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UPDATE 2-Australia panel backs tougher oversight of airport costs, won't control pricing

By Jamie Freed

* Airport profit margins among world's highest -airlines

* Government cannot regulate pricing or intervene in fee disputes

* Airports should drop anti-competitive contract clauses- report (Adds airport association comment)

By Jamie Freed

SINGAPORE, Oct 22 (Reuters) - Australia's Productivity Commission on Tuesday said airport operators should be required to provide more information to the competition regulator on their service costs but stopped short of recommending pricing controls or intervening in disputes.

Airlines had argued that more oversight was needed to keep a lid on rising access fees that have helped drive the profit margins of Australia's largely monopoly airports to rank among the world's highest, according to carrier-sponsored research.

The current light-handed regime, in which the government cannot regulate airport fees or even intervene in disputes over them, remains valid, according to a final report issued after a 16-month battle between airports and airlines.

Airlines for Australia & New Zealand (A4ANZ), which represents the interests of airlines, said it would urge the government not to adopt the report recommendations, citing significant risks of worsening disputes and court cases that would be damaging for travellers and the Australian economy.

"The existing system provides no constraint on monopoly airport behaviour," A4ANZ Chairman Graeme Samuel said in a statement, arguing that an independent arbitration system was needed.

The government panel did recommend that Australia's largest airports should be required to report their revenues and costs from providing domestic and international services to airlines and to remove anti-competitive clauses from contracts with airlines.

The commission did not rule out recommending harsher regulations in future, including areas such as pricing, if airports were found to have abused their market power.

The Australian Airports Association said it welcomed the commission's recommendation to keep the light-handed regime, which it said would help provide stability for airports to continue to invest and grow. (Reporting by Jamie Freed; Editing by Tom Hogue, Clarence Fernandez and Giles Elgood)