Australian Competition and Consumer Commission (ACCC) chairman Rod Sims says the growth in operating profits at the nation’s four biggest airports is no surprise, given they face “little competitive pressure and no price regulation”.
On Thursday, the ACCC published its Airport Monitoring Report for 2016/17, which noted Brisbane, Melbourne, Perth and Sydney Airports all increased their operating profit, or earnings before interest, tax and amortisation (EBITDA), from aeronautical activities in 2016/17.
The report said the quartet’s combined operating profit rose 9.9 per cent to $757.6 million in 2016/17, compared with the prior year.
Meanwhile, aeronautical profit margins, which measures how much an airport retains in earnings for every dollar of revenue, ranged from 34.9 per cent at Perth Airport to 46.8 per cent at Brisbane Airport.
“It is not surprising that the airports are so profitable, given that they face little competitive pressure and no price regulation,” Sims said in a statement.
“Profits per passenger have also risen at each of the four airports and travellers are paying for this through higher ticket prices.
“We remain concerned that the current regulatory regime which is limited to monitoring the covered airports, doesn’t constrain the market power of four of Australia’s major airports.
“Unconstrained monopolies often have an incentive and ability to charge excessive prices while lacking strong incentives to improve services.”
The Airport Monitoring Report said average revenues per passenger had increased by 25.9 per cent in real terms across the four airports over the past decade.
The Australian Government is expected to ask the Productivity Commission to conduct an inquiry into the economic regulation of airports later in 2018. The Productivity Commission last considered the matter in 2011.
Monopolies “need to be held to account”
Airlines for Australia and New Zealand (A4ANZ) chairman Graeme Samuel said there was a need for greater oversight by the ACCC to encourage or, if required, “force constructive, commercial engagement to minimise the negative impact of the airports’ monopoly powers”.
“The ACCC report reinforces my long-held view that monopolies need to be held to account by a credible threat of regulatory intervention,” Samuel, a former ACCC chairman, said in a statement.
“Australia needs a regulatory framework that drives airport-airline negotiations to produce better outcomes for consumers, through improved efficiency in the allocation of resources and targeted investment.”
“In practice, there is no incentive for airports to deliver efficient services or have genuine commercial negotiations with airlines, with competition legislation changes made by Parliament in late 2017 further restricting airlines’ ability to seek ACCC intervention to bring airports towards a level playing field.
“All that price monitoring achieves is to provide some transparency over the monitored airports’ financial and service performance and allows for general observations to be made over their taking advantage of their monopoly position.”
A4ANZ’s membership comprises Australia’s and New Zealand’s major airlines – Air New Zealand, Jetstar, Qantas, Regional Express, Tigerair Australia and Virgin Australia – and was formed in March 2017 to represent the airline industry’s interests in government aviation policy, including airports and taxation.
The industry group representing the nation’s airports, the Australian Airports Association (AAA), said it was “disappointed” the ACCC chairman had made “misleading comments regarding the pricing of aeronautical services at major airports”.
AAA chief economist Warren Mundy said he was surprised by the ACCC chairman’s comments that higher airport charges have led to higher ticket prices.
“This is a peculiar observation by Mr Sims seeing that the monitoring report contains no data on airfares,” Dr Mundy said in a statement.
“Airport charges have risen to fund investment and these charges, along with the investments, have been determined by negotiation between airports and airlines. These investments have created the infrastructure capacity necessary for Australian airlines to grow and international carriers to enter the market. That’s why ticket prices have fallen, not increased as suggested by Mr Sims.”
Dr Mundy also backed the current arrangements covering the regulation of Australia’s airports, saying “the regime is not broken and it will deliver continued investment over the next decade”.
“It is essential we maintain the current regulatory environment that promotes private investment, largely by Australian superannuation funds, and ensures airports remain focused on delivering the best possible outcomes for passengers and their airline partners,” Dr Mundy said.
“This regulatory approach adopted by the Howard Government and supported by successive governments has facilitated passenger growth, new technology and innovation over the last 15 years.”
Airports rated “satisfactory” or “good” for quality of service
The ACCC report said Brisbane and Perth airports maintained their “good” rating for overall quality of service, with Perth leapfrogging Brisbane to become the highest rated airport for the first time.
“Perth Airport’s investment program has likely contributed to the notable improvements in its quality of performance measures over the past three years,” the ACCC report said.
“The airport was rated as ‘good’ for both its international and domestic terminals, while aircraft-related services were rated as ‘good’ for the first time in the last decade.”
Perth Airport chief executive Kevin Brown said the airport’s profit margin per passenger had increased by about $1.50 per person over the past 10 years, which reflected the airport’s investment program.
“When we invest we want to deliver greater efficiencies for airlines and a better travelling experience for passengers,” Brown said in a statement.
“This report confirms we’ve really hit the mark. Passengers are enjoying a better customer experience while airlines are benefiting from both streamlined operations and happier passengers who want to travel more.”
Brisbane Airport noted it was the 14th year in a row it had achieved a “good” rating for overall quality of service.
“While Brisbane Airport continues to be rated very favourably across the board, there’s always room for improvement and these surveys help us identify where our focus should be,” Brisbane Airport chief executive Julieanne Alroe said in a statement,
“Importantly, the quality of airport services and facilities has improved significantly since privatisation in 1997 and will continue to improve as new technology is integrated and billions of dollars of private investment in infrastructure continues to transform our airports.”
Meanwhile, Melbourne and Sydney retained their “satisfactory” rating.
“Their ratings have remained relatively unchanged over the past few years, sitting slightly below the threshold for ‘good’,” the ACCC report said of Melbourne and Sydney airports.
The ACCC report said Sydney Airport had the highest level of investment in 2016/17 at $294 million.
However, the report noted that following a number of years of significant expansion and investment across a number of the airports, aeronautical investment was “notably lower in 2016/17”.
“Considering its large size and growth in passengers, Sydney Airport has invested at a much lower rate than the other monitored airports over the last decade,” the ACCC said.
Sydney Airport said it was “exploring how new and improved aircraft technology and operations can be used to achieve the best outcomes for the community, the travelling public and the broader state and national economy”.
“In order to remain globally competitive, we invest about $1 million every day to ensure we’re catering for growth and to improve the experience for our customers,” a Sydney Airport spokesperson said in a statement.
The full report can be read on the ACCC website.