Productivity Commission releases airport services draft report

written by australianaviation.com.au | August 23, 2011
The Productivity Commission says that airport "aeronautical charges do not indicate misuse of market power". (Rob Finlayson)

The Productivity Commission has released its draft report into the economic regulation of airport services, recommending that the ACCC be given more regulatory powers over airport price structures.

While categorising airport aeronautical charges as “generally satisfactory”, presiding commissioner Wendy Craik said the report held concerns over a ‘take it or leave it’ approach made by airports in price negotiations with airlines and operators. However, the report maintained that commercial negotiation was still the preferred option for all parties concerned, as opposed to reverting back to the previous regulated price setting.

“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…ACCC has suggested might be misusing its market power,” the Commission said in a statement.

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“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,” it added.

“To underpin this, the Commission proposes that price monitoring continue for all of the airports that are currently monitored.”

Aside from increased regulatory power by the ACCC, a number of key points were highlighted by the draft report, including the following:

  • Under light-handed regulation, airports have continued to invest to meet the growth in air travel, without the bottlenecks that have beset other infrastructure areas (since the removal of pricecaps)
  • Commercial agreements with airlines are becoming more sophisticated and now can often include: service level obligations, price paths subject to variation in agreed circumstances; consultation on capital investment; and dispute resolution.
  • Successive Australian governments have not acted on the regulator’s concerns that some airports might potentially be misusing their market power.
  • Further action, such as deemed declaration and mandatory codes of conduct, would fundamentally alter the nature of commercial negotiation and are not warranted.
  • Access charges paid by competitors to on-airport car parking are not so high as to impede competition, but conditions of access are less transparent. Concerns that airports ‘inefficiently delayed’ investment in car parks are difficult to substantiate.
  • Access to airport precincts in most major cities is congested, owing to inadequate arterial roads and insufficient mass transit services – sometimes because government contracts place anti-competitive restrictions on rival services. And;
  • A raft of reforms, including new consultative forums, to better integrate airport transport planning across jurisdictions has been introduced. A review of the efficacy of these changes should be undertaken in 2015.

Members of the public and industry groups are being urged to comment on the draft report before a final submission is made to the federal government in December.

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