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