SPARK AND CANNON Telephone: Adelaide (08) 8212-3699 TRANSCRIPT Melbourne (03) 9670-6989 Perth (08) 9325-4577 OF PROCEEDINGS Sydney (02) 9211-4077 _______________________________________________________________ PRODUCTIVITY COMMISSION INQUIRY INTO PRICE REGULATION OF AIRPORT SERVICES PROF R.H. SNAPE, Deputy Chairman DR N. BYRON, Commissioner TRANSCRIPT OF PROCEEDINGS AT MELBOURNE ON TUESDAY, 3 APRIL 2001, AT 9.05 AM Continued from 2/4/01 3/4/01 Airport 149 PROF SNAPE: Welcome to this, the third day of the public hearings, the second day in Melbourne, of the inquiry into prices regulation of airports, conducted by the Productivity Commission. I’m Richard Snape, and on my right is Dr Neil Byron. There are staff members present who will be pleased to give advice on procedures, et cetera, should it be required. The terms of the inquiry are specified in the terms of reference sent to the commission late in December last year by the assistant treasurer. The commission has circulated an issues paper that sets out what we perceived to be major issues. Copies of the terms of reference and of the issues paper are available just outside the entrance to this room. We anticipate issuing a draft report in August, while the final report is due with the government in December. We plan to hold a second round of hearings after the draft report has been digested. The purpose of this inquiry is to examine whether new regulatory arrangements targeted at those charged for airport services or products, where the airport operator has been identified as having the most potential to abuse market power - whether new regulatory arrangements are needed there to ensure that the exercise of any such power may be appropriately counteracted. The commission is to report on whether there is a need for prices regulation of airports and, if so, the appropriate form of any prices regulation, taking into account a number of principles that are set out in the terms of reference. The public hearings provide the opportunity for interested parties to make oral presentations. Generally this is in the form of speaking to written submissions, these being available on the commission’s Web site, as well as in hard copy. Hearings also provide an opportunity for the commission to seek clarifications and to pursue with participants matters of interest to the commission. Transcripts of the hearings are sent to the relevant participants to check for accuracy of reporting. They are normally available on the commission’s Web site within a few days of the hearing. At the end of the scheduled hearings for today I shall invite any persons present to make unscheduled presentations should they wish to do so. First up this morning we have Australia Pacific Airports Melbourne. We welcome them and we would ask the three representatives to identify themselves separately for the purposes of the transcribers and to speak to their presentation. MR BARLOW: Good morning. Thank you. I’ll introduce myself first. My name is Chris Barlow. I am the Chief Executive Officer of Australia Pacific Airports Corporation, and I’ll ask Warren on my left to introduce himself. DR MUNDY: Dr Warren Mundy, Manager, Strategy, Australia Pacific Airports Corporation. MR TOMS: Michael Toms. I’m Strategy and Regulation director of BAA PLC. PROF SNAPE: Thank you very much. So who is to speak to the submission? 3/4/01 Airport 150 C. BARLOW and OTHERS MR BARLOW: I’ll start off, thank you, if that’s all right, Prof Snape. The two experts either side of me will go into some detail on our submission if you should wish afterwards, but I’m just the very simple airport manager and I want to portray the story of Melbourne Airport, principally, although APAC does, of course, as you know, operate Launceston Airport in Tasmania. We would like to take around about 20 minutes to sort of set the scene for you. Can I start by just reminding you who APAC is. 50 per cent is AMP, 25 per cent Deutsche Asset Management, 15 per cent BAA and 10 per cent Hastings Fund Management. I should start by saying that I think the privatisation exercise in Australia has been extremely successful, as of course it should have been, because they learned from all the mistakes and the good points made by other airports throughout the world. We think, however, it can be improved marginally round the edges, and that will form part of our submission this morning and of course our written submission. I run a company which is a commercial business. It just happens to be an airport and an airport is a platform from which airlines can ply their business and be competitive and provide good services and competitive services for the people of Australia and people flying into Australia. The philosophy that we run our company on is that we would like to make profit but we want to make profit through quality and through growth. As I said, I’m talking principally about Melbourne this morning. Other airports have operated in slightly different ways, and you will obviously take your own view about how they operate, but I think it’s fair to say that Melbourne has a good track record in working with our customers. We have good relationships with the airlines. Don’t take my word for it. I know you’re seeing other airlines. Ask them. The success I think has been translated into hard facts. Before privatisation traffic at Melbourne was 2.4 million; it’s now 3.4 million. That’s 46 per cent up in that period, and that includes of course the "Asian crisis". This year to date our international traffic is up by over 14 per cent, and I don’t think that’s coincidence. We work very hard with our customers, the airlines, and with the state and with all our other stakeholders in Australia, and that hard work has been translated into those particularly international figures rising I think higher than any other airport in the region. We’ve not only been successful in passengers but in cargo facilities. They are improving. Just recently both Menzies and DHL have opened new facilities at Melbourne and are trading successfully. One of the good examples I think of how we perform is our new domestic express terminal which we built for the new low-cost airlines. That is a relatively low-cost facility but a very high quality facility that was built exactly to our customers’ needs and is operating very successfully, and I think you, commissioners, have already seen that facility and I hope you agree it’s very successful. 3/4/01 Airport 151 C. BARLOW and OTHERS Sticking with quality, the Business Traveller magazine ran a survey a while ago of airports throughout the whole world and we were delighted that Melbourne Airport came fourth in that study. We were pipped at the post by Singapore, Hong Kong and Schiphol. None of those airports of course are privatised. They all rely on a significant amount of funds coming in from the government. But I think, very importantly, not only were we fourth in the whole world, but if you look at the charges that the airports in the top 10 apply to the airlines, Melbourne is significantly - significantly - lower than those others, and certainly the first three are way above the charges that are applied at Melbourne. So I think what that means is that we provide a high quality service at a reasonable and low cost at the moment. We also conduct regular what we call quality service monitor surveys, on a very regular basis, and we achieve consistently high scores in that area. One of those questions that we ask our customers is how does Melbourne compare to other airports throughout the world that you fly into, and those statistics are available if you want to have a look at them, and consistently we are scored by our customers as being their favourite airport, and other airports don’t compare as favourably. So we think our customers, both in the airlines and in passengers, actually like us. Can I now turn briefly to market power and airports’ market power. A lot of our activities are competitive and they are not the monopoly - carparking for instance: you can park on airport or off airport. You don’t need to use your car to get to the airport. You can go by taxis or buses. Car hire is available on airport and off airport very easily. Shops, and particularly duty-free shops, are available at both ends of a passenger’s journey, so we are competing with other airports directly in that region. I would like to touch on airline power as well. I think it’s fair to say that certainly our larger customers have a large degree of power in the market and their power profile is high, and this power gives them the ability to resist any unacceptable move by ourselves or any other airports. Michael can talk to you in more detail about examples of this throughout the world, and I think it will be interesting, but I think it’s fair to say that certainly the larger carriers, particularly in this country, have the ear of politicians and therefore have significant power over and above that which I enjoy at an airport. Can I now turn to how we would like to see the successful privatisation improved. I spoke earlier on about satisfying our customers’ needs. The airport and airline industry is a rapidly changing industry, and we need to respond flexibly and quickly to those changing requirements of the customers.