Airport Chief Executives Call On Commerce Commission to Recognise Excellent Performance
On 31 July the NZ Airports Association made a submission to the Commerce Commission in response to its discussion paper on Input Methodologies. The Commission has new regulatory powers under Part 4 of the Commerce Act and its purpose, in key markets in which competition is limited, is to promote outcomes for consumers that are consistent with those produced in competitive markets. Auckland, Wellington and Christchurch International Airports are covered by the new regulatory powers to the extent that information disclosure will apply.
The Foreword to the NZ Airports submission comprises the following message, signed by the Chief Executives of Auckland, Wellington and Christchurch International Airports.
New Zealand’s major airports are delivering excellent outcomes for the New Zealand economy. They are investing in infrastructure that encourages competitive air services and provides quality facilities at prices representing fair value for money to airlines, shippers and travellers.
Access to affordable air travel linking New Zealand both internally and with the rest of the world is critical to our economy, especially our tourism industry, and to the standard of living of all New Zealanders. Airports play a major role in facilitating efficient competition between airlines, which is the most important driver of air travel affordability, by investing in the infrastructure needed for growth and providing access to facilities on terms and conditions that are fair and reasonable. The recent entry of new carriers is due in no small part to the efforts of airports to grow the air travel market.
The cost per passenger of using New Zealand’s major airports is as low as $3-5 for regional domestic services, to $15-21 for international services. These rates compare very favourably with comparable airports in Australia and around the world.
Airports are very different to network businesses. There is genuine competition between airports for both individual services and for capacity allocation by airlines. Our direct customers are a small number of large, sophisticated airline companies with strong countervailing power and influence. And our charges represent a very small proportion of the total travel costs faced by consumers.
Commercial agreements between major airports and airlines represent the best outcome for the sector. This goal is achievable, and several successful examples already exist. Airports are also playing an increasing role in partnering airlines in growth initiatives and joint marketing.
The Commerce Act intends that the major airports be subject to ‘light handed’ regulation in the form of information disclosure. The Commerce Commission’s discussion documents appear to be directed towards establishing a heavy handed regulatory framework for airports consistent with future price control through the determination of a ‘Regulatory Asset Base’ and prescriptive methodologies.
Excessive, prescriptive regulation has a pervasive impact on investment decisions and in the efficient workings of markets. It is expensive, slows investment, requires the regulator to ‘second guess’ the industry and inhibits commercial relationships as parties seek to ‘game’ the system. At no point has it been demonstrated that more regulation would produce better outcomes for consumers, and there is a real risk of the opposite occurring.
In this NZ Airports submission, we ask the Commerce Commission to recognise that the major airports are performing very well in relation to investment, price and quality outcomes. Given this, we believe the Commission should adopt an approach that allows commercial arrangements to be developed between airports and airlines, as is already occurring successfully. It should limit its role to the legislative intention of ensuring that a suite of relevant information is available to provide interested parties with the comfort that the overall financial returns an airport generates from its aeronautical activities are fair and reasonable.
