Airways' Proposal to Introduce a Per Movement Charge at Hamilton and Tauranga Airports - February 2010
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Airways’ Proposal to Introduce a Per Movement
Charge at Hamilton and Tauranga Airports
February 2010
Copyright 2010 Airways Corporation of New Zealand Limited. All rights reservedTable of Contents
Proposal
Proposal……………………………….……………….…….…3
Consultation Timeline……………..…..……………….….…..3
Contact Details…………………………………………..……..3
Supporting Information
Background………………………………………..……………4
Basic Principles…………………………………………..…….5
Proposed Price
Hamilton……………………………………………….….....5
Tauranga……………………………………………....…….6
Financial Explanations……………………………….…….7
Terms & Conditions…………………………………….…..7
Alternative Charging Options…………………………….…...8
Why only aircraft 5 tonnes or less…………………………....8
Airways’ Service Level………………………………...………9
Airways’ Future Pricing Intentions
GA Contract/Tickets……………………………………….10
Location Specific Pricing……………………………….…10
Simplify Prices……………………………………………..10
Other Discounts……………………………………………11
Unattended Aerodromes………………………………….11
General Price Increase……………………………...…....11
Appendices
Intensive GA Cost Recovery Models………………...……..12
Movement Information…………………………………...…..15
2Airways’ Proposal to Introduce a Per Movement Charge at
Hamilton and Tauranga Airports
Proposal
Airways Corporation of New Zealand Ltd (Airways) proposes to introduce a new per
movement fee for all aircraft 5 tonnes and under at Hamilton and Tauranga Airports.
The proposed per movement fee is:
Hamilton Airport $6.10 per movement
Tauranga Airport $4.60 per movement.
The purpose of this new charge is to recover the incremental costs created by
training and GA flights which are essentially aircraft of 5 tonnes or less.
Consultation Process Timeline
• Closing date to request additional information 19 March, 2010
• Deadline for Submission (Includes option to
propose an alternative pricing structure) 16 April, 2010
• Airways’ Decision 11 May, 2010
• Publication of Changes (if any) 29 May, 2010
• Implementation (if proceeds) 1 July, 2010
To make a submission or enquire about this proposal, please write to
Hamilton and Tauranga per movement charge
Airways Corporation of New Zealand
100 Willis St,
PO Box 294
Wellington, 6140
Alternatively you can email: Submissions@airways.co.nz.
3Supporting Information
Background
In 2007 Airways formed an industry consultation group to consider pricing structure
issues. Resulting from this work an “Intensive GA pricing group” was formed which
comprised industry representatives from airlines, GA Training and the AIA. The
purpose of this group was to consider recovery of Airways’ costs where increased
resources were required at a location driven by activity above Airways’ standard
‘baseline’.
Where increased resources and costs are driven by increased airline activity, it is
appropriate that these are recovered from the airline operators. However, where the
increased resources are required to manage extra demand created at a location by
GA activities, the costs should be recovered from GA operators. This is the situation
the Intensive GA group was formed to consider and recommend a model for future
use. (See Appendix A)
Airways has begun to review locations where additional resources above its
standard baseline are required, and to identify what is driving this requirement. At
Hamilton and Tauranga Airports, Airways has identified that GA and training flights
are creating the need for additional resources. The minimum number of staff
required to cover standard hours at a regional tower is four. Gisborne, Rotorua and
New Plymouth are examples of aerodromes that require four staff to meet service
level requirements. Presently Airways requires eight Full Time Equivalents (FTEs)1
at Hamilton Airport and six FTEs at Tauranga Airport to meet its service level
requirements. Airways has identified at Hamilton Airport that four of these FTEs are
required to cater for the demand created by GA and Training flights. At Tauranga
Airport two of these FTEs are required to cater for GA and Training flights. (See
Appendix B for location movement comparisons)
The increasing costs created by GA and training flights, and the fact that Airways is
not recovering its costs with its current pricing structure, have become a particular
1 Excludes after hours FTEs funded under a separate contract
4concern to the airline industry. It is difficult to justify the continued practice of cross
subsidisation and the airlines have requested Airways to adjust its pricing to avoid
them subsidising GA/training flights.
Basic Principles
The customer group responsible for the costs should pay for the costs.
Presently the requirement for air traffic services, in particular an aerodrome control
service, is being driven by IFR traffic. Thus, the IFR traffic should be responsible for
paying the bulk of the costs. When the capacity purchased by IFR traffic exceeds
their requirements, the excess capacity is provided to VFR/training customers at a
price below average cost.
