Section 192 of the Airports Act - declaration of airport ... 192 of the Airports... · aviation services at the airport This criterion focuses the framework on services necessary

Draft guide

Section 192 of the Airports Act —Declaration of airport services

October 1998

© Commonwealth of Australia 1998

ISBN 0 642 24936 9

This work is copyright. Apart from any use as permitted under the CopyrightAct 1968, no part may be reproduced by any process without permission fromAusInfo. Requests and inquiries concerning reproduction and rights should beaddressed to the Manager, Legislative Services, AusInfo, GPO Box 84, CanberraACT 2600.

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Contents

Summary ......................................................................................................................... v

1. Introduction ................................................................................................................ 1

2. Section 192 of the Airports Act ................................................................................. 2

How are services declared under s. 192? ......................................................................... 3Part IIIA — another declaration mechanism.................................................................... 3Differences between the two declaration mechanisms..................................................... 4

3. Determination of airport services under s. 192 ....................................................... 5

4. Interpreting the criteria ............................................................................................. 7

Criterion (i): necessary for the purposes of operating and/ormaintaining civil aviation services at the airport................................ 7

Criterion (ii): provided by means of significant facilities at theairport, being facilities that cannot be economically duplicated ........ 8

5. Assessment of services against s. 192 criteria ........................................................ 12

Airside facilities ............................................................................................................. 13Services provided in terminal buildings......................................................................... 14

a) International passenger processing areas .......................................................... 14b) Domestic passenger processing areas ............................................................... 15c) Administrative office space............................................................................... 17d) Commercial and retail facilities ........................................................................ 17

Flight catering facilities.................................................................................................. 18Refuelling facilities ........................................................................................................ 19Ground service and freight handling equipment storage................................................ 20Cargo terminal facilities ................................................................................................. 22Maintenance facilities .................................................................................................... 23

a) Light and emergency maintenance facilities ..................................................... 23b) Heavy and planned maintenance facilities........................................................ 24

Landside vehicle access.................................................................................................. 24Waste disposal facilities ................................................................................................. 26

Appendixes

1. Submissions............................................................................................................. 27

2. Submission comments on interpretation of the s. 192 declaration criteria....... 28

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Summary

Under the provisions in s. 192 of the Airports Act 1996, as soon as practicable after theend of the designated period for a ‘core regulated airport’, the Minister must issue adetermination that airport services are declared for the purposes of Part IIIA of the TradePractices Act 1974.1,2 To the extent that such airport services are the subjects of an accessundertaking they are not declared.

In effect, where the Minister has made a determination and the services are not thesubjects of access undertakings, airport services are declared automatically 12 monthsafter the privatisation of a core regulated airport. The Minister for Transport andRegional Development has determined that s. 192(2) applies to Phase I airports: Melbourne, Brisbane and Perth.

As well as any existing rights of airport operators and access seekers, declaration ofservices provides the right to have the Australian Competition and ConsumerCommission arbitrate an access dispute if negotiations prove unsuccessful. However, theCommission does not consider arbitration should generally be the first option for parties.Where possible, parties are encouraged to arrive at negotiated solutions to access issues.

The existence of the declaration process gives rise to the question: which services aredeclared? The Airports Act does not list declared services. Instead declaration is byreference to services provided at core regulated airports that meet certain criteria. Thedefinition in s. 192(5) states:

airport service means a service provided at a core regulated airport, where the service:

(a) is necessary for the purposes of operating and/or maintaining civil aviation services at the airport;and

(b) is provided by means of significant facilities at the airport, being facilities that cannot beeconomically duplicated;

and includes the use of those facilities for those purposes.

Recent amendments to the Airports Act give the Commission the power to determinewhether a particular service is, or is not, an airport service.

This guide explains the approach and process the Commission will adopt in determiningwhich services are airport services under s. 192 of the Airports Act.

1 Airports Act 1996, ss 192(1) and 192(2).

2 The designated period is 12 months after privatisation.

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As part of the process of developing the draft guide the Commission released a discussionpaper outlining its views in December 1997 and sought comments from interested parties.That discussion paper related only to the three Phase I airports then privatised.

This guide draws on comments on the discussion paper and also the NationalCompetition Council’s (NCC) approach to declaration of certain services at airportsunder Part IIIA of the TPA. Conclusions may differ slightly from those in the discussionpaper for those reasons.

Declaration process

It is anticipated that the need for the Commission to make a determination will generallyarise in the event of a dispute between parties. If a service is declared, interested partiescan seek Commission arbitration in relation to a dispute.

Before seeking arbitration the parties will typically approach the Commission todetermine whether or not the service in question is declared. The Commission will makea determination on receiving a written request to do so.

Interpreting the s. 192 declaration criteria

As mentioned above the Commission has the power to determine what is and what is notan airport service at a particular airport. Core regulated airports are numerous and varysignificantly in their attributes. The assessment of what is an airport service can vary withparticular circumstances. This serves to qualify the general conclusions in this guide.

Nonetheless, assessing whether a service is an airport service will always involveconsideration of the test in s. 192(5) of the Airports Act. To that end the Commissionwill be guided by the general framework for interpreting the criteria set out in this guide.Some of the main points are as follows.

Criterion (i): necessary for the purposes of operating and/or maintaining civilaviation services at the airport

This criterion focuses the framework on services necessary for the civil aviation functionsof the airport. Civil aviation services cover any services necessary for undertaking non-military aviation activities.

In assessing specific airport services against criterion (i) the Commission hasdistinguished between services that are necessary for purposes of operation and/ormaintenance of civil aviation services and services that are not. On this basis, servicessuch as those provided by retail outlets do not meet the requirements. Although suchservices are convenient for airport users they are not necessary for operating and/ormaintaining civil aviation services.

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Criterion (ii): provided by means of significant facilities at the airport, beingfacilities that cannot be economically duplicated

The Commission has focused on the concept of ‘economic to duplicate’ in assessingservices against criterion (ii).

In keeping with the approach to declaration of airport services adopted by the NCC, thestarting point for assessing the scope for economic duplication is to consider whether theairport as a whole can be economically duplicated. Two factors are relevant. First iseconomies of scale in provision of airport services. The second is the significance ofentry and exit costs.

Large airports are likely to benefit from economies of scale. The Prices SurveillanceAuthority (PSA), for example, found that it was likely that for most Federal AirportsCorporation (FAC) and former FAC airports average costs are declining, at least at thosewhich do not suffer major congestion.3 This is an indicator of economies of scale.

In relation to entry and exit costs, such costs are likely to be highest if an airport’s mosttechnically efficient form of capital is very durable, inflexible and expensive. In suchcases the capital is said to be ‘sunk’. In the case of airports, the costs of acquiring andclearing extensive tracts of land, often in or near large urban areas, and then building thenecessary infrastructure such as runways, roads and terminal buildings are high. Inaddition it may be difficult to obtain the required planning approvals. Such costsrepresent significant entry costs. The costs of converting an airport to another use arealso high, representing significant exit costs.

The combination of economies of scale and significant entry and exit costs mean thatmost larger airports, including most if not all core regulated airports, could not beeconomically duplicated.

This raises a number of further issues including the following.

1. Could the service be provided at an off-airport location? For example, the NCCconcluded that it would be economic to locate cargo terminal facilities off-airport(this issue is discussed below in the section on ground service and freight handlingequipment storage).4

2. Could the service be provided at another airport? For example, heavy maintenanceservices are only provided at a limited number of airports indicating that they do notneed to be provided at all airports.

3 Prices Surveillance Authority, Inquiry into the Aeronautical and Non-aeronautical Charges of the

Federal Airports Corporation, August 1993, p. 42.

4 ibid., pp. 34 and 35.

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3. Could the service be economically duplicated on site? For example, would it beeconomical to duplicate a maintenance hangar if an appropriate, on airport, site wereavailable. The issue here is whether s. 192 would only cover an appropriate on-airport site or whether it would cover the hangar as well.

Each of the above issues will be considered by the Commission in making determinationson the coverage of s. 192(5) of the Airports Act.

But s. 192 does not restrict the Commission to determining that a specific service is anairport service on the basis of the test in s. 192(5). Sections 192 (4A) and (4B)respectively, give the Commission the power to determine that a service is or is not anairport service without reference to the criteria in s. 192(5).

However, this does not amount to an unrestricted ability for the Commission to determinethat services are airport services. In the event that the Commission makes adetermination under ss 192 (4A) or (4B), that determination can be disallowed by theParliament. Thus Parliament operates as a safeguard against arbitrary determinations.

