The Australian Competition and Consumer Commission (ACCC) released its latest Airport Monitoring Report for 2020-2021 and several of the related airports and associations have spoken out regarding the report’s contents.
Sydney Airport and the Australian Airports Association released their responses and detailed where they say the ACCC failed to report balanced results.
ACCC’s Airport Monitoring Report
Australia’s four largest airports, Sydney, Melbourne, Brisbane and Perth, had a combined operating profit in 2020-21 that was only about five per cent of what it was in the last full financial year before the pandemic, the ACCC’s latest Airport Monitoring Report reveals.
The report also shows that the number of domestic and international passengers using the four airports in 2020-21 was between about 17 per cent and 40 per cent of their average pre-pandemic levels.
Yet, it says, despite this, Sydney, Brisbane and Perth airports still recorded operating profits in 2020-21, although their margins fell sharply. Victoria’s longer periods with COVID travel restrictions contributed to an operating loss for Melbourne Airport in 2020-21.
“Unsurprisingly, the pandemic resulted in far fewer passengers visiting our four largest airports and that led to greatly reduced operating profits and margins,” ACCC Commissioner, Anna Brakey said.
“Despite severely reduced aeronautical revenues, Sydney, Brisbane and Perth airports were still able to turn a profit last financial year as a result of reduced operating costs. This is a surprising result given the impact of the pandemic on the aviation industry, and it demonstrates the resilience of the airports.”
The report found that between 2007-08 and 2018-19, the total airport profit margins of Sydney, Melbourne and Brisbane airports were consistently between 55 per cent and 65 per cent, and Perth fluctuated between 45 per cent and 80 per cent. These margins fell sharply due to the pandemic and associated lockdowns.
The report said Sydney, Melbourne, Brisbane and Perth airports were highly profitable until 2019-20 and 2020-21 when COVID-19 had a major impact on aviation.
Market power and high profit margins
The aviation industry plays a critical role in the Australian economy, and airports, as regional monopolies, have substantial market power. For these reasons, the ACCC will carefully monitor the airports’ profit margins as the industry recovers from the pandemic.
In February this year, the Supreme Court of Western Australia ruled that Perth Airport had likely exercised substantial market power in negotiating aeronautical charges with airlines in 2018.
The ACCC is not surprised by the court’s finding, and prior to the pandemic had raised concerns about the sustained high profit margins earned by Sydney, Melbourne, Brisbane and Perth airports.
“The Perth Airport and Qantas case, combined with our own findings over a long period, suggest the Government’s Aeronautical Pricing Principles are currently not assisting airlines in their negotiations with all airports as intended,” Ms Brakey said.
“We’ll consider what can be done to improve how the Aeronautical Pricing Principles operate in commercial negotiations.”
Retail chains operating at Sydney, Melbourne, Brisbane and Perth airports told the ACCC that their sales turnover in 2020-21 was only about five per cent of their pre-pandemic average. As a result, many retailers at the four airports had to close their operations.
Hire car operators at the four airports also told the ACCC that their revenues were between about 10 per cent and 50 per cent of pre-pandemic levels. Some of the hire car companies had to close their booths at airports and sell parts of their fleets to generate enough cashflow to continue.
All four airports provided various levels of financial support to commercial and property tenants in 2020-21, such as rent relief, rent deferral and waiving fixed payments.
History of the ACCC and their reports
The ACCC monitors the performance of the four largest airports in relation to aeronautical and car parking activities, following a direction from the Australian government requiring it to consider prices, costs, profits and quality of service.
The ACCC’s monitoring role does not include the power to intervene in the airports’ setting of prices for parking and aeronautical activities. However, the ACCC is required to assess any proposal by Sydney Airport to raise charges for regional air services.
Price and quality comparisons between airports should be treated with some caution as terminal configurations and the mix of domestic/international passengers vary between airports. Likewise, airports may have different approaches to valuing their assets, making it difficult to meaningfully compare profitability between airports.
Perth Airport shares pride for their team during “challenging times”
The ACCC report shows that following the negotiation of new Aeronautical Service Agreements in 2018, aviation revenue per passenger has declined.
Perth Airport was able to reach agreement with 24 out of the 25 airlines operating at the airport at the time. The data confirms that those airlines have delivered reduced aviation pricing.
At the same time, the ACCC data shows that Perth Airport’s quality of aviation service (as rated by airlines) was the best of any of the major airports leading into COVID-19 (when the rating process was temporarily suspended.)
The report also shows that Perth Airport’s “on time departure performance” was the best of any of the major airports for seven consecutive years leading into COVID-19.
Chief Executive Officer of Perth Airport, Kevin Brown, says the ACCC data confirms that Perth Airport is delivering value for money.
“The aviation sector has been through a nightmare two years due to the pandemic and the impact on airports of COVID has been brutal,” Mr Brown said.
“Airports have not received the same level of government support as airlines, but we have worked through these challenging times.
