CHAPTER ONE
TERMS OF REFERENCE AND CONDUCT OF INQUIRY
Terms of Reference
1.1 On the 10 March 1998 the Senate referred the following matter to the Rural and Regional Affairs
and Transport References Committee for inquiry and report by 1 June 1998:
The effects of pricing and slot management arrangements at Kingsford Smith Airport on
regional airlines and communities.
Conduct of the Inquiry
1.2 Following the referral of this matter to the inquiry advertisements calling for submissions to the inquiry
were placed in The Land – NSW and the Sydney Morning Herald. In addition to advertising, invitations
were sent to individuals and organisations, both government and private, inviting submissions.
1.3 The Committee received 24 submissions and a number of supplementary submissions and material. A
list of individuals and organisations that made submissions to the inquiry appear in Appendix 1.
1.4 During the inquiry, the Committee held three public hearings:
1.5 Thirty witnesses representing organisations or government bodies gave evidence to the Committee at
the hearings. A list of witnesses appears at Appendix 2.
1.6 The Committee's inquiry was not concluded to the original schedule due to the calling of the election
in August 1998. At the Committee's first meeting after the election it was agreed that the inquiry would be
pursued as soon as possible in the New Year.
1.7 As the new pricing system was introduced in October 1988, in a changed format to that presented to
the Committee in May 1998, and since the slot management system had been in operation since March
1998, much of this information given to the Committee in the early part of the inquiry is somewhat out of
date.
1.8 To gain more up to date information the Committee wrote to relevant witnesses and the Sydney
Airports Corporation (who had by this stage replaced the Federal Airports Corporation) requesting an
update of evidence. Of the ten witnesses invited to add to their evidence, five responded. Only three of
the five who responded wished to add to their evidence.
Structure of the report
1.9 The report consists of five chapters. CHAPTER ONE, this chapter, provides information on the
reference itself, conduct of the inquiry and summarises the committee's observations and report to the
senate.
1.10 CHAPTER TWO summarises the history of the introduction of slot management and changes to
landing charges at Sydney Airport. The chapter outlines the legislative framework for the Slot
Management Scheme and summarises the attributes of the scheme that are relevant to this inquiry. Also
discussed in the chapter are the details of the changes to pricing arrangements at Kingsford Smith Airport
(KSA).
1.11 CHAPTER THREE outlines the impact of the Slot Management Scheme on stakeholders including
regional airlines and rural and regional communities. The general acceptance of the scheme is discussed
along with specific concerns raised by stakeholders. Included in the discussion is the “regional ring
fence”, which is provided for in the scheme as a measure to protect regional operators from loss of slots.
The chapter also deals with reports of improvements at KSA because of the scheme.
1.12 CHAPTER FOUR deals with the issue of changes to landing charges at KSA. The chapter
examines the concerns raised by stakeholders over the impact of increased charges on regional airline
operations and potential flow on to regional and rural communities and their economies. It also looks at
the pricing model underpinning the price changes and criticisms made by a range of witnesses and other
sources. Also examined briefly are the degree of acceptance of the new charges and pricing for
1999/2000 and 2000/2001.
1.13 In CHAPTER FIVE the other issues raised in the course of this inquiry concerning continuance of
regional airline access to KSA are discussed. The subjects of the use of Bankstown Airport or the
second Sydney Airport by regional airlines as an alternative to KSA are examined. The impact on
regional and rural communities of excluding regional aircraft from KSA is dealt with and conclusions
drawn.
Committee's Observations and Report to the Senate
1.14 The Committee considered carefully the evidence it took during the course of the Inquiry, as well as
examining a range of relevant documents such as the Australian Competition and Consumer Commission
(ACCC) Statement for the public record on proposed aeronautical charges.
1.15 The Committee found that in general the Slot Management Scheme was accepted by most
stakeholders and may be having a positive impact on arrival and departure times at KSA. It was
concerned that, while providing a good level of protection to regional airlines, there may still be a danger
of loss of slots to either regional airlines or the transfer of slots away from particular routes leaving some
communities without services. This was of particular concern with peak time slots, which are in high
demand.
