CONSULTATION RESPONSE DOCUMENT
PRICING FOR THE 2019-2022 PERIOD May 2019
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
Contents
XX Consultation process XX Executive Summary XX PART A - Airline prices
2
CONSULTATION PROCESS
4
7
Overall revenue
7
EXECUTIVE SUMMARY
1. Enhanced services
10
2. Business transformation
19
PART A AIRLINES
3. Capital to maintain current services
22
4. Changes to operating costs
25
PART B GENERAL AVIATION
5. Volume growth
30
Other pricing changes
32
APPENDIX 1 PRICING TABLES AND EXAMPLES
Submissions on other airline topics
34
Scorecard
37
XX PART B – General Aviation (GA) prices
41
APPENDIX 2 SUPPORTING INFORMATION
Pricing methodology for GA
41
GA inflationary adjustments
41
Milford services
43
Submissions on other GA topics
45
XX Appendix 1 – Pricing Tables and Examples
47 50
Appendix 1.1: Pricing tables
Appendix 1.2: Example prices for FY20
54
XX Appendix 2 – Supporting information
57
Appendix 2.1: Building block components of overall revenue
57
Appendix 2.2: Capital programme
58
Appendix 2.3: Weights used to allocate approach and aerodrome-related overhead
60
1
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
Consultation process
YOUR FEEDBACK HELPS AIRWAYS TO FURTHER UNDERSTAND YOUR BUSINESS AND PRIORITIES. IT IS AN IMPORTANT PART OF AIRWAYS’ COMMITMENT TO PROVIDING SERVICES THAT ADD VALUE TO YOUR BUSINESS.
Airways is committed to an open and transparent price-setting process. Your feedback has provided important guidance to finalise prices and services. The consultation began on 29 January 2019 and the final day for submissions was 15 March 2019. Airways hosted public roadshows during February 2019 in Auckland, Hamilton, Wellington, Christchurch and Queenstown. The consultation timeline is presented in figure 1.
Figure 1 – Public consultation timeline
Consultation formally began, proposal document released and period to request further information started.
Public meeting in Auckland.
Public meeting in Wellington.
12 FEBRUARY
15 FEBRUARY
29 JANUARY
11 FEBRUARY
13 FEBRUARY
Public meeting in Hamilton.
Public meeting in Christchurch. Public meeting in Queenstown.
2
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
CONSULTATION PROCESS
EXECUTIVE SUMMARY
Airways received 12 submissions: six from airlines, five from General Aviation (GA), and one from airports. A copy of the submissions can be found on Airways’ website at: www.airways.co.nz/products-and-services/air-navigation-services/new-zealand- service-framework/current-public-consultation/
PART A AIRLINES
PART B GENERAL AVIATION
APPENDIX 1 PRICING TABLES AND EXAMPLES
APPENDIX 2 SUPPORTING INFORMATION
Final prices and Airways’ response to submissions published.
Submissions published on Airways’ website.
Period to request further information ended.
1 MARCH
20 MARCH
29 MAY
1 JULY
15 MARCH
MARCH TO MAY
Deadline for submissions.
Submissions considered and prices finalised.
New prices take effect.
3
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
Executive Summary
To ensure safe skies today and tomorrow, Airways needs to create the aviation environment of the future. Airways will work with partners to provide our customers with safe, integrated airspace management through expert knowledge and technology enabled solutions. We are focused on providing air traffic management services that enable aircraft to navigate safely and efficiently across New Zealand. This document provides the final set of prices that will apply to airlines and General Aviation (GA) from 1 July 2019. It also provides Airways’ response to submissions received about prices for the three-year period from 1 July 2019 to 30 June 2022. Airline prices In January 2019 Airways commenced consultation for the 2019-2022 pricing period. Airways proposed a revenue increase of $54.1m to ensure the continued safety and resilience of the aviation network, while anticipating and planning for the new realities of air traffic management. After applying volume growth, this resulted in a price increase of 18.9% for airline customers. Airways carefully considered all submissions on airline prices before determining the final prices included in this document. As a result, Airways has reduced the overall revenue increase by $1.8m to $52.3m for the 2019-2022 pricing period. In determining final prices, Airways has also reviewed the forecast of volume growth based on the latest available schedule and fleet information. Since publication of our consultation document there has been a significant reduction in the expected volume growth in the first year of the pricing period from 4.0% to 0.7%. When the overall annual revenue change and revised volume growth are applied the total airline price change has increased to 21.4%. The drivers of the revenue and price increase are shown in figure 2 with a summary of the drivers and Airways’ consideration of submissions provided on the following pages.
