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Posted By Pru

Airport pricing regulation continuing to evolve well, says NZ Airports

The announcement today by Auckland Airport of discounts to airlines shows the current regulatory system is working and continuing to evolve based on input from both the regulator and airports, says New Zealand Airports Association (NZ Airports) chief executive Kevin Ward.

Our three largest airports in Auckland, Christchurch and Wellington are subject to information disclosure regulation that involves review by the Commerce Commission, says Mr Ward.

“This is the first pricing round where an airport could put its case for a return based on its own unique circumstances and business risk.  In the case of Auckland Airport, it is making provision for a major infrastructure programme which will be one of the largest privately-funded developments in the country.”  

The Commission has not set a specific target return for Auckland Airport. But after examining a sample of 26 international airports from around the world it estimated a benchmark return of 6.41 per cent. It also stated, after a review in 2016, that airports could target a return according to their individual circumstances.

Estimating future returns will always involve some judgment, says Mr Ward.

“While the Commission’s global benchmark may not necessarily reflect New Zealand circumstances, Auckland Airport has shown that it is ready to listen and respond to the Commission’s perspectives.”

“The way Auckland Airport has responded to the Commission’s feedback shows the regulatory regime in action and evolving. The airport’s charges were already falling and internationally competitive before the discounts announced today.”

The prices airlines pay to use airports fund all the critical infrastructure that provide customers with a safe and enjoyable travelling experience. This includes runways, taxiways, check-in areas, departure lounges, airbridges and fire and rescue services.

“Those prices make up a very small portion of the cost of the average airfare,” says Mr Ward.

“For example, in the case of Auckland Airport it is just three per cent of the average domestic airfare, or around $6. The other 97 per cent of the airfare is airline costs and profits.”