1.16 On the subject of landing charges, the Committee was concerned that the most vulnerable of the
regional airlines, the small airlines operating off peak, even given a rebate, have suffered a rate increase in
landing charges whereas most other airlines have had a reduction in charges. The Committee believe this
to be a highly undesirable outcome. In its view this has serious implications for some regional airlines and
communities and will require careful monitoring by those responsible for setting the policy and
frameworks for charges at KSA. It is also of the opinion that the pricing model being used by Sydney
Airports Corporation requires some review before being used to set charges for 1999/2000 and
2000/2001. Of particular concern are of some of the principles relating to depreciation, rates of return
and the way in which costs are allocated to users of the airport.
1.17 With regard to the impact of charges at KSA on regional and rural communities, based on the
evidence before it, the Committee is of the view that access to KSA at an affordable rate is crucial to the
health of regional and rural communities and their economies. It is essential that community and regional
airline interests are represented and protected in any increases in charges at KSA.
1.18 The Committee found that seeking to exclude regional airlines from peak periods or from KSA
entirely overlooks the complex nature of air transport in Australia and its connections to the economy. In
addition to this neither Bankstown Airport or a Second Sydney Airport are suitable alternatives to KSA
for regional airlines and the communities they service. KSA is at the centre of a major transport network
that links regional and rural communities not just to Sydney but to domestic and global markets.
Interconnection to domestic and international flights, the need for business and those seeking medical
attention for timely and cost effective access to the Sydney CBD and the increase in costs surrounding a
movement away from KSA are all issues that make discrimination against regional airlines at KSA
potentially damaging to regional and rural economies.
1.19 Accordingly, the Committee makes the following recommendations concerning slot management
and pricing arrangements at Kingsford Smith Airport:
Recommendations
- The Commonwealth closely monitor movements of slots within and out of the pool of slots
“ring fenced” for regional airlines; including periodic examination of the reasons for
movement and any evidence that the distribution of slots is being manipulated by
operators to the detriment of services to regional communities. The Minister and Slot
Manager should take steps to address any trend toward reduction in regional access to
slots, particularly peak time and shoulder slots, at KSA.
- The Commonwealth consider rural and regional community representation on the Sydney
Airport Coordination Committee.
- The Minister ensure that the impact of current price changes on regional and rural
communities is assessed and taken into account when charges are set for 1999/2000 and
2000/2001. Further, it recommends that the social costs and issues of economic growth
and access to markets by rural and regional communities are assessed and taken into
account in setting future charges for regional airlines.
- The Ministers responsible take appropriate steps to ensure that Sydney Airports
Corporation review the model used for depreciation, taking into account the ACCC
comments and those of the industry.
- The Minister for Transport and Regional Services, along with Sydney Airports
Corporation, examine the potential for dedicated regional runway and other
infrastructure as an option for better serving regional communities and airlines and for
increasing capacity at KSA.
- The Minister ensure that negotiations undertaken with the airlines for price changes in
1999/2000 and 2000/2001 address the concerns raised by the airlines and the ACCC with
regard to the accuracy of assumptions in the Corporation's pricing model, in particular
those assumptions that may lead to high rates of return and high depreciation rates on
the new investment resulting in unnecessarily large price increases.
- The Minister also ensure that the most vulnerable parts of the industry, the regional
airlines, are represented in negotiations and that their interests are not neglected due to
size or scale of operations.
- The Minister and Senate take note of the key nature of KSA in the economy of NSW
and Australia. It is a major transport hub in a complex and interdependent air network
that includes regional and rural Australia. It considers that any discussion of the future of
KSA and Airports in the Sydney region should take this committee's findings into
account to protect the interests of regional and rural Australia.
Senator John Woodley
Chairman, References Committee
31 March 1999