The Australian Competition and Consumer Commission today issued its final decision on proposals by Sydney Airports Corporation Limited to increase aeronautical charges at Kingsford Smith Airport.
"The ACCC's decision relates to aircraft landing charges, international terminal charges, apron use charges, helicopter charges and general aviation parking charges", ACCC Chairman, Professor Allan Fels, said today.
"The ACCC's decision is to object to the increase proposed, but not object to a lower increase. The decision will increase SACL's aeronautical revenue in 2000/01 from around $93 million to around $183 million, an increase of $90 million or 97 per cent. This compares to the increase sought by SACL of around 130 per cent.
"The price increase adopted in the final decision is higher than the increase proposed in the ACCC's draft decision. The $183 million in 2000/01 revenue in the final decision compares with $160 million in the draft decision, an increase of around $23 million or 13 per cent. Taking into account changes in traffic volume projections the 97 per cent price increase approved in the final decision compares with 79 per cent in the draft decision.
"The higher charges will be levied on airlines. If passed on to airline passengers, the increases will add around $3.00 to a domestic return flight from Sydney Airport and around $14 to an international return flight from Sydney Airport.
"The main reason for the higher prices in the final decision relates to the application of the 'dual till' methodology. Adjustments to traffic volume forecasts, operating and maintenance costs, asset valuations and depreciation also have some impact on the final price (a summary of the changes is provided in appendix 1).
"The revised approach to the dual till adds around $15 million per annum to SACL's revenues, an impact of around 50 cents per domestic return flight and $2.00 per international return flight.
"As in the draft decision, the ACCC's final decision adopts a dual till methodology as distinct from the 'single till' methodology proposed by airport users. The ACCC considers that the methodology has considerable merit. It focuses regulation on areas where the airport has market power and is more likely to promote efficient pricing outcomes than the single till. Those services which are relatively contestable, such as duty free, are not subject to prices oversight.
"However, the ACCC has reservations about SACL's application of the dual till methodology.
"In its draft decision the ACCC took SACL's financial performance in providing 'aeronautical-related' services into account. The rationale for taking this approach was that the resulting aeronautical prices would yield better economic efficiency outcomes and more effectively constrain market power than SACL's proposals. The aeronautical-related services taken into account included aircraft refuelling, check-in counters and car parks. They are already subject to monitoring under the existing regulatory framework.
"The ACCC's final decision moves away from this position. It adopts SACL's application of the dual till and does not take the financial performance of aeronautical-related services into account.
"The move from the position taken in the draft decision was taken after the Minister for Financial Services and Regulation issued a new direction on April 19 2001 (Direction no. 22) pursuant to section 20 of the Prices Surveillance Act 1983. This new direction is supplementary to the earlier Direction 18, which along with the provisions of the Prices Surveillance Act 1983 set a framework for the conduct of the inquiry.
"The Prices Surveillance Act 1983 allows the Government to direct the ACCC to give special consideration to certain matters in making its decisions. Section 20 of the Act requires the ACCC to comply with such a direction. In this case the ACCC considers that the direction warrants a departure from the approach taken in the draft decision.
"Previous price notifications relating to Sydney Airport have adopted a single till approach. Until now the Government has not clearly stated its position on the dual till or the boundary of the till.
"Direction 22 clarifies the Government's policy intent in relation to this issue. It states that 'the Commission should not take into account the revenue generated, or costs incurred, in the provision of services other than aeronautical services'. In effect the Government's policy intent is to apply the dual till approach on a narrower basis than proposed by the ACCC in its draft decision. In practical terms this means that aeronautical-related services and in particular car parks (where the ACCC identified an issue of market power) should not be taken into consideration in setting aeronautical charges at Sydney Airport. Implementation of the policy intent results in higher price increases than proposed by the ACCC in its draft decision.
"The ACCC notes that the Productivity Commission is currently considering these and other matters in its current inquiry into price regulation of airport services".