Economic Regulation of Airport Services

Key points

These key points were released with the Economic Regulation of Airport Services inquiry report on 30 March 2012.

  • Some Australian capital city airports possess significant market power, whereas other airports are in a weaker bargaining position. Under the light-handed monitoring regime that replaced price cap regulation:
    • there has been a marked increase in aeronautical investment and airports have not experienced the bottlenecks that have beset other infrastructure areas
    • aeronautical charges do not point to the inappropriate exercise of market power
    • service quality outcomes overall are 'satisfactory' to 'good', although airlines have, on occasion rated two airports as 'poor'
    • Australian airports' aeronautical charges, revenues, costs, profits and investment look reasonable compared with (the mostly non-commercial) overseas airports.
  • Commercial agreements with airlines are becoming more sophisticated. Agreements often include service level obligations, consultation on capital investment, price paths and dispute resolution when 'in-contract', but not during contract formation.
  • And while airlines maintain that airports adopt 'take it or leave it' negotiation stances and some fail to provide adequate information, no party sought a return to regulatory price setting, given past experience with its associated costs.
  • Price monitoring aims to constrain airports from inappropriately exercising any inherent market power. But neither the regulator nor Governments have acted when the regulator has raised the possibility that some airports might potentially be exercising market power.
  • Where the regulator, in undertaking its monitoring role, finds prima facie evidence that an airport has misused its market power, the airport should be required to 'show cause' why its conduct should not be subject to a 'forensic' Part VIIA price inquiry. If the regulator is dissatisfied with the airport's response it should formally recommend that the Government institute such an inquiry.
    • An airport that offered an 'approved' dispute resolution framework with binding arbitration during contract formation would not be subject to such a price inquiry.
  • The access charges and conditions faced by competitors to on-airport car parking are not so high as to impede competition. However, because of vertical integration, charges and conditions should be public and included in monitoring reports.
    • Such transparency would facilitate regulatory action under competition law if an airport acted to impede competition in order to inflate its car park prices or revenues.
  • Access to airport precincts in most major cities is congested owing to inadequate arterial roads and insufficient mass transit services.
    • Developments on airport land (a Commonwealth responsibility) can also add to congestion on connecting transport links (state and territory responsibilities)
    • Recent reforms to better integrate airport transport planning across jurisdictions have been introduced. A review of their efficacy should be undertaken in 2015.
Background information
Alan Johnston (First Assistant Commissioner) 02 6240 3225