The Commission considers that a determination under ss 192 (4A) or (4B) will alwaysinvolve an assessment of the test in s. 192(5). It is anticipated that only in exceptionalcircumstances, where the application of the criteria in s. 192(5) of the Airports Act wouldclearly give rise to a perverse outcome, would the Commission make a determination thatappeared inconsistent with those criteria. In short, the Commission considers that thecriteria in s. 192(5) are fundamental to the framework and therefore the focus of thisguide.

Declared services

This guide groups airport services into a number of categories and assesses them againstthe criteria in s. 192(5) using the established framework. The Commission’s conclusionsare summarised in the table on page ix.

The conclusions summarised in the table are intended as general guidance. Theconclusions and the approach outlined in the guide will be the starting point for makingdeterminations. The Commission will also consider specific issues relevant to adetermination, such as the circumstances of the particular airport and the views ofinterested parties.

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The ‘airport service’ test in s. 192(5) of the Airports ActService Criterion (i). Is

the servicenecessary?

Criterion (ii). Is thefacility significant anduneconomic toduplicate?

Is the service likely tobe within thedefinition in s. 192(5)?

Airside facilities (runways, taxiways,aprons, etc.)

Yes Yes Yes

International passenger processingareas (check-in desks, gate lounges,customs, etc.)

Yes Yes Yes

Domestic passenger processing areas(check-in desks, gate lounges, etc.)

Yes Assessed case by case Assessed case bycase

Administrative office space Yes No No

Commercial and retail facilities No No No

Flight catering facilities Assessed caseby case

No No

Refuelling facilities Yes Assessed case by case Assessed case bycase

Land for providing refuelling services Yes Yes Yes

Land for providing ground serviceand freight handling equipmentstorage facilities

Yes Yes Yes

Ground service and freight handlingequipment storage facilities

Yes Assessed case by case Assessed case bycase

Sites for cargo terminal facilities Yes No No

Sites for light/emergencymaintenance facilities

Yes Yes Yes

Sites for heavy maintenance facilities Yes No No

Landside vehicle facilities Yes Yes Yes

Waste disposal facilities Yes No No

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In summary the Commission considers the services likely to be declared under s. 192 ofthe Airports Act are as follows:

! airside facilities (runways, taxiways, aprons);

! certain passenger processing areas (check-in, holding lounges, immigration andcustoms service);

! land for providing refuelling services;

! sites for storing ground service and freight handling equipment;

! sites for light/emergency maintenance; and

! landside vehicle facilities.

In addition the Commission considers that whether domestic passenger processing areas(terminals), certain refuelling facilities such as pipelines, and ground service and freighthandling equipment facilities satisfy the criteria of airport services in s. 192(5), should beaddressed on a case-by-case basis.

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1. Introduction

In December 1997 the Australian Competition and Consumer Commission released adiscussion paper, Declaration of Airport Services — Section 192 of the Airports Act.That paper invited responses from interested parties on the approach used, and theconclusions arrived at, by the Commission (a list of submissions is at appendix 1).5 Thepaper was also discussed in an access undertakings workshop held by the Commission inFebruary 1998 and this led to further responses and discussion of the declaration issues.

Recent amendments to the Airports Act give the Commission the power to determinewhether a particular service is an ‘airport service’ for the purposes of s. 192.

This guide outlines issues that the Commission will consider in making determinations,providing an up-to-date guide to its thinking regarding the interpretation and applicationof s. 192 of the Airports Act. In developing the guide the Commission drew on theapproach to declarations taken by the National Competition Council (NCC) and theresponses to the discussion paper.

The guide is structured as follows.

Section 2 provides an overview of s. 192 of the Airports Act and Part IIIA of the TradePractices Act. It describes how services can be determined to be airport services underthe provisions in s. 192 and observes that services the subject of an access undertakingcannot be declared for the purposes of Part IIIA of the TPA.

Section 3 outlines the process for Commission determination of which services areairport services under s. 192, including legislative requirements and public consultationprocesses.

Section 4 discusses s. 192(5) criteria for declaration of an airport service and theCommission’s interpretation of them. A summary of submission responses oninterpretation of the declaration criteria and a discussion of the issues raised is atappendix 2.

Section 5 examines the services provided at airports, dividing them into a number ofservice categories. Each is assessed against the s. 192(5) criteria. The discussionaddresses arguments raised in responses to the Commission’s discussion paper.

5 Submissions have been retained on a public register. Unless a submission has been marked

confidential it can be made available to any person or organisation on request.

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2. Section 192 of the Airports Act

Without limiting the operations of Part IIIA of the TPA, the primary policy intent ofs. 192 of the Airports Act is to facilitate access to airport services on reasonable termsand conditions. The access provisions in the Airports Act provide for the development ofaccess undertakings (established in Part IIIA of the TPA) at leased airports. Failing that,airport services are declared where, 12 months after privatisation of a core regulatedairport, the Minister has made a determination that s. 192(2) applies and the services arenot the subjects of access undertakings. 6

The Airports Act defines an airport service by reference to services provided at coreregulated airports that are both:

(a) necessary for the purposes of operating and/or maintaining civil aviation services atthe airport; and

(b) provided by means of significant facilities at the airport, being facilities that cannot beeconomically duplicated;

and includes the use of those facilities for those purposes.

As to the general effect of s. 192(5), services that meet both criteria are automaticallydeclared by the Minister under the Airports Act, 12 months after commencement of theprivatised lease unless an access undertaking has been accepted by the Commission.Where an access undertaking has been accepted, services the subjects of thatundertaking are not declared.

Declaration gives current airport and potential airport users greater rights than theirexisting rights to negotiate terms and conditions of access with the airport operator. Ifnegotiations between an access seeker and the airport operator prove unsuccessful, theCommission can arbitrate the access dispute. However, the Commission does notconsider arbitration should generally be the first option for parties. Where possibleparties are encouraged to arrive at negotiated solutions.

Alternatively airport operators can submit access undertakings to the Commission. Anundertaking must specify the terms on which airport services will be made available toairlines and other users and/or establish a process for negotiation of terms and conditionsof access including clear dispute resolution procedures.

The purpose of an access undertaking as outlined in the Second Reading Speechaccompanying the Competition Policy Reform Bill 1995 is that it ‘provides a means bywhich the owner or operator of a facility can obtain certainty about access arrangements, 6 The meaning of core regulated airport is contained in s. 7 of the Airports Act 1996.

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before a third party seeks access’.7 It also avoids the potential need for Commissionarbitration, and thereby any related expenses.

Before approving access undertakings the Commission must conduct a publicconsultation process. Once an undertaking is accepted by the Commission the servicescovered by the undertaking are not declared for the purposes of Part IIIA.

How are services declared under s. 192?

Recent amendments to the Airports Act give the Commission the role of assessingwhether a particular service is an airport service for the purposes of s. 192. Generally,this means that interested parties will approach the Commission in order to determinewhether a particular service is declared. The Commission will make a determinationupon receiving a written request to do so.

It is anticipated that the need for the Commission to make such a determination willgenerally arise in the event of a dispute between parties. As mentioned above, if a serviceis declared, interested parties can seek Commission arbitration in relation to a dispute.But before doing so it is likely that disputing parties will approach the Commission todetermine whether or not the service in question is declared.

In reaching a decision on whether a service is an airport service under s. 192, theCommission will generally seek the views of interested parties and will take these intoconsideration when making its determination. The only circumstance in which theCommission will not conduct public consultation is when the service is clearly an airportservice at a particular airport.

Details about the assessment process are provided in section 3.

Part IIIA — another declaration mechanism

In addition to the provisions in the Airports Act, airport services can be declared throughthe declaration provisions of Part IIIA of the TPA. This involves an access seekerapplying to the NCC for a recommendation that the service be declared. For example, anaccess seeker unsuccessful in privately negotiating access on reasonable terms andconditions could apply for declaration.

The declaration is made by the relevant Minister on the NCC’s recommendation. TheNCC must consider a number of criteria including:

! whether it would be uneconomic for anyone to develop another facility to provide theservice;

7 Second Reading Speech accompanying the Competition Policy Reform Bill 1995.

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! whether access would promote competition in a related market; and

! whether the facility is of national significance.

The Minister’s decision is subject to appeal to the Australian Competition Tribunal.

