Commonwealth Numbered Regulations - Explanatory Statements

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AIRPORTS REGULATIONS (AMENDMENT) 1997 NO. 367

EXPLANATORY STATEMENT

Statutory Rules 1997 No. 367

Issued by the Authority of the Minister for Transport and Regional Development

Airports Act 1996

Airports Regulations (Amendment)

Section 252 of the Airports Act 1996 (the Act) provides that the Governor-General may make regulations prescribing matters that are required or permitted by the Act to be prescribed, or that are necessary or convenient to be prescribed for carrying out or giving effect to the Act.

Section 141 of the Act provides for regulations to specify the accounts and statements which airport-operator companies must prepare for each financial year.

Section 153 of the Act provides for regulations to specify performance indicators, or methods of ascertaining performance indicators, for the purposes of monitoring and evaluating the quality of airport services and facilities.

Section 156 provides for regulations to specify information to be provided to the

Australian Competition and Consumer Commission (ACCC) that is relevant to a quality of service matter and to keep records which are relevant to such matters. Section 156 also provides for regulations to require quality of service information to be verified by statutory declaration and for powers to be conferred on the ACCC for the purposes of record-keeping and the giving of information which is relevant to quality of service matters.

The purpose of the proposed regulations is put in place a quality of service monitoring regime for the specified airports.

The Regulations amends the Airports Regulations to:

*       ensure that aircraft operators and airport-operators keep records (Regulation 8.02) for matters specified in the regulations, such as records of the date, time of day and period for which parking is not available for an aircraft, and give copies of those records to the ACCC (Regulation 8.03); and

*       put in place a range of performance indicators to measure the quality of the services provided at an airport (Regulation 8.01).

Details of the schedules appear in Attachment A. The Regulation Impact Statement appears at Attachment B.

The Regulations commence, on the date of gazettal.

ATTACHMENT A

Regulation 1.1: provides that the Airports Regulations are amended.

Regulation 2: provides for a simplification of the airport operator's account keeping requirements by specifying which parts of the accounts require separation into aeronautical and non-aeronautical services. For example, the profit and loss account excludes interest, tax and allocations of profit.

Regulation 3: provides for the insertion of a new Part 8, after Part 7, into the Regulations.

Regulation 4: provides for new Schedules 2 and 3, set out in Schedule 2 of the Regulations, to be added to the end of the Airports Regulations.

Schedule 1

Part 8-Quality of Service Monitoring

Performance indicators

Proposed Regulation 8.01: specifies a range of performance indicators for Melbourne, Brisbane and Perth airports as described in Schedule 2 for the purposes of section 153 of the Act.

Keeping records and giving information to the ACCC

Proposed Regulation 8.02: provides that an airport operator company must keep a record of each matter specified in Schedule 3; that they are kept for five years and that the regulation extends to providers to the airport operator company of records specified in Schedule 3.

Proposed Regulation 8.03: provides that where a record is kept under Regulation 8.02, it must be supplied to the ACCC within 1 month of the end of the financial year.

In addition the regulation provides that where a survey about a performance indicator is undertaken, it must be provided to the ACCC within 1 month of the end of the financial year in which it was carried out.

Schedule 2 - New Schedules 2 and 3

Schedule 2-Performance indicators

Part 1 identifies a range of performance indicators to measure quality of service in relation to:

*       runway, taxiway and apron systems (eg average aircraft movements per half hour during the 30 busiest half hours in a month);

*       gates;

*       aircraft parking;

*       aerobridges;

*       ground service equipment;

*       freight facilities;

*       check in facilities;

*       government inspection (eg the percentage of time where more than 95% of desks are in use); security clearance;

*       gate lounges;

*       baggage systems;

*       baggage trolleys;

*       flight information display;

*       signage; washrooms;

*       car parking; and

*       airport access.

Schedule 3-Matters About Which Airport-operator Companies Must Keep Records

This schedule sets out the matters for which airport-operator companies, and providers of services under an agreement with airport-operator companies, must keep records.

Schedule 3 does not set out the matters for which other Government agencies (eg Airservices Australia) must keep records, as such records will be given to the ACCC under separate arrangements.

ATTACHMENT B

REGULATION IMPACT STATEMENT: PROPOSED REGULATIONS UNDER THE AIRPORTS ACT 1996, PART 8 (QUALITY OF SERVICE MONITORING AND REPORTING)

1.       Identification of issues

A.       Background

The proposed regulations are designed to complete the legislative framework for the monitoring of quality of service of leased Federal airports. The primary objective of the quality of service monitoring regime is to complement the airport prices oversight arrangements which have been established by Ministerial direction under the Prices Surveillance Act 1983. Other objectives are to assist in the assessment by the Australian Competition and Consumer Commission (ACCC) of the airport operator's market conduct and to provide extra information on airport performance to airport users and the Government.

Part 8 of the Airports Act has established the broad legal framework for quality of service monitoring. Part 8 provides for:

*       regulations to be made specifying performance indicators to be used in monitoring and evaluating quality of service;

*        the ACCC to have the monitoring function;

*       regulations to be made requiring quality of service information to be given to the ACCC; and

*        the ACCC to publish reports about airport quality of service.

After extensive research into the international experience in monitoring airport quality of service, and extensive consultation with key representatives of the Australian aviation industry (including the airport operators), the ACCC has developed a comprehensive range of performance indicators to use in monitoring trends in the quality of service of individual airports. The performance indicators are designed to measure the capacity utilisation of airport facilities and various aspects of the comfort, convenience and general satisfaction of airport users. These performance indicators have been incorporated into the proposed regulations.

The current set of performance indicators will be applied to the Federal airports already leased, ie Melbourne, Brisbane and Perth. The Commonwealth Government is currently considering the extent to which these performance indicators should be applied to the 8 additional "core regulated" Federal airports scheduled to be leased by 30 June 1998.

