Report

Economic regulation of airports

22 Oct 2019
Description

This report was sent to Government on 21 June 2019 and publicly released on 22 October 2019.

The report examines whether current regulatory arrangements constrain the ability of airport operators to exercise their market power over passengers and airlines through unduly high charges, poor service quality, or both.

Recommendations are presented to enhance transparency over airport performance and to more readily detect any future exercise of market power by airport operators.

Key points:

(1) 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.

(2) 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.

(3) 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.

(4) 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.

(5) 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.

(6) 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.

 

 

Publication Details
Identifiers: 
isbn: 
978-1-74037-679-2 (PDF)
Language: 
English
License Type: 
CC BY
Published year only: 
2019
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