654654 Airports Company South Africa
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Airport Tariffs

Background

Airports Company South Africa was established through the Airports Company Act of 1993. The Act provides for an independent statutory body, the Regulating Committee, to oversee the economic regulation of airport authority.

The principal objectives of the Regulating Committee are to:

  • Restrain Airports Company South Africa from abusing its monopoly position, without placing undue restrictions on its commercial activities
  • Promote the reasonable interests and needs of the users of Airports Company South Africa airports
  • Promote the safe, efficient, economical and profitable timely improvement of facilities at Airports Company South Africa airports so as to satisfy anticipated demand
  • Ensure Airports Company South Africa is able to finance its obligations and has a reasonable prospect of earning a commercial return

The tariff application process is known as the Permission Application and the promulgation of allowable increases, the Permission.  The Permission Application is submitted by Airports Company South Africa, after extensive consultations with the airlines, whilst the Regulating Committee promulgates the Permission.  The Permission Application is based on an Approach also determined by the Regulating Committee.  This Approach provides for the rules and calculations for tariffs. 

Annually, Airports Company South Africa is allowed to increase airport tariffs as provided for within the Permission.  Airport tariffs relate to passenger service charges, aircraft landing fees and aircraft parking fees.  Landing fees and parking fees, which are dependent on weight and origin of aircraft, are recovered directly from the airlines, whilst passenger service charges are recovered through the air ticket directly from the traveller.

Airports Company South Africa Passenger Service Charges

The current passenger service charges, inclusive of VAT, effective from 1 April 2014 are –

  • Domestic:R127
  • Regional:R263 (Botswana, Namibia, Swaziland and Lesotho)
  • International:R346

Why are some aviation industry stakeholders so concerned?

It is about the fact that Airports Company South Africa wants to increase the tariffs to recover the investment it has made in infrastructure over the past four years for the benefit of travellers. More than R16 billion has been invested, mostly funded on borrowings, and now has to be repaid. The airlines are opposed to the increase because they believe it will impact negatively on their businesses. The context is that discussion around the required infrastructure expansion started around 2007, when the economy was doing well.

The aviation industry’s passenger traffic projections at the time were for corresponding growth in the aviation sector on the back of the buoyant economic environment. The FIFA World Cup was also expected to bolster traffic in 2010 and beyond. The financial crisis then struck the global economy and everything slowed down, impacting on businesses worldwide, leading to a reduction in air traffic.

Much to the industry’s surprise, the Regulating Committee decided in 2007 that, going forward, Airports Company South Africa would have to only start levying tariffs once the infrastructure had been completed and was in use. The argument advanced was simple: when you go to a restaurant to buy a burger, you don’t pay now and collect it after two years.

Although it sounds as though today’s passengers are paying for infrastructure that they may or may not use in the future, it allowed for smoothing of tariffs over time. It also ensures that the passengers who create congestion in the first place, starts paying towards future infrastructure. Over the five-year period to 2007, tariffs increased at an average of four percent a year.

In view of the new regulatory approach and envisaged infrastructure programme, Airports Company South Africa warned the industry that the result of this new approach would be a substantial increase in the first year of the five-year tariff cycle. Fact is that the airlines knew the implications of the Regulating Committee's decision. This meant that, for a period of three years, the aviation industry enjoyed very low tariffs, whilst Airports Company South Africa was using its balance sheet to borrow funds. Now that it is time to pay, airlines are crying foul. If the regulatory approach had not been changed, we wouldn't have been in this situation today.

That said, the proposed 133 percent increase for the 2009/10 period was never implemented and is therefore no longer relevant

So, why was it not implemented?

The Regulating Committee proposed that Airports Company South Africa only implements 40,7 percent, which was worlds apart from the company’s application. Airports Company South Africa believed that process followed by the Regulating Committee was wrong and went to court during 2010, successfully challenging the Regulating Committee, resulting in the proposed tariff for the 2011-2015 period being set aside.

The Minister of Transport then established a Task Team to review the proposal by the Regulating Committee. The Task Team then proposed some key recommendations to the Minister, which were then put to the Regulating Committee for review.

In the interim, Airports Company South Africa applied a 33 percent increase for the 2009/10 period.

In May 2011 the Regulating Committee promulgated an amended Permission as follows:

2010 2011 2012 2013 2014
33% 34,8% 30,6% 5,5% 5,6%

What does this mean in terms of Rands and cents for a traveller?

It means that, from 1 October 2011, the Passenger Service Charges (inclusive of VAT) were implemented as follows:

Category 2011
Domestic R110,00
Regional (Botswana, Lesotho, Namibia and Swaziland) R239,00
International R299,00


What is ‘airport tax’?

