Deregulated airports to benefit investment

The Federal Government’s decision to deregulate airport charges will boost the income of investment funds exposed to the airport industry, according to analysts.

Australian Infrastructure Fund, which has exposure to Melbourne, Perth and three Northern Territory airports, will be the most immediate beneficiary as at least two of them are expected to put up charges significantly in the second half of the year.

Following a report by the Productivity Commission, the Federal Government will scrap the present price regulation system that pegs airport landing charges to levels below the Consumer Price Index and leave price setting to individual airports but with oversight from the Australian Competition and Consumer Commission.

Australian Infrastructure Fund chief executive Mitch King said the move was “very positive from a sentiment perspective” but that it was too early to say what sorts of price rises could be expected.

Analysts said Australian airports often made returns that were below the weighted average cost of capital to finance them.

This was particularly so with Perth Airport, which made about 2 per cent on its capital base while Melbourne made 6 per cent, one analyst said. A reasonable return benchmark was 8 per cent, he said, and the deregulation of pricing would push returns towards that level.

A spokeswoman for Melbourne Airport Corporation said price rises would not be excessive.

Some observers expect airport landing charges to rise by between 25 to 40 per cent. The recently deregulated Northern Territory airports have seen price rises of 300 per cent.