Chapter Two
BACKGROUND: SETTING THE SCENE
Introduction
2.1 This chapter summarises the history of the introduction of Slot Management at Sydney Airport and
changes made to charges for landing at Kingsford Smith Airport. It also outlines attributes of both the
Slot Management Scheme and the pricing changes relevant to later discussion in this report.
Slot Management – Background
2.2 Like many airports in the world, faced with constraints on the number of aircraft that can land and be
accommodated at a given time or on a given day, a Slot Management system has been adopted at
Sydney Airport to manage the frequency of aircraft landings. The system is regulated by the Sydney
Airport Demand Management Act 1997, which was enacted by the Commonwealth on 17 November
1997. Under this Act, the Sydney Airport Slot Management Scheme was formally implemented on 29
March 1998.
Legislative Framework – Sydney Airport Demand Management Act 1997
2.3 The Sydney Airport Demand Management Act 1997:
Provides for the limitation of aircraft movements at Sydney Airport (otherwise than
during curfew periods).
Sets the maximum movement limit, and provides for monitoring of compliance with that
limit. The Slot Management Scheme, which provides for the allocation of slots permitting
aircraft movements, is required to be consistent within this limit [1]
2.4 The Act limits movement at Sydney Airport to a Maximum Movement Limit of 80 aircraft
movements per hour outside of the curfew period. The curfew is regulated by the Sydney Airport
Curfew Act 1995 and operates between 11 pm and 6 am. After consultation required by section 8 of
the Act, the Minister may determine a lower movement limit. Such a determination is in the form of a
statutory instrument and can be disallowed by either House of the Parliament.
2.5 The Act also provides for the establishment of a Compliance Scheme covering the circumstances in
which an aircraft movement is to be taken to be an “off slot” movement and under what circumstances
penalties for unauthorised aircraft movements will apply. Under the Act a Compliance Scheme
Committee was to develop a draft Compliance Scheme and present it to the Minister. The Minister has
the power to approve the draft compliance scheme. The minister also has the power to amend the
scheme. The Compliance Scheme was tabled in Parliament in June 1998 and came into effect on 25
October 1998.
2.6 The Act specifies that a Slot Management Scheme will be developed and implemented:
The basic purpose of the Scheme is to provide a system for the allocation of permissions
for aircraft movements at Sydney Airport, within the maximum movement limit. [2]
2.7 The Act requires a “Slot Manager” to be appointed to:
a) Develop, administer and amend the Slot Management Scheme. And
b) such other functions as are conferred on the slot manager by this Act, the regulations,
the Slot Management Scheme or the Compliance Scheme. [3]
2.8 The Minister has the power to appoint the Slot Manager, and approve the Slot Management
Scheme, subject to the Act.
2.9 Airservices Australia has responsibility for monitoring and reporting to the Minister on compliance
with the scheme.
Other issues affecting Slot Management at Kingsford Smith Airport
2.10 The capacity of Sydney Airport is influenced not only by a movement cap of 80 movements per
hour, but also by:
- The curfew, which allows only a limited amount and type of operation between 11pm and 6am.
This includes a small number of freight aircraft, propeller aircraft under 34,000kg and some jet
aircraft under 34,000kg that meet a specified noise standard, emergency operations and some
international jets between 5am and 6am.
- The Long Term Operating Plan imposes operating restrictions on runway use, with an emphasis on
sharing noise around by using all three runways. This plan is administered by Airservices Australia.
The main aims of the plan are:
a) Fairly share the noise across Sydney.
b) Give residents time off from flight operations – respite.
c) Direct as many flights as possible over water and non residential areas.
d) Wherever possible, not expose residents to noise from both landings and
departures.[4]
2.11 The Long Term Operating Plan impacts on the number of movements and hence slots that can be
used. In addition to the 80 movements rule, at the Minister for Transport and Regional Affairs request,
noise sharing modes that reduce capacity below 80 movements per hour are used during the times
6am-7am, 11am-3pm, 8pm to 11pm [5].
