Report triggers profit-gouging claims

Wellington Airport's fees are a tax on travellers and a drag on the economy, says the Board of Airline Representatives. Photo / Mark Mitchell

Wellington Airport's gains will be above reasonable expectations, says the Commerce Commission.

Airlines have accused Wellington Airport of profit-gouging after a Commerce Commission report revealed it could make excess profits of between $20 million and $39 million over five years.

The commission has found the information disclosure system has not been effective in limiting excessive profits, but the airport says forecast profits don't take into account future concessions for airlines.

"Our draft findings are that the information disclosure regime is working well in some areas, but it is not limiting Wellington Airport's ability to extract excessive profits," said Commerce Commission deputy chairwoman Sue Begg.

The commission estimates the airport's pricing will give a return on investment of 10.18 per cent between next year and 2017 - above the airport's 9.5 per cent target and above the 7 per cent to 8 per cent range the commission deems "reasonable".

"Either figure significantly exceeds our estimate of a reasonable rate of return, which we base on our cost of capital input methodology."

The commission findings are subject to comment from affected parties and after its release on December 21 the final decision will be sent to the ministers of transport and commerce.

The Board of Airline Representatives (Barnz) said the "unjustified" additional charges were a tax by Wellington Airport on travellers and a drag on the Wellington and national economies.

"They are damaging to Wellington's tourism aspirations," said the board's executive director, John Beckett.

"We trust that the Government will see the case for bringing the airport under a firmer regime."

Airlines faced price increases from a range of suppliers including airports, Aviation Security, Airways and the Civil Aviation Authority.

"They might tend to say that the difference is a price of a cup of coffee," Beckett said. "We've got other monopoly services to the airlines and if they all add on the price of a cup of coffee we're talking about a three-course dinner - that's enough to stop a lot of people flying."

New Zealand had some of the lightest-handed controls on airport pricing and tightening up on it was long overdue, he said.

Wellington Airport is 66 per cent owned by infrastructure investor Infratil, and the the balance is owned by the Wellington City Council.

Airport chief executive Steve Sanderson said the company was evaluating the conclusions in the report.

"Wellington Airport's targeted effective rate of return is 8.1 per cent which is at the lower end of the Commerce Commission's published cost of capital for airports at the time of price setting."

Sanderson said airlines were still competing fiercely on main trunk routes through Wellington, but on regional routes, where there was little or no air competition, fares were generally much higher.

Beckett said airlines wanted airports to negotiate rather than impose fees unilaterally.

Commerce Commission guidelines could be used to settle disagreements.

"It would be a lot less bureaucratic and a more effective way of going about it."

Passenger fees

Wellington

*Domestic: $10.39

*International: $20.38.

Auckland

*Domestic: $5.55

*International: $21.55.

(Source: Board of Airline Representatives)

- additional reporting: BusinessDesk