Finance lessons from the regulation of UK airports — a case study for Australian airports

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Since 2002 when price-cap regulation at Australian capital-city airports was abolished and replaced with light-handed price monitoring by the Australian Competition and Consumer Commission (ACCC), airports and airlines have negotiated the terms and conditions of use of aeronautical services without any regulatory intervention or oversight by the ACCC, the National Competition Council (NCC) or the Commonwealth Government.

The Productivity Commission (PC) in 2006 and again in 2011 found that there was no evidence to justify the introduction of any heavier-handed forms of regulation at Australian capital-city airports, including a return to price-cap regulation. Significantly, the Commonwealth Government in 2012 unequivocally accepted the PC’s recommendation in this regard and even demonstrated more confidence in the current light-handed regime than the PC by not accepting the PC’s recommendation to marginally enhance the current form of regulation of airports by giving the ACCC power to issue ‘show cause’ notices to the airports. The Commonwealth Government considered the current form of regulation of Australian airports was working well and no additional powers were needed by the ACCC.

The current economic regulatory framework for Australian airports is not due to be formally reviewed again until 2018, subject to the outcome of the PC’s current non-industry-specific review of Part IIIA. Therefore, Australian airports will have, until 2018 at least, significant flexibility in structuring and setting charges for aeronautical services without any immediate or credible threat of regulatory intervention should agreements not be reached with airlines…

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