The declaration of freight handling services by the Minister provides an example of thePart IIIA declaration process in operation. On NCC advice the Treasurer declared a rangeof freight services at Melbourne and Sydney airports. The declaration covered certainairport services needed to load and unload international aircraft. It mainly covered spaceneeded at the airport to store loading equipment and access to aprons to carry out loadingand unloading and to transfer the freight to and from trucks.

The FAC appealed the Treasurer’s decision in relation to Sydney Airport to theAustralian Competition Tribunal. At Melbourne Airport the services were declared.

The process outlined in Part IIIA operates concurrently with s. 192 of the Airports Act,although in practice the coverage of s. 192 will mean that facilities are unlikely to bedeclared through the Part IIIA process. Further information on the Part IIIA accessregime is contained in the Commission’s publication Access Regime.

Differences between the two declaration mechanisms

There are several differences between the two mechanisms for declaration of airportservices.

First, the s. 192 provisions are specific to ‘core regulated airports’. In contrast the PartIIIA declaration route is generally available for a range of industries, including allairports.

The second difference between s. 192 and Part IIIA is that declaration under s. 192 iseffectively automatic, provided a service falls within the definition in s. 192(5). Bycomparison declaration under Part IIIA is available only through application to the NCCand the NCC’s recommendation being accepted by the relevant Minister.

A third difference between the mechanisms is the declaration criteria. Both mechanismsinclude an ‘uneconomic to duplicate’ criterion although the s. 192(5) criterion is wordeddifferently and does not include the word ‘anyone’. The test in Part IIIA requires that it is‘uneconomical for anyone to develop another facility’, whereas the test in s. 192(5)requires only that facilities ‘cannot be economically duplicated’.

The Commission is aware that it will have to form a view on the relevance of theindividual circumstances of an access seeker in relation to the ‘uneconomic to duplicate’criterion. It considers that this view is best formed in light of a request for adetermination that a particular service is an airport service.

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3. Determination of airport services under s. 192

The Parliament of Australia recently enacted the Aviation Legislation Amendment Act(No.1) 1998. Section 21 of that legislation inserted new sections into the Airports Act.The effect was to give the Commission the power to make a written determination that aspecified service is, or is not, an airport service without reference to the criteria ins. 192(5).

The new ss 192 (4A) and (4B) are:

(4A) The Commission may make a written determination providing that a specified service, or aspecified use of a specified facility, at an airport is taken to be an airport service for the purposesof this section.

(4B) The Commission may make a written determination providing that a specified service, or aspecified use of a specified facility, at an airport is taken not to be an airport service for thepurposes of this section.

In effect s. 192 of the Airports Act does not restrict the Commission to determining that aspecific service is an airport service on the basis of the test in s. 192(5).

However, the Commission considers that a determination under ss 192 (4A) or (4B) willalways involve an assessment of the test in s. 192(5). It is anticipated that only inexceptional circumstances, where the application of the criteria in s. 192(5) of theAirports Act would clearly give rise to a perverse outcome, would the Commission makea determination that appeared inconsistent with those criteria. In short, the Commissionconsiders that the criteria in s. 192(5) are fundamental to the framework and therefore thefocus of this guide.

It should also be noted that the Commission is not unrestricted in its power to determineservices to be airport services. In the event that the Commission makes a determinationunder ss 192 (4A) or (4B), that determination can be disallowed by the Parliament.

An access seeker or an airport operator can approach the Commission to seek the determination of aspecified service or facility as an ‘airport service’ or as ‘not an airport service’ for the purposes of s. 192.8Such a request should be submitted in writing and specify the context in which the request is made. Forexample, whether the party seeking a determination is a prospective access seeker or an airport operator.

In its assessment of a request the Commission will consider the criteria in s. 192(5) asfundamental to whether a service is an airport service. Should a request pertain to aservice or facility that is clearly an airport service the Commission will issue adetermination without calling for public comment.

8 Airports Act 1996, ss 192(4A) and (4B).

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Where the issues are less clear the Commission will seek submissions from interestedparties concerning the nature of the service/facility and issues relevant to its assessmentagainst the relevant s. 192 criteria. The Commission may prepare an issues paper if theissues are complex in order to assist interested parties prepare submissions.

After submissions have been received and considered the Commission will issue awritten determination.

As a guide to timing, where an issue of coverage of the Act is relatively straightforwardthe Commission will endeavour to issue its determination within 21 days of a request.Where an issue is contentious the Commission will endeavour to issue its determinationwithin 60 days.

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4. Interpreting the criteria

This section outlines the Commission’s interpretation of the criteria in s. 192(5) of theAirports Act.

It draws on the NCC’s approach as outlined in its guide The National Access Regime — ADraft Guide to Part IIIA of the Trade Practices Act and in the ACTO freight declaration.9

It also draws on feedback including written responses to the Commission’s discussionpaper.

The services subject to declaration under s. 192(5) of the Airports Act are those servicesprovided at core regulated airports that are both:

(i) necessary for the purposes of operating and/or maintaining civil aviation services atthe airport; and

(ii) provided by means of significant facilities at the airport, being facilities that cannot beeconomically duplicated’. 10

Criterion (i): necessary for the purposes of operating and/ormaintaining civil aviation services at the airport

This criterion focuses the framework on services necessary for the civil aviation functionsof the airport. Civil aviation services cover any non-military aviation services.

In assessing specific airport services against criteria (i), the Commission has distinguished between servicesthat are necessary for purposes of operation and/or maintenance of civil aviation services and services thatare not. On this basis, services such as those provided by retail outlets do not meet the requirements.Although such services are convenient for airport users they are not necessary for operating and/ormaintaining civil aviation services.

Responses to the discussion paper identified possible ambiguity in the interpretation ofcriterion (i) which refers to services ‘necessary for the purpose of operating and ormaintaining civil aviation services at the airport’ (italics added). The Commissionunderstands the criterion to cover services necessary for civil aviation purposes at theairport, irrespective of whether the service can be provided at the airport in question or atanother location. As an example, maintenance services are likely to meet the criterion.

9 The NCC has published detailed reasons for its decision to declare certain freight handling facilities at

Sydney and Melbourne airports. Released in May 1997 the publication is titled Application forDeclaration of Certain Airport Services at Sydney and Melbourne International Airports — Reasonsfor Decision.

10 Section 192(5) of the Airports Act 1996.

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Such services are necessary for the operation of civil aviation services at an airport eventhough aircraft might not necessarily need to, or choose to, conduct maintenance there.

This distinction raises the important issue of whether services that are provided at anairport can also be provided off-airport. This is considered separately in the criterion (ii)discussion.

In assessing which airport services meet criterion (i), the Commission has drawn on theNCC’s decision to recommend declaration of freight handling services at Sydney andMelbourne airports and work by the former Prices Surveillance Authority (PSA) in itsinquiry into the aeronautical and non-aeronautical charges of the FAC. In that report thePSA considered the question of which services and facilities are functionally necessaryfor aviation services. This provides some guidance on criterion (i). The PSA concluded:

Services and facilities which are functionally aeronautical are those which broadly relate to aircraftmovement, the embarkation and disembarkation of passengers and the loading and unloading of freight.This includes services/facilities such as aircraft refuelling, passenger terminals, freight services,baggage handling and aircraft maintenance. It also extends to those activities where the FAC is not theprovider of the final facility or services but rather is the holder of the primary lease on the sites orfacilities for such activities. 11

In general the responses to the discussion paper accepted the Commission’s interpretationof criterion (i). However, some argued that the level of aggregation of airport serviceswas an important issue in interpreting the criteria. The responses are discussed inappendix 2.

Criterion (ii): provided by means of significant facilities at the airport,being facilities that cannot be economically duplicated

The Commission has focused on the concept of ‘economic to duplicate’ in assessingservices against criterion (ii).

Two issues are relevant to the interpretation of ‘cannot be economically duplicated’. Thefirst is the concept of ‘economically’. The second is the concept of duplicate. Bothissues are discussed below.

Facilities that cannot be economically duplicated

As noted in section 2, the wording of this criterion in s. 192 of the Airports Act is similar,but not identical, to the ‘uneconomical for anyone to develop another facility to providethe service’ test in s. 44G(2)(b) of Part IIIA of the Trade Practices Act.

The NCC, in its analysis of the ACTO application, concluded that the test in s. 192 is nomore stringent than that contained in Part IIIA. For reasons set out in appendix 2 the 11 Prices Surveillance Authority, op cit., p. 62.

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Commission agrees with this assessment. Consequently, the Commission considers theNCC’s perspective useful guidance in interpreting criterion (ii).

