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Steve Creedy
25 April, 2018
Australia’s competition regulator remains worried that limited regulation of the nation’s four big monopoly airports results in big profits that push up airfares.
The Australian Competition and Consumer Commission annual review of Melbourne, Perth, Brisbane and Sydney airports found that all significantly boosted operating profits from aeronautical activities in 2016-17 to a combined $A757.6 million.
That was up 9.9 percent in real terms from 2015-16, with Sydney Airport alone earning $360.8 million, the commission said.
Sydney Airport earned $18.30 per passenger in aeronautical revenue (up 4.4 percent) while revenue per passenger at Perth Airport grew by 7.2 percent to $15.80.
Profit margins for aeronautical services ranged from 34.9 percent in Perth to 46.8 percent in Brisbane.
Even with alternatives such as online booking, profit margins for parking also remained high and ranged from 52.4 percent for Perth Airport to 71.9 percent at Sydney Airport in 2016-17.
“It is not surprising that the airports are so profitable, given that they face little competitive pressure and no price regulation,” ACCC chairman Rod Sims said. “Profits per passenger have also risen at each of the four airports and travelers are paying for this through higher ticket prices.
“We remain concerned that the current regulatory regime, which is limited to monitoring the covered airports, doesn’t constrain the market power of four of Australia’s major airports.
“Unconstrained monopolies often have an incentive and ability to charge excessive prices while lacking strong incentives to improve services.”
READ: Changi Airport fees to produce fare rises of up to 25 percent, says Jetstar CEO.
Sims' comments come as the federal government is expected to ask the Productivity Commission to review the economic regulation of airports for the first time since 2011.
Airlines have already beefed up their lobbying efforts with a trans-Tasman industry group, Airlines for Australia and New Zealand, and are expected to call for greater regulation.
The competition watchdog, which has raised concerns about airports’ market power in the past, will also put in a submission. It believes a key issue will be the cost and benefit of regulations to constrain the airports’ marketing power in aeronautical and car parking services.
But airports will fight to retain the light-handed regulatory approach adopted by the Howard Government and supported by successive governments.
The Australian Airports Association hit back at the claim profits were boosting airfares, describing the observation as "peculiar" and noting the ACCC report contained no data on the fares.
AAA chief economist Warren Mundy said the Board of Airline Representatives of Australia recently reported that international airfares fell in real terms by about 40 percent while government statistics showed domestic airfares declined in real terms for a decade until last year.
“These facts are consistent with the 2011 finding of the Productivity Commission, namely that even if increases in airport charges are passed on to passengers they are unlikely to significantly impact on ticket prices paid by customers,'' Mundy said.
“Airport charges have risen to fund investment and these charges, along with the investments, have been determined by negotiation between airports and airlines.
"These investments have created the infrastructure capacity necessary for Australian airlines to grow and international carriers to enter the market. That’s why ticket prices have fallen, not increased as suggested by Mr Sims."
Mundy also noted that the preferred profit measure used by the Productivity Commission, return on assets, was shown in the ACCC report to be lower now than in 2013 at each of the big four airports.
Despite the ACCC’s concerns, service quality at the four airports was rated either satisfactory or good in a combined score that used passenger and airline feedback as well as objective indicators.
Passenger tended to rate the airports more highly than airlines, with all four airports categorized as good. Perth was the only airport ranked as good by the airlines.
Perth overtook Brisbane to record the highest quality overall rating for the four airports while Sydney and Melbourne were in the top end of the satisfactory range. The ACCC rates airports as very poor, poor, satisfactory, good or excellent.
The report noted Perth Airport’s significant improvement in the quality of service ratings from passengers and airlines over the past three years had coincided with a substantial investment program.
It said the satisfactory ratings at Sydney or Melbourne had remained relatively unchanged over the past few years, sitting slightly below the threshold for good, while Brisbane had maintained its good overall rating.
A snaphot of Australia's four biggest airports. Source: Australian Competition and Consumer Commission.
Overall passenger numbers at the four airports grew by 2.7 percent to 115.2 million in 2016-17, with a 6.7 percent rise in international growth the driving force.
The competition commission was pleased the airports appeared to be handling the issue of congestion with on-time performance apparently improving.
Watch a low visibility Cat IIIA landing from the cockpit.
“The four airports are handling 30 million passengers a year more today than they did a decade ago,” Sims said. “But we are pleased the monitored airports appear to be dealing with the challenge of congestion, and three of the four airports are in the process of either constructing or planning a new runway.”
The $A1.3 billion runway at Brisbane Airport is the first new runway to be built and is expected to be operational in 2020 but Melbourne and Perth are also planning projects and a new airport is being developed in Western Sydney.
The ACCC also pointed to investments such as the Terminal 4 Precinct in Melbourne and Perth Airport’s Terminal 1 Domestic Pier.
“With demand for air traffic projected to grow further over the next 10 to 15 years, continued investment in airport infrastructure is needed to expand capacity to meet increasing demand,’’ the competition watchdog said.
Also important was a regular federal government review of the curfew and movement restrictions at Sydney Airport to ensure the benefits did not outweigh the costs.
This included looking at external factors such as technological improvements in aircraft as well as demand growth and infrastructure investment, the commission said.
The ACCC also argued it was vital that the new $A5.3 billion Western Sydney Airport was not hampered by similar restrictions to those imposed in Sydney Airport.
“It is important that the benefits of this planning are fully realized by an airport that can operate at all hours of the day, and that this operational freedom is not jeopardized in future by insufficient protection from urban development,’’ it said.
“The airport itself should also be designed to minimize environmental and noise impacts.”
Disclosure: Steve Creedy also contributes to The Airport Professional published by the Australian Airports Association.
