Part 3 Report on performance
Overview
The Commission's performance report is based on an assessment of its results for the year using a range of criteria. Three sets of criteria have been adopted by the Commission to enable a thorough assessment of all aspects of its operations. Broadly, the criteria encompass:
- how well the object of the Act has been met by the Commission's decision making;
- how fair and effective the Commission has been in dealing with applicants and interested parties; and
- how efficient the Commission has been in the use of financial resources available to it.
The Commission's assessment of its performance against each of these criteria is set out below.
Results against performance targets
Serving the object of the Act
The object of the Act is to enhance the welfare of Australians by promoting economic efficiency through competition in the provision of international air services. Under the Act, the Commission’s functions are to make determinations; review determinations; and provide advice to the Minister about any matter referred to the Commission by the Minister concerning international air operations. In fulfilling its functions, the Act requires the Commission to comply with policy statements made by the Minister under section 11 and to have regard to Australia’s international obligations concerning the operation of international air services.
The Commission records annually the number of determinations and decisions (involving reviews and variations of determinations) made for the year. The volume of activity varies from year to year, and the Commission’s work is dictated by the number of applications made by airlines. The allocation of new capacity is similarly directly related to the response of Australian carriers to the demand for air services. In the financial year 2018–19, the Commission issued 12 determinations allocating new capacity; 26 renewal of capacity allocations; 35 decisions varying various determinations including a couple of resolutions extending the date of utilisation of the capacity; and one revocation of capacity allocation.
The graph below shows a comparative data of the current reporting period (2018–19) with the three preceding years.
Historical numbers of determinations and decisions
In 2018–19, Qantas sought and was issued a new capacity allocation of 576 seats per week on the Cook Islands route. This will enable its wholly-owned subsidiary Jetstar to add two additional weekly services between Australia and Rarotonga from July 2019. Jetstar currently operates services from the Gold Coast and Sydney to Rarotonga via Auckland.
Qantas also applied for and was issued 337 seats per week on the Chile route and was permitted to utilise the capacity to code share with LATAM airlines under a hard block arrangement.17 Currently, Qantas operates 3 to 4 weekly services in each direction between Sydney and Santiago while LATAM operates daily services between Santiago and Sydney via Auckland and 4 to 5 weekly services in each direction between Santiago and Melbourne. The airlines code share on each other’s services under a hard block arrangement.
In December 2018 Qantas was issued an additional 696 seats per week to operate services between Sydney and Nadi. The flights were planned to operate from 31 March 2019.
In June 2019, Qantas sought and was issued an additional 528 weekly seats of capacity on the Fiji route to operate 3 additional services per week between Australia and Fiji commencing in October 2019. Both Qantas and Virgin Australia have a significant presence on the Fiji route.
In October 2018, Qantas was allocated 1,250 weekly seats of capacity on the Indonesia route. A further 284 weekly seats were allocated in March 2019. These additional capacity allocations bring Qantas’ total capacity allocation on the Indonesia route to 18,662 weekly seats in each direction. Qantas currently operates up to 20 weekly services in each direction between the Melbourne/Sydney-Denpasar and Sydney-Jakarta city pairs. Jetstar operates up to 70 weekly services in each direction between various points in Australia and Denpasar. Virgin Australia operates up to 21 weekly services in each direction between Brisbane/ Port Hedland/ Sydney and Denpasar. Utilisation of capacity on the route is impacted by demand seasonality.
Qantas sought and was issued an additional 152 weekly seats on the Sydney-Manila route. The additional capacity enabled Qantas to increase its weekly services from 6 to 7 per week in each direction.
Qantas also sought and was granted an additional capacity of 400 weekly seats on the Korea route with permission to use the capacity to code share on flights operated by Cathay Pacific and Cathay Dragon between Hong Kong and Korea. Currently, Qantas does not operate to Korea but uses its capacity allocation on the route to code share with Asiana Airlines between Incheon and Sydney and with Cathay Pacific and Cathay Dragon between Hong Kong and Korea (2019 Northern Summer IATA scheduling period, 31 March – 26 October 2019).
Virgin Australia sought and was granted renewal of its capacity allocations on the following routes: Cook Islands, Fiji, Indonesia, Korea, New Zealand, Papua New Guinea, Solomon Islands, Thailand, Tonga, United States of America and Vanuatu.
Qantas was granted renewal of its capacity allocations on the Japan (Haneda) route, all-cargo capacity on China and Thailand routes, and 14,468 seats for the exercise of third and fourth freedom rights and 2,148 seats for beyond traffic rights (with 12 frequencies per-week) on the Indonesia route; and unlimited capacity on the Singapore route.
Virgin Australia sought and was granted variation of various determinations to transfer the capacity allocation from Virgin Australia Airlines (SE Asia) Pty Ltd (VAASEA) to Virgin Australia International Airlines Pty Ltd (VAIA) on the following routes: Cook Islands, New Zealand, Solomon Islands, Tonga and Vanuatu. Virgin Australia also requested and was granted authorisation for VAIA’s wholly-owned subsidiary, Tiger International Number1 Pty Ltd to use the capacity allocations on the Cook Islands, New Zealand, Solomon Islands, Tonga and Vanuatu routes.
Codeshare applications remained a significant part of the Commission’s work. During the year, the Commission permitted Qantas to utilise its capacity allocations on the Japan and New Zealand routes for code shares between Jetstar and Finnair, Qantas was also authorised to code share with KLM, LATAM Airlines and Fiji Airways on the Japan route, and with Alaska Airlines and WestJet on the Canada and USA routes.
The Commission regularly monitors the utilisation of allocated capacity by Australian airlines. During the reporting period, the airlines have utilised most of the capacity allocated. On some routes seasonal markets see the airlines not fully utilising the allocated capacity. In these cases flexibility was provided to allow the mounting of additional services inline with market demand on the route.
In addition to the Qantas and Virgin Australia groups, Pacific Air Express and Tasman Cargo Airlines continue to hold capacity allocations. Tasman Cargo has an unlimited freight capacity allocation on the New Zealand route, and operates 5 services per week in each direction between Sydney and Auckland using a Boeing 767-300 freighter aircraft. Pacific Air Express has unlimited freight capacity on the China route, 17.5 tonnes per week in each direction on the Vanuatu route; one B747-equivalent service per week in each direction on the Nauru route; and 52.5 tonnes per week in each direction on the Papua New Guinea (PNG) route. Pacific Air Express is yet to commence freight services on the China route but has used its capacity allocations to operate freight services to Vanuatu, Nauru and PNG.
A brief summary of all determinations and decisions for 2018–2019 is at Appendix 1. A detailed description of each case is provided at Appendix 2.
The Commission's full determinations in these cases are available from its website, iasc.gov.au.
Case Study—Capacity utilisation
Introduction
In its annual report each year, the Commission includes a discussion of a more complex or sensitive element of its work. Often, the case study deals with one of the Commission’s more complex cases, and aims to provide an insight into the assessment of more complex contested applications. This year, the Commission has decided to discuss the ‘use-it or lose-it principle’. This principle is common in aviation, and is applied in a range of areas including airport slots as well as allocations of capacity. For the Commission, guidance is taken the International Air Services Commission Act 1992 (the Act), the International Air Services Commission Regulations 2018 (the Regulations) and the International Air Services Commission Policy Statement 2018 (the Policy Statement) made by the Minister for Infrastructure, Transport and Regional Development, which came into effect on 28 March 2018.
Capacity has to be fully used: legal basis
The Act requires that a determination made by the Commission must include a condition that the capacity be fully used, with very few exceptions.18 Every determination issued by the Commission therefore includes a condition requiring airlines to fully use the capacity allocated. In setting the use it or lose it condition, the Commission understands that some operational or administrative requirements may have to be completed before an airline can commence services on a route. For this reason, the Commission allows flexibility during an introduction period, and specifies in the determination a date by which the carrier is required to commence using the capacity. Determinations generally permit carriers to seek an extension of the utilisation date. In that case the Commission would generally grant such a request when the carrier justifies the delayed start and is able to assure the Commission of its firm plans to use the capacity.
Some bilateral arrangements include unrestricted capacity. These bilateral arrangements include China, Singapore, Switzerland, United Kingdom and United States of America.
Section 9 of the Regulations provides an exception to the general rule for these unrestricted routes. Under the Regulations, a determination is not required to include a condition that the capacity allocated be fully used where the capacity entitlements on the route in question are not restricted by the relevant bilateral arrangement (or combination of arrangements).
The Policy Statement provides that, when an airline applies for capacity on an unrestricted route, the Commission will issue the determination for a period of 99 years.
The Regulations provide that a determination allocating unrestricted capacity will no longer include a condition requiring the capacity to be fully used.
Monitoring of capacity utilisation
The Commission monitors the carriers’ utilisation of capacity allocations on a regular basis. At the start of every International Air Transport Association (IATA) scheduling period, the Commission asks all Australian carriers that hold Commission determinations to report on their utilisation of allocated capacity for each route. On routes where capacity is partly utilised, or not used at all, carriers may seek to retain the unused capacity. In this case, the carrier is asked to explain the reason(s) for the delayed utilisation, and to set out firm plans and a timeframe for the full use of the capacity. The Commission treats the airlines’ half yearly capacity utilisation reports on a confidential basis and does not release them to other aviation stakeholders without permission.
New routes do not always start as planned. Where an airline has not been able to commence services on a new route as originally planned, the airline will generally seek an extension of the time to fully utilise capacity. As with other delays, applications to extend the date of utilisation of capacity should provide reasons for the delay, and give a realistic time frame for the full use of the capacity.
Changing market conditions and increased competition may lead an airline to reduce capacity or exit a route. Where a capacity allocation is no longer required, the carrier concerned should seek a revocation of the relevant determination. Where flying on a route has been scaled down, the carrier is expected to apply for a variation of the relevant determination to reduce the capacity allocated.
Review of a determination
The Where a capacity allocation is no longer required, the carrier should apply to the Commission for a revocation of the determination under section 27AA of the Act. The Commission is required to make a decision revoking a determination when an application is received. The Commission is also required to make copies of the revocation decision available to the public and to publish a notice outlining the decision and advising where copies of the decision may be obtained.
Even where only a portion of the capacity is unused, the carrier is advised to apply for a reduction in capacity by applying for a variation of the determination, under section 21 of the Act. Section 10 of the Act requires the Commission to conduct a review in this case. Section 22 of the Act provides that the Commission is not required to notify the public or invite submissions about the review if there application is to reduce capacity.
The Commission informs the Department of every determination and decision, including the revocation of a determination that is issued. On the basis of the information provided, the Department updates the Register of Available Capacity which is published on the Department’s website. The Register of Available Capacity provides a list of capacity entitlements for each route which are available for allocation to Australian carriers. The Register is published and updated by the Department as soon as there are changes to capacity entitlements under the relevant bilateral arrangements.
Section 10 of the Act also empowers the Commission to initiate a review of an existing determination. A Commission-initiated review may only be conducted if the Commission is satisfied that:
- a) a term or condition of the determination has been breached; or
- b) due to a change of circumstances, it is inevitable that a breach of such a term or condition will occur; or
- c) where the Australian carrier no longer intends to fully use the capacity as required under paragraph 15(2)(c) of the Act.
Before the Commission conducts a review of a determination, it informs the carrier of the matters of concern to the Commission and invites the carrier to ‘show cause’ as to why a review should not be carried out. Airlines are generally given 10 working days to respond. After considering the carrier’s response, the Commission will then decide whether to proceed with a review and will notify the carrier accordingly. If the Commission has decided to conduct a review, it will publish its intention on its website, and invite submissions from interested parties.
Section 24 or the Policy Statement sets out the criteria that the Commission may have regard to in a review process where an Australian carrier has failed to fully utilise allocated capacity. The Commission may confirm, vary, suspend or revoke the determination, and can consider the following criteria:
- a) whether another Australian carrier has applied for capacity on a route and the unused capacity (allocated under the determination being reviewed) prevents the making of a determination in favour of the competing applicant carrier; and
- b) whether there is seasonal variation in demand on the route in question; and
- c) whether the carrier was prevented from fully using the capacity by circumstances that could not reasonably have been foreseen (for example, the inability to obtain commercially available slots in the foreign country); and
- d) any other matter that the Commission considers to be relevant.
The Commission understands that some markets have pronounced seasonal peaks. As a general rule, capacity may be retained by a carrier where it was used during peak periods in the last two or three IATA scheduling periods. The Commission would also generally permit the retention unused capacity where the carrier seeks future flexibility in its international operations and is able to demonstrate that it plans to increase its operated capacity at certain peak period(s) of the year.
Operational decisions by the Secretary
Section 9 of the Act mandates that the Secretary (or the delegate) must not make an operational decision in relation to capacity that is inconsistent with a determination issued by the Commission relating to that capacity, except when:
- the capacity relates to a non-scheduled flight within the meaning of the Air Navigation Act 1920;19
- the Secretary’s decision is made in other circumstances prescribed by the regulations.
An operational decision includes the approval of a carrier’s timetable schedule or a variation of such schedule. It also includes the approval of the type of aircraft to be used to operate a service or a variation of such type of aircraft, and the number of seats or frequencies to be operated.
There are limited circumstances when the Secretary (or delegate) may make an operational decision in relation to a carrier even if such decision may be inconsistent with a determination issued by the Commission. These circumstances are:
- When the capacity is to be used by a carrier to operate a non-scheduled flight. Non-scheduled flights do not require the use of capacity allocated under a determination issued by the Commission.
- When the Secretary (under section 6 of the regulations) makes temporary and minor operational decisions under the Air Navigation Act 1920 and the Air Navigation Regulations 2016. Such operational decisions may be made in a manner inconsistent with the capacity allocation issued by the Commission in the following situation:
(1) there is an existing operational decision and the subsequent operational decision has the effect of making a temporary and minor change to the existing operational decision to enable the carrier to meet seasonal, temporary or unusual demand; and
(2) there is available capacity on the route;
(3) the relevant bilateral arrangement (or combination thereof) permits the use by the Australian carrier of the capacity.
A practical implementation of section 6 of the Regulations is illustrated in the following example:
An Australian carrier may need to increase its services on a route to respond to a short term increase in demand. The carrier may apply to the Secretary to vary the amount of capacity it may operate and such application may be approved if all of the following elements are present:
(1) There is an existing determination issued by the Commission, which allocates
capacity to the carrier; and
(2) The Secretary has already issued an operational decision to the carrier (which is consistent with the determination issued by the Commission) — e.g., the carrier has been given a timetable approval to operate 28 frequencies per week in each direction consistent with the existing determination; and
(3) The additional capacity requested is a minor amount — e.g., one more frequency per week; and
(4) The additional capacity will be used to meet temporary and seasonal demand — e.g., to be used for only two months, from January to February to accommodate an increase in demand due to the skiing festival in a particular country; and
(5) There is capacity available to accommodate the request; and
(6) The relevant bilateral air services arrangement permits the use by the carrier of the additional capacity.
Using the example above, if the carrier plans to operate an additional frequency on a regular basis, (for example every winter season for the next five years), the Secretary will not make the variation to the existing operational decision unless the Commission has issued a determination allocating the capacity. In this situation, the use of the additional capacity will not be temporary, even if it is seasonal. The carrier must apply to the Commission for the allocation of the additional capacity.