In its draft guide to Part IIIA the NCC focused on the idea of ‘natural monopoly’ ininterpreting the concept of ‘uneconomical for anyone to develop another facility toprovide the service’:

... Natural monopoly occurs where one facility can supply the entire market demand more cheaply thantwo or more smaller facilities. Natural monopolies often require big, up-front investments ininfrastructure. Their operating costs, however, are relatively small and vary little as more of theinfrastructure’s capacity is brought on line. Large gas networks and electricity distribution systems areexamples of such infrastructure. Building and activating such networks is extremely expensive, butsending more gas or current around a network once it is operating is relatively cheap. Clearly, ratherthan making a competitor build a second network to compete with the existing network, it would makemore economic sense in such situations to give the competitor access to the existing network. 12

The NCC pointed to ‘pervasive economies of scale’ as a key indicator of naturalmonopolies. 13 Economies of scale arise where the average cost of producing each unit ofoutput decreases as production or output increases.

The PSA considered the issue of economies of scale at airports in its inquiry into FACcharges. They suggested that it was likely that, for most FAC and former FAC airports(at least those which do not suffer major congestion), average costs are declining. 14 Inother words, these airports were likely to benefit from economies of scale and possessedsome natural monopoly characteristics.

High entry and exit costs are another factor in making a facility uneconomical toduplicate. A natural monopoly is likely to be strongest if its most technically efficientform of capital is very durable, inflexible and expensive. In such cases the capital is saidto be ‘sunk’. Large sunk costs can discourage entry and exit and thus reinforce themonopoly. In the case of airports, the costs of acquiring and clearing extensive tracts ofland, often in or near large urban areas, and then building the necessary infrastructure arehigh. The costs of converting an airport to another use are also high. Large sunk costs inthis industry are thus significant barriers to entry and exit. 15

12 National Competition Council, National Access Regime — A Draft Guide to Part IIIA of the Trade

Practices Act, August 1996, p. 22.

13 ibid., p. 23.

14 Prices Surveillance Authority, op cit., p. 42.

15 National Competition Council, Australian Cargo Terminal Operators Pty Ltd Application forDetermination of Airport Services — Issues Paper, December 1996, p. 41.

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In its assessment of the ACTO freight declaration the NCC concluded that Sydney andMelbourne international airports have ‘significant market power and natural monopolycharacteristics’ and that it would be uneconomical for anyone to develop another airport.16

For airports the question of whether the facilities providing specific airport services can be economicallyduplicated raises a number of issues including the following.

! Could the facility be provided at an off-airport location? For example, the NCC concluded that it wouldbe economic to locate cargo terminal facilities off airport (this issue is discussed below in the section onground service and freight handling equipment storage).17

! Could the facility be provided at another airport? For example, heavy maintenance services are onlyprovided at a limited number of airports, indicating that they do not need to be provided at all airports.

! Could the facility be economically duplicated on site? For example, would it be economical to duplicatea maintenance hangar if an appropriate, on airport, site were available. The issue here is whether s. 192would only cover an appropriate on-airport site or whether it would cover the hangar as well.

Thus, a key issue for the Commission is the link between the service in question andother airport facilities, such as runways. In some cases the complementarity betweenservices provided by given facilities, and other services, may mean that a particularservice cannot be duplicated in isolation. For example, the NCC in its consideration ofthe ACTO freight declaration, found that:

The Council considered that there is an inherently strong connection between the services provided bythe facilities the subject of the application and the other services provided by airport infrastructure suchas runways. Accordingly, the Council considers that in order to duplicate facilities such as the apronsand hard stands, any duplicated facilities must have those characteristics of airports which attractinternational passenger and freight aircraft. In short, in order to duplicate those facilities to provide theservices as are intended to be provided by the Applicant, the Council considers that it would benecessary to duplicate the Sydney and Melbourne International Airports’. 18

But in other cases the service provided by given facilities may be less reliant oncomplementarity between it and other services. Where this is the case the service can bethought of as discrete. In turn, a discrete service may derive from a discrete facility. Inthis situation the question of what is to be economically duplicated will be quite different.

‘Cannot be economically duplicated’ — a forward looking concept

Interpretation of the word ‘duplicated’ is important in understanding the declarationcriteria. It is particularly relevant in assessing the scope for on-site duplication offacilities.

16 National Competition Council, Applications for Declaration of Certain Airport Services at Sydney and

Melbourne International Airports — Reasons for Decision, May 1997, pp. 31 and 36.

17 ibid., pp. 34 and 35.

18 ibid., p. 30.

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The word ‘duplicate’ is defined in the Oxford Dictionary as ‘1. to make or be an exactcopy of something, or 2. to repeat or do something twice’. Thus there appear to be twopossible interpretations of the criterion ‘cannot be economically duplicated’:

(i) it is not economic to have two facilities; or

(ii) at the time when s. 192 is being applied, it is not economic to duplicate anotherfacility.

The first interpretation would be a stringent test and would preclude declaration of manyif not most services at core regulated airports. It suggests that a service which is providedby a facility that has been economically duplicated in the past is necessarily precludedfrom being an airport service.

An alternative is to consider whether it is economic to duplicate another facility at thepoint of time when, and if, a dispute was notified.

For reasons set out in appendix 2 the Commission considers the latter interpretation to bethe correct one. Adopting this approach the test is forward looking. It asks the question:can a facility be economically duplicated at that time?

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5. Assessment of services against s. 192 criteria

The following discussion assesses a number of services provided by airport operatorsagainst the definition of airport service provided in s. 192(5) of the Airports Act.

For purposes of the assessment airport services have been grouped into the followingcategories.

■ Airside facilities (which includes aircraft movement areas, grounds and vehicleaccess to these facilities).

■ Passenger processing areas (including departure and holding lounges, immigrationand customs service areas, check-in desks and baggage handling). Both domesticand international passenger service areas are considered.

■ Administrative office space.■ Commercial and retail facilities.■ Flight catering facilities.■ Refuelling facilities.■ Ground service and freight handling equipment storage sites.■ Cargo terminal facilities.■ Maintenance facilities.■ Landside vehicle facilities.■ Waste disposal facilities.

The services have been grouped on the basis of the functional interdependence of theservices included in each category.

Some responses to the discussion paper suggested that grouping services on the basis offunctional interdependence should result in a single group, airport services. However,while the Commission accepts that the above categorisation is not the only way ofgrouping services, it considers that airport services can be disaggregated to some degree(see appendix 2 for a discussion of this issue).

Furthermore, the Commission considers that the categories listed above are not definitive,and where an assessment of a service raises issues of interdependence it will address themin the light of the specific circumstances.

Submissions to the discussion paper focused on the general framework rather than thespecific services. However, there were specific comments on refuelling facilities, groundservice and freight handling equipment sites and landside vehicle access. Thosecomments are considered in this section.

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Airside facilities

It is central to the discussion of airside facilities to acknowledge that the application ofs. 192(5) criteria is not unconstrained. Section 193 of the Airports Act states clearly that:

Part IIIA of the Trade Practices Act 1974 has effect subject to Divisions 3 to 10 of this Part

In effect this means that any consideration of access to airside facilities must take place inlight of the demand management provisions in the Airports Act. Notwithstandingpossible issues that follow from this, particularly over the short term, s. 193 is not likelyto be an issue at many privatised airports. In addition Sydney Airport is not subject to thesame regime as other airports and it is there that demand management appears to raise thegreatest issues. For these reasons the Commission has assessed airside facilities againstthe criteria in s. 192(5) without also considering the implications of s. 193.

Criterion (i): necessary for the purposes of operating and/or maintaining civil aviationservices at the airport

Airside facilities include aircraft movement areas such as runways, taxiways and aprons,aircraft parking areas, safety devices and guidance systems, airfield and airside lighting,airside grounds associated with the use of these facilities and vehicular access to thesefacilities.

Services that derive from the use of airside facilities qualify as airport services. Suchservices directly relate to the functions of an airport. Without some airside facilities itwould be impossible for civil aviation services to be undertaken at an airport. Forexample, if an airport did not have a runway, planes would be unable to land. If it did nothave taxiways, aircraft would have to be loaded and unloaded on the runway and, forreasons of safety, other aircraft would be unable to land or take off on that particularrunway.

It is inconceivable that an airport could operate feasibly in the absence of airsidefacilities. Therefore, the services provided by airside facilities satisfy criterion (i).

