There has been a marked increase in investment at Australian airports since the removal of pricecaps, without the bottleneck problems that have beset other infrastructure areas. According to a draft report released by the Productivity Commission, aeronautical charges do not indicate misuse of market power, quality outcomes are generally satisfactory and airport charges and profits look reasonable compared with outcomes at airports overseas. However, relationships between some airports and their customers have been strained.
Speaking on the release of the draft report - Economic Regulation of Airport Services - Presiding Commissioner, Wendy Craik observed that, although commercial agreements between airports and airlines are increasingly sophisticated, airlines contend that some airports simply adopt a 'take it or leave it' stance to negotiation. However, all parties want to persevere with commercial negotiation, with none seeking a return to regulated price setting.
Dr Craik said that the regulatory framework can be improved. The presence of a credible threat of sanction for any airport that abused its market power is fundamental to the effectiveness of the light-handed approach. Yet Australian governments have never initiated a pricing review of any airport that the Australian Competition and Consumer Commission (ACCC) has suggested might be misusing its market power.
The Commission is proposing that the ACCC be afforded the power to direct an airport to 'show cause' why its conduct should not be subject to a 'forensic' price investigation and, if it is dissatisfied with the response, to recommend that the Government activate such an investigation.
To underpin this, the Commission proposes that price monitoring continue for all of the airports that are currently monitored.
Dr Craik said that these changes would 'continue to avoid the costs of heavy-handed regulation, while ensuring that all parties understand that inappropriate behaviour carries real sanctions for airport operators'.
The Commission is seeking responses to its draft recommendations before submitting its final report to the Australian Government in December 2011.