Perth Airport and Qantas claim victory over charges

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February 18, 2022
Perth airport
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In a landmark decision in the long-running and complex battle over airport charges and asset valuations between Qantas and Perth Airport in the WA Supreme Court, his Honour Justice Rene le Miere has found broadly in favor of Perth Airport although Qantas is also claiming a victory.

Justice le Miere found that the per passenger prices for terminal services and airfield services for fair and reasonable remuneration for Perth Airport Pty Ltd are as follows; for the following aeronautical services, airfield domestic and international $5.383 per passenger, for international passenger services at T1 and T3 $9.336 for domestic passenger services at T3 $8.436.

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The pricing is more in line with Perth Airport’s submission, although the T3 domestic number is more in line with the Qantas position on the depreciation valuation for that terminal.

The dispute between Qantas and Perth Airport started in July 2018 after the two failed to reach an agreement on a new pricing regime.

Perth Airport invoiced Qantas a new lower rate, which was in line with reductions offered to, and accepted by, all other airlines.

Qantas, however, paid only what it thought was an appropriate rate, according to a writ issued by Perth Airport in December of that year.

At the time Perth Airport’s lawyers DLA Piper claimed that since July 2018 Qantas had racked up $27.8 million for its use of international and domestic terminals and airfield services but had only paid $16.5m.

Perth Airport also claimed that for more than 18 months it had been offering a new Aeronautical Services Agreement to Qantas that would have delivered the airline a significant price reduction.

Last year in response to criticism from Qantas chief executive Alan Joyce that the airport was trying to raise prices a Perth Airport spokesman said the airport “in fact offered Qantas a significant price decrease.”

In 2019 the Productivity Commission found Australia’s major airports, including Perth, did not earn excessive profits or systematically exercise their market power to the detriment of travelers.

Perth Airport welcomed the decision and its chief executive Kevin Brown said it looks “forward to resolving all outstanding payments and moving forward together with Qantas as we rebuild the WA aviation sector.

“The judgment recognizes that airports are entitled to a fair and reasonable price for the services they provide to all airlines.”

Based on the pricing included in the judgment, Perth Airport’s expectation is that Qantas will be required to pay in excess of $9 million more than it initially paid to make up for the short payments it made when using at Perth Airport from July to mid-December in 2018.

“We’ve already signaled to Qantas our willingness to work on returning the Perth London service, the new Perth Rome service, and additional routes such as Johannesburg and India,” Mr. Brown said.

“Our focus remains on quickly reconnecting WA to the world.”

Qantas said it also welcomed the decision by the Supreme Court of Western Australia which it said upholds the established formula for determining aeronautical pricing – but said it is concerned that an assumed return on investment of almost 10 percent for Perth Airport could ultimately put significant upward pressure on fares.

The airline said that “the Court’s decision upholds the industry-standard ‘building block model’ of setting pricing for monopoly airports – namely, that it should be based on the cost of providing the service. However, the judgment also set the figure of 9.6 percent as the allowed return on that investment (the weighted average cost of capital). This is higher than comparable rates used by airports overseas and well above most rates set by regulators for other Australian monopolies.”

Qantas Group chief financial officer Vanessa Hudson warned that “Perth Airport ultimately wants Qantas to move to their proposed new terminal but the price to use that facility would not be commercially viable for Qantas if the return on investment in this judgment was applied.

“Given the Court’s conclusions about Perth Airport having monopoly power, this whole process shows the real issue here is that the light-touch approach to airport regulation isn’t working. Three years in court to determine five months of pricing shows why the industry needs an expert umpire to resolve stalemates quickly when they occur.”