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Wellington Airport earnings 'excessive', regulator says

Friday 2nd November 2012

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Wellington International Airport, which is co-owned by Wellington City Council and Infratil, has "excessive" earnings targets that aren't being pulled down by stricter disclosure rules, according to the Commerce Commission.

The antitrust regulator estimates the airport's pricing will achieve a return on investment of 10.18 percent in the period between 2013 and 2017, above the hub's own 9.5 percent target and above the 7 percent to 8 percent range the commission deems "reasonable." The finding comes in the regulator's draft report to the Ministers of Commerce and Transport on how well disclosure rules are promoting regulation for the airport.

"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," deputy chair Sue Begg said in a statement. "Either figure significantly exceeds our estimate of a reasonable rate of return, which we base on our cost of capital input methodology."

Wellington Airport has been accused of price gouging in the setting of its air service charges, with national carrier Air New Zealand flagging a $200 million lift in landing fees over the coming five years.

The commission put the excessive profits down to Wellington Airport's use of its own methodology to revalue assets without fully accounting for gains in fair value and targeting a higher cost of capital that could be expected if it faced workable competition.

"Information disclosure regulation has had a positive impact on quality and on how Wellington Airport collects revenue for different services and from different customers," Begg said. "Innovation levels also seem appropriate, and there has been less dispute about forecast investment for this next pricing period relative to the previous period."

Half-owner Infratil expects capital expenditure at the airport to increase over the coming five years, form the existing annual average of between $20 million and $25 million as it looks to build peak-time capacity and broaden the range of services available.

The regulator is required to report to the ministers of commerce and transport as soon as possible after airports re-set their prices, and expects to make a final report to the ministers on Dec. 21. Reports for Auckland and Christchurch airports are due next year.

BusinessDesk.co.nz

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