Wellington Airport extracting ‘excessive profits’: regulator

Article – BusinessDesk

Feb. 8 (BusinessDesk) – Wellington International Airport, which is co-owned by Infratil and Wellington City Council, is extracting excessive profits by targeting higher returns than it should, according to the Commerce Commission.

Wellington Airport extracting ‘excessive profits’, regulator says

By Paul McBeth

Feb. 8 (BusinessDesk) – Wellington International Airport, which is co-owned by Infratil and Wellington City Council, is extracting excessive profits by targeting higher returns than it should, according to the Commerce Commission.

The transport hub is likely to recover between $38 million and $69 million more than it needs to for a reasonable return between 2012 and 2017, the antitrust regulator said in a final report to Commerce Minister Craig Foss and Transport Minister Gerry Brownlee. The commission thinks a reasonable return is 7.1 percent to 8 percent, whereas the airport is projected to make returns of between 12.3 percent and 15.2 percent, it said.

“The excessive profits are largely attributable to Wellington airport valuing its land higher than we think it should, and Wellington airport targeting a higher return than appropriate for its circumstances,” deputy chair Sue Begg said in a statement. “We consider that the regime (of stricter information disclosure) has not been effective in limiting Wellington airport’s ability to extract excessive profits.”

The regulator is required to report to the ministers as soon as possible after an airport, as a regulated monopoly, sets new prices. The final report was delayed from a late December date after the draft determination was published in November.

The airport is challenging the regulator’s input methodologies, which may prompt a rethink, the commission said.

The review doesn’t make any recommendations on what regulation should apply to Wellington airport, as that’s outside the scope required by law.

Wellington Airport has previously been accused of price gouging in the setting of its air service charges, with national carrier Air New Zealand flagging a $200 million lift in landing fees over the coming five years.

The review found Wellington Airport has improved its service quality and how it structures its prices, and said there was an appropriate level of innovation at the gateway.

The information disclosure regime couldn’t measure the efficiency of its operational expenditure, and needed a longer timeframe in looking at the effectiveness of the airport’s investment.

(BusinessDesk)

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