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Productivity Commission inquiry into the economic regulation of airports: ACCC submission in response to the issues paper

Airports Privatisation Competition Sector regulation Australia
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The ACCC has provided this submission to the Productivity Commission, in response to the issues paper in relation to its inquiry into the economic regulation of airports.

Airports are critical pieces of infrastructure that provide for services that both enrich people’s lives and drive economic growth. Australian airports now provide for over 150 million airline passengers each year.

In Australia, providers of key infrastructure services with natural monopoly characteristics similar to those exhibited by the major airports are typically regulated to ensure that they will not exploit their market power to the detriment of consumers. This is not the case with Australia’s major airports.

The airports of Sydney, Melbourne, Brisbane and Perth operate under a limited monitoring regime. Effective monitoring regimes can influence behaviour if the monitored companies consider that reporting of undesirable behaviour, such as high prices or declining service quality, could be met with regulation. This threat of regulation may have constrained behaviour in the past when the airports were first privatised. However, we do not consider that the current regime is effective in constraining behaviour. Moreover, any remaining threat of regulation will be further diminished if the Productivity Commission recommends against regulation in its fourth review of this nature.

The ACCC recognises that airports provide a range of services, including aeronautical, car parking and landside access services. The degree of market power they hold in the supply of those services can vary. As a result, different regulatory approaches may be appropriate for different services. It is therefore important to ensure that the elements of a regulatory approach are fit-for-purpose and that the benefits outweigh associated costs.

The ACCC notes that the monitored airports have significantly raised aeronautical charges to airlines over time. Revenue per passenger is a useful proxy for showing movements in airport charges. Over the last decade, revenue per passenger has increased in real terms by 59 per cent at Perth Airport, 36 per cent at Brisbane Airport and 31 per cent at Melbourne Airport. Sydney Airport’s revenue per passenger has increased at a more subdued rate over this time (15 per cent). However, Sydney still maintains the highest revenue per passenger of the four airports with the airport almost doubling its charges just before it was privatised in 2002. The increases across the four airports over the last decade represent an additional $1.3 billion in payments from airlines.

Despite these significant increases in charges, only Perth Airport has materially improved its overall quality of service. The ratings for the other airports have been settled over this period, typically between the high end of ‘satisfactory’ and ‘good’.

The ACCC considers that high aeronautical charges imposed by airports need to be addressed by a more effective regulatory regime. In the past, the Productivity Commission has not been sufficiently concerned with airport charges to recommend regulation because it has taken the view that such charges simply represent an economic transfer from airlines and passengers to airports, with no reduction in output. The ACCC considers that transfers in monopoly pricing have significance and would need to be examined carefully. In any case, the ACCC considers that the total economic welfare loss due to high airport charges is likely to be higher than previously considered by the Productivity Commission.

The Productivity Commission may wish to consider whether airlines would be better positioned to negotiate with airports if airlines were provided with additional information. This could be supported by the ACCC having the ability to create record-keeping rules for airports as it does in telecommunications.

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