Economic regulation of airports (2019)

I, Scott Morrison, Treasurer, pursuant to Parts 2 and 3 of the Productivity Commission Act 1998, hereby request that the Productivity Commission undertake an inquiry into the economic regulation of airports.

Background

Airports operated by the Federal Airports Corporation were privatised during the period 1997-2002. Whilst privatisation has resulted in significant airport infrastructure investments at major airports, successive governments have asked the Productivity Commission (PC) to undertake periodic reviews to determine whether the economic regulatory oversight of these airports remain in line with community and industry expectations.

Prior to 1997, airport pricing and conditions were set by the government. For the five years 1997-2002, some of these airports were subject to a price capping regime.

In 2002, a Commission inquiry into the price regulation of airport services found concerns regarding the significant market power held by some major airports did not warrant the strict regulation imposed, and indeed, believed it was negatively affecting productivity and airport investment. The price capping regime was replaced with a price and quality of service monitoring regime in which pricing terms and conditions became subject to commercial negotiations between the airports and the airlines, monitored annually by the Australian Competition and Consumer Commission (ACCC).

The 2006 Commission inquiry into price regulation of airport services examined the price monitoring regime and recommended the arrangements continue for Adelaide, Brisbane, Perth and Sydney airports. In 2008 the monitoring regime was extended to include prices, costs and profits relating to car parking at these five major airports. In 2009, the Government introduced a second tier self-administered price and quality of service monitoring and reporting regime for Canberra, Darwin, Gold Coast and Hobart airports.

The 2011 Commission inquiry examined the effectiveness and efficiency of the economic regulation and quality of service monitoring regime for airports and found that the regulatory oversight had been effective and should be maintained for Brisbane, Melbourne, Perth and Sydney airports, with a further review to be conducted in 2018.

The purpose of this Inquiry is to determine the effectiveness and efficiency of the current arrangements and determine whether they remain appropriate.

Scope of the inquiry

In undertaking the Inquiry, the Commission should 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.

In addition, the inquiry should focus on the provision of passenger and freight transport services at, and surrounding, the main passenger airports operating in Australia's major cities. The Commission should examine:

• aeronautical services and facilities provided by airport operators
• passenger-related aeronautical services and facilities provided by major airline tenants
• the provision and quality of land transport facilities providing access to the airports.

Following on from its 2011 findings, matters the Commission should also consider include:

• the effectiveness of the monitoring regime conducted by the ACCC, including the methodology used and the adequacy of the information collected
• whether the current regime impacts on the ability of airports to price, operate and invest in airport infrastructure in an efficient and timely manner
• whether the existing regime is effective in appropriately deterring potential abuses of market power by airport operators
• whether existing arrangements for the planning and operation of land transport linkages to the airports are effective.

The Government remains strongly committed to maintaining access for regional communities into Sydney Airport. In order to ensure that the arrangements continue to work in the best interests of regional passengers, the regulatory price cap and price notification regime for regional air services into and out of Sydney Airport (Declaration 94 under section 95X of the Competition and Consumer Act 2010) should be reviewed to look at any unintended consequences of the arrangements.

The Commission should also review competition in the market for jet fuel in Australia, including the provision of jet fuel at the major airports.

Process

The Commission is to undertake an appropriate public consultation process including holding hearings, inviting public submissions and releasing a draft report to the public.

The final report should be provided within 12 months of the receipt of these terms of reference.

The Hon Scott Morrison MP
Treasurer

[Received 22 June 2018]