History of the Slot Management Scheme
2.12 In 1991 the Federal Airports Corporation (FAC) introduced a peak period surcharge of $250 [6]
for landings made during the peak times of 8am to 9am and 6pm to 7pm, as well as a shoulder surcharge
during the periods 7.30-7.59am, 9.01am-10.00am, 5pm-5.59pm and 7.01pm-7.30pm. The main aim
being to regulate airport demand using price and the consequent market forces as a regulating
mechanism. In their report on International Air Services, the Productivity Commission suggest that:
Despite some success, demand for peak hour slots remains high. Unsatisfied demand at
peak times suggests that the price differential between peak and off peak is insufficient to
spread demand to levels that Sydney Airport can accommodate… [7]
2.13 While originally remaining unchanged in early drafts of the new pricing regime, these surcharges
were removed after FAC's consultation with carriers. In evidence it was indicated by the FAC that the
peak time and shoulder surcharges were no longer required given the introduction of the Slot
Management Scheme. [8]
2.14 On the 24 March 1998, the Minister for Transport and Regional Development appointed Airports
Coordination Australia as Slot Manager. Airports Coordination Australia is a company jointly owned by
Qantas, Ansett, the Regional Airlines Association of Australia and Sydney Airport Corporation. The Slot
Manager is advised by the Sydney Airport Coordination Committee, a consultative body who's voting
membership is drawn from Australian carriers regularly using the Airport, Board of Airline
Representatives of Australia, the airport owner, and the International Airline Transport Association.
Representatives of the Department of Transport and Regional Development, Airservices Australia, AQIS
and Customs can attend but do not have a vote.
2.15 On 24 March 1998 the Minister for Transport and Regional Development determined the Slot
Management Scheme. The Scheme came into effect on the 29 March 1998, although, according to the
Department of Transport and Regional Development [9], the allocation of slots had been occurring for
some time.
Summary of the key relevant attributes of the Slot Management Scheme
2.16 Slots are allocated for a single “scheduling season”, where a season corresponds to northern
summer (March – October) and northern winter (October-March). Access to a slot is primarily based
on historical precedence:
(1)… an operator (other than a non-scheduled operator or a general aviation operator)
gains historical precedence to a slot if the operator operates an aircraft movement
using the slot. [10]
2.17 Some slots have been set aside for new entrants.
2.18 An operator must use the slot allocated to them for at least 80% of the time over a season or lose
the slot, subject to the Slot Management Scheme rules and exceptional circumstances. This includes
things beyond the operator's control such as emergencies, weather, and international relations.
2.19 Other controls on operation of a slot include:
- a series of priorities for allocating “vacant” slots to new and incumbent operators (section 22 and
23 of the Scheme). These include, for example, giving preference firstly to international, then
interstate and then regional operators, and considering larger aircraft over smaller aircraft.
- a “Size of aircraft test”, where an aircraft of the same size or larger, as proposed in the operators
application, be operated in the slot.
Permanent Regional Service Slots – the Regional Ring Fence
2.20 Special rules have been layed down in the Slot Management Scheme to maintain permanent
regional service slots, based initially on historical precedence (slot use in 1997) and allocation in the first
scheduling season of the scheme's operation. This arrangement is also known as the “regional ring fence”.
2.21 If an operator who has a Permanent Regional Service Slot does not apply for it, the slot manager is
required to offer the slot to other regional operators per the priorities given in the Scheme. Allowance has
been made for new entrants who wish to provide a regional service.
2.22 The rules of the Scheme do allow for an operator who is not a regional service operator to gain
historical precedence in a regional service slot under certain circumstances, if:
(a) it is allocated the slot for a service that is not a regional service for 2 consecutive
equivalent scheduling seasons; and
2.23 A Permanent Regional Service Slot can cease to be allocated to the regional ring fence if:
(a) it is allocated to an operator for a service that is not a regional service; and
(b) the operator actually operates the service using the slot. [12]
Aeronautical landing charges at Kingsford Smith Airport.
History
2.24 Between the establishment of the Federal Airports Commission (FAC) in 1988 and its abolition in
July 1998, aeronautical charges, such as landing fees, were governed by the principles of full cost
recovery for aviation facilities and services, and a “single till” approach that saw costs and consequently
charges spread across all 23 FAC operated airports. This, in general, saw cross subsidisation of airports
and services, where a surplus from one was used to balance under-recovery at another. [13]
2.25 In 1991 peak and shoulder charges where introduced at Kingsford Smith Airport to regulate the
volume of landing and takeoff via market forces. Peak landing periods include 8am-9am and 6pm-7pm,
and the shoulder period includes 7.30-7.59am, 9.01am-10.00am, 5pm-5.59pm and 7.01pm-7.30pm.
2.26 During 1997 and 1998 most of the 23 FAC operated airports where privatised, except for
Essendon, Kingsford Smith, Bankstown, Hoxton Park, and Camden Airports. These Airports were
corporatised as Sydney Airports Corporation from 1 July 1998 (Essendon is a subsidiary of Sydney
Airports Corporation). Sydney Airports Corporation now manages Kingsford Smith Airport.
