An effective regulatory regime is needed for the major airports in Australia according to a submission made by the ACCC to the Productivity Commission’s inquiry into the economic regulation of airports.
“In a large country like Australia, airports are critical pieces of infrastructure that provide for services that bring families and friends together, support business travellers and drive tourism and economic growth. Australian airports now provide for over 150 million airline passengers each year,” ACCC Chair Rod Sims said.
“Providers of key monopoly infrastructure such as the major airports are typically regulated to ensure that they will not exploit their market power to the detriment of consumers and the broader economy. This is not currently the case with Australia’s major airports.”
“It is important that key monopoly infrastructure such as Australia’s major gateways are regulated,” Mr Sims said.
The ACCC can currently undertake only limited monitoring of the airports in Sydney, Melbourne, Brisbane and Perth.
“Monitoring regimes can influence behaviour if there is a credible threat of regulation and this threat 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,” Mr Sims said.
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 are appropriate for the different services.
“It is important to ensure that the regulatory approach is fit for purpose and that the benefits of regulation outweigh the associated costs,” Mr Sims said.
Aeronautical charges
The ACCC notes that the monitored airports have significantly raised aeronautical charges to airlines over time. 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 changed little over this period, typically ranging between the high end of ‘satisfactory’ and ‘good’.
“High aeronautical charges imposed by airports need to be addressed by a more effective regulatory regime. While commercially negotiated outcomes are preferred, there is an imbalance in bargaining power between monopoly airports and airlines, particularly small airlines. To achieve this, the airlines need better access to information and recourse to commercial arbitration if a commercial deal cannot be struck,” Mr Sims said.
“Given that some of the second-tier airports such as Adelaide and Canberra potentially hold significant market power, the current inquiry provides an opportunity for the Productivity Commission to consider whether other major airports should be subject to similar types of regulatory oversight as the four monitored airports.”
Car parking
Airports continue to hold significant market power as the only providers of car parking on airport grounds. Car parking revenue has grown significantly at each of the four monitored airports over the last decade. The operating profit margin across the four monitored airports was 64 per cent in 2016-17.
“A study of international car parking prices also found that short term car parking prices at airports in Australia and New Zealand are higher compared with the average price at airports in both the Asia Pacific and the world,” Mr Sims said.
The airports provide landside access services to operators of various transport modes including taxis, hire cars and off-site car park operators. While revenues from these services are much smaller than those for aeronautical and car parking services, there have been concerns about airport behaviour in this area.
The four monitored airports earned a combined revenue of $47.9 million from landside activities in 2016-17, up 97 per cent in real terms since 2009-10. Furthermore, charges and access arrangements that airports set for landside access services can have some impact on the level of competition for the airports’ own car parking services.
The ACCC has concerns about airport market power in car parking and landside access services, but does not recommend stronger regulatory oversight for these activities beyond the current monitoring arrangements.
“Unlike for aeronautical services, there does not appear to be an obvious more effective approach to regulating car parking and landside access services. Further, monitoring and advising consumers may be more effective in relation to car parking than aeronautical services because there are some other ground transport options available,” Mr Sims said.
“In its monitoring and reporting the ACCC could inform consumers of the parking and travel options available. To promote competitive transport options the government could provide a formal direction to the ACCC to monitor landside access services which facilitate competition with on airport parking.”
Background
On 22 June 2018, the Government directed the Productivity Commission to undertake an inquiry into airport regulation in Australia. The Productivity Commission has previously conducted similar inquiries in 2002, 2006 and 2011.
The Productivity Commission released its issues paper for the current inquiry on 9 July, seeking submissions from stakeholders.
The ACCC has also been formally directed by the Australian government to monitor the performance of the four largest airports until 2020. It is required to monitor prices, costs, profits and quality of service of both aeronautical and car parking activities.
The ACCC’s submission is available on our website.
The latest ACCC’s airport monitoring report is available at Airport monitoring report 2016-17.