Monopolistic rents, nothing in return
Thomas Coughlan
A report has slammed Australia and New Zealand’s airports, arguing that they charge excessive fees for poor service.
Auckland Airport has been labelled “A national disgrace” by Graeme Samuel, Chair of A4ANZ, a lobbying firm which represents Australian and New Zealand airlines.
He said that he heard the remark from a senior executive, and agreed with it after visiting the Auckland Airport himself.
Samuel, the former head of the Australian Commerce Commission, was speaking at the launch of a report commissioned by A4ANZ into the effects of Australian airport privatisation, which was undertaken between 1997 and 2002.
No appreciable improvement
The report alleged airports charge monopolistic rents in return for no appreciable improvement in service to airlines.
Auckland Airport was singled out for particular criticism.
Its average EBITDA margin, an indication of the extent of its profitability, is 79%.
Of all airports measured, only Sydney has a higher margin, with 82%.
The average for non-Australian Airports is 53%.
The CEOs of A4ANZ’s members, including Air New Zealand’s Christopher Luxon and Australia’s Deputy Prime Minister Michael McCormack met at the Australian Federal Parliament to launch the review.
They are advocating for reform to the “light-handed” regulation, which saw revenue per passenger increase by 25% at Australian airports over the last 10 years. This occurred while total passenger volumes skyrocketed as competition and low fuel prices saw ticket prices plummet as much as 52 percent between 2008-2017 on some routes.
Worse in New Zealand
Luxon told Newsroom that New Zealand’s regulatory environment was particularly kind to the airports.
“Even in the context of Australasia, Auckland is considered the grossest sinner and the worst outcome,” Luxon said.
Section 4b of the Airport Authorities Act, which was amended when Auckland and Wellington airports were privatised, gives airports the ability to set charges as they see fit.
A later amendment in 2008 said that the Section of the Commerce Act which addresses monopolies still applies to airports, but there is no pressure for them to act on these findings and they do not take into account non-aeronautical services like parking because alternatives (like pick-up and drop-off) exist.
‘Profits to high’
The Commerce Commission released a draft report in April this year which said it was concerned Auckland Airport’s profits may be too high.
The Commission’s Deputy Chair Sue Begg said that the airport was targeting a return of 7.06%, above the Commission’s mid-point benchmark of 6.42%.
“It does not matter how many pronouncements the Commerce Commission makes about excessive profits there is no regulation that actually forces an outcome,” Luxon said.
“Ultimately the airports are earning excessive profits, as they have said again but as a consequence the airport does not have to listen to that because they can set prices as they see fit,” he said.
Luxon said that he wanted the clause 4b of the Airport Authorities Act to be removed and for a negotiate-arbitrate regime introduced.
Price regulation
A negotiate-arbitrate regime is a form of price regulation in monopoly regimes which requires each party to put their best offers forward and negotiate on a reasonable outcome both can accept, or else face going to the Commerce Commission which would then pick one party’s bid over the other.
The threat of having the other party’s bid picked is meant to incentivise both parties to come to a mutual agreement. It is currently used in Canada and parts of the US.
Dual or single till
Luxon also advocated the implementation of the ‘single till’ principle in New Zealand.
Under the dual till principle, only aeronautical activities are taken into consideration when setting airport charges. Other activities like parking, taxi stands or the leases on shop spaces are not factored into the prices airports charge airlines.
This has an effect on how airports choose to reinvest income they earn. The airlines say that facilities like toilets and security screening checkpoints are not given the investment they deserve when considered alongside car parks and retail.
Regulation on the horizon
Airport charges may be high, but this hasn’t stopped airlines from making record profits. Air New Zealand posted an interim result of $323 million, placing it on track for the second best result in its history.
But the airline is concerned about rising fuel and labour costs. It hiked domestic fares by five percent earlier this month, saying it could not continue to absorb higher costs.
Fuel prices have increased 51% over the course of the year.
Introducing the report, Deputy Prime Minister McCormack committed to providing the right infrastructure, but gave little indication of where his Government was moving on the issue. The Australian Productivity Commission will release its own report into the issue, which may lead to more concrete changes in Australia.
New Zealand’s Commerce Commission will publish its final report into profits at Auckland Airport in September.
Thomas Coughlan is a Newsroom Reporter based in Wellington and writes on policy and economics. He travelled to the briefing in Canberra courtesy of Air New Zealand. Newsroom is an independent, New Zealand-based news and current affairs site, founded by Mark Jennings, former Head of News and Current Affairs at Mediaworks (TV3) and Tim Murphy, former Editor-in-Chief of the New Zealand Herald. Newsroom is powered by the generosity of people who support its mission to produce fearless, independent and provocative journalism. Indian Newslink has published the above Report and Picture under a Special Agreement with www.newsroom.co.nz
Photo :
Air New Zealand CEO Christopher Luxon and fellow Australasian airline CEOs have called for better regulation of airports.
(Photo: Thomas Coughlan)