Figure 2 – Revenue and price increase drivers $ Revenue change
% change
FY20 FY21
FY22 Total
FY20 FY21
FY22 Total 1
15.6
8.2%
1. Enhanced services
6.5
4.7
4.4
3.5% 2.0% 1.8%
2. Business transformation (including ATM platform)
12.9
6.8%
9.0 5.6 (1.7)
4.7% 2.5% (0.7%)
3. Capital to maintain current services
4.7
2.5%
2.9
0.1
1.7
1.5% 0.0% 0.8%
19.1
10.0%
4. Changes to operating costs (including inflation)
12.8
1.1
5.2
6.7% 0.7% 2.2%
Total increase
31.2 11.5 9.6 52.3 16.4% 5.2% 4.1% 27.5%
5. Volume growth
3.0%
Opening volume adjustment
3.0%
3.1%
Annual volume growth
0.7% 1.0% 1.0%
Total price change
12.7% 4.2% 3.1% 21.4%
1. Total % column includes the compounding effect of the changes.
4
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
Enhanced services Airways is investing in new technologies and infrastructure that will support the new realities of air traffic management. The new investments will provide additional safety, resilience and flexibility benefits. These investments include: X X The implementation of a full digital tower service at Invercargill and a digital tower service at Auckland. This was strongly supported by customers. Airways will continue to investigate the viability of deploying this technology at other regional locations in future price periods. X X Supporting Auckland International Airport Limited’s (AIAL’s) implementation of a Flexible Contingent Runway (FCR). Airways has listened to customer submissions on the need for an FCR. If AIAL decides not to proceed with this project, Airways will review the associated capital expenditure and make an adjustment to prices in FY21 and FY22. X X Detection and management of UAVs to enhance the safety of controlled airspace around aerodromes. This has a direct benefit for airlines and their passengers. Airways understands customers‘ concerns that funding should be shared with other industry participants and will continue to work towards developing alternative funding methods for future pricing periods. Business transformation, including ATM platform replacement Airways is committed to the implementation of the transformation programme presented in the 2016 Pricing Consultation document. The transformation programme will improve the safety, resilience and flexibility of services delivered. The business transformation focuses on the people, technology and buildings required to deliver interoperable services from Auckland and Christchurch. Submissions indicated that customers support the initiatives but note that the programme benefits have been delayed. Airways is committed to delivering the programme benefits from FY23. Capital to maintain current services Airways has a mature approach to asset management, which focuses on preventative maintenance and performance monitoring to maximise the useful life of assets. Airways proposed $92.9 million of capital projects to ensure the current target service levels are maintained. There was general support for the capital programme with a few exceptions about individual capital items. Following customer submissions, Airways has had discussions with stakeholders and is satisfied that the proposed capital programme is required.
CONSULTATION PROCESS
EXECUTIVE SUMMARY
PART A AIRLINES
PART B GENERAL AVIATION
APPENDIX 1 PRICING TABLES AND EXAMPLES
APPENDIX 2 SUPPORTING INFORMATION
5
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
Changes to operating costs (including inflation) To ensure transparency Airways separates movements in the cost base into three specific categories: base costs, inflationary adjustments and changes to the cost of capital. Base costs – Airways’ operating cost base includes labour, property leases and equipment. Airways is currently facing cost challenges from collective employment agreements and increased lease costs driven by the requirement to move from a ground lease to a full office lease at Auckland Airport. These challenges are driving an increase to base operating costs above the level of inflation. Inflationary adjustments – Airways’ operating cost base is adjusted by standard inflation rates as forecast by the New Zealand Institute of Economic Research (NZIER). Labour costs are adjusted by the Labour Cost Index (LCI). Other operating costs are adjusted for forecast changes in the Primary Producer Index (inputs) (PPI). Cost of capital – Airways received a number of submissions questioning the cost of capital. Airways has considered these submissions and recent changes in market conditions and has decided to reduce the cost of capital from 6.9% to 6.59% for the 2019-2022 pricing period. General Aviation (GA) prices Airways helps GA customers operating aircraft less than five tonnes to operate safely within controlled airspace by providing flight information. Overall, GA activity makes up approximately 53% of movements and contributes 2% of Airways’ air navigation revenue. Following the implementation of Airways’ Pricing Framework in 2012, Airways believes that GA prices contribute a fair amount to the total cost of providing services. Airways therefore proposed that GA prices are only increased by the forecast level of inflation so they remain in line with underlying operating costs. Most submissions supported this approach. Airways will increase prices by an average of 2.5% each year based on the most recent inflation forecasts.
6
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
PART A - Airline prices
This section summarises customer submissions on airline prices and provides Airways’ response to those submissions. Customer feedback provided an essential input into the price-setting process; all feedback was carefully considered before finalising prices. Overall revenue Airways’ Pricing Framework details the methodology used to price services and can be downloaded from Airways’ website at: www.airways.co.nz/products-and- services/air-navigation-services/new-zealand-service-framework/ans-services-and- pricing-explained The Pricing Framework was developed and implemented following consultation with customers in 2012 as part of Airways’ commitment to transparent price-setting. Airways has addressed feedback related to the Pricing Framework in the ‘Submissions on other topics’ section of this document. Using the Pricing Framework, Airways sets prices by calculating the overall revenue required, allocating the revenue to specific services and calculating unit prices based on forecast volumes. Overall revenue has been calculated using the Economic Value Added (EVA) framework. The EVA framework calculates overall revenue as the aggregate of costs including a commercial return (the building blocks). The EVA building blocks are provided in Appendix 2.1. AIRWAYS PROPOSED To continue to provide safe, high-quality services now and in the future, Airways proposed a revenue increase of $54.1m over the 2019-2022 pricing period. After taking account of volume growth, a price increase of 18.9% was required. SUMMARY OF SUBMISSIONS BARNZ expressed their increasing concern about the cost of air travel in New Zealand and whether it will remain sustainable. BARNZ noted other aviation industry charges, such as biosecurity and aviation security, are also increasing from 1 July 2019. NZ Airports noted the proposed price increases are well above the level of inflation. This places a further burden on aircraft turnaround costs, which is a factor in the competitiveness and sustainability of destinations. NZ Airports also felt that technology improvements, efficiency gains and volume growth should combine to contain price increases. They submitted that these should be signalled now, at least in principle, to provide some balance to the short-term price increases. Aviation NZ was concerned by Airways’ monopoly position, and felt that Airways is not subject to the same competitive pressures that exist in the commercial world. Aviation NZ also said there should be reimbursement when Airways does not deliver services.