“I’m really proud of our team for ensuring we kept our runways and terminals operating throughout this period despite suffering significant financial losses.
“We did the right thing by Western Australia, our partners and the national economy by ensuring our FIFO workers could travel safely to keep the resources sector up and running.
“The ACCC has now confirmed that we are delivering reduced aviation prices and high-quality services for our airline partners, our passengers and the community.
“The independent Productivity Commission has also strongly endorsed over many years the current regulatory system as being fit for purpose and serving the interest of the community.”
Perth Airport says the ACCC report’s reference to Perth Airport “returning a profit” in FY20 and FY21 is misleading in that it confuses EBITA with profit. Some of the ACCC references to profit also include profit from property operations and therefore should not be included in an analysis of aviation operations.
Perth Airport declared a loss of $64.5million in FY21 – representing a 163 per cent fall on the net profit after tax recorded in FY19 ($102.4m) – the last full financial year where there were no COVID-19 travel restrictions.
Sydney Airport “disappointed” by report
Sydney Airport acknowledged the release of the ACCC report and recorded their response.
Sydney Airport found that in its analysis, the ACCC omits and simplifies important data, specific to Sydney Airport.
For example, it said the report failed to mention:
- Over $1 billion in lost revenue in 2020-21, following losses of $300 million in revenue between March and June 2020
- In 2020-21 Sydney Airport recorded a post-tax loss of $267 million, excluding the one-off sale of land to the NSW Government for the Sydney Gateway project
- $220 million in rental abatements up to 30 June 2021, to help our commercial partners survive the crisis
- $43 million in abatements and debt-write offs to Qantas and Virgin Australia
- $10 million in aircraft parking relief primarily benefiting domestic airlines
According to Sydney Airport, the report also fails to acknowledge that airports bear the brunt of passenger risk, with Sydney Airport receiving less than one per cent of the more than $5 billion in government support to the sector during COVID.
Sydney Airport CEO, Geoff Culbert, said, “We are disappointed by the presentation of the ACCC’s report, having just gone through an incredibly difficult period where we lost more than $1.3 billion in revenue, yet provided millions in relief to our partners and kept the airport open for essential workers and returning Australians.
“The report creates the impression that Sydney Airport profited during COVID, when the reality is we recorded significant losses, had to raise $2 billion from the market, $800 million in debt, and let go a quarter of our workforce just to survive.
“We are proud of our behaviour through the pandemic and the principled way we supported our commercial partners, many of whom can attribute their survival to our actions.
“Everyone in aviation is emerging [from] some of the most devastating years in our history and our focus will remain on supporting our partners and working with them to rebuild the industry.”
Australian Airports Association (AAA) found report “unbalanced”
AAA Chief Executive, James Goodwin, said, “The ACCC report presents an unbalanced view of the state of Australia’s airports” and called out the ACCC for cherry-picking information they shared.
“While acknowledging airport passenger volumes and operating revenues were decimated during the pandemic, the ACCC’s report fails to recognise that airports bear the risk of demand shocks like the pandemic, as high-volume businesses with high fixed costs.
“The selective use of airport financial data to claim airports continued to make significant profits during the pandemic is concerning.
“The facts are that airports provided significant money and in-kind support to airlines, including millions of dollars in rent relief and deferrals, abatements in aircraft parking and other charges to airlines, including forgiveness of significant debts owed to airports after Virgin Australia entered receivership in 2020.
“This support from airports was provided without the benefit of the $3.2 billion in financial lifelines given to airlines by the previous Government.
“As volume businesses, it is in the interest of airports to maximise passenger movements through terminals. This fact provides an important incentive for airports to negotiate aeronautical charges on a commercial basis acceptable to the airlines.
“The ACCC continues to repeat unsubstantiated claims from its Airline Monitoring Report that airports are seeking to use their market power to recover pandemic-related losses through increased aeronautical charges.
“This is despite the ACCC stating in the Airport Monitoring Report that its monitoring does not enable it to assess in detail whether airports have exercised its market power to earn monopoly profits.
“It is noted that the ACCC’s argument relies on comments regarding airport market power from the Supreme Court judge in the Perth Airport v Qantas case.”
Mr Goodwin said the AAA’s view is that the ACCC has chosen to quote selectively from the commentary, omitting the fact that in the judge’s view there was no suggestion airports were abusing their market power to increase charges.
“The ACCC’s claims on airport’s use of market power in negotiating aeronautical charges is flawed and stands in contrast with the Productivity Commission’s findings from its inquiries into the economic regulation of airports in 2002, 2006, 2012 and 2019 which, in all four inquiries, found airports did not systematically exercise their market power.
“Given recent merger activity in the airline sector, the AAA calls on the ACCC to continue its quarterly Airline Monitoring Report beyond its current expiry date of June 2023. This will go some way to the ACCC holding airlines to the same level of scrutiny as airports.”