Wellington Airport denies profit gouging

HAMISH RUTHERFORD
Last updated 11:05 02/11/2012

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Wellington Airport is denying claims of excessive profits, saying the concessions it offers bring it into line with what the Commerce Commission says is acceptable.

The airport could face tighter regulation after a report released by the commission this morning said the current regime let the airport ‘‘extract excessive profits’’.

The commission found that while the light touch regime is working well in some areas, the airport was able to charge airlines too much for its services.

“Wellington Airport’s target of a 9.5 per cent return is excessive,’’ Commerce Commission Deputy Chair Sue Begg said. ‘‘We think a reasonable return is in the range of 7 to 8 per cent.’’

Wellington Airport is jointly owned by the Wellington City Council and infrastructure investor Infratil.

Begg said the current regulatory regime, which forced the airport to disclose how it charged customers, had added greater transparency.

The report found that Wellington Airport’s pricing, which gives a path to its charging out until 2017, would see it collect $21m-$39m in excess of what was considered an acceptable return.

It commended the airport for its plans for investment and innovation, however.The commission has no power to regulate the airport’s prices, however the latest report could influence whether the government decides to give it greater force. Last month it announced proposals which if adopted would force utility company Vector to slash its charges for gas pipeline services.

The report on Wellington Airport is the first of three reports the commission is conducting on the sector, with reports on Christchurch and Auckland to follow.

In a statement Wellington Airport said the commission’s report focused on its forecast returns but did not take into account concessions it offered.

This reduced the effective rate of return of the airport to 8.1 per cent, chief executive Steve Sanderson said.

“The current pricing is below what the commission considers as reasonable.’’

The airport said its average charge per passenger was $11.11, some 40 per cent lower than that of Sydney Airport. Its charges were between those of Auckland and Christchurch and were in the lower range of Australasian airports in terms of cost per passenger.

Shares in Infratil were down 2 cents at $2.22 a short time ago.

The Board of Airline Representatives (BARNZ), a lobby group for airlines, said the report showed Wellington Airport had ignored the commission’s guidelines on pricing.

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‘‘These unjustified additional charges represent a tax by Wellington Airport on the travelling public. They represent a drag on the Wellington regional and national economies.  They are damaging to Wellington’s tourism aspirations,’’ BARNZ executive director John Beckett said.

‘‘We trust that the Government will see the case for the bringing the airport under a firmer regime now that it is so clear that the information disclosure regime does not curtail Wellington’s exercise of its monopoly power.’’

Air New Zealand has previously accused Wellington Airport of gouging airlines, with excess charges of $100 million. Chairman John Palmer told a Parliamentary select committee that the current regime ‘‘has failed’’ and a Commerce Commission review of pricing was required.

The commission has sought to play down the significance of the report, noting earlier this week that it could only comment on the current regime governing airports, and would not be making recommendations to go to Transport Minister Gerry Brownlee.

- BusinessDay.co.nz

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