CONSULTATION PROCESS
EXECUTIVE SUMMARY
PART A AIRLINES
PART B GENERAL AVIATION
APPENDIX 1 PRICING TABLES AND EXAMPLES
APPENDIX 2 SUPPORTING INFORMATION
7
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
AIRWAYS’ RESPONSE
Following consideration of feedback, Airways has made changes to required revenue, identifying cost savings where possible. Airways is committed to continuing to provide safe, high quality services now and in the future. The total increase in required revenue has decreased from $54.1m to $52.3m. Airways has also reviewed the forecast volume growth based on the latest available schedule and fleet information. While overall revenue is lower than was proposed, there has been a significant reduction in the expected volume growth in the first year of the pricing period. Due to the lower volume forecast the total price change has increased from 18.9% to 21.4%. Figure 3 summarises the changes to Airways’ required revenue and prices following consultation feedback and using the revised volume forecasts. Figure 4 summarises the final revenue and price changes by price driver.
Figure 3 – Changes to Airways’ revenue and prices
$ Revenue change
% change
FY20 FY21
FY22 Total
FY20 FY21
FY22 Total 2
Proposed revenue and price change
33.4 11.0 9.7 54.1 10.3% 3.9% 3.2% 18.9%
(0.1)
- (0.0%) (0.0%) (0.0%)
1. Revised capital to maintain current services (section 3) 2. Changes to base operating costs (section 4.A.) 3. Revised inflationary uplifts (section 4.B.) 4. Reduced cost of capital (section 4.C.) 5. Revised opening volume adjustment (section 5.A.) 6. Revised annual volume growth (section 5.B.)
-
(0.0)
(0.1)
(0.5)
(0.5%) 0.3% (0.1%) (0.3%)
(0.8)
0.5 (0.2)
0.4
0.2%
0.0 0.1
0.3
0.0% 0.1% 0.1%
(1.6)
(0.6%) (0.1%) (0.1%) (0.9%)
(1.4)
(0.1)
(0.1)
0.2%
0.2%
-
-
3.3%
3.3%
-
-
Final revenue and price change
31.2 11.5 9.6 52.3 12.7% 4.2% 3.1% 21.4%
2. Total % column includes the compounding effect of the changes.
8
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
Figure 4 – Revenue and price increase drivers
CONSULTATION PROCESS
$ Revenue change
% change
FY20 FY21
FY22 Total
FY20 FY21
FY22 Total 3
15.6
8.2%
1. Enhanced services
6.5
4.7
4.4
3.5% 2.0% 1.8%
EXECUTIVE SUMMARY
2. Business transformation (including ATM platform)
12.9
6.8%
9.0 5.6 (1.7)
4.7% 2.5% (0.7%)
3. Capital to maintain current services
4.7
2.5%
2.9
0.1
1.7
1.5% 0.0% 0.8%
PART A AIRLINES
19.1
10.0%
4. Changes to operating costs (including inflation)
12.8
1.1
5.2
6.7% 0.7% 2.2%
PART B GENERAL AVIATION
Total increase
31.2 11.5 9.6 52.3 16.4% 5.2% 4.1% 27.5%
5. Volume growth
3.0%
Opening volume adjustment
3.0%
3.1%
Annual volume growth
0.7% 1.0% 1.0%
APPENDIX 1 PRICING TABLES AND EXAMPLES
Total price change
12.7% 4.2% 3.1% 21.4%
3. Total % column includes the compounding effect of the changes.
APPENDIX 2 SUPPORTING INFORMATION
Airways is aware of the impact the price increases will have on customers and the ongoing sustainability of some locations and services. The decision to increase prices has not been taken lightly, however the price increase is necessary to fund new investment such as digital towers that will contribute to the sustainability of services in the longer term. Airways is operating in a challenging industrial and economic environment which is placing pressure on operating costs. Airways is proud of its track record of strong cost control, and will continue to work hard over the next three years to deliver the benefits of the business transformation programme. Airways notes customers’ concerns about monopolistic behaviour, and seeks to assure customers that it is acting in a responsible manner through transparent engagement with its customers and stakeholders in the setting of prices and reporting on financial and service performance. Airways acknowledges Aviation NZ’s comment about linking performance with financial outcomes and notes that this would likely require a change to Airways’ Pricing Framework. Further discussion about the Pricing Framework is covered in ‘Submissions on other airline topics’.
