Application for declaration of the airside services at Sydney Airport

Virgin Blue Airlines Pty Ltd applied on 1 October 2002 for declaration of airside services at Sydney Airport. The application sought declaration under Part IIIA of two services:

a service for the use of runways, taxiways, parking aprons and other associated facilities necessary to allow aircraft carrying domestic passengers to:

take off and land using the runways at Sydney Airport

move between the runways and the passenger terminals at Sydney Airport (airside service)

a service for the use of domestic passenger terminals and related facilities to process arriving and departing domestic airline passengers and their baggage at Sydney Airport (domestic terminal service).

Virgin Blue Airlines Pty Ltd withdrew its application for declaration of the domestic terminal service on 6 December 2002 following commercial agreement with Sydney Airport Corporation Limited (SACL) on terminal access.

The Council’s draft recommendation (30 June 2003) was that the airside service should be declared. However, after considering the submissions received in response to the draft recommendation, the Council’s final recommendation (30 November 2003) to the Minister (being the Parliamentary Secretary to the Treasurer) was that the airside service not be declared as it was not affirmatively satisfied that the Virgin Blue’s application satisfied declaration criteria (a) and (f).

Criterion (a)

For criterion (a) to be met, the Council needed to be satisfied that declaration would promote competition in the relevant passenger or freight domestic air transport markets. In particular, the Council considered that SACL’s incentive to exercise market power by increasing prices for the airside service was likely to be constrained by SACL’s desire to increase passenger traffic to maximise revenue from retail concessions and the threat of re-regulation. Furthermore the Council considered airside service charges were only a small contributor to the overall costs of air travel and it was unclear that SACL’s proposed charges would advantage some airlines over others so as to risk limiting downstream competition.

While SACL’s ability and incentive to exercise market power was not considered to be completely hindered, the Council was not satisfied that the impact of such a tempered exercise of market power on competition in the dependent markets would adversely affect competition to a material degree. The Council therefore considered that criterion (a) was not met.

Criterion (f)

The Council found that criterion (f), which requires that declaration not be contrary to the public interest, was also not met because it could not be satisfied that the costs of declaration would be less than the resultant competitive benefits.

Decision

On 29 January 2004 the Parliamentary Secretary to the Treasurer decided that the airside service should not be declared.

Review

Virgin Blue Airlines sought review of the Minister’s decision by the Australian Competition Tribunal. The Tribunal decided to declare the airside service for five years from 9 December 2005, thereby finding against the Minister’s decision and the Council ’s recommendation (Re Virgin Blue Airlines Pty Limited [2005] ACompT 5 (12 December 2005)).

The Tribunal was satisfied that criteria (a) and (f) were met. Regarding criterion (a) it considered that SACL had misused its monopoly power in the past and that, unless the airside service was declared, competition in the dependent market would continue to be affected. In particular, the Tribunal was satisfied that SACL had misused its monopoly power by the manner in which, and the reasons for which, it had changed the basis for its charge for providing the airside service from an aircraft’s maximum take-off weight to a per-passenger based charge. (It noted that this change adversely affected low cost carriers such as Virgin Blue as against full cost carriers such as Qantas.) Further, the evidence disclosed before the Tribunal indicated that SACL had chosen the passenger-based charge ‘because Qantas preferred it’ and that SACL knew that the charge would impact more adversely on Virgin Blue than on Qantas.

The Tribunal also referred to issues relating to the manner in which SACL was shown to be contemplating further charges, noting that these issues were likely to be resolved by SACL exercising monopoly power to impose upon the airlines a level of revenue growth that would not be available in a competitive environment. With such matters outstanding, the Tribunal noted that the absence of independent arbitration and determination left SACL with the opportunity to impose higher and additional charges upon the airlines that would be unlikely in a competitive environment. The Tribunal considered similar outcomes also likely regarding non-price terms and conditions for the use of facilities and related services at Sydney Airport.

Judicial review

SACL sought review of the Tribunal’s decision by the Full Court of the Federal Court of Australia. SACL claimed that the Tribunal had erred in its consideration of criterion (a), specifically in respect of the meaning of the words “access (or increased access)” in that criterion and that, therefore the Tribunal’s decision should be set aside.

SACL’s appeal was unsuccessful (October 2006). The Full Court did not accept the submission of SACL that in considering criterion (a) it was necessary to analyse whether the supply of the service had been restricted or denied. Furthermore, the Full Court reconsidered the approach to assessing criterion (a), finding that the word “access” was to be given its ordinary meaning as it is not synonymous with “declaration”.

SACL applied for special leave to appeal the decision to the High Court of Australia. The High Court dismissed the application (March 2007).

The declaration of the airside services ended 9 December 2010.

The application, submissions, issues paper, draft and final recommendations and the Minister’s decision are available below.

The decisions of the Tribunal and Full Court can be found at www.austlii.edu.au.