Airlines concerned about airport regulatory arrangements

The Board of Airline Representatives of Australia has flagged what it sees as "a change of tactics by airport operators" as a review of regulatory arrangements looms.

The Productivity Commission is scheduled to undertake such a review later this year and BARA is urging the PC to give airlines full opportunity to articulate their perspectives.

BARA says that it is "concerned that there is an emerging trend for aeronautical pricing proposals from airport operators to become increasingly divorced from normal commercial outcomes.

"This is a move away from the Government’s Review Principles which states that airlines and airports are expected to operate under commercially negotiated agreements.

"BARA’s view is that that airport operators are seeking to transfer greater levels of risk back to international airlines by applying higher weighted average cost of capital (WACC) values and lower passenger forecasts than are warranted.

"Another tactic that is being used by airport operators where there is excess capacity in aeronautical assets at the airport is a pricing outcome where the airlines effectively fully fund the current and future excess capacity.

"BARA does not consider price increases in the face of low demand and excess capacity to be commercially sound. When firms operating in more competitive markets are faced with a significant decline in demand for their services, together with substantial excess capacity, they simply have to accept the fact that they made (in hindsight) a poor investment decision.

"The consequence is that the value of the assets must be written down to more closely reflect their actual income earning potential. The associated losses are borne by the firms’ shareholders...

"It is BARA’s view that airport operators should not be immune from market discipline."