Landing a fix on airport monopolies

Would price controls on airport services be a good idea? This is one of the questions being raised in a new Productivity Commission inquiry into the regulation of airports.

But price controls could do more harm than good, by leading to service shortages, lower quality and under-investment in airports.

As airline passengers, most of us have a stake in this inquiry. Thanks to their monopoly power, airports can charge us very high prices for services — like car parking — and under-deliver on quality.

The charges on airlines to access airport infrastructure and facilities — such as runways and refuelling — are also passed on to passengers.

Not surprisingly, the airlines are critical of airports’ market power. Memorably, the CEO of Qantas, Alan Joyce, compared Canberra airport to a crew of Somali pirates. But what can be done about it?

For years, the Australian Competition and Consumer Commission (ACCC) has monitored prices at airports in Sydney, Brisbane, Melbourne and Perth.

However, price monitoring has limited effects. Airports do not cut their runway charges or landing fees, just because the ACCC publicly names and shames them.

Hence, although the government abolished  airport price controls in 2002, their re-introduction is likely to be canvassed in the inquiry.

But price controls have some major drawbacks. Firstly, they would impose significant costs on both airport operators and government regulators.

Secondly, regulators would need to determine the ‘efficient’ price of a service, factoring in a reasonable return on investment.  If the price cap is too low, this will create supply shortages. For example, you might be able to afford a parking spot at Melbourne airport, but this would have no benefit if the carpark is always full.

Thirdly, price controls could discourage airports from undertaking new investment. If landing charges were capped, for example, an airport may choose not to build a new runway, due to lower returns.

And monopolies are not the only problem. The efficient operation of airports is affected by government policies; like the noise curfew at Sydney airport or the cap on aircraft movements to 80 per hour.

Hopefully, the current inquiry will highlight these issues. But we should be cautious about a return to old-school price controls.