"Australian airports fear price controls"

Monday, July 24, 2006

Airports fear price controls
Australia - The Melbourne Age


MELBOURNE Airport has warned Canberra it risks a damaging investment strike
if the Howard Government reintroduces tough price controls after a landmark
review of Australia's airports policy.

The airport is leading the charge to maintain Canberra's current
"light-handed" approach to airport regulation, which has been attacked by
airlines who claim some airports are abusing their monopoly power by
charging unreasonable prices for services.

"The re-imposition of price controls would create significant investor
uncertainty," Melbourne Airport told the Productivity Commission, which is
investigating regulatory arrangements.

"It is almost certain that Melbourne Airports shareholders would defer all
non-essential investment (and possibly any expensive preliminary planning
and design work) until the price cap arrangements were fully investigated."

Melbourne Airport's blunt warning comes as the major airlines, through the
Board of Airline Representatives of Australia, have used the commission
process to argue the Sydney Airports Corporation should be hit with new
price controls on international air services.

BARA, which represents all the major domestic and international airlines
including Qantas, Virgin, Emirates and Singapore Airlines, claims that the
Government must act decisively to stop Sydney Airport abusing its market
power or risk undermining "the credibility of the current regime".

"BARA does not believe that the Government intended light-handed regulation
to deliver to airport operators excessive returns on the actual investments
they have undertaken," the airlines say.

"Rather, airport operators should be required to earn profits by growing
demand and running their businesses efficiently."

The war of words between Australia's privatised airports and the airlines
has been escalating steadily for months, with airports, particularly
Melbourne Airport, criticising a lack of competition in aviation policy, and
airlines complaining about their commercial treatment from the airports.

Against this backdrop of increasing tension, the Government is reviewing the
light-handed regulatory regime it created for the airports when they were
privatised in the late 1990s. The Government decided then to axe tough price
controls and introduce price monitoring.

The current system followed a concerted lobbying campaign in Canberra by the
new airport owners, who urged senior ministers to allow them to get better
returns on their investments by getting the regulator off their back.

The new system has heralded a substantial program of investment and
upgrading of aeronautical and non-aeronautical facilities at the major
airports.

But the Australian Competition and Consumer Commission expressed concern
that the deregulation lead to substantial price increases at the airports,
particularly in the first few years of the new regime.

It argued some airports were using asset revaluations to justify price hikes
that were then being passed on to travellers. The 

Government indicated it was committed to the regime amid escalating airline
complaints.

Transport Minister Warren Truss warned the airports to behave appropriately
when revaluing their assets.

In its submission, BARA reserves its vitriol for Sydney Airports, which is
chaired by John Howard's former departmental head Max Moore-Wilton.

Melbourne Airport said the system worked well but a better
disputes-resolution procedure and more transparency in the principles and
regulatory practices would improve it.

"All available empirical evidence points to a group of relatively profitable
airports offering good quality services at prices, which are competitive by
world standards," it said.

"There is no case for the re-imposition of price controls. Moreover, the
imposition of such controls would impose significant costs on both airports
and airlines.

"Economic welfare would be put at risk from the potential for regulatory
underpricing."


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