Airport market power ‘fact check’

September 2018

Today the ACCC submitted to the Productivity Commission’s inquiry into airport regulation that the current price monitoring regime is not effective in constraining airports’ market power, and that increased regulatory intervention is required (see here). But the ACCC’s evidence for the exercise of market power is thin: an assertion as to rising average revenues per passenger and quality of service metrics that remain ‘stable’. Substantial new investment in runway and terminal capacity has been overlooked, and the ACCC’s average revenue per passenger metric is heavily distorted by the changing mix of international and domestic passengers.

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HoustonKemp analysis for the Australian Airports Association (see here) shows a very different picture. The long term profitability of aeronautical services provided at each of the four monitored airports show no signs of market power, with returns on investment over ten years all converging to within the range of weighted average cost of capital estimates previously adopted by the ACCC itself and New Zealand’s Commerce Commission.

We look forward to the Productivity Commission’s evidence-based analysis.

Posted on September 18, 2018 and filed under Reports.