COMMONWEALTH DEPARTMENT OF TRANSPORT AND REGIONAL DEVELOPMENT POST-SALE AERONAUTICAL PRICING OPTIONS FOR GENERAL AVIATION AIRPORTS Introduction As part of the phase 11 airport sales program, the Commonwealth will be offering for trade sale 5 general aviation (GA) airports, Jandakot, Archerfield, Parafield, Essendon and Moorabbin and 2 small regular public transport (RPT) airports (Mt Isa and Tennant Creek). These airports are not subject to prices oversight by the Australian Competition and Consumer Commission under the CPI-X price cap. No State government has indicated an intention to apply price controls at these airports; and these airports will, if leased, remain legally Commonwealth places Consistent with the approach taken to pricing at some 230 similar airports returned to local ownership since 1990, and with other non-Commonwealth airports such as Cairns, these airports are expected to set their own prices. The pricing methodologies outlined in this paper have been prepared to assist prospective buyers to identify various approaches which could be adopted post sale for aeronautical charges at the Phase II general aviation airports. This paper outlines a number of pricing options and the efficiencies of each option. The list of options is not exhaustive and is not being presented as such. The Department of Transport and Regional Development is putting these options forward for consideration by bidders for the airports to assist in their deliberations on the sales process. They represent possible choices for owners of airports where much of the traffic is currently charged on a network basis. The main services provided by airport operators at these airports are: * use of runway system (ie runways and taxiways), * aircraft parking facilities, and * property services to tenants. The main source of revenue for GA airport operators is from their non-aeronautical services. In the 1995/96 financial year, revenue from the non-aeronautical services of the above mentioned GA airports accounted for more than 80 per cent of their total revenue at individual GA airports, this proportion ranged from 75 per cent at Jandakot to 91 per cent at Essendon. Tenants currently provide mainly aeronautical-related services (mainly aircraft maintenance) but there is an upward trend towards the provision of non-aeronautical services. The main elements of the cost structure of GA airports are staff costs and the operating and capital costs of the runway system (maintenance, depreciation and interest costs). Runway system costs are significantly greater than staff costs ie capital rather than labour is the dominant factor in productivity terms. Current GA Airport Pricing The aeronautical charges currently levied by the Federal Airports Corporation (FAC) at these airports are the General Aviation Infrastructure Tariff (GAIT) and the General Landing Charge. The GAIT charge applies to all aircraft which are not RPT aircraft or which have a maximum take off weight (MTQW) less than 10,000 kg. It is charged at a rate of $5.34 per 1,000 kg MTOW pro-rata per day. Discounts are available for longer periods if paid for in advance ($112, $490 and $702 respectively per 1,000kg MTOW for 1 month, 6 month and 12 month periods). The one GAIT charge allows unlimited use (for the relevant period) of the FAC's designated GAIT airports (Alice Springs, Archerfield, Bankstown, Canberra, Coolangatta, Darwin, Essendon, Jandakot, Launceston, Moorabbin, Mt.Isa, Parafield, Tennant Creek and Townsville). The GAIT charge will be in place until the end of December 1998, during which time any new airport operator will be required to recognise a valid GAIT sticker as payment for parking or movements by aircraft. At the GA airports and Mt.Isa and Tennant Creek, the FAC applies a General Landing Charge of $5.72 per 1,000 kg MTOW per landing to aircraft which are engaged in regular public transport or which weigh more than 10,000 kg MTOW. The FAC also applies a parking charge at a rate of $11 per day at Adelaide, Hobart and Sydney airports for aircraft parked in a designated general aviation parking area. Options for pricing regimes post sale The following options are approaches to pricing which draw on current international practice at small airports. They represent a balance between economic efficiency and administrative convenience. As a new airport operator, you could consider adopting some of these options as valid GAIT stickers expire. Note that no regulatory regime exists under which these prices are legislatively enforced. This is consistent with the approach at the privatised major airports. GAIT -style charge Airport operators could choose to continue to charge a fee, similar to the FAC's GAIT charge, based on the period of use of the airport and the weight of the aircraft. It could be sold, and enforced, as a sticker to be displayed on the aircraft by the operator. Penalty payments, based on the aircraft weight and period of time which the aircraft used the airport without paying the fee, could be levied on the aircraft operator in default assuming that this had been publicised as one of the terms imposed on users of the airport. As with the FAC's pricing regime, discounts or incentives could be built into the prices to attract longer patronage. This approach to