9
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
1. Enhanced services Airways prides itself on being one of the most innovative Air Navigation Service Providers (ANSPs) in the world. Airways continues to look for new technologies that improve safety and resilience, create flexible and sustainable regional services and improve the overall sustainability of your business. Figure 5 outlines the revenue increases being driven by investments in enhanced services.
Figure 5 – Changes in revenue from enhanced services
$m change
% change
FY20 FY21
FY22 Total
FY20 FY21
FY22 Total 4
4.4
2.3%
A. Future Aerodrome Services
1.5
1.1
1.8
0.8% 0.5% 0.8%
5.0
2.6%
B. Flexible Contingent Runway
2.1
2.1
0.8
1.1% 0.9% 0.3%
C. UAV detection and management
2.6
1.4%
2.4
0.1
0.1
1.3% 0.0% 0.0%
3.6
1.9%
D. Other initiatives
0.5
1.4
1.7
0.3% 0.6% 0.7%
Total enhanced services
6.5 4.7 4.4 15.6 3.5% 2.0% 1.8% 8.2%
4. Total % column includes the compounding effect of the changes.
1.A. Future Aerodrome Services
AIRWAYS PROPOSED Airways has been working with stakeholders to determine the future service requirements at attended aerodromes around New Zealand. These services could range from Aerodrome Flight Information Services (AFIS), such as those currently provided at Kapiti and Milford, through to 24-hour-a-day Air Traffic Control (ATC) provision. It is Airways’ objective to provide fit-for-purpose services that will increase regional connectivity. Airways has been following the development of digital towers around the world since 2012, assessing whether digital technologies could improve the safety and flexibility of aerodrome services at a reasonable cost. Airways has visited digital towers at Budapest in Hungary, Leipzig in Germany and the Heathrow contingent tower in London. Airways is confident that the cost and capability of digital technologies presents significant opportunities for services in New Zealand. Airways proposed a digital tower solution at Invercargill to replace the existing physical tower. Following the installation of a digital tower in Invercargill, Airways proposed one in Auckland as a contingency option if the physical tower is unusable. If the digital solution in Auckland proves to be acceptable to stakeholders, there is an opportunity to use a digital tower as the prime means of control in Auckland from 2024, avoiding the need for a costly physical tower replacement.
10
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
Airways is excited about the benefits digital towers can provide to lower-volume regional locations. Airways will complete a detailed feasibility study during the 2019-2022 pricing period of a broader roll out at suitable locations in the 2022-2025 pricing period. Airways will consult on the plan for future aerodrome services at other regional locations as part of the next pricing consultation. SUMMARY OF SUBMISSIONS Airline customers were supportive of the implementation of digital tower services. BARNZ and Air NZ specifically mentioned they expected the technology would deliver flexibility and increased safety, while maintaining cost-effective services in the future. Air NZ said that they see digital tower services as “essential for long-term sustainability, particularly in regional centres”. NZ Airports supported working with stakeholders to determine ‘fit-for-purpose’ services to enhance regional connectivity and/or reduce costs. They also submitted that planning for future regional services needs to happen urgently, and it was not acceptable to defer planning for future regional services until the next pricing period. NZ Airports said that in most cases fit-for-purpose solutions should result in cost savings, which could then be factored into three-yearly pricing decisions. One GA submitter opposed digital towers. He submitted that a physical presence at a location ensures a personal relationship between controllers and local pilots. He said that in his opinion locally based controllers are more aware of local conditions, and the employment of locally based controllers helps support local communities. AIRWAYS’ RESPONSE Submissions from airline customers were supportive of the implementation of digital tower services in Invercargill and Auckland. Airways will now focus on implementing the programme. Airways would also like to reassure customers that in parallel with the implementation of digital services at Invercargill and Auckland, Airways will be continuing to develop fit-for-purpose aerodrome solutions at regional locations. This includes progressing more cost effective solutions, such as Aerodrome Flight Information Services (AFIS), with stakeholders and the regulator. Airways remains committed to presenting a business case for future digital tower investment at suitable locations in the next pricing consultation. This is a realistic timeframe that will allow Airways to implement and learn from the Invercargill and Auckland digital towers. Figure 6 outlines Airways’ plan to implement digital towers, with the financial summary presented in figure 7.