Criterion (ii): provided by means of significant facilities at the airport, being facilitiesthat cannot be economically duplicated

Airside facilities appear to be subject to economies of scale. That is, the average cost of20 aircraft using the facilities is generally less than if 19 aircraft use the facilities.Furthermore, there are large sunk costs associated with airside facilities. That is, suchinfrastructure is expensive and not readily used for purposes other than providing airtransport.

Airside facilities may also be subject to economies of scope. Aircraft of many differentsizes can land on a single runway designed for the largest jet aircraft. Subject to anycongestion costs, construction of a single large facility will be cheaper than construction

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of a number of facilities for each type of aircraft. In the presence of economies of scope itwill be uneconomic to have multiple facilities.

Airside facilities cannot be provided off the airport site. Although some may consider the facilities atgeneral aviation airports provide an alternative, in practice such facilities are inadequate for the largeraircraft used on international and major domestic routes. In addition, at many airports it is likely thatairside facilities represent a natural monopoly and, as such, are not readily duplicated. Consequently, thequestion of duplicating airside facilities largely amounts to a question of duplicating the airport.

It is therefore highly likely that the services provided by airside facilities at core regulated airports satisfycriterion (ii).

Services provided in terminal buildings

Terminal buildings provide a range of services that are considered separately below. Inlight of responses to the discussion paper the following discussion addresses bothinternational and domestic passenger processing areas.

a) International passenger processing areas


Passenger processing areas in international terminals include check-in desks, aerobridges,airside buses, departure and holding lounges (except for commercially operated VIPlounges), immigration and customs service areas, public address systems, closed circuitsurveillance systems, security systems, baggage handling and reclaim areas, publicamenities, other public areas in terminals, lifts, escalators, moving walkways and flightinformation display systems. These services are essentially of a complementary nature inthat passenger processing involves passengers moving through a stream of services.Hence, in the discussion below these services will be considered collectively under thecategory ‘passenger processing areas’.

International passenger processing services are necessary for the operation of aninternational airport. They relate directly to important functions of that airport. A majorpurpose of an international airport is to facilitate international passenger air travel.Without the means and support services requisite to undertake the processing of suchpassengers, the airport might not be viable as an international passenger airport.

For these reasons the passenger processing areas required for international passengerterminals satisfy criterion (I).


The majority of international passenger processing facilities, for example aerobridges,public areas in terminals and security systems, clearly must be provided on site. There is

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limited scope for some services such as check-in to be provided off site. For example,Ansett operate an off-site check-in, servicing Melbourne Airport. But for manypassengers, in particular international passengers in transit, off-site facilities are unlikelyto be a viable option.

In addition, customs regulations require that certain airport facilities are mandatory forinternational air travellers where they enter the country. Certain international passengerhandling facilities simply cannot be duplicated other than on site in the terminal building.

It is difficult to conceive of how off-site international passenger processing services couldbe developed unless they involved bussing people onto the tarmac from the off-sitefacility. That would appear to be a different service and not raise the issue of duplicationof existing facilities.

For these reasons the question of whether it is economic to duplicate international passenger processingareas equates to whether it is economic to duplicate the international terminal building itself on site.Terminal buildings are associated with high sunk costs. That is, the infrastructure is expensive and notreadily portable. Furthermore, international terminal buildings are subject to significant economies of scale.In most cases the cost of providing access either through spare capacity or extensions to the internationalterminal building is likely to be less than duplicating the facilities.

For the reasons outlined above, the services provided by international passengerprocessing areas are likely to satisfy criterion (ii).

b) Domestic passenger processing areas

The Airports Act does not distinguish between services on the basis of who operatesthem. This means that there is no per se exclusion of domestic terminals from declarationeven if operated by airlines. This section considers domestic terminals, whether operatedby the airport operator or the airlines, against the s. 192 declaration criteria.


The passenger processing services that are necessary for domestic air transport andinternational air transport are not the same. For example, passenger processing servicesfor international travel require additional services, such as customs inspection, that areunnecessary for domestic air transport.

In addition, the services required for domestic passenger air transport will vary accordingto the nature of the passenger air transport service. Passenger embarkation services willvary according to the type of plane. For example, a small aircraft will not require anairbridge, whereas many commercial jet aircraft will.

Yet in all instances some passenger processing facilities will be required. The generalconclusion remains. Without some means and requisite support services to undertake the

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processing of passengers, a passenger airport would not be viable. Domestic passengerprocessing areas are therefore likely to satisfy criterion (i).


A number of responses to the draft paper addressed the application of criterion (ii) todomestic passenger processing areas. For example, the FAC stated:

The FAC considers that conceptually there is no difference between application of the principlesunderlying s192 to domestic terminals as to other airport infrastructure.

Respondents also raised the issue of whether the existing property arrangements atdomestic terminals affects the application of s. 192. For example, it was suggested thatthe leases between airport operators and domestic terminals meant they were subject todual control and should not be analysed on the same terms as international terminals. Butopinions were mixed on this question. The FAC stated that the existence of leases wasnot conclusive as to whether domestic terminals are within the s. 192 definition. Itsubmitted:

The FAC notes that at a number of airports, long term leases apply to the domestic terminals butsubmits that although this may be relevant at the stage of determination of any access dispute, it is notdeterminative of whether the services provided at domestic terminals come within the definition ofairport services under section 192.

The Airports Act is silent as to whether the application of s. 192 is affected by theexistence of long term leases between airport operators and domestic terminal owners.

In relation to the issue of whether domestic passenger terminal facilities can beeconomically duplicated, the existence of more than one domestic terminal at someairports lends support to the argument that domestic terminal facilities can beeconomically duplicated. However, the existing domestic terminals were developed inthe past, under a highly regulated domestic airline duopoly. Under the present system thedecision to duplicate facilities is not clearly the same.

As discussed in section 4 the Commission considers a forward looking approach is thepreferred interpretation of ‘economic to duplicate’. In the case of terminals the relevantquestion is whether the facilities can be economically duplicated again? This issue isdiscussed in some detail in appendix 2. In adopting this approach the Commission willassess facilities against criterion (ii) on a case-by-case basis.

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A number of issues are relevant to the assessment of whether a domestic terminal facility can beeconomically duplicated.

First is the availability of another site to duplicate the facility. For example, the development of an airportis constrained by its masterplan as well as safety and environmental regulation. The economic duplicationcriterion must be applied in light of these constraints if it is to have any practical benefit.

Second, as discussed above, the ‘economic to duplicate’ criterion should be considered in light of thecircumstances which give rise to the need to make a determination. While it is clearly uneconomic for asmall new entrant to duplicate an entire domestic terminal, it might be economic for them to duplicate theelements they require if they can gain access to an alternate site. Conversely it might be economic for alarge consortium of users and an airport operator to develop a common user terminal. Economic efficiencymight be best served by small users building facilities jointly with other users and/or airport operators.

Last, the application of criterion (ii) should be tempered by the specific circumstances of individualairports. The question of whether it is economic to duplicate another domestic terminal will initiate anumber of other inquiries. Would such a development also require additional roads and car parks? Wouldit also require modifications and additions to airside aprons and taxiways? Clearly the answers to thesequestions will not always be the same.

These qualifications also lead to the conclusion that a case-by-case analysis is to be preferred to a generalview. The Commission has found assessment of domestic passenger processing areas against criterion (ii)to be different from the application to international passenger processing areas. For this reason it considersthat the question whether domestic passenger processing areas can be economically duplicated is bestaddressed in light of particular requests for access.

c) Administrative office space


To operate effectively at airports and provide various corporate functions, airlineoperators need office space. Consequently, the services provided by administrative officespace may satisfy criterion (i).


It is difficult to see why, in every set of circumstances, airlines would require more thansome minimal level of administration to be located at the airport. That is, an airline’soffice space at the airport appears discretionary. With the growth of telecommunicationsand the development of information technology services, there is a reduced need foradministration to be situated in any specific location. Indeed information provided byairport operators indicates many airlines’ administrative functions are not located onairport, but in off-airport offices. In some cases airlines are even undertakingadministrative functions overseas because of labour cost differentials. Thus it is unlikelythat these services satisfy criterion (ii).

d) Commercial and retail facilities

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This includes facilities at the airport such as restaurants, retail shops including duty freeshops and car rental desks. These facilities add to the profitability of an airport and makean airport more attractive to tourists. However, it is doubtful that these facilities areessential for the provision of civil aviation services, as such services do not directly relateto the functions of the airport. For example, why would an airport require duty free shopsto transport passengers? Indeed many small airports have very limited commercial andretail facilities and it appears that this has a negligible impact on the airport’s viability. Itis highly unlikely that these services satisfy criterion (i).


