Airports not exercising market power – Productivity Commission

February 2019

The Productivity Commission today released its draft report on the Economic Regulation of Airports. 

We recently prepared analysis for Australia’s major airports and showed that airports have not been exercising market power in aeronautical, car parking or ground access services.

The draft report finds that existing airport regulation benefits the community and remains fit for purpose, and agrees with our analysis that Australia’s four major airports have not systematically exercised market power.

In aeronautical services, airports are constrained by the countervailing power of airlines, and generate “returns sufficient to promote investment while not earning excessive profits”. Prices at airport car parks are “not the result of market power”, but reflect the high opportunity cost of land near airport terminals, and act as signals to manage demand and reduce congestion. Airports are constrained in car parking by the myriad ways to access the airport.

The PC also finds that the current approach to regulation works well and wholesale changes are not justified. Instead, it recommends updating the current monitoring regime so that airports include more detail in their cost and revenue reporting to assist in future assessments on the effectiveness of regulation.

The PC is now accepting feedback on the draft report ahead of the final report in June.

The HoustonKemp team advising Australia’s major airports included Greg, Luke, Brendan, Sarah, Bronwyn, Alyse and Nick.