Australia’s competition regulator remains worried that limited regulation of the nation’s four big monopoly airports results in big profits that push up airfares.
The Australian Competition and Consumer Commission annual review of Melbourne, Perth, Brisbane and Sydney airports found that all significantly boosted operating profits from aeronautical activities in 2016-17 to a combined $A757.6 million.
That was up 9.9 percent in real terms from 2015-16, with Sydney Airport alone earning $360.8 million, the commission said.
Sydney Airport earned $18.30 per passenger in aeronautical revenue (up 4.4 percent) while revenue per passenger at Perth Airport grew by 7.2 percent to $15.80.
Profit margins for aeronautical services ranged from 34.9 percent in Perth to 46.8 percent in Brisbane.
Even with alternatives such as online booking, profit margins for parking also remained high and ranged from 52.4 percent for Perth Airport to 71.9 percent at Sydney Airport in 2016-17.
“It is not surprising that the airports are so profitable, given that they face little competitive pressure and no price regulation,” ACCC chairman Rod Sims said. “Profits per passenger have also risen at each of the four airports and travelers are paying for this through higher ticket prices.
“We remain concerned that the current regulatory regime, which is limited to monitoring the covered airports, doesn’t constrain the market power of four of Australia’s major airports.
“Unconstrained monopolies often have an incentive and ability to charge excessive prices while lacking strong incentives to improve services.”
READ: Changi Airport fees to produce fare rises of up to 25 percent, says Jetstar CEO.
Sims' comments come as the federal government is expected to ask the Productivity Commission to review the economic regulation of airports for the first time since 2011.
Airlines have already beefed up their lobbying efforts with a trans-Tasman industry group, Airlines for Australia and New Zealand, and are expected to call for greater regulation.
The competition watchdog, which has raised concerns about airports’ market power in the past, will also put in a submission. It believes a key issue will be the cost and benefit of regulations to constrain the airports’ marketing power in aeronautical and car parking services.
But airports will fight to retain the light-handed regulatory approach adopted by the Howard Government and supported by successive governments.
The Australian Airports Association hit back at the claim profits were boosting airfares, describing the observation as "peculiar" and noting the ACCC report contained no data on the fares.
AAA chief economist Warren Mundy said the Board of Airline Representatives of Australia recently reported that international airfares fell in real terms by about 40 percent while government statistics showed domestic airfares declined in real terms for a decade until last year.
“These facts are consistent with the 2011 finding of the Productivity Commission, namely that even if increases in airport charges are passed on to passengers they are unlikely to significantly impact on ticket prices paid by customers,'' Mundy said.
“Airport charges have risen to fund investment and these charges, along with the investments, have been determined by negotiation between airports and airlines.
"These investments have created the infrastructure capacity necessary for Australian airlines to grow and international carriers to enter the market. That’s why ticket prices have fallen, not increased as suggested by Mr Sims."
Mundy also noted that the preferred profit measure used by the Productivity Commission, return on assets, was shown in the ACCC report to be lower now than in 2013 at each of the big four airports.
Despite the ACCC’s concerns, service quality at the four airports was rated either satisfactory or good in a combined score that used passenger and airline feedback as well as objective indicators.
Passenger tended to rate the airports more highly than airlines, with all four airports categorized as good. Perth was the only airport ranked as good by the airlines.
Perth overtook Brisbane to record the highest quality overall rating for the four airports while Sydney and Melbourne were in the top end of the satisfactory range. The ACCC rates airports as very poor, poor, satisfactory, good or excellent.
The report noted Perth Airport’s significant improvement in the quality of service ratings from passengers and airlines over the past three years had coincided with a substantial investment program.
It said the satisfactory ratings at Sydney or Melbourne had remained relatively unchanged over the past few years, sitting slightly below the threshold for good, while Brisbane had maintained its good overall rating.
A snaphot of Australia's four biggest airports. Source: Australian Competition and Consumer Commission.
Overall passenger numbers at the four airports grew by 2.7 percent to 115.2 million in 2016-17, with a 6.7 percent rise in international growth the driving force.
The competition commission was pleased the airports appeared to be handling the issue of congestion with on-time performance apparently improving.
Watch a low visibility Cat IIIA landing from the cockpit.
“The four airports are handling 30 million passengers a year more today than they did a decade ago,” Sims said. “But we are pleased the monitored airports appear to be dealing with the challenge of congestion, and three of the four airports are in the process of either constructing or planning a new runway.”
The $A1.3 billion runway at Brisbane Airport is the first new runway to be built and is expected to be operational in 2020 but Melbourne and Perth are also planning projects and a new airport is being developed in Western Sydney.
The ACCC also pointed to investments such as the Terminal 4 Precinct in Melbourne and Perth Airport’s Terminal 1 Domestic Pier.
“With demand for air traffic projected to grow further over the next 10 to 15 years, continued investment in airport infrastructure is needed to expand capacity to meet increasing demand,’’ the competition watchdog said.
Also important was a regular federal government review of the curfew and movement restrictions at Sydney Airport to ensure the benefits did not outweigh the costs.
This included looking at external factors such as technological improvements in aircraft as well as demand growth and infrastructure investment, the commission said.
The ACCC also argued it was vital that the new $A5.3 billion Western Sydney Airport was not hampered by similar restrictions to those imposed in Sydney Airport.
“It is important that the benefits of this planning are fully realized by an airport that can operate at all hours of the day, and that this operational freedom is not jeopardized in future by insufficient protection from urban development,’’ it said.
“The airport itself should also be designed to minimize environmental and noise impacts.”
Disclosure: Steve Creedy also contributes to The Airport Professional published by the Australian Airports Association.