charging would partially reflect the use of the runway system by relating the charge to the aircraft weight, but would not reflect the frequency of aircraft movements at the airport. For example, under this charging regime two aircraft of similar weight would pay the same charge for use of the airport over the same period. However if one of the aircraft were taking off and landing ten times more frequently than the other, its use of the runway would be ten times that of the other. A GAIT-style charge could therefore lead to an under recovery of the cost of providing the runway system and of any ancillary air navigation services which an airport might provide or contract with Airservices Australia to provide. Fuel through-put levy New operators could choose to introduce a fuel through-put levy which would be applied as a unit charge added to the price of aviation fuel provided to aircraft at the airport. This levy would act as a proxy charge for the provision of aeronautical services at an airport. For some aircraft operators (perhaps a training school or a non commercial general aviation user) a fuel throughput levy may reasonably accurately reflect the cost of aeronautical services used. However for an operator who refuels elsewhere but parks or otherwise uses the airport as a home base, the charge may be an inefficient pricing mechanism. Landing fees New airport operators could charge landing fees based on aircraft movements similar to the landing fee currently utilised by the FAC at GA airports. However, rather than restrict the charge to larger aircraft, a new operator could utilise a landing fee for all aircraft with the level of fee based on aircraft weight and frequency of movements. If structured to account for an aircraft's weight and frequency of movement, a landing fee could reflect the cost of maintaining a runway system to the desired level. In addition, landing fees could reasonably incorporate some level of recovery of staff costs related to both the runway system and the collection mechanism. However there is a possible downside to broadening the scope for collecting landing fees for small aircraft. FAC experience has shown that there are considerable administrative costs in comparison to the level of revenue generated. To counteract this, a system which broadens the charging available to an airport operator could be considered. For example, Airservices Australia may, in the context of moving to location-specific charges, also require a charging system which accommodates a movement or landing fee. Airport operators could collect the fee for Airservices (for appropriate recompense), or could move to take over the provision of tower and navigation services, potentially providing a greater range of charges to support the administrative costs of such a system. Airservices Australia is prepared to consider options in this area which meet its requirements. Parking fees Parking fees could be levied as a charge per unit time on the aircraft operator to park the aircraft at the airport. They could be structured on a daily base rate with discounts for length of tenure and casual rates for short term occupants. A sticker system could again apply. It could be possible to structure the parking fees to capture some or all of the aeronautical costs associated with operating the airport However the ability to capture such costs is dependent on the level of competition. Combinations of the above options Combinations of the above mentioned options might also be appropriate to a particular GA airport. For example, a combination of landing and parking charges could be a reasonably efficient way to cover the bulk of airport costs The landing charge would address the runway system and operating costs associated with aircraft landings, while the parking charge would address the ongoing costs incurred by having the aircraft based at the airport No aeronautical charges Another option would be not to have any aeronautical charges at all, relying instead on sources of non-aeronautical revenue. The provision of free aeronautical services would attract more users and generate more revenue from the non-aeronautical services provided to those users. This approach could have its advantages, in view of the high proportion of revenue earned from non-aeronautical services at these airports and the high costs of administering aeronautical charges relative to the revenue earned from them. Overall comment FAC experience has indicated that an important factor in determining the most appropriate charging methods for the smaller airports is the administrative simplicity of the method and its acceptability to airport users. Determination of the right pricing mix will therefore depend not only on considerations of economic efficiency but also on its administrative simplicity and the composition of the user base at each of the airports and their willingness to accept the change of price signals to better reflect the cost of provision of aeronautical services. The Department encourages discussion with aircraft operators, particularly major tenants, at the airport prior to any new system being introduced. The second half of 1998, during which valid GAIT stickers will continue to be recognised, may be an appropriate period for this. November 1997