The ACCC has concluded that Airservices Australia's proposed Part VIIA price increases for air services such as air traffic control are too high and would cause Airservices to over-recover its costs by $35 million over 5 years. Specifically, the ACCC stated that it considered the rate of return on capital (WACC) proposed by Airservices was too high.
In July 2011, the ACCC issued a view on a draft proposal by Airservices in which the ACCC raised three main concerns:
- prudency of capital expenditure
- drivers of efficiency, and
- rate of return on capital.
The ACCC noted that if Airservices addressed these matters in its formal price notification, the ACCC would not object to the related price increases.
On 22 August 2011, Airservices submitted a formal price notification to the ACCC. Airservices proposed to increase prices for terminal navigation and aviation rescue and fire-fighting services over the next five years.
The ACCC was prepared to accept the methodology for determining rate of return that Airservices used for its 2004-05 pricing proposal. This methodology has been applied successfully in the past. However, Airservices proposed to change one of its parameters used to estimate its rate of return. It is this amendment that forms the basis for the ACCC's objection. The ACCC considers that it is not appropriate to alter one rate of return parameter without conducting a full review of all the parameters.
The ACCC has provided guidance to Airservices on what it considers to be a rate of return that is consistent with its previous price notification.
On 9 September, the day after the ACCC issued its decision rejecting the proposed price increases, Airservices submitted a further price notification with revisions to address the ACCC's concerns in relation to the rate of return.
The ACCC decided to not object to this revised proposal as the lower prices of the new proposal would not lead to an over-recovery of costs.
Airservices is now free to implement these revised prices as planned on 1 October 2011.