Rex deputy chairman John Sharp privatised regional airports as transport minister, but did not expect governments to allow them to operate free of competition or regulation. Picture: Jim Rice

Rex deputy chairman John Sharp privatised regional airports as transport minister, but did not expect governments to allow them to operate free of competition or regulation. Picture: Jim Rice

Monopoly airports drive up costs for regional Australians

The privatisation of airports is hurting regional Australia

Connections
Aa

It was never envisaged that regional airports would be left to behave and charge as they like after privatisation, writes Rex deputy chairman John Sharp.

Aa

COMMENT: Much has been said in recent months about the problem with Australia's privatised monopoly airports. And yes, before astute readers point it out, in my former career as a federal transport minister, I was the one responsible for that privatisation. It was never envisaged, however, that the airports would simply be left - unconstrained by either competition or regulation - to behave and charge as they like.

Yet, 20 years on, that is precisely the problem the current government is facing, as it prepares to respond to recommendations in the soon-to-be released final report of the Productivity Commission's Inquiry into the Economic Regulation of Airports.

While the focus has been on our major airports, and particularly those that have their charges and quality "monitored" annually by the ACCC, the challenges of operating aviation services in regional Australia - where airports also enjoy a monopoly position - continue to grow.

Just last month, a small regional airport proposed a threefold increase in passenger charges for 2020. This would make that airport rank among the most expensive in terms of passenger charges in Australia. It was done to return bigger profits to the council that owns the airport. But it's flawed logic, as those same local residents would then have to face higher airfares every time they want to travel! This harms the local regional economy, the very thing that the council should be trying to improve.

Read more: Distance not the only obstacle for regional travel

The reality is that there are numerous examples of this type of approach by council-run airports replicated all around the country. In Australia's regions, where the need for airports to work in partnership with their customers is even greater, that is unfortunately the exception rather than the rule. The Australian Airports Association itself admits that fewer than half of its regional airport members even consult with their major customers - the airlines - when planning major capital upgrades, some of which simply cannot be justified on a demand basis.

Ultimately, the airports behave this way because they can and because they are a monopoly.

An example of this is when one airport in the Rex network decided - unilaterally - to extend its runway and build a new terminal. The extension of the runway was to allow big commercial jets to fly in from all over Australia because the council had a dream that their town was going to be a major aviation hub. The terminal could seat 270 passengers and the runway could take planes of a similar size. The problem was that the only aircraft flying into this airport at that time was a 34-seat plane. Grand ambitions which came at a cost of $18 million. And four years after the work was completed? Today the only regular passenger aircraft to fly into that airport is a 34-seater. While the taxpayer may have picked up the bill for the upgrade through state and federal grants, when the council then decides to depreciate the new assets, airlines like Rex are hit with higher landing charges and this ultimately ends up in our airfares, making airline travel more expensive.

Air connectivity delivers significant positives for regional economies, businesses and communities, and - as Deputy Prime Minister Michael McCormack put it recently - for millions of Australians, air travel is not optional. In 2018, there were almost 25 million passenger movements through regional airports, representing approximately 16 per cent of total Australian domestic air passengers movements in Australia. The economic contribution of the air transport industry in regional and remote Australia has been estimated to be approximately $2.3 billion annually, providing about 15,000 full-time-equivalent jobs. This is a significant contribution when considering the populations of regional areas.

And while many council-owned airports say they are struggling financially, it is often because they have lost focus on being an essential community transport hub; instead of consulting with airlines on planning, they just charge us for new infrastructure which in most cases is not justified, all of which adds unnecessary cost to travel and harms local economic growth.

Regional airports need to work in partnership with their customers. Picture: Erin Jonasson

Regional airports need to work in partnership with their customers. Picture: Erin Jonasson

If the airlines don't like it, we should apparently stop flying there, according to the Productivity Commission. But what would that do for our regional communities? Rex and our competitors play a vital role in providing local residents access to essential social, medical, business, financial and educational services, as well as moving important freight. In many regional centres, the existence of air services plays a key role in reducing isolation from capital cities and the rest of the world. Rex's community fare program is available across 39 destinations in Australia - significantly reducing the cost of travel per sector, and it's estimated that around 30 per cent of all Rex passengers fly on these ultra-low community fares. At this moment we are trying to introduce a new low community fare for Dubbo, which would reduce the fare by 30 per cent from $179 to $119.

But these benefits to regional communities are contingent on the extent to which airlines can remain commercially viable on regional routes, and this is put at risk by the lack of constraint that any airports in Australia experience currently. Ultimately, the airports behave this way because they can and because they are a monopoly. There is plenty at stake if they are allowed to continue to behave this way.

The ACCC has proposed some modest reforms that would see the introduction of a dispute resolution pathway to ensure airports and their customers are able to negotiate fairer outcomes in the interests of all parties - not just airports. We are urging the government to support this proposal for Australia's monopoly airports.

We need to call time on the outdated and ineffective "monitoring" regime and address the impact of market power at all our airports. It seems hard to argue that Australian travellers, and the economy more broadly, should have to pay the price of a system which prevents airport customers like airlines from negotiating fair and reasonable deals, the benefits of which flow to consumers and the economy.

  • John Sharp is deputy chairman of Regional Express (Rex) Airlines and a former federal transport minister.
Aa