Since IFR traffic (airlines) are paying for the bulk of the basic capacity of a tower (4
staff), IFR traffic has first right of capacity. When demand exceeds capacity, the
extra incremental cost should be paid by customers who are creating the need for
that extra capacity.
Proposed Price
Hamilton Airport Financial Calculation
Airways calculates it could reduce its staff level by four full time equivalents (FTE) at
Hamilton Airport if there were no VFR or training flights at this location. Thus, the
VFR/training flights are responsible for an incremental cost equivalent to four FTEs.
Remuneration related costs ($)
Salary 62,282
Allowance in Lieu 18,130
Superannuation 8,845
Other allowances 11,656
Total remuneration related costs 100,914
Other headcount related costs ($)
Other labour costs 1,489
Transport 748
Total other headcount related costs 2,236
Annual incremental cost per FTE ($) 103,150
5Incremental FTEs 4
Total Incremental Cost ($) 412,600
Under 5 tonne Movements 68,080
Incremental costs per movement $6.06
Airways proposes a $6.10 per movement fee for aircraft of 5 tonnes or less at
Hamilton Airport to recover this incremental cost.
Tauranga Airport Financial Calculation
Airways calculates it could reduce its staff level by two FTEs at Tauranga Airport if
there were no VFR or training flights at this location. Thus, the VFR/training flights
are responsible for an incremental cost equivalent to two FTEs.
Remuneration related costs ($)
Salary 62,282
Allowance in Lieu 17,825
Superannuation 8,812
Other allowances 11,325
Total remuneration related costs 100,244
Other headcount related costs ($)
Other labour costs 1,015
Transport 1,122
Total other headcount related costs 2,137
Annual incremental cost per FTE ($) 102,381
Incremental FTEs 2
Total Incremental Cost ($) 204,762
Under 5 tonne Movements 44,475
Incremental costs per movement $4.60
Airways proposes a $4.60 per movement fee for aircraft of 5 tonnes or less at
Tauranga Airport to recover this incremental cost.
6Financial Explanations
Salary: Based on an average of first and second year regional controllers.
Allowance in Lieu: A salary component on top of the base salary. It is
compensation for scheduled shift work outside of normal business hours (payable
pursuant to a provision in Airways’ collective employment agreement). Amount will
vary from tower to tower and is based on a formula that compares hours outside
normal business versus normal business hours.
Superannuation: Payments made by Airways to the air traffic controller’s
superannuation fund.
Other allowances: The average additional allowance the air traffic controllers (at
the relevant location) receive that are not covered by the AIL payment. There are
several of these allowances but the major ones are:
• Recalls: Payments to employees who get recalled to work outside their
scheduled shift (for example to fill in for an employee who is sick).
• Overtime and extended duties: Payment for employees who work past their
scheduled hours (for example to cover for a sick employee until a recall
arrives or when held over to keep a tower open because a scheduled flight is
running late).
• Statutory Holiday: If their shift falls on a statutory holiday the ATCs will
receive an extra payment in accordance with the Holidays Act.
• Training: An ATC will receive extra payment if they provide on the job training
(referred to as an OJTI Allowance) to another ATC or a Trainee.
Other labour costs: The average non-payroll costs that an employee will incur at the
relevant location, for example; course fees, medical expenses, and staff welfare.
Transport: The average travel, accommodation and meal costs associated with an
employee’s on-going training requirements (at the relevant location).
Terms & Conditions
The above proposed charges would apply to all landings (as defined in Airways’
published Standard Terms & Conditions for the Provision of Airways Services (the
Standard Terms)):
“Definition of “Landing”
For charging purposes, landing includes:
7• all landings made within the aerodrome boundary fence in respect of each
aerodrome, if aerodrome control or flight information services are available;
• missed approach;
• approach training with no landing intended;
• touch and go;
• overshoot;
• stop and go; and
• go around.”
These fees would apply to all aircraft including agriculture aircraft, vintage aircraft,
gliders and their tow planes. This charge would not be eligible to be included into
any GA contracts or ticket system and will be billed separately from any GA
contracts.
This charge would be in addition to Airways’ present aerodrome service charge as
stated in the Standard Terms.
