Late in 2018 the Coffs Harbour City Council (CHCC) announced it was looking at offering a long term lease of the city’s airport to recognised airport operators.
By the Editor
The announcement came as follows; “The possibility of leasing the running of Coffs Harbour Regional Airport (pictured below) to a company experienced in the commercial aviation industry has moved a step forward following Council’s approval for work to progress towards taking a formal Expression of Interest to the open market.”
The announcement went on to say; “The airport lease model is a very popular governance model for airports and has been adopted at over 24 capital city and regional airports across Australia. The key attractions are gaining access to the necessary expertise, the ability to transfer the capital expenditure for upgrades and expansion to the lessee, to remove the operational and regulatory risks of running an airport from the Council and the lease revenue Council will receive.” The full announcement can be found here.
It is important to highlight at this point that there has indeed been many airports across city and regional Australia who have adopted this model.
What the announcement does not say is that Local Governments have pretty much been forced to do this because the ownership and management of airports was transferred to them. A form of shifting airport operation and maintenance costs off Government books and handing those costs onto Local Government.
In this case the Federal Government was the culprit. Often cost shifting is done by State Governments too. It’s a form of ‘crafty bookkeeping’ for them.
But can Local Government manage airports profitably under such a scenario?
The Airlines, and also the Regional Airport Users Action Group, say; “No!” In a submission to Government they said;
“Regional and local airports are unviable on a fully commercial basis. The high cost of infrastructure development, heavy repair and maintenance, compliance and general operating costs cannot be covered from the charging levels needed to maintain Australia’s regional and local air transport system. A new approach to the funding of major refurbishment and development of Australia’s regional and local airports is required.”
But they don’t believe privatisation, or long term leasing, is the answer. Instead they recommend;
“A National Airport Infrastructure Fund (NAIF) be established to provide grant funding to regional and local airports for approved major refurbishment and airport development works. The fund to be administered by the Commonwealth and receive part funding from the Commonwealth and States on national interest grounds. Part funding also to be provided from a levy of say, 2.5%, on the non-aeronautical revenue received by the large privatised capital city airports in recognition of the benefits those commercial enterprises receive from the air transport network as a whole and regional and local airports.”
In September last year, around the time the CHCC was preparing the paperwork to go to Councillors to consider long term leasing of the airport, which is effectively privatisation in some ways, the Australian Competition and Consumer Commission (ACCC) in a submission to the Productivity Commission on the operation of airports in Australia said;
“An effective regulatory regime is needed for the major airports in Australia according to a submission made by the ACCC to the Productivity Commission’s inquiry into the economic regulation of airports.
“In a large country like Australia, airports are critical pieces of infrastructure that provide for services that bring families and friends together, support business travellers and drive tourism and economic growth. Australian airports now provide for over 150 million airline passengers each year,” ACCC Chair Rod Sims said.
“Providers of key monopoly infrastructure such as the major airports are typically regulated to ensure that they will not exploit their market power to the detriment of consumers and the broader economy. This is not currently the case with Australia’s major airports.”
“It is important that key monopoly infrastructure such as Australia’s major gateways are regulated,” Mr Sims said.
And on the greater Coffs Coast the Coffs Harbour Airport is for all intensive purposes a monopoly piece of key infrastructure. It’s either use it or drive to Port Macquarie or to the Gold Coast if you want to link to major capital cities or overseas by air.
So what happens when key pieces of monopoly infrastructure become long term leased or privatised? This is what Airlines for Australia and New Zealand said in their submission;
“When competition is limited in a market, consumers can end up paying prices that don’t reflect the cost of goods or services they receive. When this is the case, regulation can help mimic the effects seen in competitive markets so that consumers benefit in the long term.” (Emphasis added).
And that is what has happened at the overwhelming majority of those airports the CHCC referred to in their press release linked above.
Past performance is often a very good predictor of future performance. So take it as read consumers and customers of the Coffs Harbour airport you will end up paying prices that don’t reflect the cost of the goods and services you will receive.
Here’s what Airlines for Australia and New Zealand had to say further on the matter;
“Monopoly infrastructure operators have the ability to raise prices above a level that would prevail in competitive markets and little incentive to improve services above a minimum standard of service quality, to the detriment of economic efficiency and the living standards of consumers.” (Emphasis added)
The CHCC has not really not had too much of an option on this decision to be fair. But that will be of scant comfort to future airport users whether they be airlines, general aviation, passengers or those paying to park too no doubt.
Additionally it is highly doubtful ratepayers will see any rate relief as a result of the long term management arrangement. The flapping of winged pigs is more likely one suspects.
In a few weeks we will look at issues around a possible international airport and also the enterprise park proposed for Council land at the northern end of the airport.
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