8 Feb 2013

Commission says capital's airport makes too much

9:37 pm on 8 February 2013

Airlines say they feel vindicated by a Commerce Commission report showing Wellington Airport is earning millions of dollars more than it should through over-charging.

The commission on Friday released its final report on the price airlines must pay each time they land a plane on the tarmac in the capital.

The report estimates that between 2012 and 2017, the airport company could make as much as $69 million more than is reasonable.

The airport is disputing the figures and says it will be challenging them in court.

Airlines have long argued that Wellington Airport makes them pay far too much. The Commerce Commission has oversight of the airport because it does not have any competition but the commission's powers to enforce its opinion is limited.

The commission says the current regulatory regime has been ineffective in limiting the company's profits.

The Board of Airline Representatives says the report proves that Wellington Airport is abusing its monopoly position. Chief executive John Beckett says ultimately, travellers are being stung in the pocket.

"The airlines have more cost that they have to bear. But because the airlines have very limited profits, they have very limited ability to bear these extra costs. And unfortunately, have to put them into fares at some stage."

The report will now go to the Transport and Commerce ministers - and Mr Beckett is calling on them to introduce curbs on airports' freedom to set whatever charges they like.

Commerce Commission deputy chair Sue Begg says a reasonable return would be up to 8%, while Wellington Airport is expected to make up to 15.2%.

"The charges to consumers that are above what we think are reasonable could be in the order of $38 million to $69 million over the five-year pricing period."

The report also says the airport land has been overvalued.

Airport disputes findings

Board of Airline Representatives chief executive John Beckett says Wellington Airport is making a much greater profit from its charges on a per passenger basis than Auckland or Christchurch Airports.

But Wellington Airport disputes this and says it will challenge the economic model that the Commerce Commission used in the High Court.

The airport, which is two-thirds owned by Infratil, says the commission has over-estimated the airport's future returns and that the current charges are below the regulatory benchmark.

It says once commercial concessions are taken into account, its effective rate of return is actually 8.1%, not 15.2% as the commission estimated.

"They are using a valuation that's not appropriate for airports and are also using a generic cost of debt and risk factors which don't apply to specific airports and that is what we are in the High Court arguing about at the moment," says airport chief executive Steve Sanderson.

Mr Sanderson says its charges are in the lower range of Australasian airports in terms of cost per passenger and prices are between those charged by Auckland and Christchurch airports.

Similar reports on Auckland and Christchurch airports are due out later this year.

Unfair, says national carrier

Air New Zealand says if the Government removes the unfair burden on airlines, it will drop its prices and heavily promote tourism in the Wellington region.

Chief operations officer Bruce Parton says it's had to put up airfares to cover the excessive charges, which means travellers are being stung in the pocket.

"It affects our bottom line, it affects tourism in New Zealand, it affects the industry as a whole,"

He says when the Wellington-Gisborne fare went up by $10, the effect was 25% fewer flights on the route purely because people stopped flying.