CONSULTATION PROCESS
EXECUTIVE SUMMARY
PART A AIRLINES
PART B GENERAL AVIATION
APPENDIX 1 PRICING TABLES AND EXAMPLES
APPENDIX 2 SUPPORTING INFORMATION
11
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
Figure 6 – Future Aerodrome Services roadmap
2019
2021
2025
2030
Invercargill digital tower
Auckland contingent services
On-demand regional services (low volume) • ATC for scheduled movement / peak traffic • AFIS at low volumes
On-demand regional services (high volume) • Full ATC during hours of service • Outside of hours of service covered by AFIS
Single tower operations
Single and multi-tower operations
ADS-B TO THE GROUND
Figure 7 – Investment in Future Aerodrome Services
$m
FY20 FY21
FY22 Total
4.0
Invercargill digital tower
3.4 0.6
–
10.3
Auckland digital tower
2.0 3.1
5.2
Total capital investment
5.4 3.7 5.2 14.3
Transition costs
1.1
1.3
1.4 3.8
12
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
1.B. Flexible Contingent Runway (FCR)
CONSULTATION PROCESS
AIRWAYS PROPOSED AIAL has commissioned a project to convert Taxiway Alpha into an FCR that can be enacted within 30 minutes. This will significantly improve the resilience of Auckland operations by providing an alternative runway at Auckland Airport in the event the main runway is unusable. The FCR will also allow routine maintenance on the main runway overnight without significantly impacting your operations. Airways has made a provision to implement and own the significant aeronautical ground lighting assets associated with the FCR. Airways proposed a capital spend of $32.6m which included supporting investments in a new power centre, remote international stands and an extension of Taxiway Mike. The assets will be depreciated over a useful life of 15 years, recognising that the FCR will still be available for use when the proposed northern runway is operational. During the implementation of the FCR there are additional operating costs of $0.9 million p.a. SUMMARY OF SUBMISSIONS Airlines had mixed views about the concept of an FCR, ranging from broad support (Qantas Group), to opposition (Virgin). All airlines questioned the lack of a cost benefit analysis from AIAL. BARNZ, Qantas Group and Virgin welcomed investigation of alternatives including periodic, well notified, night-time runway closures. NZ Airports supported the project. BARNZ noted that AIAL is due to review the FCR investment and submitted if the project does not proceed Airways should remove the costs from prices. BARNZ also suggested a mechanism to review the price path at the end of FY20 and FY21 if a clear decision is not reached by AIAL before Airways’ prices are set. BARNZ offered to help develop a price reset mechanism, and provided an example of the Commerce Commission’s capex wash-up adjustment for electricity companies. The concept of a price adjustment mechanism was also supported by the Qantas Group, while IATA suggested the cost should be removed until the cost benefit analysis is known. Air NZ has asked Airways to consider other pricing mechanisms to match the delivery to the charging start date. Air NZ cited Airways’ Cat III and Queenstown multilat charges as examples of when this has been done in the past.
EXECUTIVE SUMMARY
PART A AIRLINES
PART B GENERAL AVIATION
APPENDIX 1 PRICING TABLES AND EXAMPLES
APPENDIX 2 SUPPORTING INFORMATION
13
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
AIRWAYS’ RESPONSE Customers have provided mixed views about the requirement for an FCR. Airways notes that this is a project led by AIAL and the decision to implement a FCR rests with them. At the time of preparing this response document the AIAL Board had not made a final decision about whether to the project would proceed. The FCR project is a unique capital project for Airways. Airways agrees with BARNZ that a price adjustment should be made if the project does not proceed. We also note that if the project does not proceed there may still be elements of the proposed capital spend that are still required. Therefore, if the project does not proceed as planned Airways will: 1. Review the scope of any residual capital expenditure and operational costs. 2. Calculate the pricing impact resulting from the reduced scope. 3. Communicate changes to prices by 30 April 2020, at the same time as Airways advises customers of its volume forecast for the next year (as required as part of the volume risk sharing mechanism from the Pricing Framework). 4. Adjust prices from 1 July 2020, and 1 July 2021 if required. Air NZ’s suggestion of other pricing mechanisms may require a change to the Pricing Framework. Further discussion about the Pricing Framework is covered in ‘Submissions on other airline topics’. Figure 8 summarises the costs of the FCR project included in the final pricing. Note the costs are only for Airways’ owned infrastructure. Other stakeholders involved in the implementation of the FCR project will recover their costs through other means.
Figure 8 - Financial summary of the FCR project
$m
FY20 FY21
FY22 Total
32.6
Capital investment
17.4 15.2
–
2.7
Operating costs
0.9 0.9 0.9
14
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
1.C. UAV detection and management
CONSULTATION PROCESS
AIRWAYS PROPOSED Airways currently manages the Airshare.co.nz website to educate UAV operators about their responsibilities and provides a portal for UAV operators to request access to controlled airspace. The website was initially launched in 2015 and is now recognised as New Zealand’s primary UAV resource with over 13,000 registered users. Since the AirShare website was launched, Airways has seen the number of logged flights increase by over 80% p.a. The growth in UAVs is expected to continue at a rapid pace and the current AirShare platform is no longer fit-for-purpose. Airways’ immediate priority is to ensure the safe passage of aircraft in and around controlled airspace. This means that Airways’ initial focus is on increasing the compliance of cooperative UAVs while improving the detection and enforcement of non-cooperative UAVs. Figure 9 outlines Airways’ approach to UAV detection and management.
