Aircraft of the ADF- Bell Iroquois

The Commission found that the suppression of competition caused by the protection of a small number of operators on specific routes was keeping fares higher than they needed to be. Worse still, this was holding back the development of regional centres, since “many regions currently served by regulated carriers are foregoing the growth in traffic and associated tourist activity which has frequently accompanied deregulation elsewhere”.

Its conclusion was that costs of continued regulation outweighed any benefits, and recommended that it be dismantled.

The Commission predicted that after deregulation fares would fall and the overall quality of service would rise, with a greater number of flights available, albeit in smaller aircraft on some routes. This had been the experience elsewhere in Australia as well as overseas.

Deregulation would have the greatest impact in Tasmania, where scheduled intrastate airline services are currently provided by one licensed monopolist, Airlines of Tasmania. In NSW entry to most routes is also still restricted, although on some routes an additional operator is to be permitted. In granting licences, the NSW Air Transport Council also specifies aircraft size, seat capacity limitations and frequency of service on most routes.

The Commission was clearly not impressed by NSW’s claim that it was moving towards greater competition by allowing more than one operator on some routes, saying that “the practice of licensing two operators on some major routes has the potential to create some competitive pressures. However, the experience of the two airline policy in interstate aviation suggests that the prospects of achieving meaningful competition with a regulated duopoly are small”.

The Commission heard submissions from a wide range of airlines and community groups, not all of whom were in favour of a free market. Hazelton Airlines argued that “deregulation will destabilise the aviation industry and cause irreversible damage to the aviation infrastructure within this state”. This view was not supported, however, by the CAA and groups such as the NSW Farmers ‘ Association, or indeed by the data gathered by the Commission from deregulated routes both in Australia and overseas.

After reviewing the evidence, the Commission said that “In most cases, concerns about existing services being terminated or failing to meet users’ requirements are misplaced. Australian and overseas experience suggests that thin routes will generally continue to be serviced following deregulation. Although smaller aircraft may be employed, associated increases in the frequency of service are commonly regarded as improvements in the quality of service”.

This was shown to be the case in NSW, where in September 1991 Hazelton Airlines withdrew from 14 of the “thinnest” routes, which were then declared “deregulated”. New, smaller operators quickly moved in, and to date, not one of these routes has lost its air services. In some cases there is now more than one operator, and competition has lowered fares, exactly as predicted.

The Industry Commission recommended that if there was the real possibility that a remote community would lose its air services, and the Government wanted it maintained, it could do so by direct subsidy (as is done in Queensland and WA), rather than through inefficient cross-subsidisation from other, more profitable routes.

The Commission also dismissed the rationale that regulation in NSW was necessary to avoid unacceptable congestion at Sydney Airport. It pointed out that “the majority of movements at KSA are not associated with intrastate aviation, but with the now deregulated interstate aviation market. In principle, if congestion was to be addressed by using regulation to suppress demand, it could be argued that such regulation should apply equally to interstate and international fights”.

The report also showed how congestion might be reduced by a more rational and efficient system of landing charges, based on the willingness of all operators to pay, rather than singling out general aviation operators for special charges. It also pointed out that the reduction of congestion is really the responsibility of the CAA, which has been addressing the problems through operational initiatives such as simultaneous use of intersecting runways, rapid exit taxiways and discussions with airlines to reduce cluster scheduling.

The Industry Commission also went on to examine the charging policies and practices of the FAC and CAA, where it found many areas of inefficiency. Recommendations to the FAC for improving airport services included:

·That each airport should recover all costs and meet a real rate of return;

·That instead of the general aviation infrastructure tariff (GAIT), landing charges should be related more closely to the specific airport used, frequency of use, and the services used by each aircraft, so that all costs are fully recovered from the operators who use them;

·That some smaller FAC airports should be leased or sold to state governments or private interests;

·That all aspects of airport operations should be subject to the general provisions of the Trade Practices Act and the Prices Surveillance Act;

• Independent review of peak and shoulder period surcharges at Kingsford Smith Airport and exemption of RPT aircraft if the charges are found to be justified. Other recommendations were made concerning the CAR. s : evaluation of services, which included: That the CAA should meet a real rate of return target, based on earnings before interest and tax, and relate only to assets which are necessary to perform its functions efficiently, including safety related services;

·The possibility of privatisation of air traffic control services at Australian airports other than the six major capital city, Cairns and Coolangatta; The removal of cross subsidisation between different users, to ensure that each group paid for the services they used. For instance, avgas users in remote areas (eg agricultural aircraft) should not be compelled to pay for CAA services they may rarely use.

The Industry Commission was confident that the adoption of its recommendations would be beneficial to the wider community, and would not result in any significant adverse social or environmental consequences.