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Airport continues excessive multi-million dollar price gouging

The Commerce Commission has found Wellington International Airport’s ability to “extract excessive profits” has not been limited by its information disclosure regime.

The commission has just released its final report into the regime, and has found the airport is likely to recover between $38 million and $69 million more from consumers between 2012 and 2017 than it needs to make a reasonable return.

The airport is co-owned by Infratil and Wellington City Council.

At the release of the draft report in November, Board of Airline Representatives executive director John Beckett told NBR ONLINE it essentially showed the airport has ignored the commission’s guideline on prices.

The prices in question cover aeronautical charges – the fees an airline pays to an airport for landing space. There is also a charge per passenger for the use of the terminal.

Commission deputy chairwoman Sue Begg says the airport’s expected return is between 12.3% and 15.2%. “We think a reasonable return is 7.1% to 8.0%.”

But last November, Mr Beckett told NBR ONLINE he thought an 8% return was still too high.

Ms Begg has attributed the “excessive profits” to two key factors:

  • Wellington airport has valued its land higher than expected in a workably competitive market.
  • The airport is targeting a return higher than appropriate for a business with a similar level of risk in the market conditions which were expected when prices were set.

Ms Begg says given the airport has not been effective in limiting excessive profit, concern was also raised about whether it was effective in other areas – operational expenditure efficiency, efficient investment, sharing the benefits of efficiency gains.

“While we are not able to conclude whether information disclosure is effective in these performance areas, we do not consider this precludes us from concluding that Wellington airport is expected to earn excessive profits.”

However, the commission found information disclosure had a positive effect on the airport’s pricing efficiency, innovation and quality.

Reports focusing on pricing structures for Auckland and Christchurch airports are due out later this year.

bcunningham@nbr.co.nz

More by Blair Cunningham

Comments and questions
12

The least they could do is actually invest some of their profits into lengthening the runway and providing an 'international' service that goes to more than a couple australian destinations (at a price of double what aucklanders pay).

Can't believe that airport management see the current runway meeting demand till 2020+. Emirates can't fly in because the runway is too short.
The airport is being treated like a cash cow. What happens when the cow runs dry?

Zero surprises here. Infratil and the Wellington City Council have been ripping off airlines and passengers for years. They aren't going to get any of their desired longer haul flights with their current business practices.

The Council has an interest in increasing tourism and business to Wellington, yet is effectively actively preventing Wellington from being a point of entry/exit.

CEO Steve Sanderson seems to enjoy hot water - first Queenstown Airport, now Wellington!

And they haven't even looked at carparking - that seems an even bigger misuse of market power. They're constantly finding new ways to price-gouge. It's not just excessive charges either. Unlike other airports there's no 15 minute waiver for a quick drop-off or pick up; an instant $3 sting before you even park the car.

The comment that "last November, Mr Beckett (Board of Airline Representatives executive director) told NBR ONLINE he thought an 8% return was still too high" is to be expected and entirely predictable from a user group. If the industry he represented wouldnt mind focusing on returns more then the ariline business "as one of the worst in the world to invest in" wouldnt be in the mess it is.

If we want world class facilities and world class infrastructure then dont judge returns on the current bottom of the recession risk free interest rates. Look at a long term levels - consistent with the nature of the assets. That would make 8% look an inadequate return.

However, Infratil must also take some blame here. They should look at the excessive cost of short term carparking and I would encourage the government to inforce a parking regime that prevents exceeding the cost of parking in the CBD of the local city - ie $4 for an hour, and perhaps allow the first 15 minutes for free. That is the big beef that most Wellingtonians have with the airport charges and until Infratil get this right, the politicians will continue to be under extreme pressure to regulate the returns.

Something has to pay for the Golum scupture!

..and the Pumpkins

Twice in a decade or so they've had the option: increase the runway (to make it safe, and allow more airlines in) or dolly up the terminal. Both times they've made the terminal prettier. Where's the sense in that?

They add it to their asset base either way, but with the bigger terminals they also clip the ticket on the huge increase in retail capacity. Gold-plating is a pretty standard monopoly tactic (if they're left to their own devices).

Why should it cost more to park at Wellington airport than it does to park in Wellington's CBD?

Wellington airport car parking rates and the levy taxi customers must pay are too high. If someone asked me $7 for a cup of coffee I would probably not buy it. Wellington airport has a monopoly however, so I have to pay.

Finally, some wise person has used the word MONOPOLY! Yes, this is just a game to Wellington Airport. It's not like we can leave from Petone airport.

I leave from Paraparumu whenever possible