Over the past few years, Australian Competition and Consumer Commission (ACCC) head, Rod Sims, has issued a spate of warnings about, and voiced opposition to asset privatisations.
One of Sims’ key concerns is that consumers are being gouged as the new monopoly or oligopoly owners raise prices and extract rents from consumers.
For example, in its latest annual Airport Monitoring Report, the ACCC found that Australian major airports have used their monopoly status to boost their operating profits by 9.9% in real terms in 2016-17 on the back of higher passenger fees:
The four airports earned a combined $757.6 million in operating profits (EBITA) from aeronautical activities in 2016-17, up 9.9 per cent in real terms from the previous year. Sydney Airport alone earned $360.8 million.
“It is not surprising that the airports are so profitable, given that they face little competitive pressure and no price regulation,” ACCC Chairman Rod Sims said…
“Profits per passenger have also risen at each of the four airports and travellers are paying for this through higher ticket prices,” Mr Sims said.
“We remain concerned that the current regulatory regime which is limited to monitoring the covered airports, doesn’t constrain the market power of four of Australia’s major airports. Unconstrained monopolies often have an incentive and ability to charge excessive prices while lacking strong incentives to improve services”…
In July, the Productivity Commission (PC) released an issues paper regarding its inquiry into Australian airports, which suggested airports may face the re-introduction of price caps, which were abolished by the federal government in 2002, as well as an investigation into whether airports are acting in a monopolistic fashion.
Now, major Australian and New Zealand airlines have told a Productivity Commission (PC) inquiry that $18 billion of benefits would flow to the Australian economy over 15 years if tighter regulations were enacted to curtail price gouging by Australia’s monopoly airport owners. From The Canberra Times:
“Monopolists will overcharge unless faced with a credible threat of regulation,” said A4ANZ chairman and former Australian Competition and Consumer Commission boss Graeme Samuel.
“The current system is not sustainable”.
Airlines for Australia and New Zealand (A4ANZ)… submission to the inquiry into airport regulation, which comes at a time relations between the airlines and the airports is very strained, says bringing aeronautical charges under control would potentially lead to lower airfares and a range of economic benefits…
A4ANZ’s analysis, conducted by Frontier Economics, supposes that airlines would not keep any of the savings from lower fees for themselves as profit, and would instead pass all savings on to consumers in the form of cheaper fares, which Professor Samuel said would happen thanks to competition between rival carriers…
Rather than calling for the re-introduction of price controls, A4ANZ said the ACCC should be given the power to rule on disputes between the airlines and airports over fees.
Economies of scale brought about by rising passenger numbers should have driven airport costs down. That this hasn’t occurred suggests that airports have become less efficient and are gouging customers.
Thus, Australia’s airports represent another failure of privatisation. Instead of driving greater efficiencies and lower costs for consumers, we have experienced the opposite. Instead, the private owners have used their market power to lazily force-up user costs and boost their profits.
Greater regulation of the sector is warranted and long overdue.
