Excessive prices warrant action
The view is widespread that the proposed price rises by Christchurch International Airport Ltd (CIAL) could lead to possible regulatory intervention as a result of the Commerce Commission’s findings on them.
The commission has found that CIAL is proposing to charge excessive prices over the next 20 years. In a draft report released to the Ministers of Commerce and Transport, the commission says the airport’s proposed prices target a return of 8.9 percent, higher than the 6.6–7.6 percent it views as an acceptable rate.
However, the commission found the airport is not imposing excessive prices for the first five years of the 20-year period. It believes that is due to the impact of the Canterbury earthquakes on the airport’s returns that caused the price rises in the first five years, rather than its information disclosure regime.
CIAL CEO Jim Boult says he and his team are considering the draft report and will respond to the commission within the timeframe provided. “We are pleased the Commerce Commission has endorsed our 6.8 percent return for the current pricing period as appropriate,” he says.
“The commission also stated it has no concerns with our performance in many areas, including investment, innovation, quality and operating efficiency. It has also endorsed the use of a long-term pricing model as an efficient approach in principle.
“While it has expressed concerns at the level of long-term returns we are targeting, we have only set prices for the current five year period — and they are the prices the commission has endorsed. Beyond that, we are obliged to consult every five years with our airline customers and at that time will also consider points raised by the commission.”
But Mr Boult says CIAL is disappointed by some comments in the report.
“We take issue with the comments suggesting we did not take note of the information disclosure process. We engaged fully and transparently but accept that the information we provided and the longer-term pricing model are complex and require extra consideration by our airline customers and the commission.”
The recent Section 5G review process on all this country’s major airports has resulted in mixed outcomes. Earlier this year, the Commerce Commission criticised Wellington airport’s price setting.
Wellington was considered to be generating excessive profit. The commission considered Wellington’s expected return of 12.3 percent to 15.2 percent over five years would allow the airport to extract monopoly profits, and Wellington Airport has subsequently gone back to consultation with the airlines serving the capital.
On the other hand, Auckland International Airport’s return of 7.9 percent was not considered excessive by the Commerce Commission.
- Report by John King.
» Summer success at the Walsh
» The luxury of living in the Ivory Tower
» Comper moves swiftly
» UAV usefulness increasing
» Woodville’s even dozen
» 60th birthday party for ZK-BNL
» New airline MRO facility
» Hands across the Southern Alps
» Praise earned in tough place