Economic Regulation - IATA
Economic Regulation - IATA
Economic Regulation - IATA
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03 - <strong>Economic</strong> <strong>Regulation</strong> 19<br />
BOX 1: MARKET CONTESTABILITY<br />
i) United Kingdom Airports:<br />
Airports with an annual turnover in excess of £1 million<br />
must obtain permission from the Civil Aviation Authority<br />
(CAA) to levy airport charges. Once permission has<br />
been granted, the CAA may add conditions to regulate<br />
the conduct of the airport in relation to its users. To<br />
date, the CAA has not initiated any such conditions,<br />
but has added conditions where an investigation by<br />
the UK Competition Commission has found that an<br />
airport has been acting against the public interest. It<br />
has also accepted undertakings from airports in lieu<br />
of a condition as to future conduct.<br />
In addition, in 1986 the Secretary of State for Transport<br />
designated four UK airports (Heathrow, Gatwick,<br />
Stansted and Manchester) to be subject to five-yearly<br />
price cap regulatory reviews. The government retains<br />
the right to designate additional airports or to remove<br />
price cap regulation from any of the existing four<br />
designated airports.<br />
The government’s original basis for designation was<br />
not published, but its review of regulation in 1995<br />
defined four criteria against which the designation of<br />
an airport would be assessed:<br />
• its market position, including the extent of<br />
competition from other airports and other modes;<br />
• prima facie evidence of excessive profitability or<br />
abuse of monopoly position;<br />
• the scale and timing of investments and their<br />
implications for profitability; and<br />
• the efficiency and quality of service.<br />
The original four airports remain designated. The<br />
CAA’s initial proposals for the next regulatory period<br />
from 2008 for three designated London airports<br />
argues for the de-designation of Stansted on the basis<br />
of strong competition with other airports focused on<br />
the LCC market. The Office of Fair Trading has also<br />
called for a review of whether Manchester should<br />
be de-designated. However, the final decision on<br />
designation remains with the Secretary of State.<br />
ii) Australia:<br />
The price monitoring regulatory regime in Australia<br />
currently covers seven airports (Sydney, Melbourne,<br />
Brisbane, Perth, Adelaide, Canberra, Darwin) based<br />
on the Productivity Commission’s (PC) assessments<br />
of market power. These assessments focused<br />
primarily on the ability for airlines, or their passengers,<br />
to substitute away from the services provided by the<br />
airport (towards another airport, another destination<br />
or another mode of transport).<br />
The Productivity Commission has recently proposed a<br />
modified airport price monitoring regime to apply for<br />
five years from July 2007, that is intended to provide<br />
explicit provision for airports and those using monitored<br />
services to comment on the reasonableness of<br />
charging and related outcomes. It proposes excluding<br />
Darwin airport from this regime due to lack of market<br />
power.<br />
However, the PC has consistently failed to provide<br />
definitive criteria for market power and its misuse<br />
that, in <strong>IATA</strong>’s view, weakens the system. Despite clear<br />
evidence of unjustified price rises, the PC argues that<br />
there has been no misuse of market power without<br />
fully explaining at what level market power would<br />
be considered to have been misused. This is used<br />
to justify the continuation of light-handed regulation<br />
rather than a return to price-cap regulation. Chapter<br />
6 contains further discussion of the Australian airport<br />
regulatory system.