Light-handed regulation of Australia and New Zealand’s airports has been ineffective at protecting consumers from higher charges due to their monopoly power, a report says.
The findings are in the “Performance and Impact of Australia’s Airports Since Privatisation” report prepared by Frontier Economics and commissioned by recently-formed lobby group Airlines for Australia and New Zealand (A4ANZ).
The report, released at Parliament House in Canberra on Thursday, called for changes to the current way airports are regulated, which has been in place since the start of the century.
“Australian passengers and our economy are paying the price of airport privatisation in the absence of appropriate constraints on monopoly power,” the report says.
“More effective regulatory pressure is required to prevent excessive profits by airports and return more value to consumers and the economy.
“Monopoly infrastructure operators have the ability to raise prices above a level that would prevail in competitive markets and little incentive to improve services above a minimum standard of service quality, to the detriment of economic efficiency and the living standards of consumers.”
A4ANZ’s membership comprises Australia’s and New Zealand’s major airlines – Air New Zealand, Jetstar, Qantas, Regional Express, Tigerair Australia and Virgin Australia.
The organisation was formed in March 2017 to represent the airline industry’s interests and lobby against including lobbying efforts to fight infrastructure constraints, high taxes and other matters of aviation policy.
The report cites figures from IATA Economics, the independent economic consultancy of the International Air Transport Association, that passengers would have saved $180 million through lower charges if airport passenger charges had remained at their 2008 levels instead of increasing over the past decade at the four Australian airports of Brisbane, Melbourne, Perth and Sydney.
A4ANZ chief executive Alison Roberts said the report showed airports have been using their monopoly position to earn excessive profits “in the absence of a credible regulatory threat”.
“This is a trend that began over a decade ago and shows no sign of stopping,” Dr Roberts said in a statement.
“A4ANZ is not a lone voice in suggesting that our economy could benefit from a change in the regulatory settings for airports, to mimic the effects of a competitive market.
“As others have noted, Australia is lagging behind the rest of the world in protecting air travellers from monopoly airports.
“Our report makes it clear that it’s time for Australia to catch up and ensure our regulatory system can do what it is supposed to, which is to protect consumers from monopolies.”
The report put forward a “negotiate-arbitrate” model as one that would be “most likely to result in genuine commercial negotiations between airlines and airports to effect fair outcomes for airport users”.
Under the proposed scheme, the ACCC would give consideration to “final offer arbitration”, a method the report said had been used in various sectors in Canada and the United States.
“The final offer chosen by the arbitrator binds the parties to the dispute and in most applications, forms the basis of an agreement between them for the provision of services,” the report said.
“In Australia, the adoption of final offer arbitration would be unlikely to require legislative direction but could be adopted by the ACCC through an amendment to its guidelines, providing an indication to the parties as to its approach to arbitrations.”
“With the arbitrator selecting one party’s final position (or parts of each party’s final position) without the possibility of compromise or variation, the risk of arbitration is raised and therefore, increases the incentives for the parties to bargain and negotiate on reasonable terms prior to the regulator’s involvement.
“In other words, creating a highly credible threat of intervention.”
A4ANZ chairman Graeme Samuel said it has been consumers that have lost out from the current setup and change was in everyone’s interests.
“In the absence of an effective regulatory regime, airport privatisation has ultimately resulted in higher costs for both airlines and passengers,” Prof Samuel said.
“Consumers are the ones who ultimately lose in this scenario, whether it’s the exorbitant landing and service fees paid by airlines on the passenger’s behalf, their car parking fee, taxi surcharge, or the bottle of water they buy in the terminal.
“No one is suggesting the airports don’t deserve to make a decent profit. But the current levels of profit are excessive, and it’s ultimately being paid for by the travelling public.
“Given the importance of air travel to the national economy, A4ANZ and its member airlines are committed to maintaining positive, constructive commercial relationships with airports.”
The A4ANZ commissioned report follows the latest release of the Australian Competition and Consumer Commission (ACCC) Airport Monitoring Report for 2016/17, which said average revenues per passenger had increased by 25.9 per cent in real terms across the four airports of Brisbane, Melbourne, Perth and Sydney over the past decade.
Further, the ACCC report said Brisbane and Perth were rated “good” in terms of quality of service, while Melbourne and Sydney were given a “satisfactory” rating in that category.
Australian Airports Association backs current regulation regime
The industry group representing the nation’s airports, the Australian Airports Association (AAA), said in response to the Frontier Economics report that Australian airports had spent $11.5 billion spent on airport improvements over the past 10 years to increase efficiency, enhance the experience and attract new services.
“Attracting international airlines and growing competition has been key to the rise of the tourism industry as a power house of Australian small business and regional economies,” AAA chief executive Caroline Wilkie said in a statement.
“The current regulatory regime for Australian airports has served airlines, airports, Australian and overseas travellers and the broader economy extremely well.
“Airports have enabled significant economic growth since privatisation, giving passengers access to more of the world than ever before and supporting our growing visitor economy.”
Canberra Airport incident highlights tensions that can exist between airports and airlines
The tension that can exist between an airline and an airport was in sharp focus earlier in May when reports emerged of a March 2017 incident where a Qantas Boeing 737-800 had been delayed from departing Canberra Airport after diverting there while en route from Auckland to Sydney due to weather.
Qantas claimed the incident was Canberra Airport “essentially ransoming an aircraft full of passengers on the tarmac by parking a car behind it”.
Canberra Airport labelled the claims that aircraft and the 170 odd people on board were held hostage until a diversion charge was paid “absolute baloney”.
The reporting of a March 2017 diversion more than a year after it occurred came amid Canberra Airport’s efforts to seek an improvement in the number of flight cancellations on key trunk routes from the nation’s capital to Brisbane, Melbourne and Sydney.
The airport, owned by Terry Snow’s privately-held Capital Airport Group, has been vocal about the high rate of cancellations, even calling for the government to become involved.
In late 2017, the airport announced an incentive payment for airlines to try to get the percentage of cancelled flights down close to the national average, as measured by the Bureau of Infrastructure, Transport and Regional Economics (BITRE).