Christchurch Airport 'excessive' profits criticised by Commerce Commission

An Air New Zealand Airbus A320 lifts off from Christchurch International Airport. Photo / Geoff Sloan
An Air New Zealand Airbus A320 lifts off from Christchurch International Airport. Photo / Geoff Sloan

Christchurch International Airport's target profits for the next two decades have been labelled "excessive" by the Commerce Commission.

The Commission today released a draft report for the Ministers of Commerce and Transport on how effective the current information disclosure rules were in relation to the airport.

The airport's proposed prices over the next 20 years target an annual return of 8.9 per cent, the regulator said.

That target figure was "significantly higher" than its view of an acceptable return of between 6.6 - 7.6 per cent.

"Our draft finding is that information disclosure regulation has not had a significant influence on Christchurch Airport. In particular, information disclosure has not constrained Christchurch Airport from targeting excessive profits over the next 20 years," said Commerce Commission deputy chair Sue Begg.

The Commission said Christchurch Airport had decided to set "relatively lower prices" over the next five years to avoid "price shocks" to consumers.

"It appears that the drop in demand following the Christchurch earthquakes has been the influential factor in this decision, rather than information disclosure. This decision means that Christchurch Airport is not targeting excessive profits over the first five years."

Begg said information disclosure had not been as effective in promoting pricing efficiency as she would have expected.

"Although the regime has only been in place a short time, we have not seen evidence that Christchurch Airport has had direct regard to it, in particular in ensuring the transparency of its approach to setting prices."

The Commission's report shows a firmer form of price regulation is needed in New Zealand, said John Beckett, executive director of the Board of Airline Representatives NZ.

"The present regime is too light handed and leaves the airports free to charge excessively," Beckett said.

"The finding released today by the Commission that Christchurch Airport is targeting excessive profits over its 20 year pricing path shows that airports need to be subject to a stronger form of oversight than just information disclosure."

Submissions on the draft review are open until November 12, and the final report is expected to be completed around December 19.

The airport is three-quarters owned by the Christchurch City Council's investment arm, with the remainder held by central government.

In July, the Commission released findings on Auckland International Airport which said the information disclosure regime had been effective in limiting the airport's ability to extract excessive profits.

The airport's targeted return of 8 per cent a year for the 2013-2017 pricing period, was just within the commission's estimate of an acceptable range of returns of 7.1 per cent to 8 per cent.

Late last year, the commission's first review deemed Wellington International Airport to be targeting excessive profits, and prompted the hub to review its future landing fees.

- nzherald.co.nz

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