The ACCC’s report card on Australia’s major airports

The ACCC’s Airport Monitoring Report 2013–14 showed that since 2003–04 more passengers and higher prices had increased revenues and margins for the airport operators but service quality had deteriorated. BARA has identified ways the industry can expand capacity, improve service quality and cope with a predicted doubling of international passengers over the next 20 years.

The Australian Competition and Consumer Commission (ACCC) released its Airport Monitoring Report 2013–14 in April 2015, with Rod Simms, the ACCC’s chairperson, expressing concern over the combined outcomes of rising revenues and margins and deteriorating service quality. The ACCC again questioned the merits of the current ‘light-handed’ economic regulation of the major international airports.

The report’s theme echoed previous years: growth in passenger numbers and price increases had provided the airport operators with increased revenues and margins, while service quality outcomes remained flat or declining. Of the four monitored airports (Sydney, Melbourne, Brisbane and Perth), overall average quality of service ratings for three of the four airports remained unchanged at ‘satisfactory’ and only one airport was rated ‘good’ (Brisbane). Services at many airports remained rated below ‘satisfactory’.

The response from the airports and their representative body to the release of the ACCC’s annual report is generally quite predictable. They note it was well over a year since the ACCC had collected its data and published its report, and cited ongoing investments that were being made in better airport infrastructure.

The major international airports also invest time and energy in promoting themselves as good corporate citizens. They state that they are working constructively with the airlines and other stakeholders in developing their airport to the benefit of the industry and state in which they operate.

Polarised views will not improve outcomes

These polarised views raise the question as to who’s right, and whether the regulatory regime for Australia’s major airports needs changing.

Because the ACCC has authorised the Board of Airline Representatives of Australia (BARA) to collectively negotiate on behalf of its members, BARA is uniquely placed to comment on the commercial conduct of the operators of Australia’s major international airports.

What is accepted is Australia’s international aviation industry must compete globally. It is therefore good for the nation, travellers, airlines and the airports to minimise airport costs through productivity improvements, innovation and suitable price-setting mechanisms.

Airport operators have plenty of room to improve upon existing outcomes, including capital efficiency and airline operating costs at the airport. These additional operating costs include dealing with missing passenger bags and aircraft delays.

To support improved outcomes, BARA’s policy paper, Timely and Reasonably Priced Airport Infrastructure, identifies initiatives to encourage greater capital efficiency, together with five commercial principles to improve the quality of negotiations between international airlines and the major international airports.

Innovative solutions are needed that can expand capacity

The industry has to confront the rapidly rising costs of airport infrastructure to meet peak use during the day, as they are the main reason for increases in airport prices. Based on data available to BARA, the ‘marginal’ cost of meeting the growth in peak day use is often two or three times the prices airport operators are now charging. This means increases in airport prices often do little to improve overall service quality outcomes because they are only funding additional capacity for airlines to use during the peak times at that airport.

Innovative solutions are needed that can expand capacity or encourage a more even distribution of traffic throughout the day. Access roads, check-in counters, security points and terminal waiting areas are specifically where innovation and cooperation over service outcomes with airlines are necessary. If this doesn’t happen, it won’t be possible to cope with a predicted doubling of international passenger numbers over the next 20 years in a way that’s commercially viable.

BARA’s five commercial principles will streamline negotiations

BARA’s five commercial principles for negotiations are: pricing for service delivery; reasonable investment returns; efficient airport operations; balanced and consistent agreements; and a service quality culture. These are the sorts of outcomes buyers seek from any supplier and are not unique to airports or international aviation.

Airlines and airport operators usually expend large amounts of time and energy in negotiating agreements over the provision and pricing of airport services. In many cases these are wasted efforts. If adopted, BARA’s commercial principles will streamline negotiations and promote an environment of continual improvement.

BARA has defined what needs to be done to deliver more productive and cost-efficient international aviation in Australia. What now remains to be seen is if the principles can be put in practice within the current ‘light-handed’ economic regulatory arrangements.