Airport Policy in Australia and New Zealand: Privatization, Light-Handed Regulation, and Performance

Both Australia and New Zealand have moved to privatize their major airports and subject them to a light handed form of regulation. The performance of these airports, in terms of the use of market power, efficiency and investment is now mainly dependent on the ownership and regulatory environment rather than on direct government policy. Hence this paper concentrates on these aspects. The two countries provide a relatively rare experiment in light handed regulation of airports, and as such, their experiences are potentially of more general interest. The workings of this regulation, and the ways in which it has impacted on the use of market power and on the efficiency with which the airports operate and invest, are examined. The evidence on economic efficiency performance is so far limited, but it indicates that there is scope for stronger incentives to encourage efficiency. This suggests that “light handed” regulation is more about process than content, and that it is important to develop guidelines which promote efficiency rather than allow the environment to degenerate into one of light handed cost plus regulation, with adverse consequences for economic efficiency.