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Wellington Airport gouging $100M from air service charges: Air NZ

Thursday 19th July 2012

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Wellington International Airport, owned by Infratil and the capital city's holding company, has extracted $100 million in excessive profits with its most recent price increases for airport services, says its biggest customer Air New Zealand.

"Wellington Airport is certainly the most aggressive airport," outgoing chief executive Rob Fyfe told BusinessDesk after appearing at Parliament's finance and expenditure committee where he told MPs landing fees in aggregate were set to rise by $200 million over the next five years.

"It's a very significant cost to our business." Fyfe told the committee. "In Wellington alone over the next five years the aeronautical revenue will increase by 54 percent."

The airline makes the estimate on excessive profit by WIAL in a letter to the Commerce Commission last month after the regulator said it had agreed to give the airport company some two weeks longer to respond to a section 56G review of its disclosure under regulations covering airport services.

The regulator is required to report to the ministers of commerce and transport as soon as possible after airports re-set their prices. WIAL has done so, while Auckland International Airport and Christchurch International Airport plan to do so this year.

Fyfe and Air NZ chairman John Palmer were appearing before the committee for the airline's annual review. Palmer said the current regulatory regime for airport pricing "has failed" and that the Commerce Commission's review was needed.

"An amendment to the Commerce Act is necessary, because that is in our view market failure," Palmer said.

Infratil acquired its 66 percent stake when the Crown sold its holding in 1998, with the remaining 34 percent owned by Wellington City Council.

Airport chief executive Steve Sanderson sought more time to respond to the review after getting "no warning of this process being launched", according to a letter he wrote to commission chairman Mark Berry last month. Berry turned down the offer of a sit-down meeting with WIAL, the letter shows.

The material has been posted to the commission's website.

Sanderson told BusinessDesk its charges aren't aggressive relative to the market as a whole.

"I am surprised that Rob Fyfe said that since Wellington Airport's per-passenger charges are in the lower range in Australasia and in between Auckland and Christchurch," he said. "Our return on investment for the recently published Commerce Commission annual disclosures was 6.1 percent after tax."

Infratil has favoured investments in businesses with dominant positions, including airports, bus companies and power companies. It has also increased its co-investments with state agencies and signalled its willingness to invest in so-called PPPs.

Fyfe told MPs too-high airport charges forced Air NZ to lift domestic fares "and the consequence of that is us reducing our aircraft orders to reflect the demand that is suppressed by those significant profits that are being generated within those airports. "

"For the most part we have excellent relationships with the airports." he said after the hearing.

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