Wellington airport still 'extracting excessive profits'

The Commerce Commission says Wellington airport’s profit target is excessive.

Deputy chairman Sue Begg has today released the commission’s draft report on pricing structures and just how effective the information disclosure regime is for the airport.

Information disclosure regulation requires certain details to be disclosed publicly by the suppliers of goods or services regulated under Part 4 of the Commerce Act.

This includes, among other details, financial statements, asset values and valuation reports, prices and pricing methodologies, plans and forecasts, and quality performance statistics.

“Our draft findings are that the information disclosure regime is working well in some areas, but it is not limiting Wellington Airport’s ability to extract excessive profits,” Ms Begg says.

Wellington airport has a target of a 9.5% return but the commission’s analysis, based on new prices set in March, shows it would actually be returning 10.18% from the start of the Part 4 information disclosure regulation to the end of the 2013-17 pricing period.

Ms Begg says while the regime is working well in some areas, it has not limited the airport’s ability to "extract excessive profits".

Ms Begg says both figures significantly exceed the commission’s estimate of a reasonable rate of return, which is calculated at between 7% and 8%.

However, she says information disclosure does appear to have had a positive impact on how the airport collects revenue for different services and from different consumers.

“Wellington airport has also adopted a more transparent process in setting prices.”

The commission’s draft report has been presented to commerce minister Craig Foss and transport minister Gerry Brownlee. The commission is required to provide its report as soon as possible after any new price for a regulated service has been set.

The final report about Wellington airport should be in the ministers’ hands by December 21, while reports into Auckland and Christchurch airports should be completed next year.

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5 Comments & Questions

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would be nice to see the airport spend some of the excessive profits on lengthening the runway and actually providing an international service.

It's ridiculous they deem the runway sufficient till 2020+ ... what a joke.

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Why would they invest in lengthening the runway when they are only allowed a return on investment of 7%.

Why as an investor would you be happy with a return capped at 7% but all the risk of a shareholder? Looks like people are questioning that looking at IFT shareprice today.

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Having a capped rate of return is the wrong solution. It just makes them inefficient. After all if you are only allowed a certain rate of return, then you may as well load up the cost of running the airport, knowing that if you aren't meeting your targets then you can simply reduce those excess costs. Looks like they simply miscalculated!

Since it's a natural monopoly, what would be better would be to benchmark competitive airports around the world, and then set the average as the regulated price. Then you don't need any earnings caps, and I'm willing to bet that while the Airport would scream blue murder, the shareholders would be happy because with good management the return would actually go up. A lot. And the airport would become efficient.

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Perhaps they could also re-think their draconian drop-off parking plans and extend the free drop-off / pick-up time allowances.

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The fees are obviously so excessive that Air NZ had to increase the prices of its new AKL-WLG service to a huge $29 dollars.

Talking about excessive fees, what about AIR NZ credit card processing fee of $5 on a $29 transaction!

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