Which has more 'pricing power': airlines or airports?

[Melburnian1]

The first part of this article discusses an interesting issue: which has more 'pricing power' - airlines or Australian airports:

Qantas claims threat to drop flights 'only leverage' in airport negotiations

While not normally inclined to back more regulation (after all, the biggest lie is 'I'm from the Government and here to help you'), in this case, at least in respect of this matter (forgetting about the cabotage issue discussed at the article's end), QF and VA are correct.

Airport privatisation has been good in facilitating more investment at airports (even if from the passenger perspective, there has been too much of an emphasis on higgeldy-piggeldy compulsory walkways for international departing passengers through duty free areas, unlike say Singapore Changi where the shops don't get in one's way; parking at Australian airports also delivers the airport lessees a huge percentage profit margin approaching 80 per cent in MEL) but clearly the airports have more pricing power than the airlines.

QF and VA cannot threaten to transfer more flights from MEL to AVV or SYD to Richmond Air Base, NTL or CBR because either passengers would not wear it or there is insufficient or no infrastructure available (apart from regulatory matters also being a barrier.)

BNE has some competition from OOL and to a lesser extent MCY but that might be the exception that proves the rule.

On balance, unfortunately, 'light handed' regulation would be likely to harm our airlines. It's vital that they be given every opportunity to become sustainable: VA is still making losses (although that may be about to change) and nowhere near a good return on the capital employed while QF despite making a likely close to $1 billion (or more) profit this year had a very high loss in the previous year.

In contrast, the management of some of Australia's leased airports have made what are arguably 'super profits' for many years.

 

[seanpodge]

Why did they ever privatise what are effectively monopolies? A blatant example of ideology trumping logic that even the Americans haven't fallen for.

 

[RooFlyer]

Without wanting to detract from the subject of the article quoted I suggest that the reasons for privatisations were many fold.

First, government made the decision that it didn't want to spend the continuing billions required to upgrade and expand the airports; private enterprise was willing to do that. Plus there was lots of moolah in the sales to pay down taxpayer debt.

Another was that it wanted to avoid the situation where it was both the owner and regulator, especially in areas where there is strong public interest and involvement. For instance, you had one arm of government regulating the Sydney curfew and another trying to operate the airport to maximum efficiency. This conflict has come into play, regrettably, in the USA where we are told that the regulator has sometimes trodden softly on safety issues so as not to impact too much on operations.

I was in the investment banking sector in the '90s and was on teams advising potential buyers for a number of the major airports. A really, really interesting experience! I went to an airport privatisation 'review' seminar a few years ago. Things I recall most is that what were regarded as fairly bullish pax growth and airport capital spend projections at the time were in retrospect well below the levels achieved and required.

Don't worry, I gnash my teeth along with the best of 'em at SYD airport costs, HBA lack of capex spend and coughpy pax amenities. But anyone with much experience at government owned USA airports, especially LAX until very recently, knows they are often pretty grim, crowded and dirty places (a number of honourable exceptions!). Australian airports are mostly not bad to be in and wait an hour or so for your plane. Think of the Duty Free maze like this - the airport operator can either get their revenue from people who choose to spend in those places, or from higher airline landing etc fees which are passed straight onto every traveller.