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Auckland Airport's 8 percent expected returns 'reasonable', regulator says

Tuesday 30th April 2013

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Auckland International Airport, the country's main gateway, isn't profiteering and is a expecting reasonable return over the coming four years, according to the antitrust regulator.

The airport has an expected annual return of 8 percent over the 2013-2017 pricing period, at the top end of the Commerce Commission's estimated range for a reasonable return of between 7.1 percent and 8 percent, the regulator said in a statement.

The commission today released its draft report on the effectiveness of information disclosure rules for the airport, and found the regime has "been effective in limiting Auckland Airport's ability to extract excessive profits over time."

"Our draft finding is that information disclosure regulation has had a positive influence on Auckland Airport's behaviour," deputy chair Sue Begg said. "Notably, it has been effective in limiting Auckland Airport's ability to extract excessive profits."

The draft finding contrasts with the regulator's probe into Wellington International Airport, which it found was likely to recover between $38 million and $69 million more than it needs to for a reasonable return between 2012 and 2017. Excess returns reflect the dollar value at the start of the pricing period discounted by the cost of capital.

The regulator is required to report to the ministers as soon as possible after an airport, as a regulated monopoly, sets new prices.

Auckland Airport welcomed the draft findings, saying it showed "we have operated transparently and constructively within the regulatory framework for the benefit of the travelling public and New Zealand's economic growth."

The company's shares slipped 0.3 percent to $2.99 yesterday, and have gained 12 percent this year. The stock is rated an average 'hold' based on 10 analyst recommendations compiled by Reuters, with a median target price of $2.90.

The regulator's draft report found the disclosure regime effectively promoted innovation, quality of services and pricing efficiency at the airport, but was unable to draw conclusions on the hub's operational expenditure efficiency, efficiency of investment, or whether it shared the benefits from efficiency gains.

The final report for Commerce Minister Craig Foss and Transport Minister Gerry Brownlee is expected to be completed by July 31, with Christchurch International Airport's report to be done later this year.

BusinessDesk.co.nz

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