Alternative Charging Option
As stated in the “Intensive GA cost recovery model”, the local users of each location
have the option to propose to Airways an alternative charging method that would
recover the incremental cost. The deadline for submission of any proposed
alternative charging method is 16 April, 2010. Airways will consider any proposed
alternative charging method but is not bound to accept it and retains the right to
proceed with its original proposal. Amongst factors, but not all inclusive, that
Airways will consider for any proposed alternative charging method are likelihood of
recovering incremental cost and practicality of billing it.
Why only Aircraft of 5 tonnes or less
Airways’ present pricing structure imposes a significant difference in price between
an aerodrome service for aircraft of 5 tonnes or less versus aircraft over 5 tonne.
Price Comparison (examples)
Current Hamilton aerodrome service charge (calculated as per the Standard
Terms):
8MCTOW Price
5001 Kgs $28.76
5000 Kgs $12.00
1750 Kgs 2 $6.75
Current Tauranga aerodrome service charge (calculated as per the Standard
Terms):
MCTOW Price
5001 Kgs $56.66
5000 Kgs $12.00
1750 Kgs $6.75
Presently aircraft over 5 tonnes are making a significantly larger contribution to
recovering Airways’ cost than aircraft weighing 5 tonnes or less.
Aerodrome service charge + per movement charge for 5 tonne aircraft (VFR)
Hamilton: $12.00 + $6.10 = $18.10 (5001 tonne = $28.76)
Tauranga: $12.00 + $4.60 = $16.60 (5001 tonne = $56.66)
Even after the per movement charge is applied, Aircraft weighing more than 5
tonnes will be paying a significantly higher total charge (over 55%) per landing than
aircraft under 5 tonne. Thus, Airways proposes the fairest solution is to apply this
charge to aircraft of 5 tonnes or less.
Airways’ Service Level
The aerodrome operator is responsible for ensuring that an appropriate Air Traffic
Service is provided at the airport (Civil Aviation Rule Part 139). Airways provides
the Aerodrome Control Service to the specification required by Civil Aviation Rule
Part 172. Under the CAA approved Exposition to the Rule Part, Airways manages
an internal audit and operational review programme which provides assurance that
the service is compliant with the Rule and the Exposition. At these locations
Airways is also subject to routine independent CAA Audit. During 2009, the audits
at Tauranga and Hamilton confirmed that Airways’ service level was appropriate
2The aerodrome service charge for aircraft weighing 681-1999 Kgs at Hamilton and
Tauranga is $6.75.
9and in compliance, and no Findings Notices relating to the service level were
issued. Any reduction of the service level currently provided at these locations
would require a change to the CAA Rules.
Airways’ Future Pricing Intentions
Airways is reviewing several aspects of its pricing structure and is considering
making the following pricing changes over the next two to three years. If Airways
pursues any of the initiatives listed below, it will enter into a consultation process
before deciding whether or not to proceed with the pricing change initiative.
GA Contracts/Ticket
Airways is considering discontinuing the GA contract system. Airways plans to
continue with the GA ticket system but may review its long term viability in 2011.
Location Specific Pricing
Airways will be reviewing its location specific pricing. This may lead to a
rebalancing of prices between locations/services. This rebalancing could occur by
price increases occurring at some locations/services offset by price decreases at
other locations/services; or prices changing at different rates at different locations in
future pricing changes. This pricing initiative will be revenue neutral to Airways.
Airways plans to start this review in early 2010.
Simplify Prices (and weight groups)
Airways will investigate options to simplify its pricing structure as a result of
recommendations stemming from an industry pricing working group involving
representatives from all parts of industry. The intention is to remove the IFR factor
and reduce the number of weight classifications from the present six to four.
This analysis is likely to begin late 2010.
10Other Discounts
Airways will be reviewing the discounts it currently provides agricultural, gliders, and
glider tow planes.
Unattended Aerodromes
Airways’ assets at several unattended aerodromes are nearing the end of their
useful life. Recovering the cost of replacing these assets, may lead to significant
price increases at these locations. Thus, before replacing these assets, Airways
plans to establish a working group with the local stakeholders to establish the
service level required and the appropriate price. This is likely to begin in
March/April, 2010
General Price Increase
Airways is presently consulting in regards to a general price increase for its core
services. A proposal for the General Price increase can be found on Airways’
website. www.airways.co.nz.
11APPENDIX A: Intensive GA Cost Recovery Models
Background
Historically, it has been accepted by a significant portion of the aviation industry that VFR flights and
training organisations should make a contribution to Airways revenue but in general this contribution
has not matched the costs incurred by Airways in providing the services. The rationale for this
approach was that VFR flights were not the main beneficiaries of ANS and were not the primary
driver of costs. The view on training has been that many of the pilots being trained would eventually
be employed by airlines operating in New Zealand. Thus, the airlines were benefiting from the
training and it was accepted that the airlines subsidised the air navigation services provided to
training organisations.
