Aviation

“Disappointing”: Airline industry slams Productivity Commission’s airport regulation recommendations

Huntley Mitchell

Huntley Mitchell

The airline industry has urged the Productivity Commission to rethink the recommendations contained in its draft report from the Inquiry into the Economic Regulation of Airports.

According to the report, released today, the four airports monitored by the Australian Competition and Consumer Commission – Sydney, Melbourne, Brisbane and Perth – have not systematically exercised their market power to the detriment of the community.

The report said each airport has generated returns sufficient to promote investment while not earning excessive profits.

“Most indicators of the monitored airports’ operational and financial performance are within reasonable bounds, although some could present cause for concern if considered in isolation,” it said.

The report found there was no reason for airport operators to become complacent, noting that further scrutiny of some aspects of airports’ performance is warranted, and tailored reforms are needed to address specific areas of concern.

“Sydney, Melbourne, Brisbane and Perth airports have market power in services provided to Airlines, according to the report,” it said.

“Charges to airlines for international services at Sydney and Brisbane airports, in particular, are high compared to overseas airports.”

The Productivity Commission recommended that Sydney, Melbourne, Brisbane and Perth airports should be required to separately report revenues and costs of providing domestic and international services to airlines.

It also said separate reporting is needed to determine whether charges are the result of an airport exercising its market power, or the higher costs of providing international services.

The report found that airports could exercise their market power in landside access services, such as for those used by taxis and shuttle buses, to encourage people to use airport-owned car parks, but there was “insufficient data” to determine whether this is the case.

“The collection of detailed data on access charges, terms of access, costs and revenues for landside services would enable an assessment of exercise of market power in landside access,” it said.

On balance, The Productivity Commission found that commercial negotiations between airports and airlines give little cause for concern.

However, it did note that some agreements contain clauses that constrain an airline’s access to regulatory remedies for the exercise of market power and clauses that restrict an airport’s ability to offer incentives to airlines other than the signatory airline.

“These clauses are anticompetitive and should be removed from all agreements,” it recommended.

The report acknowledged that while many consumers resent the cost of car parking at the monitored airports, car parking charges are not due to airports exercising their market power

It said that the price of parking at-terminal can largely be explained by the value passengers place on convenience, the limited amount of land close to the terminal, and the need to manage congestion.

Qantas and Virgin Australia will be disappointed by the report, having accused the airports of gouging them, and were hoping the Productivity Commission would recommend a new body that could rule on disputes.

Airlines for Australia and New Zealand (A4ANZ) has issued a scathing response to the draft report, and calling for the Productivity Commission to urgently rethink its recommendations.

“It beggars belief that the PC could simply set aside such highly credible evidence from experts both in Australia and internationally in their choice not to suggest real change,” A4ANZ chair Graeme Samuel said.

“It is clearly a totally inadequate solution to simply suggest increased monitoring in a regime that the ACCC itself acknowledges has no powers to enforce.

“It is similarly useless to make additions to pricing principles which are currently ignored by airports in their negotiations with customers, as there are no penalties for non-compliance.”

A4ANZ chief executive Alison Roberts said that none of the recommendations, if ultimately adopted by government, would change the status quo, and more unproductive disputes were likely to occur.

“We are not seeking restrictive regulations imposed on airports – we know that can stifle growth,” he said.

“But as an industry, we can’t do nothing. We need a regime that encourages innovation and efficiency and we don’t have that right now – we just have high airport profits at the expense of consumers.

“What is needed isn’t complex. Access to arbitration when negotiations break down should be provided for all airports with monopoly characteristics. This is standard, commercial practice. Why should airports be treated any differently?”

The Productivity Commission continue to accept submissions to its inquiry before delivering the final report within the next 12 months.

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