AIRSERVICES AUSTRALIA PRICING STRUCTURE DISCUSSION PAPER RFACA SUBMISSIONS RFACA has attended the industry consultation meeting at Sydney on Friday 3rd October, 2008 and has also considered the Options Discussion Paper circulated prior to that meeting and which paper is available on AirServices' website. Having considered the matters raised at the meeting and all the matters raised in the discussion paper, and having considered the financial situation ofour members and of the flying training industry in Australia generally, our principal submission is that general aviation should be exempt from air navigation charges, terminal navigation charges and charges for airport rescue and fire fighting services. In the submission we will attempt to provide answers to the questions raised in the discussion paper, but it is our principal submission ofexemption from charges which we will deal with first. The discussion paper discloses a number ofmatters ofconsiderable interest relating to the financing ofairservices Australia. 1. The paper asserts that there are 9300 aircraft on the Air services aircraft billing system, but also notes that a further 3000 aircraft are on the Australian register and that there were more than 2000 ultralight aircraft that do not incur any Air services charges. Our members are quite concerned at the competitive advantage given to ultralight aircraft in their not having to pay terminal navigation charges when such aircraft operate at and into airports with control towers. There appears to be absolutely no justification for this discrimination against general aviation aircraft, particularly flying training aircraft at the lighter end of the range of aircraft. Why should a VH registered Jabiru being used for flying training at Rockhampton have to pay terminal navigation charges when the same aircraft, carrying out the same exercise but registered as an ultralight, is exempt? This serious anomaly needs to be addressed. In our view the appropriate way to address it is to remove terminal navigation charges for flying training and for general aviation aircraft generally. 2. AirServices Australia discloses that it has 4782 billable customers. The top 10 customers contribute 86% of revenue. 98.7% of AirServices Australia revenue comes from international airlines, major domestic airlines and regional carriers. General aviation contributes only 1.3%. The general aviation segment is further subdivided into charter operations, contributing 0.4%, flying training contributing 0.3% and the rest ofgeneral aviation which contributes 0.6%. In general aviation, the charter operation is probably the least sensitive to price, in general terms. In general terms it is the Charter customer who is also the paying passenger who is the primary target of AirServices Australia operations and the person whose safety is the goal of air traffic control. We therefore concede that there is some economic justification in charging charter operations terminal navigation charges and en route IFR charges, as operators who use these services will be able to allow for those charges in preparing their quotes
and, for the customer, those charges will be a minor proportion ofthe total cost ofthe charter. But for the rest ofda, it is not so easy. For the flying training schools the cost of provision of flying training is a very serious matter. Students, typically, are young and are undertaking the flying training as part ofvocational training. Unlike almost all other vocational training in this country, there is no government assistance, no HECs scheme, no student loans for flying training and student pilots either fund themselves or their parents fund them. The addition ofterminal navigation charges to the already expensive flying training adds to the burden, particularly for those flying schools that operate from the GAAP airports ofeach state's capital city. The cost burden ofterminal navigation charges at the GAAP airports has already affected the viability of flying training schools. Schools are leaving these airports either by closing down or moving to more remote locations where terminal navigation charges are not incurred on every flight. The extra costs oftravel impacts the student, not so much the school. 3. The extra costs to AirServices of providing en route IFR control to GA aircraft is very little, probably nil. Likewise the extra cost to ASA of GA use of control zones other than GAAP airports is also nil. In both those instances, the system is established to handle the airline traffic that is the principal beneficiary of ATC and for whom is really established. On that basis GA should not be paying for these services. 4. The GAAP airports all have control towers, but they are not really providing air traffic control. Ifwe look at the history ofmidair collisions, we find the majority of them occur at the GAAP airports during tower operation hours. The AlP clearly states that the GAAP towers do not provide a separation service, merely traffic information. While our members like the idea ofhaving air-traffic control at the GAAP airports, it is obvious from the collision statistics that pilots are able to separate themselves adequately as they do at the busy periods of shortly after dawn and shortly before sunset when most GAAP towers are closed. It is however politically unacceptable for these airports not to have control towers as the politicians have to be seen to be doing what they can to prevent midair collisions at these busy airports. Because the towers are there for political reasons, they should be paid for by the general community, like the highway patrol. 5. If AirServices were to eliminate from its customer base the 98% of its customers who provide 2% of its revenues, there will be significant savings in administration charges for AirServices. Equally as important, there will be significant savings for those customers who would no longer have the aggravation of receiving bills from AirServices up to three months old and then having to reconcile the charge against a particular customer to whom it should be billed. Another significant administrative burden is imposed on owners of aircraft used in Angel Flight operations, the ASA accounting staff and the administrative staffat Angel flight itself. (It is particularly difficult for AF staff as there are only 6 of them to run the entire operation and there are now some 2000 flights PA). Angel
flights are exempt from the charges - however the operative system works thus: The air services charges are levied against the aircraft owner who is obliged to pay them when the invoice is issued. The aircraft owner issues an invoice to the Angel flight pilot who must pay. The invoice is then sent to Angel Flight office in Brisbane where it is confirmed and endorsed. The invoice is then sent to Air Services who then issue a credit against the owner's account but there is no refund made, so the aircraft owner has to then make a refund out of his own resources to the angel Flight pilot and then fund that refund by the credit that has been applied to the account. The system is a nightmare to administer. 6. By eliminating charges for general aviation aircraft for the use ofair traffic control services, there will be an encouragement for general aviation to use those services. Aircraft in the system promotes the safety ofthe principal users ofair traffic control services, the airlines and larger aircraft carrying the fare paying passenger. Because charges are now made, cost conscious private pilots are reluctant to speak to air-traffic control for fear of incurring some charge. While it may be said that the behaviour is not terribly rational, it does happen and, it is human nature to behave that way. As a consequence there is a reduction in safety for the fare paying passenger. The elimination of AirServices charges for general aviation will result in an improvement of safety for the fare paying passenger and, incidentally, for general aviation as the overly cost conscious pilots rejoin the ATC system. 