Commercial and retail facilities can and are readily located off site. This is displayed bythe abundance of substitute facilities available. In addition, these facilities havenegligible monopoly characteristics. Accordingly, it is highly unlikely that these servicessatisfy criterion (ii).

Flight catering facilities


The services provided by flight catering facilities are sometimes not necessary for thepurposes of transporting passengers and freight. Such services may be very necessary onlong haul international flights. However, it is questionable whether these facilities arenecessary for the provision of civil aviation services at airports that do not operateinternational flights. On many short distance flights and on small aircraft, minimal mealsare served. As such the lack of flight catering facilities at a particular airport may havelittle effect on the airport’s viability as a civil aviation centre. In the absence of a generalconclusion it is not clear that these services are likely to satisfy criterion (i).


It seems doubtful that flight catering facilities have some type of monopolycharacteristics. The infrastructure is not associated with high sunk costs. It is not clearthat all airports need to have flight catering facilities. Aircraft could be serviced whenthey land at airports with flight catering facilities. Furthermore it is not clear thesefacilities need to be located at the airport — the preparation of meals can certainly becarried out off site, as there appear to be many substitutes for such facilities. Forexample, catering companies could provide the same services as flight catering facilities.Indeed some airlines, such as Ansett’s Melbourne based operations, currently have off-site catering.

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If the airport operator provides the airlines with reasonable terms of access to roads andairside facilities at the airport to enable the airlines to transport meals from off-sitecatering facilities to the aircraft, then off-site catering facilities appear to be analternative. As such, flight catering facilities are likely to be economic to duplicate.Consequently, these services are unlikely to satisfy criterion (ii).

Refuelling facilities


Refuelling at airports is typically provided by common-user fuel storage tanks andpipelines, or the use of fuel trucks. Permanent facilities appear to be more cost effectiveat large airports. Oil companies generally own refuelling facilities (tanks, pipelines, etc.)and the airport operators the relevant sites. Air BP described the ownership of refuellingfacilities in its comments on the draft paper:

BP owns, either itself or jointly with other airport refuellers, assets such as fuel farm tanks, pipelines,pumping facilities, dispensing hydrants and refuelling vehicles.

While aircraft clearly require fuel to fly, they do not necessarily have to refuel every timethey land if they are only flying short distances. However, to minimise airlines’ runningcosts, aircraft generally do not carry more fuel than necessary. As such, aircraft oftenrefuel upon each landing. On long haul flights, aircraft use most of their fuel and as aresult must refuel upon landing. Hence, refuelling facilities are required for the purposesof providing civil aviation services at airports. If an airport did not have refuellingfacilities, some airlines could not fly to that airport. The services provided by sites forrefuelling facilities are likely to satisfy criterion (I).


The main issues for the Commission in its consideration of refuelling facilities againstcriterion (ii) are the scope for refuelling facilities to be provided off site and the scope forthe facilities to be economically duplicated on site.

Location off site may be possible if fuel can be trucked from facilities to the airside,provided that appropriate vehicle access provisions exist. However, at the larger airportsthis would be likely to impose a significant additional cost on fuel users. In addition, forsafety and other reasons this approach may not be workable in practice. For these reasonsthe Commission considers that it would not be economical to duplicate refuellingfacilities off site, at least in the case of high traffic volume airports.

The question then becomes, can duplication on site be economic. Air BP express the view that on-siteduplication might be economic in some circumstances.

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In practice the relevant issues are likely to vary from airport to airport. For example, refuelling facilities inthe form of fuel storage tanks and pipelines are often owned jointly by a number of refuelling serviceproviders. This suggests that the facilities are associated with returns to scale and high sunk costs. In turnthis indicates that such facilities may not be economic to duplicate. Thus such pipelines and relatedrefuelling facilities may well satisfy criterion (ii).

However, at some airports it may be practical to deliver fuel to aircraft via tankers. There is unlikely to beany natural monopoly element in such circumstances and refuelling facilities would be unlikely to satisfycriterion (ii).

For this reason the application of criterion (ii) is best done case by case for refuelling facilities such aspipelines and fuel storage tanks.

There is a second part to the question of whether refuelling services can be economically duplicated on site.Air BP observed, in its response to the discussion paper, that to duplicate refuelling services on site, oilcompanies require access to appropriate sites (land) within the airport perimeter.

At the risk of stating the obvious, if BP is unable to secure or gain access to airport land,the task of refuelling aircraft is impossible at that airport.

The land may include, but is not limited to, pipe corridors and a site for a tank farm. Land within the airportperimeter cannot be economically duplicated. In addition, access to available land for refuelling is likely tobe constrained by other regulations.

The critical premise of this analysis is that such land would be considered ‘facilities’ under the provisions ofthe Airports Act. At this point it should be noted that in the ACTO freight declaration the NCC consideredthe issue of whether land at an airport could constitute a facility. The NCC concluded it is likely that landoperated within the perimeter of the airport would be considered a facility.19

In the case of sites for the provision of refuelling services the Commission agrees thatland within the airport perimeter should be considered a facility. The land at the airportused to provide refuelling facilities is likely to satisfy both criteria (i) and (ii).

Ground service and freight handling equipment storage


Ground service equipment is equipment used for pushing aircraft on the airport apron.The facilities required for storing ground service and freight handling equipment arespace within the airport perimeter that may include, but is not limited to, freight andpassenger aprons and hard stands.20

While the services provided by ground service and freight handling equipment aredifferent, the discussion concerning facilities for storing this equipment is similar enoughto warrant joint treatment for the purposes of this guide.

19 ibid., pp. 9 and 10.

20 ibid., p. 9.

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The services provided by ground service and freight handling equipment directly relate tothe functions of an airport. Without ground service equipment, aircraft would be unableto operate effectively. Similarly, freight handling equipment is necessary to providefreight handling services at an airport.

Ground service and freight handling equipment are used frequently at airports. As such,facilities for their storage are necessary. That is, sites for storing this equipment areprobably necessary for the provision of civil aviation services. Hence, services providedby the use of appropriate on-airport sites for storing ground service and freight handlingequipment are likely to satisfy criterion (i).


Two main issues arise in assessing the scope for economic duplication of these services.The first is the scope to provide the services off site. The second is the scope forduplication on site. In assessing these issues the Commission has been guided by theNCC’s recommendation for declaration of space for storing ground service and freighthandling equipment at Sydney and Melbourne airports and by submissions to thediscussion paper on this issue.

Concerning off-site provision of these services, ground service and freight equipment areused frequently. The NCC contended that off airport storage of freight handlingequipment is technically possible but not commercially feasible as the frequent movementof this equipment on and off site would impose additional costs on the airlines and freighthandling companies. As the equipment is not designed for road transport the additionalcosts would be significant. In addition, the NCC pointed out that off airport storagewould reduce the flexibility and efficiency of freight equipment operators.21

Regarding the scope for duplicating these services on site, the NCC contended there is aninherently strong connection between the services provided by space for storing freighthandling equipment and other services provided by airport infrastructure. Accordingly, toduplicate facilities such as the aprons and hard stands, any duplicated facilities must havethose characteristics of airports that attract passenger and freight aircraft.

21 ibid., p. 34.

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Submissions from Ansett and the FAC disagreed with the approach taken by the NCC.Ansett, for example argued:

The Council should have considered whether there was sufficient suitable and available land within theperimeter of the relevant airport to enable those facilities to be developed at the airport. It is Ansett’sview that, had the Council considered this matter, it would have found that such land was available.

... The issue of economic duplication is a question of fact which should be considered on a case by casebasis for each particular service in light of factors such as the land use constraints at each particularairport.

Similarly the FAC argued:

The relevant facilities were aprons and other hardstand areas, not the entire airport. These facilitiescould be and are duplicated from time to time.

The Commission is not in a position to comment on the scope to duplicate the relevantapron or hardstand areas at Sydney Airport and notes that the issue is still subject toappeal to the Australian Competition Tribunal.

The question of the scope to duplicate the relevant facilities may vary from airport to airport. In line withits general approach the Commission will consider the scope to economically duplicate ground service andfreight handling equipment storage facilities provided that a suitable site is available on a case-by-casebasis.

In assessing whether a suitable site is available the Commission will consider issues such as the AirportsMaster Plan, proximity of the site to the location of service provision and safety issues. As part of thisprocess it will seek the views of interested parties including the airport operator and users or potential usersof the facility.

