Christchurch Airport targeting excessive profits over next 20 years, regulator says

Tuesday 15th October 2013

Christchurch International Airport's proposed prices over the next two decades are significantly higher than the Commerce Commissions' view of what's acceptable, and tougher disclosure requirements have had little impact on promoting price efficiency, the regulator says.

The airport is targeting a return of 8.9 percent over the next 20 years, well above the commission's view of an acceptable return of between 6.6 percent and 7.6 percent, the regulator said in its draft report on the hub's information disclosure. Christchurch airport has set lower prices in the next five years which aren't considered as targeting excessive profits, though that appears to have been driven by the drop in demand after the region's spate of earthquakes rather than the rules governing disclosure.

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

The regulator is required to report to the ministers of transport and commerce as soon as possible after an airport, as a regulated monopoly, sets new prices, though it isn't tasked with making any recommendations on whether regulation should be imposed on an airport.

The Christchurch review comes after the antitrust regulator found Auckland International Airport's targeted returns were just within its tolerance. The commission's first review deemed Wellington International Airport to be targeting excessive profits, and prompted the hub to review its future landing fees.

The regulator said Christchurch Airport has incentives to innovate and provide services to meet consumer demands, though it was unclear whether the information disclosure regime was the driver.

"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," Begg said.

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

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

BusinessDesk.co.nz

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