7. The elimination ofair navigation charges for general aviation will result in some subsidy ofgeneral aviation by the rest of the industry, in particular, by the airlines, international, domestic and regional. We submit that that subsidy is minor, in the overall scheme of things involving about $8 million, 1.3% of AirServices' budget and that that subsidy is justified in light ofthe damage being done to general aviation as a consequence ofthe rapid growth of the airline industry over the last few years. The pilot shortage experienced by the airlines has resulted in very substantial recruiting programs, with the majors recruiting from the regionals, and the regionals recruiting from general aviation. Flying schools now struggle to retain instructors. We train a grade 3 instructor and just when they start becoming useful with some experience, they leave to take a charter pilot job which has fallen vacant because the charter pilot has been recruited by the regional airline to fill the vacancy caused by the regional pilot who was recruited by the major. This will result in a lowering ofstandards, and we in the flying training industry are already hearing complaints from the airlines oflower standards in the pilots they are recruiting. In summary, the essence of our submission is that there will be an overall benefit to industry if air traffic control services are provided without charge to general aviation and we press most strongly that in the Long Term Pricing Agreement to be negotiated the concept ofcharging general aviation should be eliminated. DISCUSSION PAPER QUESTIONS CHARGING MECHANISM
1. It is our view that the appropriate charging mechanism for general aviation should be the elimination of charges. If that is not to be the case, we consider a rapid electronic method of charging should be established so that aircraft operators will be charged on the day of use of services enabling the operator to recover the charge as soon as the charge is incurred. Our concern with airlines negotiating directly with AirServices is the absence of transparency and accountability. It could be seen that a large airline has done a deal either at the expense ofthe rest ofthe industry or which will give it a competitive advantage. 2. We consider five years to be an appropriate length of time for this agreement. CHARGING THRESHOLDS 3. Our principal submission is that general aviation should be exempt from air navigation, terminal navigation and airport fire fighting and rescue service charges. If that is not accepted, and, by proposing an alternative we are not suggesting that the alternative should be adopted, we believe that considering the cost of setting up accounting services, generating bills and delivering the bills to customers, an appropriate threshold would be a combination of $100 per month and $1000 in 9 months. This would eliminate most of the customer base of AirServices Australia and would simplify accounting procedures for air navigation and terminal navigation charges. It would mean that the occasional user ofairservices Australia services would feel free to use them and would therefore use those services, to the benefit of safety generally. This would be a significant safety advantage. It should not be difficult to program the computer to record usage of air navigation services and have the computer send out a warning notice when the notional charges for the last 9 months exceed $1000.00; thereby giving warning to the aircraft operator that air navigation charges will be payable ifthis use continues. 4. We consider that an access fee is not an appropriate means ofcharging for smaller operators, as we consider smaller operators should be exempt. In general aviation it is rarely possible to predict the extent of usage of air navigation and terminal services for the next 12 months. Anecdotally, smaller operators tend to be pessimistic when what is being considered will cost them money, with the result that most ofthe smaller operators are not prepared to outlay an access fee which may not be used in its entirety. In light of the current economic circumstances that attitude will spread further amongst the industry. PRICING FOR INCENTIVES AND VALUE 5. RFACA does not believe it is in a position to be able to provide any expertise in the answer to this question. We have some difficulty with the concept of paying you more if there are no midair collisions at GAAP
airports and even more difficulty with trying to work out what the penalty would be ifthere was a collision. 6. Initially, we thought there would be little objection to you commercially negotiating specific value-adding services with customers, but on reflection we see the likelihood that if one customer negotiated a specific deal that wasn't available to a significant competitor, that fact would soon become known and the competitor would complain bitterly. While the proposition is superficially attractive, we believe it would open a serious can ofworms. UNITS OF CHARGE 7. The major problem with using MTOWs and distance as a unit ofcharge is that the MTOW does not bear a direct relationship to the profitability or number of fare paying passengers and freight on the aircraft. A far more logical approach would be a charge based on the number of passengers carried by the distance involved and a charge per kilogram of freight by the distance involved. However, as the airlines seem reluctant to disclose the revenue being generated by each flight, and there would be significant administrative burden on aircraft operators transmitting the information to AirServices for each flight, we see no other practical alternative. EN ROUTE 8. Yes. 9. RFACA has no opinion on this, as none of our members would use the Indian Ocean sector. TERMINAL NAVIGATION 10. Yes. For the occasional user ofair traffic control at a towered airport it is irritating to get a bill three months or more after your aircraft went there. For operators who are in the aircraft rental business, we often don't know that the aircraft has been to a towered airport until the bill arrives from AirServices and by that time it difficult to recover the cost from the renter. All these problems would be eliminated ifga was exempt. 11. They should reduce. 12. RFACA has no opinion on this item. AVIATION RESCUE AND FIREFIGHTING 13. We presume that the current exemption for general aviation for these charges will continue and on the basis can offer no opinion. 14. We presume that the current exemption for general aviation for these charges will continue and on the basis can offer no opinion.
~~~~~-------------------~~------------~----------- 15. We presume that the current exemption for general aviation for these charges will continue and on the basis can offer no opinion. RISK SHARING 16. We believe it is desirable that all negotiations for the pricing of public services should be open and above board so that all users can see what's going on. If airlines were to negotiate directly, there would be a perception offavouritism and a substantial loss ofpublic confidence in the process. As a consequence it is our view that any negotiations should be through the current committee and consultation process so that all participants can see what is going on and have their say. 17. RFACA has no objection to the current risk sharing arrangement.