Planned airport profits 'excessive'

ALAN WOOD
Last updated 05:00 14/02/2014

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Christchurch Airport will make excessive profits from the fees it plans to charge until 2032, the Commerce Commission says.

The competition watchdog yesterday released its final report into Christchurch Airport's fees, which are largely landing charges paid by airlines and passed on to passengers.

It said the targeted returns and profits were above its guidelines and there had been a lack of transparency in the airport's approach to setting its prices.

Commerce Commission deputy chairwoman Sue Begg said excessive profits would be made under the airport's plans.

Christchurch Airport's proposed prices over the 20 years to 2032 target a return of 8.9 per cent, which was above the 7.6 per cent and 8.5 per cent the commission regarded as an acceptable return.

"Given the charges that Christchurch Airport has set, which were based on a 20-year pricing approach, our conclusion is that information disclosure regulation is not limiting excessive profits."

She said the airport had detailed its pricing plans for the period to the commission and while the plans could change, the prices indicated so far were too high.

"We've assessed them using this 20-year framework, because that's how they have told us that they are setting the prices."

The airport responded by saying the commission had not judged the fees as too high in the shorter timeframe to the end of 2017 and that it would "step up to the plate" to improve its transparency.

The airport has set aggressive revenue and profit growth targets as it seeks to recover from the Canterbury earthquakes of 2011.

Christchurch Airport chief executive Malcolm Johns said the pricing partly reflected the airport's capital investment in a new domestic terminal and carpark - in the order of $237 million.

"What the commission has said is that our existing contracted period, the five year commitment to airlines [until 2017] sits within their [acceptable target of return] band," Johns said. "The second thing is they've indicated our longer term forecast sits outside of that band."

He judged the commission's report card as saying the airport was "doing OK, could do better".

New Zealand Airports Association chairman Steve Sanderson said although the commission had expressed concerns at the potential level of long-term returns for the airport, it had endorsed the actual prices set for the next four years as appropriate in the circumstances following the earthquakes and investment in a new airport terminal.

Begg said at times the airport had created difficulties by not being transparent or changing its pricing methodology. The airport had at one point introduced the idea it would update its 20-year pricing plan every five years on a rolling basis, she said.

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Johns said the airport was 100 per cent committed to doing better. He was extremely confident that the airport would consult properly with airline partners in 2017 and "arrive at an outcome that sits within the commission's long-term guidance".

The commission's report will be passed on to Minister of Commerce Craig Foss and Transport Minister Gerry Brownlee.

Christchurch City Council owns 75 per cent of the airport, with the rest owned by the Crown.

A spokesman for Foss said it was too early to comment about the commission's findings.

The ministers could potentially make recommendations to cabinet.

Christchurch is the last of the main airports including Auckland and Wellington to be scrutinised by the commission.

John Beckett, of the Board of Airline Representatives New Zealand, said airline complaints about Christchurch Airport's monopoly pricing were vindicated, and airport companies needed to be subjected to firmer price regulation.

The commission's report showed that the airport intended to "over price", and that the rate of return on the 20-year model was higher than it should be, he said.

"The present regime is too light-handed and leaves the airports free to charge excessively when it pleases them."

The airline lobby group wants the Government to step up regulation by making airports negotiate their pricing, rather than just consult.

Johns responded by saying there was already a negotiation process in place.

- BusinessDay

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