In summary, the Commission considers that sites for duplicate ground service and freight handlingequipment storage facilities are likely to satisfy criterion (ii). In relation to the hardstands and apronfacilities themselves the Commission will consider criterion (ii) on a case-by-case basis.

Cargo terminal facilities


Cargo terminal facilities are used for the make up and break down of freight and for shortterm storage of freight. Thus sites for the storage of freight are probably necessary for thepurposes of loading and unloading freight. Consequently these services are likely tosatisfy criterion (i).


The NCC considered the issue of economic duplication of cargo terminal facilities atSydney and Melbourne airports. The NCC concluded that it is economic to duplicate asite on which to build the cargo terminals off airport, provided that there are adequate

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provisions for vehicle access to the airport.22 Indeed it seems difficult to argue that sitesfor cargo terminal facilities have some type of natural monopoly characteristics as offairport duplication freely occurs. Consequently these services are unlikely to satisfycriterion (ii).

Maintenance facilities

Maintenance services are best treated as two sub-groups: light or emergency maintenance,and heavy or planned maintenance. In both cases aircraft parking is necessary.Hangarage is also required for heavy maintenance.

a) Light and emergency maintenance facilities


This form of maintenance is unplanned, but essential for aircraft to be able to fly safely.For safety and operational reasons the major airlines would be unlikely to fly to airportsthat did not have light or emergency maintenance facilities. Therefore these facilities arenecessary for the operation of civil aviation services at an airport.

Maintenance workers require access to land within the airport perimeter to perform lightor emergency maintenance on aircraft. Consequently these services are likely to satisfycriterion (i).


There are sunk costs associated with the sites for light and emergency maintenancefacilities in the form of the airport apron that is expensive to build and not readilyportable.

As aircraft often stop at airports for only a brief period of time, such repairs need to bedone on site. The time wasted, and costs associated with, moving the aircraft to an off-site location for such unplanned maintenance could lead to aircraft delays and significantadditional costs to airlines.

Could these types of maintenance facilities simply be provided at other airports as analternative? No — these facilities need to be available at all major airports to cater foremergency and unexpected maintenance and for frequent maintenance services. Thusthese services are likely to satisfy criterion (ii).

22 ibid., p. 35.

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This analysis highlights the functional interdependence between light maintenance facilities and servicesand airside facilities more generally. In certain instances the airside facilities will also be the lightmaintenance facilities. For example, light maintenance can be performed while a plane is parked on apronfacilities.

In some cases it will not be necessary to consider whether light maintenance facilities can be economicallyduplicated, only whether airside facilities can be. These issues are considered above in relation to airsidefacilities and also ground service and freight handling equipment storage facilities.

b) Heavy and planned maintenance facilities


Heavy and planned maintenance such as an engine overhaul or refurbishing an aircraftinterior is usually planned well before its occurrence. Sites for heavy maintenance arenecessary as aircraft would be unable to fly without having heavy maintenanceperformed. Therefore these services are likely to satisfy criterion (i).


As heavy maintenance is normally planned in advance it is not clear these facilities needto be located on the airport site. It may be feasible for such facilities to be located nearthe airport site, as long as aircraft operators have access on reasonable terms to a road ortarmac suitable for moving aircraft from the airport to the off-site heavy maintenancefacility. For example, Avalon Airport has heavy maintenance facilities which serviceQantas aircraft.

Furthermore, it is not necessary for these facilities to be provided at all airports. Aircraftowners can simply schedule the performance of heavy maintenance when aircraft are atan airport that has the relevant facilities. Given that heavy/planned maintenance facilitiesand the sites for such facilities do not need to be located at a specific airport location, thenthey probably satisfy the economic to duplicate test. Consequently these services areunlikely to satisfy criterion (ii).

Landside vehicle access


Facilities for landside vehicle access include roads for vehicles to access the airport site,terminal buildings and airside facilities. This discussion does not cover car parks. TheCommission considers that those facilities will not be subject to declaration under theAirports Act.

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Vehicles require access to landside facilities for the purposes of transporting people orgoods to the airport. The types of vehicles that use these facilities include private cars,rental cars, buses, taxis and trains.

Landside vehicle access is fundamental to the operation of civil aviation services. As pointed out by theAustralian Taxi Industry Association in its submission, alternatives are difficult to imagine. One may bethat passengers (and freight) could be delivered to the airport operator’s boundary and continue on foot tothe terminal building. Given that most airports have a substantial distance between the airport entrance andthe terminal buildings and that airport users typically have baggage or freight to transport, this wouldinvolve considerable inconvenience. In the Commission’s view the services provided by landside vehicleaccess facilities are likely to satisfy criterion (i).


The complementary nature of landside vehicle facilities with aviation activities means thequestion of whether it is economic to duplicate landside vehicle facilities correspondsclosely to whether it is economic to duplicate the airport itself. That is, landside vehiclefacilities at an airport would be of little value if they were not located adjacent to anairport.

As far as being economically duplicated on site, airport roads are generally not duplicated. In as much as aduplicate road would have to access the same facilities it is conceivable that it would have to occupy thesame space as an existing road. Alternatively, it would have to approach the facilities from another pathwhich would typically be highly constrained by the availability of land. In addition, landside vehiclefacilities cannot be located off site. For these reasons these services are likely to satisfy criterion (ii).

It is necessary to qualify this conclusion, however. Landside vehicle facilities give rise toa number of different services. For example, a traveller seeking to be dropped off by afriend requires only the services of the landside road to take them to the terminal. Assuch they utilise the services of the road as a discrete service. By comparison other roadusers typically bundle the road service with other facilities such as taxi parking bays,parking etc. An example of this is car rental services which generally utilise both theroad facilities as well as other facilities such as parking and rental desks.

Where the road is bundled with a number of other facilities the access question becomesmore complicated. In the example of vehicle drop off, access to landside roads is likelyto meet the requirements of the test in s. 192. But where road services are bundled with anumber of other services at an airport the Commission would need to assess theseparability of services.

Where a suite of separable services is involved, the access question has to be addressedfor each separate element. In some cases the landside road element of the service may notbe separable from other services in which case they may also meet the s. 192 criteria fordeclaration. The Commission will consider whether use of related non-separable servicesis in effect necessary for use of landside roads at an airport. An example could be taxirank facilities if taxis were required to use them in order to use the landside road to pickup passengers from the airport.

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The Commission will consider the issue of services related to, and non-separable from,landside roads on a case-by-case basis.

Waste disposal facilities


When aircraft land at an airport, waste facilities are needed to dispose of aircraft refusesuch as aircraft oil, sewerage and food. Airlines may be less inclined to fly to an airportthat does not have waste disposal facilities. Consequently these services may satisfycriterion (i).


It is difficult to regard waste disposal facilities as being not economical to duplicate. Theinfrastructure is not associated with significant sunk costs. It is not obvious that thesefacilities need to be located on the airport site — the disposal of waste could certainly becarried out off site, as there appear to be many alternative facilities available. Forexample, waste could be trucked off the airport site. If the airport operator provides theairlines (or contractors who provide waste disposal services) with reasonable conditionsof access to the airport site to enable the disposal of waste, then off-site waste disposalfacilities appear a viable alternative. Hence, waste disposal facilities are likely to beeconomic to duplicate and are unlikely to satisfy criterion (ii).

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Appendix 1. Submissions

The Commission received a number of submissions from interested parties concerning itsdiscussion paper Declaration of Airport Services — Section 192 of the Airports Act,representing domestic and international airlines, airport operators, oil companies and taxiand bus operators. Submissions were made by the following organisations:

Aircraft Owners and Pilots Association of Australia

Ansett Australia

Australian Taxi Industry Association

Board of Airline Representatives Australia

BP Australia

Federal Airports Corporation

Coachtrans Australia

Qantas

In addition, representatives from Qantas and Brisbane Airport provided comments at theCommission’s February 1998 workshop on airport access undertakings.

Submissions have been retained on a public register. Unless a submission has beenmarked confidential it can be made available to any person or organisation on request.Parties seeking access to submissions should contact:

Mr Douglas ShirrefsAssistant Director, AviationAustralian Competition and Consumer CommissionGPO Box 520 JMELBOURNE VIC 3001E-mail: [email protected]

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Appendix 2. Submission comments on interpretation of the s. 192 declaration criteria

This appendix outlines and discusses comments provided in the submissions oninterpretation of the s. 192 declaration criteria. The comments were made in response tothe Commission’s discussion paper and the NCC’s recommendations for declaration ofcertain freight handling services at Melbourne and Sydney airports.

