Follow Up – Further submissions for Australia’s Productivity Commission on airport regulation published

In Jul-2018, Australia’s Productivity Commission called on individuals and organisations to prepare submissions for the Commission’s inquiry into the economic regulation of airports. The inquiry is designed to report on the appropriate economic regulation of airport services, including the effectiveness of the price and quality of service monitoring, in achieving the following objectives:

  • Promoting the economically efficient operation of, and timely investment in, airports and related industries;
  • Minimising unnecessary compliance costs;
  • Facilitating commercially negotiated outcomes in airport operations.

The deadline for the Initial submissions was 03-Sep-2018 and have now been made public. Further key examples have now been reviewed and a breakdown can be found below:

Business Council of Australia made the following recommendations:

  • Removal of prescribed list of allowable aircraft operable during curfew hours;
  • Removal of flight cap on actual aircraft movements and apply it to allocated scheduled slots only;
  • Removal of 15 minute rolling hour of slot management regime, with hourly cap (currently set at 80 movements) averaged over a longer period;
  • Allow ‘weather related events’ to be included as grounds for curfew dispensation, needed to allow movements in the curfew to minimise passenger disruption.

Airlines for Australia and New Zealand (A4ANZ)

A4ANZ called for a ‘negotiate-arbitrate’ regulatory model for Australia’s airports. The organisation argued this would be “the most effective regulatory solution… most likely to result in genuine commercial negotiations” between carriers and airports. Implementation would encourage negotiated outcomes “that might occur… in a competitive environment”, A4ANZ said, adding the model “does not in itself prevent the airport raising charges”. A4ANZ estimated the model would incur consumer surplus of approximately AUD5.9 billion (USD4.2 billion) would be generated by a demand increase valued at AUD650 million (USD466.3 million) p/a, in addition to travel time savings of AUD819 million (USD587.5 million) p/a and almost AUD90 million (USD64.6 million) p/a through connectivity improvements.

Qantas Airways

In the Qantas submission, Qantas Airways government, industry, international and environment group executive Andrew Parker, said:

  • Fuel costs increased 4% in real terms since FY2015, while charges paid to Australian airports increased 6.5% above inflation. The submission also argued airports registered a 25% revenue per passenger increase at major airports in the past 10 years, while airfares have declined close to 40%. The carrier concluded Australian Competition and Consumer Commission price monitoring has been insufficient in deterring price increases, however “could be improved to more effectively identify misuse of market power in relation to security charges” through disclosure of profits and indirect costs, single till monitoring and benchmarks.
  • Lack of “effective” regulation has “opened the door to blatant profiteering” by Australian airports. Mr Parker argued charges by Australian airports are “largely non negotiable”, and are the carrier’s fourth largest cost “after fuel, fleet and people”.

Australian Airports Association (AAA)

The AAA outlined “significant” airport investment to support competition and choice for passengers in its submission to the Productivity Commission. Details include:

  • AAA submission finds Australian airports have helped deliver increased choice, lower airfares and better facilities for passengers;
  • Airports invested AUD15 billion (USD10.6 billion) since 2002, including AUD10 billion (USD7.1 billion) in aeronautical improvements, supporting passenger growth and increased competition;
  • Increased quality of service outcomes since previous Productivity Commission review;
  • Discounts to airlines have increased;
  • Return on aeronautical assets decreased for all four monitored airports since 2012 and return on capital is below global industry average.

AAA CEO Caroline Wilkie commented: “Australian airports rate well against their global counterparts and have maintained high quality facilities for passengers even as they’ve invested to support significant growth… This is a great endorsement of our industry and the regulatory approach that has supported robust commercial agreements with airlines to support efficiency and improve the travel experience of passengers”.

The Commission will seek further information and feedback following the expected release of a draft report in early 2019, while the final inquiry report is to be handed to the Australian Government in Jun-2019.

See related report: Initial submissions for Australia’s Productivity Commission report on airport regulation published