This view was a pragmatic solution to the particular set of circumstances at the time. However with
the intensification of general aviation operations and for other business reasons this position has
changed.
The cost implications of the introduction and potential introduction of more large commercial general
aviation organisations under the current pricing structure is of particular concern to the airline
industry. The present pricing structure does not allow Airways to recover the additional costs from
these large commercial organisations. It is difficult to justify the continued practice of cross
subsidisation. There is also the issue of growth overtime that requires increased infrastructure and
cost (not driven by a specific event or organisation). This scenario also needed to be considered in
any proposed model.
Thus, the Pricing Structure Work Group (PSWG) recommended the establishment of the Intensive
GA Working Group to look at the most practical operational and pricing solution, that could be put in
place by Airways (in conjunction with aviation industry representatives) to address the existing
problems. The composition of the work group consisted of both Industry and Airways staff.
The working group developed two different cost recovery models.
The first model, Excess Demand Model, will be used when demand from VFR/training flights
requires Airways to add additional resources to meet this demand.
The second model, Extended Hours Model, will be used when VFR/training flights require Airways
to extend its hours of service.
Basic Principles
Whatever customer group is responsible for the costs should pay for the costs.
Presently the requirement for air traffic services in particular a tower service is being driven by IFR
traffic. Thus, the IFR traffic should be responsible to pay for the bulk of the tower costs. When the
capacity purchased by IFR traffic exceeds their requirements, the excess capacity is provided to
VFR/training customers at a price below average cost.
Since IFR traffic (airlines) is paying for the bulk of the basic capacity of a tower (4 staff people), IFR
traffic has first right of capacity. When demand exceeds capacity, the extra incremental cost should
be paid by customers who are creating the need for the extra capacity.
Excess Demand Pricing Model
This model will be applied on a location by location basis where VFR and or training flights are
creating incremental costs. The objective of this pricing model is to recover these incremental costs.
The minimum number of staff at tower location is four people. Thus, this model will not apply at
towers staffed with four people. At towers with more than four staff, Airways will need to determine
which customer group is responsible for creating the incremental costs.
Step 1: Before Airways introduces a charge to recover the cost of additional resources, Airways will
review the requirement for the services and/or the service level being providing. Airways will consult
12with the users and the CAA extensively during this review. Airways will seek to find ways to avoid
adding the additional resources. Thus, avoid the need for a new charge. Only after this exercise has
been completed will Airways proceed to establish a new charge by the method outlined below.
Step 2: Calculate the incremental cost created by VFR/ training flights.
Step 3: Divide the incremental cost by the number VFR/training flight movements to calculate a per
movement charge to add to VFR/training flights.
Step 4: Airways will present the new charges to the local users and give them the option to develop
an alternative pricing structure. The new structure would need to recover the incremental cost and
be pragmatic to implement. Airways has the option to veto any proposed pricing system if Airways
feels the proposed pricing structure would not recover the incremental costs or would be too difficult
to implement.
Example:
Due to the increase in traffic levels at location A, Airways is required to add two additional staff at a
cost of $150k at location A’s tower to maintain the same service and safety levels. Airways
determines that these two additional staff would not be required if there was no VFR nor training
flights at location A. Thus, the incremental cost for VFR and training flights is $150k.
Step 1:
Airways works with the local users to determine if there is another way to provide the service without
the requirement of adding two staff or determine if there is the opportunity to reduce service levels to
prevent the requirement of the additional staff. For example the local users may agree to train at
only certain times, thus preventing the requirement of the additional staff. If this cannot be achieved,
Airways proceeds to introduce a new charge that will recover the incremental cost.
Step 2 & 3:
There are 50,000 VFR/training movements per year at location A, a $3 per movement charge is
calculated. One movement is a landing or a touch and go. The new charges would be:
• Fixed Portion of aerodrome charge for aircraft under 5 tonne would increase from 6.50 per
landing to $9.50 per landing.
• Agricultural aircraft charge would increase from $2.75 per landing to $5.75 per landing.
• Training flight charge would be $9.50 for the 1st movement and $3.00 per additional circuit.
Presently they are charged $6.50 for unlimited amount of circuits.
Step 4:
The users of location A would be presented with the proposed new prices. The local users would
have the option to propose an alternative pricing structure that would recover the incremental costs.
