Authors
Vishal Ahuja  
Partner

Roger Featherston  
Legal Consultant

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Roger Featherston  
Legal Consultant
T +61 3 9643 4101

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Sydney
Sharon Henrick  
Trish Henry  
Tony O'Malley  

Melbourne
Amanda Bodger  
Neil Carabine  
Caroline Coops  
Lisa Huett  
Andrew Monotti  

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On 9 December 2005, the Australian Competition Tribunal handed down a determination in favour of Virgin Blue , against a decision of the Parliamentary Secretary to the Treasurer not to declare domestic airside services at Sydney Airport. Following this determination, domestic airside services at Sydney Airport will be declared for five years from 9 December 2005.

In reaching its determination, the Tribunal found that increased access to airside services would promote competition in the market for the carriage of domestic air passengers into and out of Sydney. It also briefly considered the public interest and found that increased access would not be contrary to the public interest. The costs of regulation were given little weight by the Tribunal, due to arbitration only being the “default” option available to the parties if negotiations fail.

The Tribunal also found that Sydney Airport Corporation Limited (SACL) had previously used its monopoly power by structuring its charges on a per passenger basis rather than a maximum take-off weight basis.

Background

The Tribunal’s determination is the latest step in a process which started with an application by Virgin Blue to the National Competition Council in October 2002. At that time Virgin Blue applied for a recommendation that airside services for domestic flights at Sydney Airport be declared. Airside services include landing, takeoff and movement between runways and passenger arrival and departure gates.

The National Competition Council concluded that the airside services did not meet the statutory criteria for declaration. Therefore it recommended that the services should not be declared. The Parliamentary Secretary to the Treasurer accepted its recommendation in January 2004.

The test applied by the Parliamentary Secretary to the Treasurer is set out in section 44H of the Trade Practices Act 1974 (Cth). The Parliamentary Secretary to the Treasurer considered that the airside services did not meet two of the statutory criteria, namely that:

• access or increased access to the services would promote competition in at least one market other than the market for the service (section 44H(4)(a) - the competition test); and
• access or increased access to the services would not be contrary to the public interest (section 44H(4)(f) - the public interest test).

These two tests were the principal issues considered by the Tribunal in its determination.

Virgin Blue appealed against the decision of the Parliamentary Secretary in February 2004. SACL, Qantas and the Parliamentary Secretary intervened in the proceedings before the Tribunal. The National Competition Council appeared to assist the Tribunal.

The competition test

The Tribunal’s determination focused on the question of whether increased access to the airside services would promote competition in a dependent market. The dependent market identified was the market for the carriage of domestic air passengers into and out of Sydney.

The Tribunal first decided that access to the airside services would be increased because declaration would change the terms and conditions of access. This change arises because declaration allows the terms and conditions to be challenged by a party before a regulator.

It appears to follow from the Tribunal’s determination that declaration will always, by its nature, increase access to a facility where in the absence of declaration there is no recourse for a party to challenge the terms of access. There was no suggestion that there was a lack of access - the dispute related to the terms (primarily the price) on which access was granted.

The Tribunal also made the following findings.

• Declaration would enhance competition in the dependent market by creating opportunities for competitive behaviour. It found that the pre-existing lack of declaration had enabled SACL to exercise its monopoly power, principally through alterations to its pricing policy. These alterations involved a move from a charge based on an aircraft’s maximum take-off weight to a charge per passenger carried.
• The alterations were found to favour Qantas and as such were a use of monopoly power. However, the Tribunal acknowledged that per passenger based charging has been adopted by a number of other Australian airports and accepted it as a legitimate basis for charging for international airside services at Sydney Airport.
• SACL had the ability and the incentive to exercise its monopoly power to determine both price and non-price terms in its negotiations with airlines and that negotiations would result in outcomes which would be unlikely to arise in a competitive environment. The Tribunal did not accept that SACL was constrained by the countervailing power of the airlines or the threat of the re-introduction of price controls. It also dismissed SACL’s incentive to increase competition in the downstream market to maximise its non-aeronautical revenues.
• The future without declaration would be likely to result in SACL’s charges continuing on a per passenger basis, protracted contract negotiations, a lack of minimum service standards, new and increased charges for services and a transfer of risk to the airlines. The Tribunal considered that declaration would permit the ACCC to arbitrate these matters, enhancing the environment for competition.

The Tribunal concluded that competition in the market for the carriage of domestic air passengers into and out of Sydney would be promoted because SACL would be less likely to raise its prices in such a way as to reduce the benefits to airlines of using Sydney Airport or favour full-service over low-cost carriers.

The public interest test

The Tribunal briefly considered whether declaration would be contrary to the public interest, by giving rise to costs which would outweigh its benefits. The Tribunal concluded that additional costs need not necessarily arise, as negotiations only result in arbitration if the parties do not reach agreement. It considered that this form of regulation was consistent with the government’s policy of light-handed regulation.

The future

Declaration of the airside services does not entitle an access seeker to notify an access dispute to the ACCC until such time as SACL and an access seeker are unable to agree on an aspect of access to the airside services.

The determination may be the subject of an appeal by SACL.