The Australian Competition and Consumer Commission has effectively called for the four major Australian airports to be more directly regulated.
In its latest airport monitoring report the regulator finds that since price caps on airports were removed in 2002, earnings and margins of the airports have gone up while quality of service has lagged. For the 2013/14 year the margin increase is attributed in part to the greater proportion of international travellers. Quality of service indicators do not appear to have changed greatly.
The report acknowledges the limitations of its monitoring program. It cannot determine whether airports are earning monopoly profits and quality of service results are influenced by factors outside of the airport operators’ control. For example some terminals are operated by the airlines rather than the airports.
Despite this, the ACCC suggests the current arrangements are inadequate and the four major airports could be deemed by the government to be “declared”. What this means is that the process for determining whether a monopoly service is directly regulated would be bypassed. The Federal Government would put the airports under ACCC regulation by passing legislation to that effect. The ACCC would then be able to arbitrate on matters in dispute including price, quality of service and even potentially investment.
Under the current arrangements airlines and airports negotiate directly. In addition the ACCC monitors airport performance and provides a report on this annually. The airlines, or others, can seek to have the airports regulated more directly through the access provisions of the Competition and Consumer Act. This involves a public process by the National Competition Council (NCC) and a recommendation to the relevant minister. The NCC process and the minister’s decisions can be appealed in the courts.
This process has been criticised for being slow and lengthy. This view appears to be driven by the experience of the litigation for access to rail lines in the Pilbara which took several years to resolve and went all the way to the High Court. However the system has shown that it can work. In fact Sydney Airport has been declared twice in the past and once declared the issues in dispute were resolved without resorting to the ACCC for arbitration.
There are also a number of reasons to expect the current system to work much more effectively in the future. The influence of the High Court decision which clarified many aspects of the law and which will impact on the process for declaration is still to be felt.
The Productivity Commission in its 2013 Inquiry into the system also made useful proposals which have the potential to improve the process of declaration. The PC proposed some amendments to the criteria for declaration which should help determine which infrastructure services should be covered. Collectively these factors can provide a better way forward.
A decision to bypass the established process for regulating private infrastructure should not be taken lightly. It was done in the case of wheat export terminals as part of the process of deregulating the single desk wheat monopoly. However such an approach should not be the norm. Proposals to improve the system need to be given a chance to work.
In any case it is unlikely that more direct regulation would result in better outcomes for consumers.
The current system seems to be working as intended for services used by airlines. The threat of declaration does appear to bring airports and airlines to the bargaining table and eventually to a settled outcome without the added cost and complexity that regulation brings in other sectors. The latest example is Tiger Airways seeking the declaration of Sydney Airport in 2014. It withdrew its application once it reached a commercial agreement.
This does not cover airport car parking which has been very contentious. Drive up short term car parking at the airports varies from A$24 for eight hours at Perth to A$57 at Sydney. This can be comparable to some CBD prices. However even here we have seen significant change. A greater range of services are being offered including cheaper long term car parking and for online bookings. We have also seen car parking operators set up in competition outside the airports.
Giving the ACCC the task of determining an appropriate charge, which itself has many variants, from a facility such as an airport that produces many services would be fraught.
More direct regulation is unlikely to improve outcomes for consumers. The current system provides a regulatory option for airlines and others while they negotiate with airports, plus regular scrutiny of airports by the ACCC. For all its limitations this has avoided the complexity and regulatory costs that we see in other infrastructure sectors. There is little evidence to suggest a more intrusive approach would produce better outcomes.