If the users are able to agree on an alternative pricing system that is acceptable to Airways, this
alternative pricing system will be implemented. If they are not able to agree on an alternative pricing
system that is acceptable to Airways, the pricing structure Airways has proposed will be
implemented.
Radar sectors
This model will also be applied to radar sectors when IFR training flights create incremental costs.
13Extended Hours Model
This model will be used when the requirement for additional resources is driven by the need to
extend tower hours.
Step 1: Attempt to find an alternative method to avoid the need for additional resources.
Step 2: Calculate the incremental cost created by the requirement for extended hours
Step 3: Divide the incremental cost by the number of movements occurring during the extended
hours to calculate a per movement cost. This per movement cost will be applied to all traffic that flies
during the extended hours.
Step 4: Airways will present the new charges to the local users and give them the option to develop
an alternative pricing structure. The new structure would need to recover the incremental cost and
be pragmatic to implement. Airways has the option to veto any proposed pricing system if Airways
feels the proposed pricing structure would not recover the incremental costs or would be too difficult
to implement.
Example:
Because of night training flights and night IFR operations, Airways is required to extend its tower
hours from 8:00 pm to 10:30 pm.
Step 1:
The local users see if they can find a way to reduce the number of flights between 8:00 and 10:30 to
prevent the need for extended tower hours.
If this cannot be achieved, Airways proceeds to introduce a new charge that will recover the
incremental cost.
Step 2:
Airways calculates the incremental cost to extend the hours from 8:00 pm to 10:30 pm is $150k.
Step 3:
There are 30,000 movements per annum during the hours of 8:00 pm to 10:30 pm. The per
movement incremental cost is $5.00.
Thus all flights will receive an after hour $5.00 surcharge per movement during the hours of 8:00 to
10:30 as well as the standard charges.
Step 4:
The users of location A would be presented with the proposed new prices. The local users would
have the option to propose an alternative pricing structure that would recover the incremental costs.
If the users are able to agree on an alternative pricing system that is acceptable to Airways, this
alternative pricing system will be implemented. If they are not able to agree on an alternative pricing
system, the pricing structure Airways has proposed will be implemented.
The application of the model(s) would be reviewed on a regular basis (e.g. every two years)
depending on the level of activity.
Conclusion
The Intensive GA working group which consists of both industry representatives and Airways staff
have agreed in principal that Airways should recover incremental costs at any location from
operators responsible for creating the additional workload. This is a significant step forward as it
recognizes the additional cost Airways have incurred in order to maintain normal services at some
locations such as Hamilton.
The work group has developed two different cost recovery models depending on the circumstances
that are creating the additional costs. The Excess Demand Model will be used when demand from
VFR and/or training flights requires Airways to add additional resources to meet this demand. The
Extended Hours Model will be used when activity is such that Airways is required to extend the hours
of service at a location.
14APPENDIX B
Arrival Movements by Location (2009 calendar year)
Location under 5,000 kgs over 5,000 kgs Total
Hamilton 68,080 5,694 73,774
Tauranga 44,475 4,328 48,803
Dunedin 20,665 6,001 26,666
New Plymouth 14,979 6,787 21,766
Gisborne 7,864 4,208 12,072
Rotorua 6,463 4,057 10,520
Napier 6,189 6,054 12,243
Woodbourne 4,747 7,135 11,882
Scheduled Arrival Movements by Location (2009 calendar year)
Location Movement Operational ATCs required for all traffic (FTE)
Hamilton 6,241 8 (excludes after hours
FTEs funded under a
separate contract)
Tauranga 4,438 6
Dunedin 6,139 4
New Plymouth 4,130 4
Gisborne 5,157 4
Rotorua 4,218 4
Napier 6,393 4
Woodbourne 8,222 4
Notes:
Operational ATCs (FTE):
The number of full time equivalent ATCs required to run the roster at the Tower. For
every shift required it is necessary to employ a minimum of two ATCs. Most Towers
require 2 shifts per day (one morning and one afternoon).
Hamilton:
Four additional ATCs are specifically required as a result of additional activity levels.
The roster allows for two ATCs to provide ATC services at any one time and this is
appropriate given the work load which is experienced at Hamilton.
Tauranga:
Two ATCs are specifically required as a result of additional activity levels. The
roster allows for two ATCs to provide ATC services during the peak traffic times of
the day and this is appropriate given the work load which is experienced at
Tauranga.
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