ACCC issues annual report on airport performance

The Australian Competition and Consumer Commission has submitted its annual airport monitoring report for the 2008–09 financial year to the Minister for Competition Policy and Consumer Affairs.

Services to airlines (terminals and runways)

Due to concerns that they might use their monopoly position in aeronautical services to increase profits at the expense of airlines and passengers, the ACCC monitors Adelaide, Brisbane, Melbourne (Tullamarine), Perth and Sydney (Kingsford Smith) airports.

To highlight the airports' performance in delivering services to airlines, the ACCC reports on a range of indicators including quality of service, prices, costs, profits and investment levels. While the indicators do not provide conclusive evidence as to whether the airports have been earning monopoly rents, trends in those indicators over time can identify those airports whose performance may require greater scrutiny.

"This year's report has found the performance of Sydney Airport to be of greatest concern. The indications are that Sydney Airport has increased profits by permitting service quality to fall below that which the airlines reasonably expect," ACCC chairman Graeme Samuel, said.

"Airport users, including passengers and airlines, rated Sydney Airport last amongst the monitored airports for the fourth consecutive year and it appears that investment in the international terminal has been slow.  And while Sydney Airport was the only airport to report a fall in passenger numbers, its revenue and profit margins still increased. Sydney Airport also recorded the highest average prices at $13.63 per passenger, compared to the lowest of $7.96 at Melbourne Airport."

The airports typically charge airlines on a per passenger basis for using their facilities, and charges are often set in advance for several years at a time.

"While airlines lowered their airfares to attract business in the current global economic slowdown, the airports appear to have enjoyed the security of guaranteed prices as well as benefiting from the airlines' efforts to encourage travel," Mr Samuel said.

The airports other than Sydney reported more passengers than the previous year and slightly increased service quality.  The higher passenger numbers contributed to an increase in revenue and profits.

Car parking

There are also concerns that the airports' monopoly position in car parking could be used to exploit the public. To increase the transparency and accountability of the airports' car parking operations, the ACCC monitors a range of indicators including prices, costs and profits as well as service quality.

"The indications are that car parking prices likely reflect an element of monopoly rent. At least some car parking charges increased at all of the monitored airports during the 2008–09 financial year, or since then.  The ACCC has observed that some airports may affect the cost or convenience of potential alternatives to on-airport parking, which could contribute to the high margins reported for on-airport car parking."

Airport regulation

The regulation of the monitored airports, including car parking, is scheduled to be reviewed by the Productivity Commission in 2012.  The ACCC's annual report provides information that can inform that review and, in the meantime, provides an opportunity for the Government and the community to scrutinise the airports' performance.

A guide to the ACCC's Airport monitoring report

Aeronautical services: Services provided by airports to airlines

Despite the current economic slowdown, around 93.3 million passengers passed through the five major airports in 2008–09, an increase of just over 1 per cent from the previous period. Sydney Airport was the only monitored airport to report an overall decrease in passenger throughput.

Note: * Adelaide Airport operates a single, multi-user integrated terminal which means its revenue and cost figures are on a different basis to the other airports. At the other airports, some terminals are operated by airlines and the associated revenues and costs of operating these terminals are not regarded as 'aeronautical'.

Except for Sydney Airport, increased passenger numbers and average prices lead to the airports reporting increased revenues and margins from aeronautical services in 2008–09. Despite being the only airport to have a decline in passenger numbers, Sydney Airport maintained the largest, as well as having the largest increase in, operating margin.

Airlines paid the highest average prices at Sydney Airport. At around $13.63 per passenger, average prices increased by more than 5 per cent from the previous period. Melbourne Airport had the lowest average charge, being $7.96 per passenger while, for the second year in a row, Brisbane Airport reported the highest increase of 13.6 per cent to be $8.56 per passenger in 2008–09.

The ever-increasing demand for airport services and the limited availability of suitable alternatives means that the airports have significant market power. Although the extent to which the airports can use their market power varies across the five airports, they have the ability to achieve higher margins by increasing prices, allowing service quality to fall, or some combination of both.

As a complement to prices monitoring, the ACCC also uses a range of indicators to determine an overall rating of the airports' quality of service and ranks the airports relative to each other. The indicators include, for example, the availability of check-in counters for airlines to service passengers and surveys of passengers' experiences in passing through security screening points.

It should be noted that the ACCC's measurement of quality of service relates only to those terminals that are owned and run by the airport operators. Some of the airports' domestic terminals, such as the Qantas domestic terminal at Melbourne, Perth and Sydney airports as well as the Qantas and Virgin Blue domestic terminals at Brisbane Airport are leased and operated by those airlines and are not subject to monitoring.

Brisbane Airport remained the highest ranked airport in 2008–09, while Sydney Airport was ranked last for the fourth consecutive year. The users' overall satisfaction with the airports' quality of service increased slightly in the period, although Brisbane Airport was the only airport to achieve an overall rating of 'good'.

The service that passengers experience at airports is affected by airlines, border agencies and the airports themselves. To better understand the contribution that the airports make, the ACCC surveys airlines on whether they are receiving a level of service that would be reasonably expect.

In their survey responses, airlines have consistently identified Sydney Airport as the least responsive of the airports with respect to service delivery and quality over a sustained period of time. In particular, Sydney Airport's international terminal was rated below satisfactory on average by the airlines. While Sydney Airport has announced proposed improvements to the terminal, there is a question as to whether this should have been carried out earlier. Although the airport reported higher levels of investment (representing 14 per cent of assets) in 2008–09, this was the largest level of investment by the airport since 1999–2000.

In contrast, over the five years covered in the report, Brisbane and Melbourne airports achieved ratings significantly above satisfactory and both airports reported investment of between 14 and 22 per cent of assets in 2007–08 and 2008–09. Airlines' ratings of Adelaide Airport improved with the commencement of operations at the new terminal during 2005–06. Finally, although Perth Airport's service quality results have declined in recent years, these outcomes seem to be relatively short lived and appear to have been largely driven by unexpected growth in passenger numbers. Indeed, Perth Airport has undertaken sizeable investment to address the quality of service problems, with the airport reporting investment of 19 per cent of assets in 2008–09.

Although the monitoring results do not provide conclusive evidence, there are initial indications that Sydney Airport has enjoyed the persistent increased profits by allowing its quality of service to fall at the expense of airlines and passengers.

Airport car parking

During the 2008–09 financial year, and since then, at least some car parking charges increased at all of the monitored airports.

Note: Brisbane Airport and Sydney Airport short-term car park charges for 24 hours are based on the domestic car park at each airport.

Combined airport car parking revenue was around $278 million in 2008–09, accounting for approximately 12 per cent of the airports' total revenue of $2.3 billion. All of the airports reported higher car parking revenue in the period.

Airport car parking continued to provide the greatest contribution towards total revenue at Melbourne Airport, where it was around 20.5 per cent in 2008–09. By comparison, Sydney Airport reported a revenue share of 7.8 per cent.

Although some airports' expenses for car parking operations increased, all of the monitored airports reported higher operating margins of between $8.5 million (Adelaide Airport) and $74.5 million (Melbourne Airport) in 2008–09.

The airports are in a position to set higher car parking prices, which would result in the persistence of higher profits over time, because they are able to influence the costs for alternatives to on-airport car parking (including off-airport car parking, cars, taxis, buses and train services).

In 2008–09 and more recently, the ACCC has observed that some airports have affected the conditions for which alternatives to on-airport parking operate. Although the monitoring results are not definitive, they remain consistent with the ACCC's view that airport car parking charges reflect some element of monopoly rents.