2.27 Price increases at these corporatised airports are subject to surveillance by the Australian
Competition and Consumer Commission (ACCC). The privatised airports are subject to a price cap of
Consumer Price Index minus X, where X is a percentage of improved productivity set by the
Commonwealth Government.
2.28 Charges at Kingsford Smith Airport are set in accordance with the Federal Airports Corporation
Act and Government policy:
In practice, the single till approach is used. That is, income from non-aeronautical activity
is maximised, and aeronautical charges are set by residual calculation to achieve our
target profitability. The full involvement of the FAC board, the minister and the ACCC is
required before a new pricing determination can be made… [14]
2.29 Aeronautical charges include charges for facilities such as landing, takeoff and ground movement of
aircraft, terminal infrastructure and aprons and parking facilities for aircraft.
2.30 In February 1998 [15] the FAC advised the industry of proposed changes to aeronautical charges
at Sydney Airport and began consultation with them on the changes. It gave its objectives for the changes
as:
- The need to support a $700 Million capital improvement program;
- Removal of elements of cross-subsidisation between international and domestic aeronautical
services;
- Movement toward location and service specific charges;
- Establishment of a more “realistic” level of minimum aircraft landing charges.
2.31 The following changes were proposed:
- Reduction of the general landing charge from $5.72 per tonne to approximately $2.92 per tonne;
- An increase in the international terminal charge.
- An increase in the minimum landing charge from $27.50 per landing to $140 per landing.
While initially the peak and shoulder surcharge remained in the price structure, this was removed after
consultation and:
2.32 The FAC's changes to its pricing arrangements where proposed to cover 1998/99, 1999/2000 and
2000/2001 financial years.
2.33 As required by the Prices Surveillance Act 1983, on 29 May 1998, the FAC notified the ACCC
of its proposed changes to its aeronautical charges. In its “Statement for the public register on proposed
aeronautical charges at Sydney (Kingsford Smith) Airport” the ACCC stated:
The ACCC is not in a position to make a decision at this time regarding the proposals for
the second and third years for the reasons set out below. [17]
2.34 With regard to charges for 1999/2000 and 2000/2001, the ACCC reserved its decision. It
indicated that its legal advice was that the FAC could not notify changes on the Sydney Airports
Corporation's behalf and that Sydney Airport Corporation would have to re-notify proposed changes to
its charges. It also stated that:
Notwithstanding the legal concerns, the ACCC is of the view that there exist a number of
factors which would prevent it from forming a prudent decision at this point in time. [18]
These factors included:
- User concerns about the charges being unnecessarily high due to high rates of return and the
depreciation rates on new investment used in the calculations.
- Uncertainty about elements such as inflation, growth factors, depreciation and traffic volumes used
in forecasting the costs and the actual costs of the proposed capital investment program.
Current Arrangements
2.35 On 1 July 1998 the Minister for Transport and Regional Development announced changes to
charges at Sydney Airport [19], to take effect from 1 October 1998, including:
- the abolition of the peak surcharge,
- reduction in the originally proposed increased minimum landing charge of $140 to $100 (ie an
increase from $27.50 to $100),
- a rebate scheme for smaller operators,
- a decrease in general landing charges from $5.72 per tonne to $2.92 per tonne, and
- a rise in the international terminal charge from $2.48 per tonne to $7.92 per tonne.
Footnotes
[1] Sydney Airport Demand Management Act 1997: Section 4 p. 3.
[2] Sydney Airport Demand Management Act 1997: Section 33. p. 25.
[3] Sydney Airport Demand Management Act 1997: Section 60. p. 41.
[4] Submission Federal Airports Corporation p. 5.
[5] Submission Federal Airports Corporation p. 6.
[6] Submission Federal Airports Corporation Attachment A
[7] International Air Services Productivity Commission p. 159.
[8] Evidence Federal Airports Corporation p. 54.
[9] Correspondence Department of Transport and Regional Development
[10] Slot Management Scheme 1998 p. 11.
[11] Slot Management Scheme 1998 p. 13.
[12] Slot Management Scheme 1998 p. 13.
[13] Evidence Federal Airports Corporation p.
[14] Evidence Federal Airports Corporation p 53.
[15] Evidence Federal Airports Corporation p 53.
[16] Evidence Federal Airports Corporation p 53.
[17] Statement for the public register on proposed aeronautical charges at Sydney (Kingsford
Smith) Airport ACCC p. 1.
[18] Statement for the public register on proposed aeronautical charges at Sydney (Kingsford
Smith) Airport ACCC p. 3.
[19] Fair Deal for Regional Users of Sydney Airport News Release, Minister for Transport &
Regional Development T95/98.