Posts tagged #Alyse Corcoran

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.

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.