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Does the current regime in Australia let big airports exercise their market power over passengers and airlines through unduly high charges, poor service quality, or both? The Productivity Commission’s report into the matter, examining the economic regulation of Australia’s main airports, was released yesterday.

On key points, the report says:

  • The four airports monitored by the Australian Competition and Consumer Commission (ACCC) – Sydney, Melbourne, Brisbane and Perth – have not systematically exercised their market power in commercial negotiations, aeronautical services or car parking.
  • However, some airport performance indicators could present cause for concern if considered in isolation. High international charges at Sydney and Brisbane airports, Sydney Airport’s profitability, and high operating costs at Perth Airport show that there is reason to remain vigilant.
  • On balance, most indicators of operational efficiency (including costs and service quality), aeronautical revenue and charges, and profitability are within reasonable bounds. Each airport has generated returns sufficient to enable investment while not earning excessive profits, and passengers consider airports to have good service quality.
  • Airport car park prices are consistent with the costs of service provision (including the opportunity cost of land) and the need to manage congestion. Competition from off airport car parks and alternative modes of transport are the best constraints on the exercise of market power at on airport car parking, but effective competition requires landside operators to have access to the terminal on reasonable terms.
  • The current approach to airport regulation benefits passengers and the community and remains fit for purpose at this time. But the monitoring regime should be strengthened to enhance transparency over airports’ operations and to more readily detect the exercise of market power.
  • Monitored airports should be required to report to the ACCC their revenues and costs from providing domestic and international aeronautical services to airlines. Separate reporting is needed to determine whether aeronautical charges are the result of an airport exercising its market power, or the higher costs of providing international services.
  • Airport operators should be required to provide more information to the ACCC on the terms of landside access to enable greater scrutiny of the airports’ performance.
  • Some agreements between airports and airlines contain anticompetitive clauses. These clauses should be removed from all agreements between airport operators and airport users.

The Commission would not hesitate to recommend regulatory changes, including price regulation, if airports were found to have systematically exercised their market power.

  • An airport specific negotiate arbitrate regime that bypasses the safeguards in the National Access Regime would have few benefits and substantial risks. It should not be implemented.
  • Regulatory arrangements for airlines to access Sydney Airport should be improved.
  • Airlines should be able to use any peak period slot for flights servicing regional New South Wales.
  • Measuring the number of actual aircraft movements once (rather than four times) an hour would help to achieve the intended 80 movements an hour, and benefit airlines and their passengers.
  • Alternative types of freight aircraft should be allowed to operate during the curfew, provided aircraft noise and the number of movements are not increased above current levels.
  • The structure of the markets to supply jet fuel at the monitored airports has likely led to higher prices to access infrastructure services and higher jet fuel prices. Conditions for competition are improving with some airports and fuel suppliers agreeing on lease arrangements for on airport infrastructure that include access for third party fuel suppliers.
  • Government funding for infrastructure at regional airports should be independently assessed to improve decision making. Governments should also improve capability at council operated regional airports to enable operators to better manage airport assets.

The full report can be downloaded here:

https://www.pc.gov.au/inquiries/completed/airports-2019/report/airports-2019.pdf

The Australian Airports Association (AAA) last night welcomed the release the report, which it said had “found the existing light-handed economic regulation of the industry is fit for purpose”.

“The Commission’s final report on the inquiry on the economic regulation of airports confirmed the system benefits passengers and the community and there was no case for regulatory changes as proposed by the domestic airline lobby,” the AAA said

AAA chief executive Caroline Wilkie said yesterday’s report was backed by substantial evidence and airports are ready to work with government and the airlines to implement the recommendations.

“The Commission has completed a detailed and rigorous independent analysis, involving 185 submissions, a series of public hearings and months of consideration of the evidence,” Wilkie said.

“We are pleased the facts presented over the course of this process have proven the significant benefits airports are delivering to our economy and community.

Wilkie said it was good to see common sense had once again prevailed in the debate over whether a new arbitration framework was needed, with the Productivity Commission confirming the airlines’ proposal would have substantial risks and should not be implemented.

“We’ve been disappointed by the domestic airlines’ misleading campaigning during the inquiry, which has needlessly damaged the good reputation of Australia’s aviation industry.

“Over the 12 months of the inquiry they have failed to make the case for more regulation and worse, have been unable to explain how their proposed reforms would be applied sensibly to the complexity of the negotiating environment between airlines and airports.

“With the final report now in it is time for the airlines to end their unedifying campaign aimed at increasing their own profits by reducing airport investment in capacity and facilities upgrades, which has been repeatedly and consistently discredited by independent experts.

“Airports are getting on with the job of delivering for the travelling public.

“Adoption of the Commission’s recommendations will provide the stability needed for Australian airports to continue to invest and grow.”