Commerce Commission final report on Wellington International airport points to excessive profits

The Commerce Commission’s report on the effectiveness of the information disclosure regulatory regime under Part 4 of the Commerce Act finds that the regime has not limited the ability of Wellington International Airport Limited to make excessive profits.

The Commission is required to report to the Ministers of Commerce and Transport on how well information disclosure regulation is promoting the purpose of regulation for each of the regulated airports. The Wellington airport report released today confirms the Commission’s draft conclusion and is the first of three – other reports will follow for Auckland and Christchurch airports later this year.

“We have found that the information disclosure regime is effectively promoting innovation, quality and pricing efficiency by the airport. However we consider that the regime has not been effective in limiting Wellington airport’s ability to extract excessive profits,” said Commerce Commission Deputy Chair Sue Begg.

“Based on our analysis, Wellington airport is likely to recover between $38 million and $69 million more from consumers between 2012 and 2017 than it needs to make a reasonable return. We think a reasonable return is 7.1% to 8.0%. Wellington airport’s expected return is 12.3% to 15.2%,” said Ms Begg.

“The excessive profits are 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,” said Ms Begg. “Our assessment of returns has been based on the relevant input methodologies, which were known to Wellington airport before it set its prices for the period 2012-2017,” she said.

Ms Begg noted that Wellington airport is challenging the Commission’s input methodologies in the High Court and the Commission may update its report to Ministers depending on the outcome of that hearing.

The review does not make any recommendations about what regulation should apply to Wellington airport in future (or whether information disclosure should continue to apply). This is outside of the scope of the review required by the legislation.

The full report on Wellington airport is available at http://www.comcom.govt.nz/section-56g-reports/