The comments mainly relate to three issues. Firstly to differences between the economicto duplicate criterion in s. 192 and Part IIIA and the appropriateness of the Commissiondrawing on the NCC’s approach. Secondly to the general question of the scope for on-site duplication of services. Thirdly to the extent to which services can be disaggregatedand provided in isolation from other services.

The ‘cannot be economically duplicated’ test

The Commission has drawn on the NCC’s general approach to interpreting thedeclaration criteria in its consideration of which services may be declared under s. 192 ofthe Airports Act. The Commission was also guided by the NCC’s recommendation todeclare certain freight handling services at Melbourne and Sydney airports (the AustralianCargo Terminal Operators (ACTO) decision).

The ACTO declaration provides useful insights to what services may be subject to PartIIIA. In publishing the reasons for its decision to recommend declaration the NCC madethe following points.

■ There is limited scope for competition from other airports in the provision of freightservices. While airports such as Bankstown, Essendon and Avalon can providesome freight services, the NCC did not consider them effective alternatives toMelbourne and Sydney. They do not have large scale passenger terminal operationslike Sydney and Melbourne. Passenger facilities are important because most airfreight is transported on passenger aircraft. For example about 75 per cent ofairfreight into Melbourne airport arrives on passenger services.

■ The scope for off airport provision of services is an important factor in assessing theexisting and potential competition in freight services. Vehicle access to airside, forexample, cannot be carried out off site. This need not be the case for all services.The NCC did not recommend declaration of cargo terminal facilities (warehousesand freight assembly infrastructure) on the basis that these services can, and are,carried out at locations off the airport.

■ Freight services cannot be considered in isolation. Instead they must be seen as partof a ‘bundle’ of services necessary to attract passengers and freight.

Some respondents to the discussion paper commented on the concept of economicduplication and the differences between the tests in s. 192 and in Part IIIA. These

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submissions argued that it may not be appropriate for the Commission to be guided by theNCC on this issue because of differences in wording of the economic to duplicate test.

For example, the Board of Airline Representatives of Australia stated:

These two tests are materially different and not interchangeable. In effect, the test adopted by section192 of the Airports Act sets a higher threshold than that contained in section 44G(2)(b) of the TradePractices Act.

Ansett Australia expressed a similar view:

... in Ansett’s view, the tests under section 192 and Part IIIA are quite different, with the ‘economicduplication’ [section 192] test being more stringent than the ‘uneconomical to develop another facility’test [Part IIIA].

In its submission Ansett argued that the concept of ‘duplicate’ is directed at monopoliesand should only apply where there is a single facility that provides the relevant service, ora single group of facilities that together are integral to providing the relevant services atthe airport. By applying Ansett’s approach domestic terminals, for example, would notbe subject to declaration.

The word ‘duplicate’ is defined in the Oxford Dictionary as ‘1. to make or be an exactcopy of something, or 2. to repeat or do something twice’. Thus there appear to be twopossible interpretations of the criterion ‘cannot be economically duplicated’:

(i) it is not economic to have two facilities; or

(ii) at the time when s. 192 is being applied, it is not economic to duplicate anotherfacility.

Ansett has taken the former interpretation. However, the Commission considers the latterinterpretation to be the correct one. The fact that the service has been economicallyduplicated in the past does not preclude the service provided by the facility from being anairport service.

The second reading speech to the Airports Act indicates that this was the Government’sintended approach. The second reading speech states that the purpose of Part 13 of theAirports Act (which includes s. 192) is to provide ‘access for new entrant airlines’. Atthe time the Airports Act was enacted only one of the 13 of the ‘core regulated airports’listed had only one runway and one terminal. The Commission considers that the purposeof Part 13 would essentially be defeated if s. 192(5) was interpreted so that a servicewhich is provided by a facility that has been economically duplicated in the past isnecessarily precluded from being an airport service.

This suggests that the correct approach when applying the ‘cannot be economicallyduplicated’ test, is to consider whether it is economic to duplicate another facility at thepoint of time when the dispute was notified.

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In comparing the economic to duplicate tests in s. 192 and Part IIIA it should also benoted that s. 192(5) differs from Part IIIA in that it does not include the word ‘anyone’.The test in Part IIIA requires that it is ‘uneconomical for anyone to develop anotherfacility’, whereas the test in s. 192(5) requires only that facilities ‘cannot be economicallyduplicated’. In this respect the economic to duplicate test is potentially more stringent inPart IIIA than s. 192 as it does not take into consideration the relative ability of the partyseeking access.

The NCC, in its analysis of the ACTO application, concluded that the test in s. 192 is nomore stringent than that contained in Part IIIA. For the reasons set out above theCommission agrees with this assessment.

On-site duplication of services

Responses to the Commission’s discussion paper did not always agree with the NCC’sapproach in the ACTO declaration — and expressed concern about the Commissionbeing guided by the NCC in this respect. In particular the submissions argued that theNCC did not adequately address the issue of the scope for on-site duplication of facilities.

The FAC commented:

According to the NCC, the relevant test was whether the airport as a whole could be duplicated. TheFAC submits that this reasoning is incorrect, and the relevant statutory test is simply whether it iseconomic to duplicate the facilities in question. To the extent that this reasoning infects theCommission’s draft discussion paper, it suggests an unduly low threshold for the declaration of airportservices, and threatens investment and development at the airport.

Ansett argued that it would be economical to duplicate the relevant facilities consideredby the NCC in its ACTO recommendation provided an appropriate site was madeavailable, and that the NCC’s assessment should have focused on sites rather than thefacilities themselves. They claimed that the result could be to deter investment:

Adoption of the test under Part IIIA (as applied by the Council in the ACTO freight declarationrecommendation) for the purposes of section 192 and of making a blanket determination will result inoperators of the newly privatised airports having little incentive to invest in the upgrading of facilitiesat those airports.

The Commission is not in a position to comment on the specific issues in relation to theACTO decision. However, it considers that the issue should not always be whether anentire airport can be economically duplicated.

The conclusion that airports cannot be economically duplicated is only one part of theassessment process necessary for determining which airport services are covered bycriteria (ii) in s. 192. The next step is to consider whether part of the complete airportfacility can be economically duplicated given an appropriate site is available and therebya particular ‘airport service’.

In considering the issue of on-site duplication the Commission agrees with the generalprinciple that on-site duplication should be considered in assessing services against the

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economic to duplicate criterion. In turn, such an assessment must consider whether on-site duplication also involves access to other facilities. For example, it has no practicaleffect if a suitable site is declared, but an access seeker does not have access to the roadsand other infrastructure necessary to support its venture.

In its assessment of airport services against the declaration criteria in section 5, theCommission implicitly assumes that declaration of a service as an ‘airport service’ entailsa reasonable level of access to carry out the proposed venture. Another way ofapproaching this issue would be to interpret the declaration narrowly and resolve therelated matters via arbitration if necessary. In practice either approach suggests a case-by-case analysis taking into consideration site availability, the needs of the variousparties, safety and other relevant issues such as accessibility.

Disaggregation of services

Some submissions argued that the level of aggregation of airport services is an importantissue in interpreting the criteria. This issue relates the way the Commission’s discussionpaper categorised services for the purpose of its analysis of specific services against thes. 192 criteria.

The Board of Airline Representatives of Australia (BARA), for example, argued that civilaviation services offered by airlines were not separable and should be thought of at anaggregate level. It submitted:

Airlines seek to offer an integrated service for their customers at airports, not a series of separate andseparable services. ... The Commission discussion paper does not consider the whole of servicerequirements of users of airports. It immediately adopts a disaggregated approach to the provision ofservices. ... all airport services/boundaries are contiguous.

Such an approach would tend to increase the range of services subject to declaration.

The Commission understands airline needs for an integrated set of services, andunderstands the argument put by BARA. However, the s. 192 criteria effectively requirethe Commission to assess whether it is possible for an airline or other airport users tosupply a service provided that access to necessary airside facilities is made available. Inrelation to flight catering for example, the Commission would assess the scope forairlines to meet their flight catering needs provided that access to airside was madeavailable.

Often the issues related to the scope for disaggregation are not straightforward and canvary from airport to airport and service to service. This points to the importance of acase-by-case analysis and serves to emphasise the general nature of these guidelines.

Documents

Section 192 of the Airports Act - declaration of airport ... 192 of the Airports... · aviation services at the airport This criterion focuses the framework on services necessary