportunity for both parties to share the risks associated with any downturn in the industry, while providing timely price adjustment/relief in periods of rapid growth.

- A clear and unambiguous statement of costs associated with each location‘s service. Unfortunately the current financial information provided by AsA in relation to their ARFF locations is woefully inadequate and does not clearly identify the costs associated with the provision of this service. As a result of this lack of information, we are unable to draw any conclusions as to the reasonableness of their proposed location based charges.

- AsA should commit to commercial agreements for the provision of ARFF services with the Australian Defence Force (ADF) at all Australian Airports . It is unacceptable that ARFF services may soon be provided to the ADF on a commercial basis at , while others do not have this option available.

- As the cost of providing the service should be reflected in the location specific cost for the service, Rockhampton Airport would be very willing to enter into substantial risk sharing ventures or other commercial activities in an effort to reduce the ARFF charges to is customers. Our primary concern is that the ACCC may endorse the proposed location specific charges for the full 5-year period, effectively removing any impetus for AsA to enter into commercial agreements with airports. • Incremental cost, aircraft category charge

As this model provides virtually the same pricing outcome for our airport (as the Location Specific Pricing - single location model), we do not see any advantage in supporting this option. Additionally we note that in many cases, the price differential between regional and major airports is further exacerbated. This has the potential to further increase traffic to major airports at the expense of regional development.

• Location specific for ports > 6 million passenger movements

This model provides a more equitable distribution of the operational costs associated with the provision of this service, while still apportioning charges for cost increases associated with larger (i.e. greater than Cat 6) aircraft services.

As larger aircraft generally have more passengers, the increase ARFF charge is apportioned across a larger passenger base. Additionally the airfares associated with international wide body services are generally significantly higher than domestic services.

Rockhampton Bolsover Street PO Box 243 Telephone (07) 4936 8000 Rockhampton Rockhampton Email [email protected] Queensland Qld 4700 Facsimile (07) 4922 1700 City Council

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Using the proposed ARFF charge for this model, we calculate that a passenger flying on a category 6 aircraft pays approximately 5 times more for the ARFF service than a passenger flying on a category 9 aircraft 1. As a result, we feel that the cost escalation for aircraft sizes above category 6 is tolerable, though we note that this model may disadvantage many airports currently engaged in operations above category 6. Additionally, airports attempting to attract international wide body aircraft, are at a significant disadvantage (approx 6 times more expensive for category 9) when compared with airports that have in excess of 6 million passengers per annum.

As the proposed charge for category 6 is $7.81 and category 9 is $2.22 per tonne less than our current charges, this model provides a substantially better outcome than the previously discussed location specific models.

• Base level service charge plus incremental category cost charge

This is our preferred option as it provides the lowest cost per landed tonne for our airport for all categories of aircraft.

• Category Pricing

As with the Base Level Service Charge Plus Incremental Category Cost Charge model, Category Pricing provides significant cost relief and provides a more equitable cost base.

As with the Location Specific Pricing For Ports > 6 Million Passenger Movements model, the escalating cost for higher category aircraft is not necessarily experienced by the passenger, therefore providing an equitable solution for all industry participants.

We would also support this option for ARFF pricing for Rockhampton Airport.

2. What impact would the charging option have if ARFF services were rendered contestable?

Due to the significant cost of entry for any new operator, the currently installed (and federally funded) ARFF facilities owned by AsA, there appears to be little opportunity in contesting these services. Should the ACCC seriously consider contestability of AsA‘s ARFF services, the issue of the ownership of their airport assets must be resolved prior to any decision being made (i.e. possible transfer of assets to another party, making contestability feasible). At this stage we are unable to comment on the feasibility or otherwise of the devolution of AsA assets to third parties.

1 Using the ”All Other Locations‘ table cost data ($10.10 for Cat 9 / B777-200 and $4.51 for Cat 6 / B717-200) and based on ticket prices (inc taxes) obtained from Internet travel agencies (Cat 6; Rockhampton to Brisbane $59.00 and Cat 9; Brisbane to Singapore $1,067.00) Rockhampton Bolsover Street PO Box 243 Telephone (07) 4936 8000 Rockhampton Rockhampton Email [email protected] Queensland Qld 4700 Facsimile (07) 4922 1700 City Council

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SUMMARY While acknowledging AsA‘s Options Paper provides significantly more opportunity and scope for change than any previous submission, we would prefer that the scope of the ACCC‘s investigation dealt with the real issue at hand œ the equitable provision of a legislated aviation rescue service to all Australian airports that require this service.

As the monopoly provider of ARFF services in Australia, AsA should be able to transparently identify the costs associated with operating business units operating at all airports (though we believe that this has yet to be adequately demonstrated). As a result, AsA is able to manage the costs associated at each location it operates, regardless of whether the Network or Location Specific Pricing model is used. Moreover, all models provided by AsA are calculated on the same allowable revenue (as directed by the ACCC) for all Australian ARFF services œ effectively a network based allowable revenue. Consequently we find it difficult to understand why the ACCC will not give serous consideration to a network based charging model. We do not support either of the Location Specific Pricing models proposed by AsA. We are very concerned that this may be our final opportunity to discuss risk sharing or other cost reduction options that may be appropriate to the Location Specific Pricing model. Accordingly we recommend that should the ACCC decide that a location based model is preferred, that an interim price be agreed, to give sufficient time for AsA and the airport concerned to discuss potential risk sharing or cost reduction opportunities and strategies. Furthermore, we would also request consideration of our concerns outlined previously in relation to location based pricing.

Rockhampton Airport prefers the Base Level Service Charge Plus Incremental Category Cost option and supports the Category Pricing model.

We thank you for the opportunity to comment and are hopeful of a positive outcome for regional aviation.

Yours faithfully

David J Blackwell General Manager Rockhampton Airport

Rockhampton Bolsover Street PO Box 243 Telephone (07) 4936 8000 Rockhampton Rockhampton Email [email protected] Queensland Qld 4700 Facsimile (07) 4922 1700 City Council