___________________________________________________________________ Price Regulation of Airport Services Submission to Productivity Commission ___________________________________________________________________ 1 ___________________________________________________________________ 7REF: CORP.BUS.ACCC.Submission to Productivity Commission Price Regulation of Airport Services Submission to Productivity Commission Price Regulation of Airport Services 1. Introduction Gold Coast Airport Ltd (then Queensland Airports Limited) acquired Coolangatta Airport under Phase 2 of the sale of Federal Airports on 28th May 1998. The airport is a “Core Regulated Airport” under the provisions of the Airports Act 1996. Price regulation using a CPI-X price cap applies to the airport. This pricing regulation will apply for the first 5 years of the 50 year (+49 year option) lease. The Commonwealth has stated its intention to review the arrangements to apply at the end of the 5 year period to determine if price regulation is to continue. The Productivity Commission has been tasked by the Assistant Treasurer to report on the need for continued price regulation of Airport Services and, if necessary, its appropriate form. This submission will address Gold Coast Airport Ltd’s (GCAL) experience under the current airport price regulation regime and comment on the need for continued regulation for Coolangatta Airport. It is proposed that this submission be followed with a presentation to a public hearing. 2. Background 2.1 Coolangatta Airport Coolangatta Airport is located on approximately 385 hectares of land divided by the Queensland – NSW border. The site lies within the local authority areas of Gold Coast City and Tweed Shire. The airport is positioned on the Gold Coast and Pacific Highways approximately 22 Kilometres south of Surfers Paradise and 100 kilometres south of Brisbane. Coolangatta Airport is approximately 105 kilometres by road from Brisbane Airport and 85 kilometres north of Ballina Airport. The airport has two runways. The main runway and associated movement areas can accommodate wide-bodied aircraft while the secondary runway is suitable only for light general aviation. The main domestic terminal was constructed in 1981 and has an area of approximately 9500m2. It is leased exclusively to Qantas and Ansett until 2018. The pre-1981 domestic terminal was, until recently, occupied by Ansett and used partially as an interim international facility. In July 2000 GCAL completed construction of a 1500m2 common user international domestic terminal which utilised the airside and landside infrastructure originally constructed to service the older terminal building. 2.2 Gold Coast Airport Ltd (GCAL) GCAL was originally formed (as Queensland Airports Limited) to bid for a number of Phase 2 airports. After the successful acquisition of Coolangatta Airport the company changed its name and assumed responsibility solely for managing that airport. ___________________________________________________________________ 2 ___________________________________________________________________ GCAL is Australian owned, predominantly by institutional investors. The company is headquartered at Coolangatta Airport and employs 26 staff and generates annual revenues of nearly $11.9 million (1999/2000) Its main responsibilities are: Airport planning and development Facilities Management Airside operations and maintenance Airport and Company administration Community and stakeholder relations Compliance with provisions of the Airports Act and other relevant legislation Air Traffic Control, Rescue and Fire Fighting Services and provision of radio navigation aids are the responsibility of Air Services Australia. Qantas and Ansett operate the main terminal and associated ramp services. GCAL manages operations and security screening in the new common user terminal with the airlines arranging check-in and ramp services in that facility. 2.3 Airport Traffic Coolangatta Airport is the 8th busiest airport in Australia in terms of passenger movements. In the calendar year 2000 passenger throughput was 1,886,000. Annual passenger movements for the last 10 financial years are shown in Figure 1. Also included in the graph is a projection for the 2000/2001 financial year. Figure 1 GOLD COAST INTERNATIONAL AIRPORT ANNUAL PASSENGER MOVEMENTS 1990/91 TO 2000/01 2,500,000 2,000,000 1,500,000 1,000,000 MOVEMENTS 500,000 ANNUAL PASSENGER 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 YEAR ENDING JUNE 30 Tourism and leisure traffic accounts for the majority of passenger movements. There is a growing business component as a consequence of the rapid population growth on the Gold Coast and in Northern NSW. The Sydney – Coolangatta and Melbourne – Coolangatta routes account