The term ‘airport taxes’ is often used for all charges, costs and taxes recovered through the air ticket, thus creating an impression that ‘airport taxes’ accrue to Airports Company South Africa. The passenger service charges are but one of the charges collected through the air ticket.  These charges are required by National Treasury to be split between taxes, regulated charges, non-regulated charges and airline costs.

Description
Examples
Taxes


  • Value added tax
  • International departure tax
Regulated charges



  • Airports Company South Africa passenger service charge
  • SA Civil Aviation Authority safety charge
  • Air Traffic and Navigation Services charge
Non-regulated charges



  • ACS passenger charge (ACS is a company owned jointly by the airline associations)
Airline costs


  • Fuel surcharge*
  • Insurance

*Fuel surcharge is the biggest component of the ‘airport taxes’.

Tariff benchmarking

Airports Company South Africa subscribes and provides data for annual benchmarking studies on airport charges.  In the most recent publication of  now LeighFisher, Review of Airport Charges: 2011, Airports Company South Africa charges were benchmarked as 24th most expensive out of the top 50 airports included in the study.  Differently stated, Airports Company South Africa was rated as the 26th cheapest.

GDP growth as the driver for traffic volume growth

The airline industry often states that airport tariffs have a material negative impact on traffic volume growth.  There is no empirical evidence for such statements.  Studies have shown that airport tariffs have very limited impact, if any, on traffic volume growth. This is primarily because as a proportion of overall airline operating costs, airport tariffs are miniscule.

What are the different categories of Airports Company South Africa tariffs?

Airports Company South Africa charges users for the use of its facilities, in accordance with these regulatory provisions. The categories of airport charges are:

  • Landing fees
  • Aircraft parking fees
  • Passenger service charges

Landing fees vary according to the origin of the aircraft and the aircraft weight, and fall into three categories, namely: domestic, regional and international.

For aircraft parking fees, the combination of the weight of the aircraft and the duration parked (to the extent that it exceeds four hours) and the parking stand utilised are considered in determining the parking charges.

Passenger Service Charges (PSC) are charged on departures only, categorised into domestic, regional and international.


 

Economic regulation

The Airports Company Act provides for an independent statutory body, the Regulating Committee, to oversee the economic regulation of Airports Company South Africa. The principal objectives of the Regulating Committee are to:

  • Restrain Airports Company South Africa from abusing its monopoly position, without placing undue restrictions on its commercial activities
  • Promote the reasonable interests and needs of the users of Airports Company South Africa airports
  • Promote the safe, efficient, economical and profitable operation of Airports Company South Africa airports
  • Encourage timely improvement of facilities at Airports Company South Africa airports so as to satisfy anticipated demand
  • ensure Airports Company South Africa is able to finance its obligations and has a reasonable prospect of Earning a commercial return

Under the Act, the Regulating Committee regulates Airports Company South Africa in two ways. Firstly, it limits aeronautical charges for each year of the Permission period for any or all of Airports Company South Africa’s airports. Aeronautical charges are determined for a period of five years, with a two-year overlap, thus - in effect - application is made every three years. Charges at the beginning of the period take into account the anticipated revenues of all activities undertaken by Airports Company South Africa, whereby profits from non-aeronautical activities are used to subsidise aeronautical charges. This is referred to as ‘single till’ regulation. Secondly, it prescribes service standards at any or all of Airports Company South Africa’s airports.

Airport charges are regulated through the use of a price cap formula, CPI-X, which limits the increase in a basket of revenue weighted tariffs to a rate of inflation less an X-factor (efficiency factor). The X-factor is determined by applying the building blocks methodology whereby each block of Airports Company South Africa’s activities is identified, namely operating costs, depreciation, return on capital and taxation. From this revenue requirement the non-aeronautical revenues are subtracted to determine the aeronautical revenue requirement, which is divided by anticipated volumes to determine the level of the anticipated unit price increases. Airports Company South Africa charges users for the use of its facilities, in accordance with these regulatory provisions. The categories of airport charges are:

  • Landing fees
  • Passenger service charges
  • Aircraft parking fees
  • Aircraft parking fees

Landing fees vary according to the origin of the aircraft and the aircraft weight across three categories, namely: domestic, regional and international. Similarly passenger service charges vary according to the destination of the passenger. Whilst for aircraft parking, the combination weight of the aircraft and the duration parked (to the extent that time exceeds 4 hours) and the parking stand utilised will be considered in determining the parking charges. See the Government Gazettefor future details.