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Airport’s wings clipped

Airport’s wings clipped

Virgin Blue’s successful application to the Australian Competition Tribunal to have services for domestic airlines at Sydney Airport declared under the access provisions of Part IIIA of the…

Virgin Blue’s successful application to the Australian Competition Tribunal to have services for domestic airlines at Sydney Airport declared under the access provisions of Part IIIA of the Trade Practices Act (TPA) was assisted by Gilbert + Tobin.

The airside service was declared on 9 December 2005. In the event of any dispute with Sydney Airport over airside charges, including take off and landing fees, domestic airlines now have the ability to refer the dispute to the Australian Competition and Consumer Commission (ACCC) for arbitration under the TPA.

The Tribunal stated that it was satisfied Sydney Airport had misused its monopoly power and unless airside service was declared, competition in the dependent market would continue to be affected.

Virgin Blue sought the declaration in response to a change in landing fees from a weight-based charge to a per passenger basis. Virgin Blue believed this would place it at a competitive disadvantage as opposed to full service airlines. It estimated the change would result in a 50 per cent increase in its landing fees.

Competition partners Luke Woodward and Simon Snow led Gilbert + Tobin’s team on the deal. Woodward said the change “attacked the competitiveness of [Virgin Blue’s] business model”. With the removal of the pricing notification regime, after the privatisation of the airports, Virgin Blue had few avenues for negotiation.

“When it sought to negotiate with Sydney Airport over it, it was pretty much told ‘take it or leave it’. So it had no other way of getting any kind of review.”

Snow said the Tribunal decided the change in landing charges did have a detrimental impact, not just on Virgin Blue, but on competition in the airline market.

The Tribunal also found that Sydney Airport was a monopoly and has both the ability and incentive to charge monopoly prices.

Snow said the interesting aspects of the matter, from an economic and legal perspective, included the impact of change from the weight-based to per passenger based pricing.

It was argued that the cost of landing charges was not significant in terms of revenues and ticket prices. “Economically unpicking that and being able to show the increase had quite a significant impact on benefits to the public, and essentially on the number of travellers that would or wouldn't travel, [was a challenge],” he said.

“The important thing for Virgin Blue as a low fare carrier is to try to keep costs as low as possible. It relies on offering low airfares to stimulate people to travel and stimulate growth in markets.

“In order to do that it needs to keep its costs as low as it can.”

QANTAS sought to intervene in support of the declaration and was represented by Minter Ellison s Paul Schoff.

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