Commission broadly satisfied Airport profits not excessive

Press Release – Commerce Commission

Media release

Issued 19 July 2018
Release no. 11

Commission broadly satisfied Christchurch Airport not earning excessive profits

The Commerce Commission is broadly satisfied Christchurch International Airport is not targeting excessive profits in the five years from 1 July 2017 and is seeking feedback before finalising its report.

The Commission made the initial finding in its draft report released today on its review of Christchurch Airport’s pricing decisions for the period 1 July 2017 to 30 June 2022. Christchurch Airport is subject to a light-handed form of regulation called information disclosure, which involves the Commission shining a light on the airport’s pricing and spending decisions to improve transparency about its performance.

Commissioner Dr Stephen Gale said Christchurch Airport is unlikely to earn excessive profits on its priced services including airfield runways and taxiways, air-bridges, and baggage handling services.

“Christchurch Airport’s targeted return on the majority of its regulated services is just above our mid-point benchmark. We believe this is reasonable as it reflects its slightly higher cost of borrowing,” Dr Gale said.

On the evidence provided, the Commission is not satisfied that the returns are reasonable on the remaining regulated airport services which are priced under individual contracts with varying terms and start dates. These include facilities and services for security, freight storage, and some terminal lounges.

“We do not consider Christchurch Airport has sufficiently justified its expected return of 7.87% on these services. The higher return results in about $6 million in extra revenues – about 1.5% above what we would consider to be reasonable.”

However, stakeholders are invited to provide feedback on the Commission’s proposal to assess the returns on individually priced services over a longer period.

“These individual contracts are affected by a range of factors which make it difficult to determine whether the returns are appropriate over the five year regulatory period. These factors include market conditions, interest rates, and rent reviews.”

Dr Gale also noted that Christchurch Airport has made significant changes to its pricing structure, rebalancing its charges across international and domestic passengers to promote better use of its terminal facilities.

“Christchurch Airport’s new charging structure does not raise significant concerns, with its per-passenger charges simple to understand and transparent. However, the new charging structure will significantly change costs for some airlines. We encourage airports to stabilise their pricing structures to support airlines in their planning and investment over the long-term,” Dr Gale said.

Submissions on the draft report are due by 16 August 2018 and cross submissions by 6 September 2018to regulation.branch@comcom.govt.nz

We expect to publish our final report for both Christchurch Airport and Auckland Airport in October 2018.

The draft report can be found here.

An infographic explaining airport regulation is available here.

Background

Christchurch International Airport
Christchurch International Airport is New Zealand’s second largest airport with 10 partner airlines from 22 destinations. It is considered the international gateway to the South Island, with around 6.6 million passengers passing through its terminals over the past year.

Airport regulation
The Commission does not regulate the prices Auckland, Wellington, and Christchurch International Airports charge. These airports may set prices as they see fit but must consult with substantial customers, like airlines, on charges and any major capital expenditure plans.

Under Part 4 of the Commerce Act, which regulates markets with little or no competition, the three airports are subject to information disclosure regulation for certain key airport facilities and services to get people and cargo on and off aeroplanes, including take-off and landing of aircraft. These services include aircraft, freight, airfield, and passenger terminal activities. The regulation does not cover other services such as car parks and retail facilities.

The Commission released its draft report on Auckland International Airport’s pricing in April 2018. The review of Wellington International Airport’s pricing will take place after it sets its prices in 2019.
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