UDPATE: Wellington Airport says regulator's report flawed
By Paul McBeth
Feb. 8 (BusinessDesk) - Wellington International Airport, which is co-owned by Infratil and Wellington City Council, denies it's extracting excessive profits and says the Commerce Commission has used a flawed model in assessing the transport hub's returns.
The airport's effective rate of return is 8.1 percent, within the regulator's tolerance and has cheaper passenger landing charges than Auckland and Christchurch at $11.39 a head, it said in a statement.
The regulator's claim that the airport is likely to recover between $38 million and $69 million more than it needs to for a reasonable return between 2012 and 2017, was wrong because it overestimated future returns and excluded commercial concessions to airlines, it said.
The commission thinks a reasonable return is 7.1 percent to 8 percent, whereas the airport is projected to make returns of between 12.3 percent and 15.2 percent, it said in a final report to Commerce Minister Craig Foss and Transport Minister Gerry Brownlee on the airport's information disclosure.
Wellington Airport needs a stable regulatory environment to support investment of some $100 million over the next few years to maintain its current standards and meet growth targets.
"We are confident the ministers will recognise the investment that is required to accommodate growth for Wellington Airport and that on Australasian and world benchmarks its airport charges are in the low range," chief executive Steve Sanderson said.
The regulator is required to report to the ministers as soon as possible after an airport, as a regulated monopoly, sets new prices. The final report was delayed from a late December date after the draft determination was published in November.
The airport is challenging the regulator's input methodologies, which may prompt a rethink, the commission said.
The review doesn't make any recommendations on what regulation should apply to Wellington airport, as that's outside the scope required by law.
Commission deputy chair Sue Begg said Wellington Airport's excessive profits were "largely attributable to Wellington airport valuing its land higher than we think it should, and Wellington airport targeting a higher return than appropriate for its circumstances," and that "the regime has not been effective in limiting Wellington airport's ability to extract excessive profits."
Wellington Airport has previously 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 review found Wellington Airport has improved its service quality and how it structures its prices, and said there was an appropriate level of innovation at the gateway.
The information disclosure regime couldn't measure the efficiency of its operational expenditure, and needed a longer timeframe in looking at the effectiveness of the airport's investment.
Shares of Infratil fell 0.8 percent to $2.41.