Report clips airport's wings

By DANIEL RIORDAN

Auckland Airport's share price dived 24c to $3.56 yesterday after the Commerce Commission recommended that price controls be put on its airfield activities.

The recommendation is preliminary, but if it is adopted the airport will have to forgo income of $16 million in the three years to June 2003, according to the commission's estimates.

In its 400-page report on Auckland, Wellington and Christchurch airports, the commission found Christchurch would generate excess returns of $3.8 million over the same three years, but said the cost of imposing price controls meant it would be counterproductive to apply them. Wellington gained a clean bill of health.

Submissions, cross-submissions and a series of conferences will take place before the final report goes to Commerce Minister Paul Swain on November 2.

Auckland Airport managing director John Goulter had no comment last night, but said he would make a statement this week.

In the absence of real competition for their services, airports set their landing charges by calculating what they consider appropriate rates of return on their airfield assets.

The debate between airports and airlines has centred on the rates of return and the asset bases they are calculated on.

The commission found that over the past 12 years Auckland made an annual rate of return that was on average 3.7 per cent higher than it should have been, at 13.5 per cent.

It determined Auckland had overvalued its airfield asset base by 68 per cent at $312 million, compared with $186 million. Wellington was 41 per cent too high at $96 million, instead of $68 million, and Christchurch 20 per cent too high at $41 million, instead of $34 million.

CS First Boston research head Rob Bode said the market's reaction indicated the recommendation was a surprise, but it was a preliminary finding.

Christchurch chief executive George Bellew, in what he stressed was a preliminary view, said he was pleased with the outcome.

"There's a few areas we're going to have to look at in more detail. We're obviously different in our estimate of the weighted average cost of capital from the commission, and there's a long way to go yet."

He said the fact the commission's conclusion was favourable in the case of Christchurch was a measure of some satisfaction, if not complacency.

Wellington acting chief executive Graeme Ware declined to comment.

Stewart Milne, executive director of airline umbrella group the Board of Airline Representatives, said he was encouraged by the number of recommendations in the board's submissions that had been picked up by the commission.

Geoff Thorn, the director of the commission's business competition branch, said that if the report's findings stood, another process would have to be gone through.

"We've responded to a request from the minister to prepare a report making a recommendation whether price controls should be imposed. Once we've finished our final report, the minister accepts or otherwise, the recommendation we've made."

He said that if the minister decided to introduce price controls, the commission would then be required to decide the price.

"Basically we've said the net benefits of price controls for [Wellington and Christchurch] are outweighed by the detriments. Even with Auckland, the benefits and detriments are fairly close.

"At the moment the figures come out one way, but that requires further consultation before we can firm those up. We're now looking for further submissions on whether we're right or wrong and arguments for that."

Commerce Minister Paul Swain was unavailable for comment.

Meanwhile, in a separate action, Air NZ is still planning to take Auckland to the High Court over the higher landing charges it introduced from last September.

A date had not yet been set, but the case was expected to be heard before the end of the year.

Links


The Commerce Commission report on price controls

Southern Skies Properties Limited

Air wars - the cast list

www.nzherald.co.nz/travel