Airports Company South Africa Airport Tariffs

Airports Company South Africa 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 2011-2024 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:

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: