A long-running dispute between Qantas and Perth Airport over aeronautical fees ended on Friday with the Supreme Court of Western Australia setting down new passenger charges. Both parties welcomed the final judgement. However, the airport looks to have garnered the better outcome while Qantas warns of potentially higher fares in and out of Perth.

Long-running fees dispute ends

The dispute dates back to 2018 when the existing agreement on Perth Airport's aeronautical fees ended and Qantas refused to sign a new long term deal. The 25 other airlines operating into Perth all signed the new deal. Perth Airport said in court that Qantas accrued AU$11 million in unpaid aeronautical charges. Qantas says the airport wanted a 40% price increase.

"We obviously couldn’t agree to that," said Qantas Group Chief Financial Officer Vanessa Hudson on Friday. "After some frustrating negotiations, the airport took us to court for underpayment instead of accepting our suggestion of an independent arbiter."

But Ms Hudson said Friday's court decision was positive because it upholds the building block model that is the established basis for setting prices. However, it also sets a return on investment the airline thinks is far too high for a low risk monopoly infrastructure asset like Perth Airport.

“Excessive returns for monopolies usually result in overinvestment to chase returns, which customers ultimately end up paying for," the CFO warned.

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Perth Airport (pictured) says all carriers except Qantas accepted a new long-term fees deal. Photo: Perth Airport

Decision upholds airline industry building block standard

Ultimately, Judge Rene Le Miere took the middle path on Friday. Qantas will pay slightly more than it would like to fly in and out of Perth while the airport will get slightly less than it asked for.

The industry standard ‘building block model’ of setting pricing for monopoly airports means fees should be based on the cost of providing the service. But the Judge Le Miere also provided for a figure of 9.6% as the allowed return on that investment (the weighted average cost of capital). Qantas says that's higher than the norm at other comparable monopoly airports in Australia and overseas.

"An assumed return on investment of almost 10% for Perth Airport could ultimately put significant upward pressure on fares," the airline said.

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Perth Airport says it looks forward to resolving outstanding payments and working amicably with Qantas in the future. The airport's expectation is that Qantas will now pay in excess of AU$9 million to make up for the short payments it made to Perth Airport from July to mid-December in 2018.

"We are glad to have received a judgment and the outcome has recognized the fairness of the open and transparent consultative manner in which Perth Airport negotiates prices with our airline partners," said Perth Airport CEO Kevin Brown.

"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.”

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Perth Airport is normally the jumping off point for Qantas' flagship QF9 nonstop service to London. Photo: Qantas

Perth Airport says its looks forward to working with Qantas in the future

Friday's judgement followed a trial last year during which, according to The Australian newspaper, allegations of overcharging by both parties were aired. Qantas accused Perth Airport of charging the airline for terminal Christmas decorations and general corporate marketing expenses. The airport countered that Qantas was charging passengers AU$17.28 in airport fees in 2018 but only passing on $10.61.

Qantas also says Perth Airport is yet to pay for the purchase of Terminal 4 in 2019, for which the airline has received valuations in excess of AU$150 million.

The statements from Qantas and Perth Airport after the ruling on Friday indicated a willingness to accept the decision and move forward. Qantas seems happy to write the check and get on with it. Perth Airport just wants to rebuild its business after a torrid two years.

“Perth Airport welcomes the decision and looks forward to working with Qantas as we rebuild the sector,” Mr Brown added.