Economic regulation of airport services (2012)

Inquiry report

Released 30 / 03 / 2012

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Government response

Key points
Contents

Some Australian capital city airports possess significant market power, whereas other airports are in a weaker bargaining position. Under the light-handed monitoring regime that replaced price cap regulation:
- there has been a marked increase in aeronautical investment and airports have not experienced the bottlenecks that have beset other infrastructure areas
- aeronautical charges do not point to the inappropriate exercise of market power
- service quality outcomes overall are 'satisfactory' to 'good', although airlines have, on occasion rated two airports as 'poor'
- Australian airports' aeronautical charges, revenues, costs, profits and investment look reasonable compared with (the mostly non-commercial) overseas airports.
Commercial agreements with airlines are becoming more sophisticated. Agreements often include service level obligations, consultation on capital investment, price paths and dispute resolution when 'in-contract', but not during contract formation.
And while airlines maintain that airports adopt 'take it or leave it' negotiation stances and some fail to provide adequate information, no party sought a return to regulatory price setting, given past experience with its associated costs.
Price monitoring aims to constrain airports from inappropriately exercising any inherent market power. But neither the regulator nor Governments have acted when the regulator has raised the possibility that some airports might potentially be exercising market power.
Where the regulator, in undertaking its monitoring role, finds prima facie evidence that an airport has misused its market power, the airport should be required to 'show cause' why its conduct should not be subject to a 'forensic' Part VIIA price inquiry. If the regulator is dissatisfied with the airport's response it should formally recommend that the Government institute such an inquiry.
- An airport that offered an 'approved' dispute resolution framework with binding arbitration during contract formation would not be subject to such a price inquiry.
The access charges and conditions faced by competitors to on-airport car parking are not so high as to impede competition. However, because of vertical integration, charges and conditions should be public and included in monitoring reports.
- Such transparency would facilitate regulatory action under competition law if an airport acted to impede competition in order to inflate its car park prices or revenues.
Access to airport precincts in most major cities is congested owing to inadequate arterial roads and insufficient mass transit services.
- Developments on airport land (a Commonwealth responsibility) can also add to congestion on connecting transport links (state and territory responsibilities)
- Recent reforms to better integrate airport transport planning across jurisdictions have been introduced. A review of their efficacy should be undertaken in 2015.

Preliminaries
- Cover, Copyright, Letter of transmittal, Terms of reference, Contents, Abbreviations, Explanations and Glossary
Overview - including key points
Findings and Recommendations
Chapter 1 About the inquiry
- 1.1 Background to the inquiry
- 1.2 The Commission's task
- 1.3 The Commission's approach
- 1.4 Conduct of the inquiry
Chapter 2 Australia's major airports
- 2.1 Australia's major airports: an introduction
- 2.2 Inside a major airport
- 2.3 Developments in the air travel market
Chapter 3 The institutional environment
- 3.1 Airport sale and lease conditions
- 3.2 Price and quality of service monitoring
- 3.3 Other relevant competition legislation
- 3.4 Other regulation of airports
- 3.5 Airport planning arrangements
- 3.6 Land access infrastructure and services
Chapter 4 Performance of Australian airports
- 4.1 Benchmarking in the airport sector
- 4.2 Benchmarking and regulation
- 4.3 Performance of Australian airports
- 4.4 Conclusion
Chapter 5 Market power and regulation
- 5.1 Economically efficient airports
- 5.2 The market power rationale for airport regulation
- 5.3 Which airports have market power?
- 5.4 For which services do airports have market power?
- 5.5 Other rationales for regulating airport services?
- 5.6 Optimising regulation to address airports' market power
Chapter 6 Investment and capacity
- 6.1 What is investment and capacity?
- 6.2 Investment determinants
- 6.3 Investment at Australian airports/li>
- 6.4 Concerns about investment at Australian airports
- Annex on investment and pricing
Chapter 7 Airside and terminal: monitoring outcomes
- 7.1 Reported price outcomes
- 7.2 Reported quality of service outcomes
Chapter 8 Commercial negotiation
- 8.1 The slow path from regulation to negotiation
- 8.2 Airport users' views on commercial negotiation
- 8.3 Where to now?
Chapter 9 Options for future airport regulation
- Chapter 10 Improving the monitoring regime
  - 10.1 Objectives of monitoring
  - 10.2 Administrative and compliance costs
  - 10.3 Specific components of monitoring
  - 10.4 Reporting and interpretation of monitoring results
  - 10.5 Coverage of quality of service monitoring
  - 10.6 Is monitoring effective?
  - 10.7 Improvements to the monitoring regime
- Chapter 11 Airport car parking and ground transport access
  - 11.1 Market power in ground transport access
  - 11.2 The broader ground transport market
  - 11.3 Car parking prices reflect more than cost of supply
  - 11.4 Car park investment
  - 11.5 Evidence of misuse of market power in car parking
  - 11.6 Ground transport access fees and conditions
  - 11.7 Future regulatory arrangements
- Chapter 12 Broader land transport access and integration issues
  - 12.1 The state of play 'on the ground'
  - 12.2 Coordination of planning systems
  - 12.3 Government funding of road infrastructure
  - 12.4 Funding infrastructure on and around airports
- Chapter 13 Broader aviation issues
  - 13.1 Conduct of rural and regional airports
  - 13.2 General aviation at major capital city airports
  - 13.3 Aviation security charges
  - 13.4 Noise management at airports
  - 13.5 Fuel throughput levies
- Appendix A Conduct of the inquiry
- Appendix B Airports and related information
- Appendix C Economic regulation of airports: an international comparison
- References

Economic regulation of airport services (2012)

Inquiry report

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