Inquiry told airlines play up impact of airport costs on bottom line

Airlines have been accused of overstating the impact of airport charges on their ability to deliver competitively priced airfares.

Melbourne Airport, where one airline group refuses to pay increased charges.

Australian airlines have been accused of overstating the impact of airport charges on their ability to deliver competitively priced airfares.

In its submission to the Productivity Commission inquiry into the economic regulation of airports, the Airports Council International argues that airline buyer power more than countered any monopoly advantage of airports.

The submission points out that the Qantas Group has more than a 50 per cent market share of air transport services in Australia, followed by Virgin Australia with 25 per cent.

“Airlines are consequently able to exercise a potential buyer power that fully offsets or countervails any market power the airport might enjoy,” says the submission from ACI, which represents 1953 airports worldwide. “These factors have prevented the airport operator from applying a monopolistic behaviour and setting excessive charges.”

The ACI says airport charges represent a “relatively small item” in the airlines’ total cost structures, remaining in the realm of 4 per cent for the past few decades.

“An independent study on the real determinants of airfares noted the static nature of airport charges in contrast with the extremely dynamic pricing techniques used by airlines to set airfares,” the submission says.

“It also found that lower airport charges are generally not passed through to passengers in terms of lower airfares.”

Another submission, from the Australian Airports Investor Group, also argues that airports are not in a position to overcharge for their services.

Made up of superannuation funds and private and institutional fund managers, the group says the present light-handed regulatory regime for airports is operating “efficiently and equitably”.

“(It) encourages right-timed and sized investments into improving the airports’ facilities and services, evidenced by record levels of investment and improved quality of service,” the submission says. “Airports and airlines have consistently been able to reach commercial outcomes for the last 16 years, reflecting a balanced negotiation environment.”

The submission goes on to say privatisation has delivered a “very positive result for the commonwealth government and Australian taxpayers through the reduction in government expenditure and transfer of risks to the private sector”.

“Ongoing private sector investment in airports has enabled public funding to be available for use in other sectors such as healthcare and education.”

On the topic of the airports’ “monopoly power”, the submission says that is balanced by the airlines’ market power and ensures effective negotiation processes for setting aeronautical charges.

“This is demonstrated by the current stalemates experienced at Melbourne, Perth, Adelaide, Darwin and Alice Springs and Townsville airports, where pricing and capital expenditure agreements have been executed with all but one remaining airline group,” the submission says. “Several airports are now recording significant underpayment from this airline group, while the airline group continues to use the same airport services and refuses to support capital expenditure projects.”

The same issue is addressed in Northern Territory Airports’ submission, as reported in The Australian this week.

The submission identifies Qantas as the group refusing to pay increased aeronautical charges at Darwin and Alice Springs airports because it has not agreed to the increases.