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:
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 2011-2015 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:
|Regional (Botswana, Lesotho, Namibia and Swaziland)||R239,00|
What is ‘airport tax’?
The term ‘airport taxes’ is often used for all charges, costs and taxes recovered through the air ticket, thus creating an impression that ‘airport taxes’ accrue to Airports Company South Africa. The passenger service charges are but one of the charges collected through the air ticket. These charges are required by National Treasury to be split between taxes, regulated charges, non-regulated charges and airline costs.
- Value added tax
- International departure tax
- Airports Company South Africa passenger service charge
- SA Civil Aviation Authority safety charge
- Air Traffic and Navigation Services charge
- ACS passenger charge (ACS is a company owned jointly by the airline associations)
*Fuel surcharge is the biggest component of the ‘airport taxes’.
Airports Company South Africa subscribes and provides data for annual benchmarking studies on airport charges. In the most recent publication of now LeighFisher, Review of Airport Charges: 2011, Airports Company South Africa charges were benchmarked as 24th most expensive out of the top 50 airports included in the study. Differently stated, Airports Company South Africa was rated as the 26th cheapest.
GDP growth as the driver for traffic volume growth
The airline industry often states that airport tariffs have a material negative impact on traffic volume growth. There is no empirical evidence for such statements. Studies have shown that airport tariffs have very limited impact, if any, on traffic volume growth. This is primarily because as a proportion of overall airline operating costs, airport tariffs are miniscule.
What are the different categories of Airports Company South Africa tariffs?
Airports Company South Africa charges users for the use of its facilities, in accordance with these regulatory provisions. The categories of airport charges are:
Landing fees vary according to the origin of the aircraft and the aircraft weight, and fall into three categories, namely: domestic, regional and international.
For aircraft parking fees, the combination of the weight of the aircraft and the duration parked (to the extent that it exceeds four hours) and the parking stand utilised are considered in determining the parking charges.
Passenger Service Charges (PSC) are charged on departures only, categorised into domestic, regional and international.