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Report finds Australia's airport regulation appropriate

Australia’s Productivity Commission has found that the country’s major airports have not abused their market power, and has not recommended major changes to how airlines and airports negotiate their charging regimes.

The commission’s draft report from its inquiry into the economic regulation of airports states that Sydney, Melbourne, Brisbane and Perth airports do have market power, but “have not systematically exercised their market power to the detriment of the community.”

That is a contrast to arguments put forth by industry group Airlines for Australia and New Zealand (A4ANZ), which argued that the monopoly positions of the four airports generated excessive profits that ultimately impact on the Australian economy.

A4ANZ had pushed for regulation that would allow for arbitration when airline-airport pricing negotiations fail as a way of overcoming the airports’ perceived market power.

However, the commission found that as the airports cannot deny access to airports, airlines can continue to use the facilities even when a pricing agreement has not been reached. They can also refuse to pay charges at the level determined by airports.

“This practice means it may be airlines, rather than airports, that have an incentive to hold out on reaching agreement,” says the commission.

It thus concluded that there was “no justification for significant change to the current form of regulation of aeronautical services at these airports.”

However, the commission recommend that certain anti-competitive clauses in airport agreements should be removed. These include some that restrict the ability of airlines to seek regulatory remedies in disputes with airports, as well as some that limit an airport’s ability to offer incentives to other operators.

It also recommended that the four regulated airports to be required to separately report their costs and revenues for domestic and international services, and options to open up more slots at Sydney airport while reducing the impact of aircraft noise be further investigated.

The commission will move to hold a number of public hearings in March before releasing its final report in June.

A4ANZ expressed its disappointment in the recommendations made by the commission, and instead called on government to delivery regulatory reforms.

“What we had expected to see in this report were recommendations that would assist Government to deliver sensible, effective policy that is actually informed by the evidence; that is to make the minimum change required to facilitate commercial negotiations and ultimately deliver better outcomes for consumers and society. It is disappointing that this has not been captured in the Commission’s draft report,” says the association’s chief executive Alison Roberts.

Qantas also labelled the report "disappointing and essentially endorses Australia’s airports to remain some of the most expensive in the world."

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