The Australian Competition and Consumer Commission has made a detailed submission to the Productivity Commission in response to its Draft Report on Price Regulation of Airport Services.
The ACCC agreed with the principles of good regulation of airport services outlined in the draft report and supported a modified price cap option.
"There is considerable evidence to suggest that the price cap arrangements have provided a number of positive outcomes for the industry", Acting ACCC Chairman, Mr Rod Shogren, said today.
Mr Shogren noted that:
- the ACCC has accepted that approximately $250 million in new investments at the privatised airports should be 'passed through' the price cap
- the airport operators have provided new facilities to accommodate new entry - and the regulatory arrangements have provided the incentives to do this
- the Phase I airport operators have achieved substantial reductions in aeronautical operating and maintenance costs since privatisation, with reductions averaging approximately four per cent per annum in real terms.
"The price cap has been quite effective in addressing the market power of large airport operators by constraining charges for airport services. In turn, this has protected downstream industries, such as tourism, from the potential impact of increased charges on traffic volumes.
"The ACCC is concerned that if it takes the more light-handed approach of prices monitoring, as recommended in the Productivity Commission's second option, it could end up in similar circumstances, for example, as New Zealand.
"It has been more than 10 years since the New Zealand Government privatised Auckland Airport. Rather than impose price caps, the Government relied on a prices monitoring approach, which is now widely recognised as a failure. In fact, a recent review of these arrangements has recommended the introduction of price controls at New Zealand airports. "Australia should learn from the New Zealand example and also take note that other airport services in the western world are generally either subject to economic regulation or are provided by government-owned airports.
If Auckland Airport's approach to pricing was allowed in Australia, consumers could expect to pay around $1.4 billion extra in airport charges over the next five years."Removing price controls on airports would undoubtedly lead to very significant price rises in all Australian airports, and that would translate into increased airfares."
The ACCC Submission in Response to the Productivity Commission's Draft Report Price Regulation of Airport Services can be downloaded from the ACCC website.