The Australian Competition and Consumer Commission has warned that airport deregulation could result in higher charges for the travelling public. The comments are part of the ACCC's submission to the Productivity Commission's inquiry into price regulation of airport services.
"The submission provides a detailed assessment of the ongoing need for regulation of airport services and what form any regulations should take", Mr John Martin, the ACCC Commissioner responsible for airports, said today. "The submission draws on the ACCC's experience in regulating airports and the input of a number of independent experts.
"The submission concludes that there is a strong case for continued regulation of Australia's large airports. The reason is that these airports are regional monopolies. Except for smaller regional services there are no alternatives for travellers flying into cities such as Sydney, Melbourne or Brisbane.
"The alternative, deregulation, is likely to result in large increases in airport charges. These would be borne by airport users and would result in transfers from the travelling public to the privately owned operators of the airports. High airport charges also have the potential to damage Australia's tourism industry.
"Such increases in charges are not warranted. Advice from KPMG shows that pre-tax operating returns on net tangible assets at the large privatised airports (Melbourne, Brisbane and Perth airports) averaged a respectable 13.5% over the period 1997-98 to 1999-2000. At the same time profit performance seems in line with expectations. Melbourne Airport, for example, announced that it 'continues to perform ahead of the shareholders' bid business plan'.
"The potential for market failure in the provision of airport services has been widely recognised overseas. In every developed country governments have regulated prices at privatised airports - except in New Zealand. There, the outcomes of the so-called 'light handed' approach (the threat of price controls) have been disappointing. Airport charges in New Zealand are considerably higher than Australia, and airport operators and their customers have been bogged down in lengthy and costly litigation.
"Currently CPI-X price caps apply to all of Australia's larger privatised airports. The ACCC's submission recommends continued price cap regulation, but with a number of changes. The main proposals are as follows:
price cap major airports but not some of the smaller airports currently regulated such as Alice Springs, Coolangatta and Launceston airports. Monitor prices at these airports as a transitional measure;
introduce new provisions to encourage airport operators to undertake investment; and
continue to include taxi charges in the price cap.
"The ACCC also proposes broadening the services covered by the price cap to include aircraft refuelling services. The arrangements in place now only cover 'aeronautical' services. No price restraints apply to the other services. "The ACCC considers that the definition of 'aeronautical' is too narrow. The risk is that the regulatory measures will be ineffective with 'regulatory bypass'. There is already evidence of this. The current price cap aims to reduce airport landing charges over time. The introduction of fuel throughput levies at some of the airports has offset a substantial part of those reductions".