Productivity Commission delivers airports assessment

The Australian Productivity Commission yesterday published a draft report on the Economic Regulation of Airport Services.

Critics of Australia's major airports have been expecting support for their cases from the Commission's scrutiny of the airports, but instead the draft report has delivered what looks like a pretty fair assessment.

The key points define the tone of the whole document:

* 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:

– there has been a marked increase in aeronautical investment since the removal of price-caps, with an additional $9 billion projected over the next decade

– aeronautical charges do not indicate misuse of market power and quality outcomes are generally ‘satisfactory’, although airlines have, on occasion rated two airports as ‘poor’

– Australian airports’ aeronautical charges, revenues, costs, profits and investment look reasonable compared with outcomes at overseas airports.

* 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.

*  Airlines, however, consider that airports adopt a ‘take it or leave it’ stance, transfer risk to airlines, fail to provide information and manipulate investment parameters.

– But, airports and their customers retain a strong desire to continue with commercial negotiation — no party sought a return to regulatory price setting.

* Successive Australian Governments have not acted on the regulator’s concerns that some airports might potentially be misusing their market power.

- Drawing on its monitoring role, the regulator should be able to direct an airport to show cause why its conduct should not be subject to a ‘forensic’ price inquiry.

– Where the regulator is dissatisfied with the response, the Government should invoke such a price inquiry that is guided by the Aeronautical Pricing Principles.

* Further action, such as deemed declaration and mandatory codes of conduct, would fundamentally alter the nature of commercial negotiation and are not warranted.

– There is scope to improve the conduct of commercial negotiations through amending the ‘Pricing Principles’ or developing a new voluntary code of conduct.

*  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.

– Developments on airport land (a Commonwealth responsibility) can also add to congestion on connecting transport links (state and territory responsibilities).

– 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.

Submissions for final consideration are due by Friday 23 September.