EXECUTIVE SUMMARY
PART A AIRLINES
PART B GENERAL AVIATION
APPENDIX 1 PRICING TABLES AND EXAMPLES
Figure 9 – Approach to UAV detection and management
APPENDIX 2 SUPPORTING INFORMATION
1. Compliance
3. Enforcement
2. Detection
1. Compliance – Providing the information, tools, and infrastructure to allow UAVs to operate safely within the existing aviation system. This includes developing a national common operating model for UAV participants and working with broader aviation stakeholders and government agencies to develop fit-for-purpose policy and regulation. 2. Detection – Ensuring both cooperative (registered and obeying rules) and non- cooperative UAVs can be identified when in flight. This helps identify when UAVs are in or around controlled airspace and determine the correct actions to minimise risk to manned aircraft. 3. Enforcement – Ensuring non-cooperative UAVs that are not complying with rules, or endangering manned aircraft, can be tracked and dealt with by the relevant authorities. This includes situational and legal recording, incident management and workflow handling thereby providing authorities with suitable user information to pursue.
15
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
In the longer term, Airways’ vision is to safely integrate UAVs into the existing aviation system. To achieve integration Airways will continue to work closely with government agencies to progress the necessary legislation and regulatory framework to support safe UAV operations. In parallel, Airways will work on developing a future funding model that fairly shares the costs of UAV integration. Airways proposed an average of $2.5m p.a. for UAV management to improve the safety of aircraft operating in and around controlled airspace while working towards a longer term solution for UAV integration. SUMMARY OF SUBMISSIONS Airlines generally supported Airways’ initiatives to improve safety, however all airlines felt that the funding should be shared to some extent with the regulator, government and the UAV industry. Aviation NZ questioned whether Airways’ proposed funding of $0.2m p.a. for education is enough. They submitted that we need more proactive education, for example banners at international airports and multi-language leaflets for international tourists. NZ Airports noted that airports also have a role in managing UAVs around airports and are equally concerned that a transparent approach for recovering costs has not yet been developed. AIRWAYS’ RESPONSE Airways’ prime focus over the 2019 - 2022 period is to enhance safety in and around controlled aerodromes. Airways feels it is appropriate for airlines to fund these activities because they have a direct benefit for airlines and their passengers. Education and regulation - There has been a significant increase in UAV incursions into controlled airspace as well as safety-related incidents with aircraft outside of controlled airspace. Airways has a new dedicated employee to engage proactively with the broader UAV community, including recreational, commercial and industrial users. The focus of this new dedicated employee will be to help educate and inform UAV operators of the rules, as well as to engage on future policy, operating model and infrastructure requirements to enable safe integration of UAVs into the existing aviation system. Future funding models - Airways’ investment for the 2019-2022 period will focus on airspace management and improved situational awareness for all aviation participants. Airways is developing tools that will deliver value to the broader UAV community. Once developed, Airways anticipates introducing charges for UAV users.
Figure 10 outlines the funding required in the 2019-2022 period to enhance safety.
16
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
Figure 10 – Funding for UAV detection and management
CONSULTATION PROCESS
$m
FY20 FY21
FY22 Total
6.3
UAV system for detection and management (incl support costs)
2.0 2.1
2.2
0.6
Education and awareness
0.2
0.2
0.2
EXECUTIVE SUMMARY
0.6
Regulation and policy development
0.2
0.2
0.2
Total funding
2.4 2.5 2.6 7.5
PART A AIRLINES
1.D. Other initiatives
PART B GENERAL AVIATION
AIRWAYS PROPOSED In addition to the service enhancement projects outlined in Part A, Sections 1.A. to 1.C., Airways also proposed a number of smaller investments that will improve the level of service customers receive. SUMMARY OF SUBMISSIONS Air NZ and the Qantas Group both supported these projects. Air NZ requested that the benefits be tracked and reported on, and the Qantas Group felt that costs should only be passed on when benefits are realised. NZ Airports highlighted the new CAA requirement to provide real-time runway condition reporting at certified airports. NZ Airports will be raising this as part of the upcoming renewal of airport services agreements. One GA submitter supported the projects, but submitted that Airways need to review IT costs. They submitted that reducing IT costs would mean there is more money to invest in regional tower upgrades.
APPENDIX 1 PRICING TABLES AND EXAMPLES
APPENDIX 2 SUPPORTING INFORMATION
17
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
AIRWAYS’ RESPONSE
Airways acknowledges the support for the other initiatives outlined in figure 11, and will now focus on delivering these, and the resulting benefits.
Figure 11 – Other initiatives
Initiative ($m)
FY20 FY21
FY22 Total
2.7
National ADS-B network
2.7
–
–
2.2
Network management system contingency
0.3
1.8
0.1
1.7
IT service management tool
0.5 0.6 0.6
1.1
ATM system enhancements
–
0.4 0.7
1.0
Briefing system for operational staff
–
1.0
–
0.5
Digital NOTAM implementation
–
0.5
–
0.4
Enhanced Low Visibility Operations at Auckland
0.4
–
–
1.0
Minor projects
0.3 0.5 0.2
Total initiatives
4.2 4.8
1.6 10.6
Airways currently reports on the progress of capital projects as part of our annual disclosure to BARNZ members. Airways will also use this forum as an opportunity to report on the benefits being realised from these service enhancement projects. Airways notes the Qantas Group submission about the timing of costs and benefits. This point has been raised in several submission topics and Airways’ response is included in the ‘Submissions on other topics’ section of this document. Airways notes NZ Airports’ submission about real-time runway condition reporting and agree that the airport service agreement renewal process is the appropriate forum to agree the responsibilities between Airways and aerodrome operators. In response to the GA submitter’s feedback, Airways would like to provide assurance that IT costs are reviewed annually as part of its budget setting process. IT costs are set at an appropriate level to enable Airways’ staff to operate effectively and to ensure systems are secure and robust.