for nearly 97% of the passenger throughput. There are commuter services to Brisbane and Newcastle and international services to Hamilton and Palmerston North in New Zealand with seasonal international services to Noumea. ___________________________________________________________________ 3 ___________________________________________________________________ The airport handled 86276 aircraft movements in 1999/2000. Of these 14518 were jet RPT movements. Total landed weight for 1999/2000 was 777174 tonnes. RPT movements have fallen from 17840 in 1995/96 while landed tonnes for RPT movements has increased marginally from 677598 tonnes in 1995/96 to 699069 tonnes in 1999/2000. This reflects an airline trend towards lower frequency using larger aircraft. The result overall however, has been a reduction in the number of seats as Qantas and Ansett rationed capacity to Gold Coast which is seen by them as a low yield port. This rationing has been effective in increasing the load factors into Coolangatta to a level well above the national average for the top 25 routes. Table 2.1 summarises RPT aircraft movements, seat capacity, landed tonnes and seat load factors for the 5 years to 2000/2001. Table 2.1 Year Aircraft Landed Seats – Load Factor Movements Tonnes (1000’s) (%) 1996/97 17326 685 044 2464 78 1997/98 16236 683 289 2378 77 1998/99 14670 700 142 2294 79 1999/2000 14286 699 069 2262 84 2000/2001 (est) 13900 621 000 2125 85 Sources: FAC, DoTRS, AsA, GCAL 3. Airport Charges 3.1 Price Regulation Coolangatta is one of the eleven “Core Regulated Airports”, as defined under the Airports Act 1996, privatised by the Commonwealth Government in 1997 and 1998. As a core regulated airport, a price cap on aeronautical charges applies to Coolangatta Airport using the CPI-X mechanism. In the case of Coolangatta the X is 4.5%. The X value allocated to Coolangatta is amongst the highest of that determined for all of the core regulated airports. This includes the much larger capital city airports. Approaches made to officers of the Department of Transport and Regional Services to obtain details of the basis on which X have been calculated have not been successful. This price regulation regime applies only to the “core regulated airports” and does not apply to the many airports transferred by the Commonwealth to other owners under the Airport Local Ownership Scheme over the last 30 years. In addition to the aeronautical charges levied by the airport operator, airport users are subjected to charges levied by the other airport agencies that are not subjected to the price cap. These charges include: Air traffic control and fire and rescue services levied by Air Services Australia Security charges to cover costs of providing Australian Protective Services personnel Departure tax charges to cover the cost of providing border agency services Terminal rentals payable to the airport operator 3.2 GCAL Airport Charges The major source of aeronautical revenue for operators of core regulated airports, including Coolangatta, is the landing fee. This fee is calculated on the basis of a charge per landed tonne for each client aircraft. The starting point for each of the core regulated airports at the time of transfer was a charge of $5.72 per tonne for the airport landing fee. This charge was developed on a network wide basis by the previous airport operator, the Federal Airports Corporation (FAC). It applied equally to all FAC airports irrespective of size and traffic levels. ___________________________________________________________________ 4 ___________________________________________________________________ Table 3.1 below shows the landing charges applying at Coolangatta Airport over the last four years. Table 3.1 Year Landing Charge Operator ($/tonne) 1997/1998 5.72 FAC 1998/1999 5.72 GCAL 1999/2000 5.32 GCAL 2000/2001 5.18 GCAL The aeronautical revenue derived from the airport landing charges over the four years from 1997/98 to 2000/2001 (estimated) is summarised in Table 3.2. Table 3.2 Financial Year Revenue Operator 1997/98 4 166000 FAC 1998/99 4 336 000 GCAL 1999/2000 4 018 000 GCAL 2000/2001 (est) 3 700 000 GCAL The landing charges revenue trends reflect both the reductions in the level of charges under the CPI-X regulations and the reduction in capacity into Coolangatta by the major airlines. This trend has accelerated in the current financial year as a result of the very significant increase in capacity into Brisbane since new entrant airlines, Impulse and Virgin Blue commenced services between Brisbane, Sydney, Melbourne and Adelaide. 3.3 Non-Airport Landing Charges In addition to airport landing charges, similar charges are levied by government agencies. These agencies include Air Services Australia and Australian Protective