TABLE OF CONTENTS 1. Overview ......................................................................................................................................... 4 1.1. Introduction .................................................................................................................................... 4 1.2. Structure of this Submission .......................................................................................................... 4 2. Executive Summary ........................................................................................................................ 5 2.1. Provision of Aeronautical Services ................................................................................................ 5 2.2. New Airline Agreements ................................................................................................................ 6 2.3. Ground Transport and Car Parking ............................................................................................... 6 2.4. Ground Transport Access .............................................................................................................. 7 2.5. Fuel Supply at Perth Airport ........................................................................................................... 7 3. About Perth Airport .......................................................................................................................... 8 3.1. The Importance of Perth Airport..................................................................................................... 8 3.2. The Site .......................................................................................................................................... 9 3.3. Aviation Facilities ......................................................................................................................... 10 3.4. Ownership .................................................................................................................................... 12 4. Aviation Services ........................................................................................................................... 14 4.1. Passenger Segmentation and Growth ......................................................................................... 14 4.2. International Services .................................................................................................................. 15 4.3. Visitor and Resident Growth ........................................................................................................ 19 4.4. Low Cost Carrier Expansion ........................................................................................................ 20 4.5. Domestic Services ....................................................................................................................... 21 5. Development of Perth Airport ........................................................................................................ 24 5.1. Aviation Related Capital Expenditure .......................................................................................... 24 5.2. Investment Since the Last Commission Review .......................................................................... 24 5.3. Why Investment was Needed ...................................................................................................... 26 5.4. Investment in the Next Contract Period ....................................................................................... 27 5.5. International Terminal Upgrade ................................................................................................... 28 5.6. Integrated Domestic Terminal ...................................................................................................... 29 5.7. New Runway Project .................................................................................................................... 30 6. Market Power in Aeronautical Services ......................................................................................... 33 6.1. Factors that Might Evidence Use of Market Power ..................................................................... 33 6.2. Quality is Improving Not Deteriorating ......................................................................................... 33 6.3. Perth Airport is Developing Best Practice Service Standards ..................................................... 38 6.4. Perth Airport Efficiency and Costs ............................................................................................... 41 6.4.1. Overview ...................................................................................................................................... 41 6.4.2. Operating Cost Efficiency ............................................................................................................ 42 6.4.3. Capital Efficiency ......................................................................................................................... 44 6.4.4. Aeronautical Prices ...................................................................................................................... 45 6.5. Consumer Impacts of Airport Charges ........................................................................................ 50 6.6. Profitability.................................................................................................................................... 50 Perth Airport Pty Ltd – Public Submission to Productivity Commission – 07 September 2018 Page 2 of 85 7. Airline Engagement on Charges and Non- Price Conditions .......................................................... 53 7.1. Overview ...................................................................................................................................... 53 7.2. 2002 Prices and Services Accord ................................................................................................ 53 7.3. 2007 Agreed Conditional Holdover .............................................................................................. 54 7.4. 2011 – 2018 Comprehensive Agreements .................................................................................. 54 7.5. 2017 – 2018 Negotiation of Comprehensive Agreements ........................................................... 54 8. Existence and Extent of Market Power in Aeronautical Services ................................................... 58 8.1. No Evidence of Misuse of Market Power ..................................................................................... 58 8.2. A Peculiar Kind of Monopoly ........................................................................................................ 58 8.3. Countervailing Market Power of Airlines ...................................................................................... 58 8.4. Some Forms of Market Power Abuse May Not Be Profit Maximising ......................................... 60 8.5. Summarising Market Power Considerations ................................................................................ 61 9. Current and Future Regulation ...................................................................................................... 62 9.1. Costs and Benefits of the Current Monitoring Regime ................................................................ 62 9.2. There is more to the Regime than Monitoring ............................................................................. 62 9.3. Reform of the Monitoring Regime ................................................................................................ 64 9.4. Arbitration Proposals .................................................................................................................... 64 10. Ground Transport Access and Car Parking ................................................................................... 67 10.1. Overview ...................................................................................................................................... 67 10.2. The Commission’s Previous Findings .......................................................................................... 67 10.3. Access to Perth Airport ................................................................................................................ 68 10.4. Perth Parking Context .................................................................................................................. 68 10.5. Car Park Business Overview ....................................................................................................... 69 10.6. Car Parking Pricing Objectives .................................................................................................... 69 10.7. Pricing of Car Parking Services ................................................................................................... 70 10.8. Investment in Car Park Capacity ................................................................................................. 73 10.9. Existence and Abuse of Market Power ........................................................................................ 74 10.10. Car Rental Operations ................................................................................................................. 76 11. Land Transport Linkages ............................................................................................................... 78 11.1. Overview