The news has been abuzz this week with stories about the proposal for a consortium of interests, including Melbourne Airport, to put up $5billion of the estimated $15billion needed to build a train link from the airport to the Melbourne CBD. The idea is for ‘government’ to partner with the consortium, I guess to fund the other 10 billion. The Victorian Treasury is looking at the proposal now under its ‘market led proposal’ guidelines.

The consortium’s website (https://www.airrailmelbourne.com.au/) is big on graphics and short on detail. But they are spruiking a minimum 20 minute journey, running 24/7, minimum of 10 minutes between services, a fair ticket price (indicative price of $20 a trip), plus a range of extra benefits – from better connections and services on regional lines (some of which arises from the duplication of the rail line to be used by regional trains) to up to 15 000 fewer cars per day on the Tullamarine. Sounds good doesn’t it?

Having dealt with monopolies or near monopolies for many years, including the airports, I can tell you my little antennas were twitching.

For decades, under various ownership and boards, Melbourne Airport has either downright resisted the idea of a rail link, or more recently been rather lukewarm. So now it thinks it’s onto a winner. Maybe it’s finally the time where passenger numbers and other factors mean the business case stacks up. I’d be happy with that.

While a fast rail link to the CBD is unlikely to offer me much joy directly, getting from Souther Cross Station to my place is not a particularly pleasant task on public transport (note to transport policy nerds – not everyone in Melbourne has access – ready or even vaguely near – a train – don’t forget the other modes), I can see how for many it would offer a much desired service. If they use it, it would make my access to the airport better too, because we wouldn’t be competing for scarce road space.

Personal whinge, I am a not infrequent “Mum taxi’ doing a Friday night pickup at the airport. It regularly takes anything from 20-30 minutes to get from the ‘wait and ring’ to the pick up point. The worst traffic jams in Melbourne in my experience. So anything that will take a goodly proportion of those cars off that road is personally a very good thing.

But….there’s always a but isn’t there? What are we not being told?

Here are a few ideas I have about what’s in this proposal for the airport.

The airport earns revenue from two sources, aeronautical charges, like landing fees and passenger processing charges, and non-aeronautical charges, such as retail rents, car parking and other charges for parties to access the landside (ie not where the planes are) of the airport. These charges are levied on taxis, buses, ride share and off airport car park shuttles. So if you want to get to and from the airport (other than by plane) you will most likely be contributing to the airport coffers through one of these avenues. Unless, of course, you arrive by or leave in a vehicle that is the equivalent of my ‘Mum taxi’, where while I pay no monetary cost I surely pay in congestion if my services are required a peak times.

There is the reason why the airport has failed to provide relief from this congestion much beyond the poor hapless folks who man the stop signs at the pedestrian crossing between the terminals and the car park which are a significant bottleneck for passenger pickups at peak times and someone to move along vehicles that linger too long in the pickup zone – there’s no money in it.

So, an operator with pretty much total control over who enters the airport and at what cost, now wants to provide a service in competition with some of the existing options. If I was an integrated provider I know I might contemplate growing this part of my business at the expense of these competing providers, and I’d have a nifty opportunity to squeeze them hard – even if I kept my services prices ‘fair’ – at least in the short term. Yes, restricting access for alternative providers and/or raising their fees would be a ready tool to help grow my integrated service.  

Airports are currently not subject to specific regulation – although the ACCC does produce regular monitoring reports, it seems unlikely there will be any dedicated regulation of airports in the near future. The Productivity Commission has long felt there is no need for this. (https://www.pc.gov.au/inquiries/completed/airports-2019/report and previous reports going back to 2000)

If my scenarios did come to pass, the taxi, ride share, bus and shuttle operators could seek redress under the Access provisions of Part IIIA of the Competition and Consumer Act 2010. This is a long and complicated process that is not guaranteed to yield results. If regulation was imposed on the airport (it would need to be by the Commonwealth, as the airports are leased to the ‘owners’ by the Commonwealth which owns the land) it would need to be very carefully thought out. I have long and sad experience in rail access in Victoria, which failed abysmally to achieve its objectives, as the regulation did not line up with the industry structure.

But rather than put ourselves through the hoops of trying to craft an access regulation regime (in this I am in wild agreement with the Productivity Commission), which would be especially difficult for an integrated provider, why not keep the two services (airport and airport access) separate? There is much less likely to be competition issues in this structure, as providers would compete on much more equal terms. And history tells us that in cases like this we should begin as we mean to continue, as it can be extremely difficult to get argeement to separate out elements of a monopoly, let alone achieve it.

While I remain open to further discussion, I’m not sure there would be any particular efficiency gains from having the airport as owner and operator of the rail service.

Others have also sought answers to questions about what role each of the participants would play in the rail build , how regional rail services should be treated on the system, prices, access and dispute resolution etc. Queries also abound about the State’s process for dealing with market led proposals and the lack of public input.  

So there’s a lot to think about here.

I’d like to think that the analysts in the Commercial team at Treasury are factoring in the competition issues.

I guess I’ll just have to wait and see.