B.       Issues

To ensure that airport operators do not misuse their monopoly position at airports and that the aeronautical industry captures the benefits of previous investment by the Commonwealth Government at the newly privatised airports the Government has applied a CPI-X cap on aeronautical charges at the leased airports. This cap will be monitored by the ACCC and will operate for five years. It will result in significant decreases in aeronautical prices over the five years.

While the Government has now established arrangements for the prices oversight of leased airports, the success of these arrangements relies on the complementary implementation of a quality of service monitoring regime.

The services provided at Federal airports are a significant part of the national economy. In the 1995/96 financial year, the total revenue from the 22 Federal airports amounted to $579.3 million, and steady growth in this revenue is forecast. Without monitoring of quality of services it would be possible for airport operators to reduce the quality of aeronautical services provided to compensate the airport operator for the reduction in aeronautical charges associated with the CPI-X cap.

2.       Objectives of regulation

The primary objective of the proposed regulations is to establish a quality of service monitoring regime which will complement the established prices oversight arrangements for Federal airports. It is intended that the regime will do this by:

*       discouraging the airport operator from extracting monopoly rents by reducing the quality of airport services; and

*       providing extra information which will help assess the prices oversight regime.

3.       Identification of options

The three possible options for monitoring quality of service are:

(i)       to use the proposed performance indicators;

(ii)       not to monitor quality of service; or

(iii)        to monitor quality of service using different performance indicators.

The ACCC has developed the performance indicators after extensive research and consultation. It has the mandate for prices oversight and quality of service monitoring, and there is no other authority with more expertise or authority to suggest a different set of performance indicators. The industry, in particular the airport operators, have provided significant input into the indicators and it is therefore safe to assume that the indicators, as developed, are appropriate for the purpose of monitoring quality of service.

The following section therefore assesses only Options (i) and (ii).

4.       Assessment of options

(i)       To monitor quality of service using the proposed performance indicators

Benefits

The proposed quality of service monitoring regime will discourage airport operators from reducing their quality of service.

If prices oversight were to be carried out without quality of service monitoring, there would be an incentive for the airport operators to take advantage of their market power, particularly in domestic markets, to maximise their profits by reducing the quality of airport services. This could be done by failing to maintain facilities at their current standards or failing to expand facilities to meet growing demand. The experience with privatised airports overseas, which are subject to price controls but not quality of service regulation, confirms the incentive to reduce the quality of service.

Costs

This option would impose compliance costs on the airport operator. ' However these costs would not be large, as much of the data collection will be carried out by other Government agencies (eg Australian Customs Service and Airservices Australia) at no cost to the airport operators. In addition much of the information collected (such as the customer perception survey data) will be of value to the airport operator and would have been collected regardless of the regulatory requirement to do so.

Net impact

We consider that the benefits are likely to be significantly greater than the costs, resulting in a net benefit.

(ii)       Not to monitor quality of service

Benefits

The option offers some benefits in that the airport operator would not have any compliance costs. However, as indicated above, this benefit would not be large, as much of the data collection will be carried out by other Government agencies or will be of benefit to the airport operator who would probably undertake much of the collection of data anyway.

Costs

As mentioned above, there would be an incentive for the airport operators to take advantage of their market power by reducing the quality of airport services. The costs of lower service quality would be borne by all users of airport services, including the airlines and air freight companies.

Net impact

We consider that the potential cost of reduced quality of service in the absence of monitoring is likely to be significantly greater than the benefits from reducing the airport operator's compliance costs. This option is therefore likely to result in a net cost.

5.       Consultation

The main parties to be affected by the proposed quality of service monitoring are the companies operating the leased Federal airports and the airlines.

The airport operators been consulted on the pro posed regulatory regime at two stages. Firstly, information on the proposed regulatory regime, including quality of service monitoring, was made available to them before they submitted their final bids for the airports. Secondly, officials from the Department of Transport and Regional Development (DoTRD) and the ACCC consulted the new airport operators a short time after their leases had commenced on the proposed quality of service monitoring regime.

The major airlines were also consulted and supported a more extensive monitoring regime but this was considered by DoTRD and the ACCC to be unnecessary and too onerous on the airport operators. It is the airport operators who will be most affected by quality of service monitoring, including bearing the costs of monitoring.

Consultation on quality of service regulation of the Federal airports which are yet to be leased will be undertaken during bidding for these airports, when information on the regulatory regime will be made available to bidders.

6.       Conclusion and recommended option

Option (i) is assessed to have net benefits, while Option (ii) is assessed to have a net cost. This assessment rests on two assumptions:

1.       that the airport operators could, in the absence of quality of service monitoring, take advantage of their market power to maximise their profits by reducing the quality of airport services; and

2.       that the benefits from quality of service monitoring exceed its costs.

The preferred option is consistent with the Government's established prices oversight regime and with Part 8 of the Airports Act. Any alternative option would be inconsistent with both the prices oversight regime and the Airports Act.

7.       Implementation and review

Part 8 of the Airports Act and the proposed regulations under it provide for the airport operators and persons under agreements with them to provide information on quality of service matters to the ACCC. The Act provides for penalties for failing to provide such information. The ACCC will not be taking on extra resources for this monitoring function.

The ACCC will monitor the information for trends in the quality of services at each airport. It will publish the results of its monitoring and will also take the results of monitoring into consideration when it reviews the prices oversight regime in the fifth year of its application.

The airport operators will be required to bear the costs of collecting data. However because they will also have control over the data collection, they will have the incentive to minimise costs and the regulatory regime allows them the flexibility to do so.

The above mentioned five year. review is expected to examine options for future arrangements for both prices oversight and quality of service monitoring.


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