Introduction
3.1 An analysis of competition is a critical element of this Inquiry. As noted earlier, control can be introduced only where the Minister is satisfied that the goods or services to be controlled are supplied or acquired in markets where competition is limited or is likely to be lessened. Many of the tests established in Commission decisions and court judgements under Parts II and III of the Commerce Act on issues of market definition and competition analysis are applicable to the analysis required under Part IV.
3.2 However, the nature of airports presents special challenges in terms of market definition and competition analysis given the following considerations:
- The wide range of services, many of them of a complementary nature, provided by an international airport.
- The definitions of identified airport activities set out in the Airport Authorities Amendment Act, which do not necessarily equate with the concept of markets used in the Commerce Act.
- The relationships between airfield activities, which are the specific focus of this Inquiry, and other activities undertaken at the airport, that may need to be taken into account in defining the market(s).
3.3 The Commission considers that other commercial activities in which an airport company has an interest, but which otherwise are apparently unrelated to airfield activities, need not be examined here, as they are not directly relevant to this Inquiry. Hence, it is not necessary to define the possible markets for these other commercial activities. However, any impact that these activities may have on pricing of airfield activities is considered in the analysis of whether control is necessary or desirable in the interests of acquirers.
3.4 This Chapter contains a general assessment of the competition facing airports in the supply of airfield activities. The focus is on whether any of the three airports may operate in markets in which competition is limited such that they have the potential to exert market power.
3.5 For competition to be seen to be limited, there need to be insufficient constraints (including both structural and behavioural factors) on an airport's ability to exercise market power (compared to what would be found in a market where competition was workable or effective). The possible constraints that may limit an airport's ability to exercise market power include the following:
- On the supply-side of the market, the actual and potential competition from other airports.
- On the demand-side, the possible ability of airlines and their passengers and freight customers to switch to other airports, or of customers to switch to other modes of transport.
- The potential countervailing power of airlines.
- The present industry-specific regulatory regime applicable to airports.
3.6 It is also possible that, for certain limited functions, an airport may face competition from off-airport sources of supply. However, that would not apply to the markets of interest to the Inquiry (as airfield activities generally have to be provided on-airport), and so that source of competition is not considered further here.
3.7 It needs to be emphasised that the analysis here is only generic, although it is impossible to proceed without making references to the individual airports concerned. More airport-specific considerations are introduced in Chapters 8, 9 and 10 and conclusions are drawn there for each airport as to whether airfield activities are supplied or acquired in a market in which competition is limited.
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