Australian airport regulation: Exploring the frontier

In 2002 Australia removed its price freeze on major airports and instituted light-handed regulation including price monitoring. Internationally, this policy is at the frontier. In general it has worked well but there are concerns that it is ineffective in protecting against windfall gains for airports, that investment incentives are a weak link, that Sydney Airport has deferred investment and let service quality fall, and that airlines are still vulnerable to airport market power. These concerns do not justify re-imposition of price control but they require a method for addressing them. Airlines have proposed independent dispute resolution. Experience elsewhere suggests that concerns about this approach are unjustified, and that it would take light-handed regulation forward.

► Australia substituted light-handed airport regulation for price regulation in 2002.
► Various concerns expressed now require a method for addressing them.
► Independent dispute resolution would take light-handed regulation forward.