Price Regulation of Airport Services (2002)
This public inquiry has concluded. The inquiry report was released by the Commonwealth Government on 13 May 2002.
The Commission was required to report on whether there is a need for prices regulation of airports, and the appropriate form of any prices regulation, taking into account the following principles:
- the CPI-X price cap applied to aeronautical charges during the first five year period of private ownership will no longer operate
- future prices regulation should be applied to those aeronautical services and those airports where airport operators have most potential to abuse market power
- airport operators may propose to the inquiry alternative approaches to prices regulation which would provide equal or better protection to users
- prices regulation should minimise compliance costs on airport operators and the Government
- prices regulation should promote the efficient operation of airports
- prices regulation should facilitate benchmarking comparisons between airports, competition in the provision of services within airports (especially protecting against discrimination in relation to small users and new entrants), and commercially negotiated outcomes in airport operations
- the Commission may recommend more effective forms of prices regulation than are currently in place, where this may be necessary.
In making its recommendations, the Commission was to:
- review the operation of the existing prices regulation of airports
- identify the rationale for any future prices regulation at airports
- identify relevant alternatives to the current arrangements, including the prices oversight arrangements at relevant airports in other countries, and the extent to which these alternatives would achieve the rationale for any future prices regulation at airports
- analyse and, as far as practical, quantify the benefits, costs and economic and distributional impacts of the current arrangements and the alternatives identified
- identify the different groups, including the travelling public, likely to be affected by the current prices oversight arrangements and the alternatives identified
- list the individuals and groups consulted during the review and outline their views.
Terms of Reference clarification
Shortly after commencement of this inquiry, the Productivity Commission wrote to the Assistant Treasurer seeking clarification of Paragraph 7(a) of the inquiry's Terms of Reference. Under Paragraph 7, the Commission was asked to report on whether there is a need for prices regulation of airports, and the appropriate form of any prices regulation, taking into account a number of principles, the first of which states:
(a) the CPI-X price cap applied to aeronautical charges during the first five-year period of private ownership will no longer operate.
In its letter, the Commission stated:
The Commission understands that Paragraph 7(a) essentially conveys the Government's intention that the current price cap arrangements for Phase I and II airports will cease after five years of operation. It is also our understanding that paragraph 7(a) is not intended to preclude from consideration price cap arrangements of the general form of CPI-X as an option for future prices regulation of airport services, should some form of prices regulation be regarded as appropriate.
The Commission sought confirmation from the Assistant Treasurer that this general approach to prices regulation can be considered as one of the range of options where there is most potential for abuse of market power.
The Commission's understanding of paragraph 7(a) of the Terms of Reference was confirmed by the Assistant Treasurer in recent correspondence to the Commission.