If the situation involved 15 additional weekly frequencies rather than one or two to be used for a temporary period of two months, it is also likely that the Secretary would not make the variation to the existing operational decision as the proposed capacity variation is not minor.
The term ‘minor’ is not defined in the Act and the Regulations. It is therefore advisable for a carrier to first seek advice from the Department and the Commission whether its proposed increase of capacity would be considered ‘minor, temporary and seasonal’.
In general, the Commission’s intention is to see that allocated capacity is fully utilised.
Serving applicants and interested parties
The Commission uses the detailed commitments set out in its service charter as the framework for assessing its service performance. The specific undertakings in the service charter encompass both the ways in which the Commission engages with interested parties and how it makes its decisions. This framework provides the basis for an objective assessment of the Commission’s performance.
As in prior years, stakeholders were invited to assess the Commission’s performance by completing an online questionnaire that allows respondents to evaluate how well the Commission performed against each undertaking in the charter. Questionnaire responses may be made anonymously, although some of those responding chose to disclose their identity. The Commission appreciates the detailed responses, offering views on the Commission’s performance.
Respondent scores against each criterion are aggregated and averaged. For 2018–19, the Commission’s over-all performance was rated above average, which indicates that stakeholders continue to rate the Commission’s performance favourably.
The following charts summarise the feedback from stakeholders of the Commission’s service performance during the year:
Dealings with stakeholders—Do you agree that we:
Decision making process—Do you agree that we:
Decision times
The Commission records the time taken to make each of its decisions, and considers timeliness to be an important performance benchmark. The service charter indicates that the Commission will endeavour to make decisions about uncontested and unopposed applications within four weeks of receipt, and on contested or opposed applications within 12 weeks.
Three uncontested applications (Qantas on the Chile route; Virgin Australia on the New Zealand and PNG routes) took more than the usual four weeks to complete as the Commission was awaiting necessary information and documentation to complete a fully informed decision. Delay in the provision of the details of codeshare arrangements is a common cause of longer decision times.
This year, only the Qantas proposal to code share with Cathay Pacific20 on selected flights between Australia and Hong Kong was contested.
Detailed information about the Commission’s timeliness performance is contained in the following chart.
Distribution of decision times by type of case
Efficiency of financial resources
The Commission’s budget for the year was $444,000. These funds were made available from the resources of the Aviation and Airports Division of the Department. The Commission’s budget expenditure is mostly attributable to the salaries and superannuation of Secretariat staff and fees paid to Commission members including superannuation. Other expenditures include the Commissioners’ expenses in connection with their travel to Canberra to attend meetings and the production of the annual report. Most corporate overheads and property operating expenditures are paid for by the Department, as the Commission is housed in a departmental building.
The Commission’s total expenditure for 2018–19 was $455,500. The Commission’s small overspend met superannuation benefits not originally included in salary projections and slightly higher travel arrangements for interstate Commissioners to attend meetings in Canberra.
The Commission considers the expenditures to have been made efficiently and effectively. The Commission has delivered steady efficiency gains over a long period. During the year, officers from the Department provided administrative support to the Commission.
Part 5 of this report details the Commission’s financial performance.
17 Qantas and LATAM have two types of code share arrangements: a hard-block arrangement for code sharing between Australia/New Zealand and Chile and a free-sale arrangement for all other routes.
18 See paragraph 15(2)(c) of the Act
19 Non-scheduled international air services do not require the issue of a determination by the Commission although such flights require an operational decision by the Secretary under the Air Navigation Act 1920.
20 The proposal is for Cathay Pacific to market and place its code on specified flights operated by Qantas between points in Australia and Hong Kong when such service is part of a through journey connecting to an Australian domestic destination and/or an international destination behind or beyond Hong Kong.