18
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
2. Business transformation AIRWAYS PROPOSED
CONSULTATION PROCESS
Airways is committed to the implementation of the transformation initiatives presented in the 2016 Pricing Consultation, which will improve the safety, resilience and flexibility of services. The business transformation strategy focuses on the people, technology and buildings required to deliver interoperable services from Auckland and Christchurch as shown in figure 12 and summarised in sections 2.A. to 2.C.
EXECUTIVE SUMMARY
PART A AIRLINES
Figure 12 – Airways’ business transformation
PART B GENERAL AVIATION
APPENDIX 1 PRICING TABLES AND EXAMPLES
Based in two locations
APPENDIX 2 SUPPORTING INFORMATION
Two resilient centres
Voice control switch for interoperability
Single ATM platform
Standardised operations
2.A. People – Greater flexibility to meet your needs During the next three years the one-centre-two-locations model will be implemented and balancing of the workload between Auckland and Christchurch will start. Further enhancements will enable the replacement of procedural approach units with surveillance-based services. A review of the national airspace and sectorisation model will be delivered to ensure all operational changes complement the future operating model. The financial summary of the costs to transition staff are outlined in figure 13. The transition is due to be completed in 2022, with benefits being realised from 2023.
Figure 13 – Financial summary of the staff transition programme
$m
FY17– FY19
FY20 FY21
FY22 FY20– FY22
FY23– FY28
Total
6.1
8.4
14.5
Transition costs
3.2
4.4
0.8
–
19
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
2.B. Technology – Providing safer and more efficient tools The combined domestic and oceanic platforms will be operational by mid-2021. Figure 14 provides the financial summary of the technology components of the business transformation programme.
Figure 14 – Technology transformation financial summary
$m
FY17– FY19
FY20 FY21
FY22 FY20– FY22
FY23– FY28
Total
Capital projects: ATM system
32.5
25.9
58.4
16.9
7.7
1.3
–
5.4
5.6
13.0
Voice switching
2.5
1.0
2.1
2.0
Total capital investment
37.9
19.4
8.7
3.4 31.5
2.0 71.4
Operating costs: One-off training & transition
–
4.5
4.5
2.0
2.5
–
–
–
0.4
1.6
Ongoing support
–
0.2
0.2
1.2
Total operating costs
–
2.0
2.7
0.2
4.9
1.2
6.1
2.C. Buildings – Two locations providing increased resilience The construction of the new centres is due for completion in 2019. Following this, the transition programme will be implemented and hardware for the new ATM platform and other operational equipment will be installed. The site acceptance test for the new ATM system will be run in December 2019 followed by stability testing and operational shadowing in early 2020. The training programme will prepare the technical and operational staff for a domestic service cut-over in July 2020, with the Oceanic cut-over taking place in 2021. Figure 15 provides a financial summary of the buildings transformation programme.
Figure 15 – Buildings transformation financial summary
$m
FY17– FY19
FY20 FY21
FY22 FY20– FY22
FY23– FY28
Total
Capital projects: Technical transition to new IL4 buildings
1.8
2.1
3.9
2.0
0.1
–
–
6.3
0.7
7.0
New Auckland building fit out
0.7
–
–
–
Total capital investment
8.1
2.7
0.1
–
2.8
–
10.9
Operating costs: Property leases
–
17.1
46.8
5.9
5.7
5.5
29.7
–
0.2
0.2
One-off transition costs
0.2
–
–
–
Total operating costs
–
6.1
5.7
5.5
17.3
29.7
47.0
20
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
SUMMARY OF SUBMISSIONS There was widespread support for the business transformation programme, however both Air NZ and BARNZ expressed disappointment in the lack of benefits delivered to date, and clearly stated their expectation that cost savings be delivered from FY23. Qantas Group and Virgin both said that costs should only be passed on to customers when benefits start to be realised. NZ Airports highlighted service issues at Napier, and said “it is alarming there is a lack of resilience at an airport level” and that the cost of disruption while in contingency operations cannot be over-estimated. One GA submitter did not agree with centralising staff, saying that Airways need locally based people in all areas. AIRWAYS’ RESPONSE Airways acknowledges the support for the business transformation programme and will continue to progress the initiatives proposed. This includes balancing the current en-route functions delivered from Airways’ Christchurch operational centre, between new Importance Level 4 (IL4) locations at Christchurch and Auckland. Airways understands customers’ concerns about the timing of benefits being delivered by the transformation programme. We remain committed to delivering the programme which will provide benefits in future pricing periods. Airways will continue to report on progress through the Scorecard to assure customers that the programme is on track. The business transformation programme is focused on the en-route and approach functions currently being delivered from a single operational centre in Christchurch. While the recent service disruptions at Napier have been caused by an unprecedented and rare set of staffing issues, Airways does share NZ Airports’ concerns about resilience at an airport level. These issues are being addressed as part of Airways’ Future Aerodrome Services initiative discussed in section 1.A.
