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Virgin Blue Responds To Criticism Of The NCC’s Draft Recommendation To Declare Sydney Airport

07/10/2003

Low Fare Carrier Reaffirms Its View That Only The Regulatory Process Will Keep The Airport Monopoly In Check

Virgin Blue this week filed its response to airport owners and the government over the draft recommendation from the National Competition Council (NCC) that certain services at Sydney Airport should be declared under Part IIIA of the Trade Practices Act.


Declaration of these services at Sydney Airport would allow an impartial umpire, the Australian Competition and Consumer Commission, to decide on disputes between airlines and the newly privatised owner of Sydney Airport (SACL) over landing charges.


SACL has recently introduced changes to the way in which charges, including how take-off and landing fees apply, which have increased the amounts Virgin Blue has to pay by in excess of 50% and ultimately result in higher airfares to the travelling public.


This rise comes on top of a nearly 100% increase granted to the airport just before privatisation.


If Sydney Airport was declared, this would prevent SACL from being able to set take-off and landing charges at monopolistic levels.


Virgin Blue reaffirms its belief that the NCC’s final decision should confirm its draft recommendation that the airside service at Sydney Airport be declared.


Brett Godfrey, Chief Executive of Virgin Blue, said, “It’s hard to run a light handed regulatory approach to airports if the responsible department shows no willingness to even take their hands out of their pockets. Certainly, if the officials responsible aren’t going to protect the consumer from monopolistic behaviour by the airports, then we would call on them at least to allow the regulatory process to run its course to its earliest conclusion.”


Brett Godfrey added, “People have to worry about any privatisation where extraordinary sums are payed for public assets and then it subsequently appears that, with a wink and a nod, a monopoly is allowed to grab the money back as they see fit. We assume nobody wants to see the privatisation process become an indirect way to put another tax on travellers.”


Following the NCC’s recommendation, the Government has to make a final decision on the declaration of Sydney Airport. The Government’s decision must be made on the same criteria as the NCC’s recommendation.


In the event that the NCC confirms its draft recommendation, then it will have found that Sydney Airport has market power and that declaration will benefit the travelling public. If the NCC reconfirms its earlier position, Virgin Blue would expect the Government to declare Sydney Airport with minimal delay.

* For a copy of Virgin Blue’s submission please go to www.virginblue.com.au - ncc


BACKGROUND INFORMATION ON THE AIRPORT DECLARATION PROCESS

 

• Declaration under Part IIIA can be sought where the provider of the service has market power and declaration would promote competition in a related market.

• In its draft recommendation, the NCC found that SACL did have market power, and that declaration would promote competition in the market in which Virgin Blue provides services to passengers flying to and from Sydney.

• Following the NCC’s announcement of its decision, a number of parties responded opposing declaration of Sydney Airport. Unsurprisingly, the majority of the opponents of declaration were owners of privatised airports in Australia, including Sydney, Melbourne, Brisbane, Adelaide and Canberra airports.

• The airports argued that the NCC should not declare Sydney Airport because declaration would only promote consumption of air travel, not competition between actual and potential suppliers of air travel as required by the Act. However, Virgin Blue commissioned a report from Frontier Economics which concluded that competition would be promoted, as the NCC found in its draft recommendation. By preventing SACL from charging excessive prices. Competition will be enhanced and the main beneficiaries will be the travelling public who will enjoy lower air fares.

• The airports also argued that the NCC should not declare Sydney Airport because it would be inconsistent with the Government’s “light handed” approach to regulation. In other words, the airport owners alleged that they had been promised by the Government that they would be exempt from these pro-competitive provisions of the Act, and that declaration would be inconsistent with this alleged promise. However, Virgin Blue, in its submission, has shown that declaration would in fact be entirely consistent with the Government’s policy in relation to airport regulation. When the Government privatised Sydney Airport, it deliberately announced its regulatory policy before bids were lodged for Sydney Airport so that all bidders would be fully aware of the regulatory framework. The Government announced at that time that Part IIIA of the Act would continue to apply to airports, in order to provide airlines and other users of airports with access to an independent umpire to resolve disputes with the new airport owners over the terms and conditions for using the privatised airports.

• The Department of Transport and Regional Services also argued that Sydney Airport should not be declared for the same reasons that substantially mirrored those advanced by the airports. Virgin Blue disagreed, arguing that the Department’s views, if followed by the NCC, would result in a decrease in competition and cause passengers to pay more to travel on all airlines. That would be highly undesirable and inconsistent with Virgin Blue's desire to provide increased opportunities for Australians to travel, be it on business, visiting loved ones or simply boosting the struggling tourism industry through growth in the domestic holiday market.