The Commerce Commission has today released its final report confirming Wellington International Airport Limited (WIAL) is targeting returns for the period from 1 June 2014 to 31 March 2019 that fall within the estimated range of acceptable returns.

WIAL revised its landing fees after the Commission reviewed its performance under section 56G of the Commerce Act in 2013. The review found the airport was targeting excessive profits.

As noted in the draft report released in April, the Commission’s analysis estimates WIAL has set its prices targeting a return of 8.4%, which is just within the upper limit of an acceptable range of 7.4% to 8.4%.

Deputy Commissioner Sue Begg welcomed WIAL’s response to the Commission’s section 56G report.

“Wellington Airport’s response to our report and its willingness to engage with us through information disclosure regulation has been very positive. We estimate that consumers will now be $33 million better off over a three year period as a result of this process.”

The Commission received four submissions on its draft analysis. These submissions have been taken into account and responded to in the final report released today.

Further information, including the submissions received and a copy of the final report, can be found on the project page.

Background

Wellington, Auckland and Christchurch airports are subject to information disclosure regulation under Part 4 of the Commerce Act. The Commission reviews the airports’ pricing decisions in its summary and analysis capacity. The Commission does not regulate the prices the three airports charge. Airports may set prices as they see fit, but they must consult with customers on any major capital expenditure that will impact future prices.

The Commission’s ongoing regulatory role is to provide summary and analysis of the performance of the three airports. Any future decisions on airport regulation lie with Ministers.

The disclosure of information about the price setting event in 2014 is the third of its kind for WIAL since information disclosure requirements were set under Part 4. The first price-setting event was in 2006, with the second in 2011. The Commission undertook a review of the effectiveness of the information disclosure regime in 2013.

The final report released today does not include any analysis of the proposed $300 million runway extension, as WIAL did not include it in the price setting event for the period from 1 June 2014 to 31 March 2019.

The estimate of the range of acceptable returns – 7.4% to 8.4% – reflects the 50th to 75th percentile estimates of a post-tax weighted average cost of capital (WACC) as at 1 July 2014.

The Commission recently changed its position on the appropriate WACC percentile range from 75th percentile to 67th percentile for a number of other sectors, but have not yet reviewed the appropriate WACC range for airports’ information disclosure. This review will be undertaken as part of the input methodologies review. Read more information on the input methodologies review.

A copy of WIAL’s section 56G report from February 2013 can be found on the reports to Minister page.