Commercial negotiations for airport services in the UK spark reconsideration of airport market power: how does Australia compare?

In DLA Piper’s August article on recent developments in airport regulation, it considered the UK Civil Aviation Authority’s (CAA’s) path to the economic licencing of airports. To recap, the path is such that if an airport operator passes the market power test it will be required to hold an economic licence to charge for its services. Recent commercial agreements with airlines made by Manchester Airport Group (MAG), owner of Stansted airport, have resulted in the CAA inviting submissions on how the relevant agreements may affect the market power assessment of Stansted airport currently being undertaken by the CAA. Certain types of commercial agreements with airlines may indicate that Stansted may not have the ability or incentive to exercise any market power sufficient to require regulation of the airport.

Similarly in Australia, the Productivity Commission’s 2012 Report on Economic Regulation of Airport Services considered whether commercial negotiations between airlines and Australian airports suggested a need for more heavy-handed regulation. The Productivity Commission found that commercial negotiations were preferred by most parties, but due to the ‘claim and counterclaim nature of the evidence’ it could not make a definitive decision that greater regulation was required.

The outcome of the CAA’s consultation regarding Stansted airport may provide insight for Australian airports on the significance of commercial agreements for market power assessments and for the question of whether further regulation of Australian capital city airports is required…

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