Airlines lobby group urges Productivity Commission to consider evidence

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Australian domestic on-time performance is improving. (Seth Jaworski)

Lobby group Airlines for Australia and New Zealand (A4ANZ) has expressed a “ profound sense of disappointment” with the conduct {of the|from the|in the} Productivity Commission’ s (PC) inquiry into the economic {regulation of|dangerous} the nation’ s airports.

The A4ANZ has lodged its {response to|reaction to|respond to} the PC’ s draft report that found {the existing|the present|the current} regulation of airports benefitted {the community|the city} and remained fit for purpose.

Further, the draft report, published in February, rejected calls to introduce a compulsory arbitration scheme to resolve disputes between the airlines and airports when the parties could not reach agreement on a pricing regime during negotiations.

A4ANZ said the PC has fallen short of {the standard|the conventional|the typical} expected for such an inquiry and left many stakeholders from airport users to politicians to regulatory, legal and economic experts “ completely discouraged”.

It added that the PC finding that there was no justification for the significant change to {the current|the present|the existing} regulatory arrangements was “ completely implausible”.

“ We share with {many other|a number of other|a great many other} sector stakeholders a profound sense of disappointment {with the|using the|with all the} Commission’ s lack of engagement with the evidence already provided, the absence of explanation for why such evidence was deemed irrelevant, and why proposals considered acceptable in other sectors were deemed so unworthy of any further consideration by the Commission; all simply rejected {in favour of|in preference of} the status quo, ” the A4ANZ submission said.

“ Our analysis {of the|from the|in the} draft report and related commentary, we found {that this|this|that} inquiry has been underpinned by erroneous assumptions; and further, that fundamental flaws in the Commission’ s analytical approach ultimately resulted in findings that {cannot be|can not be|should not be} justified, nor left to stand in the final report. ”

A4ANZ chairman Graeme Samuel said {the ability to|the opportunity to|a chance to} go to arbitration was standard commercial practice available in {a number of different|a variety of|several different} industries.

“ Why should airports be treated any differently to other infrastructure in Australia, ” Prof Samuel said in a statement on Monday.

“ We have come out strongly {on this|about this|with this} because reform is clearly needed and there is a large {body of|kind of} evidence, plus years of ACCC recommendations in support of it.

“ The PC know we are not recommending heavy-handed regulation. A4ANZ, {along with the|combined with the|together with the} ACCC, have simply said {that access|entry to the market} to arbitration when negotiations break down should be provided for all airports with monopoly characteristics. ”

The draft report said Australia’ s largest airports – Brisbane, Melbourne, Perth and Sydney, which are subject to monitoring by the Australian Competition and Consumer Commission (ACCC) – have not systematically exercised their market power to the detriment of the community.

It said the negotiate-arbitrate framework would have few benefits and many risks.

“ There is no doubt that some commercial negotiations between airports and airlines have been challenging {but ,|however} on balance, the process and the outcomes reached give little {cause for|cause of} concern, ” the draft report said.

A file image of Sydney Airport. (Seth JaworskI)

A file {image of|picture of} Sydney Airport. (Seth JaworskI)

PC commissioner Paul Lindwall has defended the draft report.

In a speech to an Infrastructure Partnerships Australia Industry event on March 19, Lindwall said the four largest airports of Brisbane, Melbourne, Perth, and Sydney “ had market power, but they were not exercising or exploiting that market power”.

“ The mere fact that an airport has market power is insufficient to justify more heavy-handed regulation, ” Lindwall said, according to a transcript published on the PC website.

“ {To increase|To improve|To boost} regulation, we would need to {find that|discover that|realize that} the airport was using that market power {in a way that|in a manner that} resulted in harm to the community. ”

Lindwall said a form of compulsory arbitration proposed by the airlines would “ profoundly change the way in which contracts are negotiated between airports and airlines, disrupt investment and harm the community”.

“ An arbitrator would need to balance the interests of an airline and airport and would not {consider the|think about the|look at the} broader public interest, nor the interests of the numerous users of airports not {subject to|susceptible to|controlled by} arbitration or not being {party to|part of} arbitration, ” Lindwall said.

“ Airports are far more complicated businesses {than a|than the usual|when compared to a} gas pipeline or a railway and this type of regulation would, we think, lead to gaming and increased costs.

“ Were we {to find|to get|to look for} that an airport was exercising market power, we might look elsewhere for additional regulation, something we will examine in the final report. ”

An aerial view of Perth Airport.

An aerial view of Perth Airport.

The Australian Airports Association (AAA) response to the draft report, lodged with the PC on March 18, said the “ benefits of arbitration {may well be|may be|could well be} illusory” and argued {there were|there have been|there was} currently adequate mechanisms {available to|accessible to|offered to} resolve disputes between airports and airlines.

The AAA noted {it was|it had been|it absolutely was} the sixth time the PC had rejected {calls for|requires|demands} an industry-specific arbitration of access to airports.

“ That they may be expensive and time-consuming is {testament to|display of} the complexity of these contracts and provides a strong incentive {for the|for that|for your} parties to reach agreement, ” the AAA submission said.

“ {In the|Within the|Inside the} absence of any systematic abuse of market power, the creation of new mechanisms would simply promote gaming and risk perverse and inefficient outcomes.

“ Further, any arbitration framework would deliver insignificant benefits which would not cover {the costs|the expenses|the expense} of such an arrangement. ”

The PC is holding public hearings this week in Canberra, Melbourne and Sydney.