Issue 360: A Different Beast

Market Power

The disconnect between Australia’s and airports

Most emails that land in my inbox during our magazine production deadline day I normally only given a cursory glance to. There’s nothing like a looming deadline to filter out unnecessary distraction. But this one caught my attention, an advisory for a media event being held by new airline industry lobby group A4ANZ at Parliament House in Canberra the following week.

‘That there is tension between Australia’s airports and airlines is no secret.’

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“LIGHT-HANDED REGULATION OF AUSTRALIA’S MONOPOLY AIRPORTS,” it was titled. It sounds like a dry topic but really it points to a fundamental disconnect that lies at the heart of the Australian aviation industry.

“A4ANZ will launch its report into the performance and impact of Australian airports since privatisation, with analysis by Frontier Economics. This is the first report to be released by A4ANZ and it will provide a thorough analysis of the market power of Australian airports and the impact this is having on consumers and the economy,” it promised.

That launch was to occur on May 24, around the time this issue of Australian Aviation begins landing in subscribers’ letterboxes. So as I write this I don’t know what the report says, but I can guess. As a resident of Canberra I’m well aware of the truism that governments and lobby groups don’t commission reports unless they already know in advance the findings and recommendations that their report will come up with.

And it’s pretty clear given the antagonism between Australia’s airports and its airlines that the report will highlight the unfair “market power” airports have over their airline cusomters, and how Australia’s privatised airports largely enjoy monopoly pricing power.

That market power was illustrated by the latest Australian Competition and Consumer Commission (ACCC) Airport Monitoring Report, which found that in 2016-17 Australia’s four largest airports, Brisbane, Melbourne, Perth and Sydney, all increased their operating profits from aeronautical activities by almost 10 per cent.

“It is not surprising that the airports are so profitable, given that they face little competitive pressure and no price regulation,” ACCC chairman Rod Sims said in releasing the report.

“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,” he said.

“Unconstrained monopolies often have an incentive and ability to charge excessive prices while lacking strong incentives to improve services.”

It seems likely that the A4ANZ report, under the stewardship of chairman Professor Graeme Samuel, himself a former ACCC chair, will echo similar sentiments.

That there is tension between Australia’s airports and airlines is no secret, as evidenced by an extraordinary war of words between Qantas and Canberra Airport that hit the headlines in mid-May.

Qantas accused Canberra Airport of “ransoming” one of its Boeing 737s, which had diverted there on a flight from Auckland to Sydney, by parking an airport vehicle behind the aircraft preventing it from departing until a $18,000 diversion charge was paid. The airport in turn labelled the ransom claim as “absolute baloney”.

The timing of that story breaking hardly seems a coincidence given the planned released of the A4ANZ report just the following week, in, of course Canberra.

All that seems designed to lay some markers ahead of an expected Productivity Commission inquiry into the economic regulation of airports later in the year.

You can see why. The airlines are clearly aggrieved that at the same time as they post single-digit profit margins in one of the most competitive industries in the world, the big airports are generating profit margins on aeronautical activities of between 35 and 47 per cent.

Something is clearly very wrong with the regulatory environment that Australia’s airports operate in.

This is not a criticism of the airports themselves, they operate within the policy settings the government sets for them – and yes, practically every Australian is exposed to the upside of high airport profitability through their superannuation funds.

But on the one hand Sydney Airport can post a $1.196 billion profit before interest, tax and depreciation on revenues of $1.483 billion, while on the other the Australian Airports Association is having to lobby the federal government for taxpayer funding for infrastructure upgrades at regional airports, 60 per cent of which are “struggling to make ends meet”. Something is clearly broken here.

Where’s Traffic?

There’s no Traffic column in this issue of Australian Aviation as Gordon Reid has taken some time off for a well-deserved family holiday. But rest assured Traffic will return next issue.