Calls go out for tighter regulation of Australian airports

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Sydney Airport. IMAGE: Google Earth
Singapore-Airshow-2020

Calls go out for tighter regulation of Australian airports

Airlines, retailers and other airport users in Australia are calling on the country’s government to put in place recommendations made by the Australian Competition & Consumer Commission (ACCC) that would beef up consumer protections.

A group called Airlines for Australia and New Zealand (A4ANZ) and led by its chairman, Professor Graeme Samuel, said that Australia’s monopoly airports were now the only privatised infrastructure assets in Australia not appropriately regulated for the protection of consumers.

Samuel, a former chairman of the ACCC, said: “For decades now, Australian travellers have felt the impact of monopoly pricing at our airports, and the ACCC has repeatedly said that we have a problem. But while other sectors have caught up with regulatory regimes that better reflect consumer interests and expectations, the Productivity Commission (PC) – inexplicably – seems intent on retaining the status quo for airports. In practice, this means inefficient, protracted negotiations, disputes that end up in court, costing millions of dollars, and creating uncertainty over investment. The system has passed its use-by date; it’s neither efficient nor effective.”

On-airport retailers are another group seeking a fairer deal, according to A4ANZ. Russell Zimmerman, executive director of the Australian Retailers Association, said: “With current economic conditions and retail spending, it is hardly the time for the government to endorse the Productivity Commission’s recommendation that permits airports to continue to charge monopoly rents unchecked. Compared to traditional shopping centres, there is a lack of transparency on lease terms at some airports, and airport rents are much higher. But there is no scope for negotiation on terms and conditions, and many airport lease clauses prohibit retailers from speaking out. There needs to be a system to hold the monopolists to account, just like there is in other sectors.”

The Australian Finance Industry Association (AFIA), which represents rental car operators, also supports sensible, evidence-based reforms to encourage better negotiations and resolve disputes. AFIA CEO Helen Gordon said, “Consumers bear the brunt of high airport charges, with a significant proportion of the cost for a car rental representing passed-on costs charged by the airports to the operator. While the rental car operators provided the Productivity Commission with compelling evidence, including the fact that it is more expensive for them to operate at Australian airports than LAX, Heathrow and Charles de Gaulle, it is unclear how this was taken into account by the commission.”

Other ground transport operators have also pointed to the significant imbalance in negotiating power they face when trying to strike a deal with a monopoly airport operator over landside area access fees. President of the Commercial Passenger Vehicle Association of Australia, André Baruch, said that the solution to this was not complex nor unreasonable, and had worked in other sectors. “All we’re asking for is for the same to apply to airports: an open, transparent and inclusive process.”

As the biggest customer of airports, the impact on airlines is not just felt by the domestic carriers. The Board of Airline Representatives of Australia, led by executive director Barry Abrams, said: “We fail to see how a revamped airport monitoring report will deliver any useful improvement. It will not change the assignment of commercial accountabilities between the airport operators and international airlines, which underpin the problems in airport services we see today. International airlines can see a large gap between the performance outcomes considered acceptable by the (Productivity Commission) and the outcomes they reasonably expect for the prices charged. There is plenty of room for improvement in airport services supporting better outcomes for passengers and airlines; ones which could deliver an estimated A$270 million in operating efficiencies over the next five years,” Abrams said.

A large part of the problem is that air travel for many Australians is not an option but a requirement due to the size of the country and many publicly owned airports are seen as cash generators for the government that owns them rather than as an essential community transport service.

For its part, the International Air Transport Association (IATA) is urging the Australian government to take the necessary and “long overdue steps to strengthen the economic regulation of services provided by airports”.

“It is a fact that the current light-handed regime of economic regulation is ineffective in protecting the interests of airlines, passengers, and the people and businesses accessing the terminal precinct. With the aviation industry being an important economic contributor, supporting over 700,000 Australian jobs, and contributing US$69 billion or 5.5 percent of the country’s GDP, the Australian government needs to put in place policies that support the sustainable development of the industry and its contributions to the Australian economy,” said Conrad Clifford, IATA’s regional vice president for Asia-Pacific.

In its submissions to the Productivity Commission Inquiry on the Economic Regulation of Airports, IATA has consistently highlighted six areas that need to be addressed:

  1. The current Economic Regulatory Regime does not address or exercise remedial action where monopolistic behaviour by Australian Airports is identified IATA disagrees with the PC’s opinion that abuse of market power at the four monitored airports (Sydney, Melbourne, Brisbane, Perth) is not systematic and therefore there is no justification for a change in regulation. The evidence of market power exists and the Australian government should increase the level of scrutiny before reaching any final conclusions.
  2. The current Monitoring Regime is not Fit-For-Purpose. The existing monitoring regime has fallen short of delivering the key strategic outcomes envisioned by the Australian Government in moving to light-handed economic regulation in 2002. It is important for the Australian government to bring about change to the monitoring regime to ensure consumers are accorded with the necessary protection from excessive charging practices by the Australian airports.
  3. The assertion that airlines have countervailing power at Brisbane, Melbourne, Perth and Sydney airports is incorrect. The reality is that airports can raise charges and the airline has no viable option but to accept the increase in charges. Hence a model is needed that effectively constrains airport market power and promotes the provision of efficient services.
  4. The monitoring models used by the four key Australian airports with market power do not allow for appropriate comparisons to measure the performance of the airport services. In order to ensure the provision of comparable information, we need the Australian Competition and Consumer Commission (ACCC) or a suitable independent national authority that can provide definition on the rules of airports reporting financial information, which includes key pieces of information such as cost allocation. Total charges at each of the four key Australian airports have increased over recent years, rising between 2 percent and 10 percent per year, on average. If no action is taken, airport users will be made to fork out an additional A$ 1.5 billion over the next five years in excess of current charge levels. The Australian government needs to address the present price monitoring framework and bring about the necessary changes to better safeguard consumers interest and the economic prosperity of Australia. Allowing the regulatory regime to remain in its current form is a disservice to consumers – inaction is simply not an option for the Australian government.
  5. Lack of effective fuel supply competition. The lack of open access to fuel infrastructure due to conflicts of interest associated with ownership by incumbent suppliers of jet fuel at key Australian airports would cost the industry between US$70 million and US$200 million a year. IATA is calling for a jet fuel supply coordination forum to be incorporated into the master planning process at each of the monitored airports.
  6. Implement measures that will result in the efficient management of scarce airport capacity, particularly at Sydney Kingsford Smith Airport. The slot allocation and coordination process at Sydney Airport should remain aligned with the Worldwide Slots Guidelines (WSG) to ensure an efficient use of available airport capacity that promotes competition, connectivity and passenger choice. The WSG provides the global air transport industry with a single set of guidelines for airport slot management and allocation which represent globally accepted best practice for governments and airport regulators that need to optimise scarce airport capacity.

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