CONSULTATION PROCESS
EXECUTIVE SUMMARY
PART A AIRLINES
PART B GENERAL AVIATION
APPENDIX 1 PRICING TABLES AND EXAMPLES
APPENDIX 2 SUPPORTING INFORMATION
21
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
3. Capital to maintain current services AIRWAYS PROPOSED
To maintain the current level of service, Airways proposed a $92.9m capital programme. The programme was summarised by location and service with full details of the programme outlined in the appendices of the Consultation Document.
SUMMARY OF SUBMISSIONS
There was general support for the capital programme with the following exceptions:
1. Instrument Landing System (ILS) at Dunedin and Wellington – Air NZ, Virgin, BARNZ and IATA all submitted that the ILS should not be replaced. NZ Airports was the only submitter to explicitly support the replacement of ILS to address resilience, allow for operators that have not adopted newer technologies and allow time for the performance of new technologies to be proven. 2. Non-cooperative surveillance – Air NZ questioned whether the non-cooperative surveillance was a double up when considering the proposed spend on UAV detection and management. IATA does not support ongoing investment in Primary Surveillance Radar (PSR) in lieu of other superior alternatives. 3. Main trunk contingency network – Air NZ questioned whether the main trunk contingency network could be deferred to allow for alternative technology solutions such as multilat. 4. Physical control towers – Virgin does not support any investment in physical control tower assets beyond spend for critical safety and maintenance. This includes the Auckland tower where its view is that the life of the physical tower should be extended until a digital service will be implemented. 5. Physical Navaids – Virgin does not support the replacement of physical Navaids beyond the Minimum Operating Network (MON). Virgin has also encouraged Airways to consult with industry to review the MON. IATA also supported this view, and specifically commented on the DVOR/DME replacements. NZ Airports have submitted that Airways’ Non-Directional Beacon (NDB) withdrawal programme should be delayed until the Civil Aviation Authority (CAA) has finalised the rules for aircraft operating under Global Navigation Satellite Systems (GNSS). 6. Wellington Office Fitout – Virgin does not support the Wellington office fitout. 7. Vehicle fleet – Virgin requested more detail about what this includes to ensure the vehicle fleet is fit-for-purpose. 8. Resource planning system upgrade and a rostering solution – Virgin requested that Airways explain the difference between the two projects.
22
Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
AIRWAYS’ RESPONSE
CONSULTATION PROCESS
Airways addresses the comments and concerns for each item raised in submissions:
1. ILS at Dunedin and Wellington – The useful lives of the ILS assets at Dunedin and Wellington have already been extended to the point where if they are not replaced they will need to be decommissioned (April 2021 for Dunedin and April 2022 for Wellington). The decision to replace the ILS ultimately rests with the aerodrome operator, and NZ Airports (on behalf of Wellington and Dunedin airports) supports the replacement of ILS. Airways will continue to engage with stakeholders prior to the scheduled ILS replacements to investigate alternatives. However, given the airports’ current position it is appropriate to retain the ILS replacements in the capital plan. If an alternative solution can be found prior to the scheduled ILS replacements the resulting change in depreciation and capital charge will be reflected in future pricing periods. 2. Non-cooperative surveillance – There appears to be some confusion about the relationship between non-cooperative surveillance and the proposed UAV detection and management initiative, and the technology solution that Airways will invest in. This investment will replace the current PSR network with a new technology that will deliver the functionality of the current PSR network and provide a surveillance feed into the UAV management system to enhance UAV detection. 3. Main-trunk contingency network – This capital item represents the contingent surveillance network prescribed by the industry led forum, New Southern Sky (NSS). Airways will replace the existing Secondary Surveillance Radar (SSR) technology with the most cost-effective solution that meets the NSS requirements. Multilat is one of the technology options that Airways is considering. 4. Physical control towers – Airways agrees with Virgin’s comments that investments in physical towers should be restricted to critical safety and maintenance. The capital programme follows this approach. 5. Physical Navaids – The MON requirements have been determined by industry through the NSS forum. Airways’ capital plan for Navaids reflects the NSS directives. In response to NZ Airports’ request for Airways to delay the NDB withdrawal programme, Airways is committed to withdrawing NDBs and has challenged CAA’s requirements for technical alternates. Airways expects a favourable response from the CAA to be confirmed soon. 6. Wellington office fit-out – Airways’ decision to relocate from its Wellington office was made after the pricing proposal was prepared. This item has been removed from the capital expenditure plan.
EXECUTIVE SUMMARY
PART A AIRLINES
PART B GENERAL AVIATION
APPENDIX 1 PRICING TABLES AND EXAMPLES
APPENDIX 2 SUPPORTING INFORMATION
23
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