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Auckland Airport extracting $53 million from consumers in excess charges

November 5, 2018 Airport No Comments Email Email

Airlines for Australia and New Zealand (A4ANZ) Chairman, Professor Graeme Samuel AC, today said that more must be done to protect airport users from the market power exerted by monopoly airports. According to a report released by the Commerce Commission yesterday, Auckland International Airport (AIAL) has set prices that are not in the long-term interest of consumers.

Commenting on the Commerce Commission’s Review of AIAL’s pricing decisions and expected performance (July
2017 – June 2022), Professor Samuel said that the report affirmed the serious concerns raised by airlines and other
airport users that they were being overcharged. “The Commerce Commission’s analysis reached the conclusion that
AIAL was targeting excessive profits, and they were unconvinced by the airport’s attempts to justify their pricing.
AIAL’s decision to again target returns above the Commerce Commission’s mid-point WACC estimate makes it clear
that New Zealand’s light-handed regulatory regime is not appropriately constraining the airport in its ability to
extract excessive profits.”

A4ANZ’s CEO, Dr Alison Roberts said, “The Information Disclosure regime is intended to constrain monopoly pricing through an inherent threat of greater regulation. But it is clear the system isn’t working. The Commerce
Commission’s report specifically noted that while AIAL is encouraged to provide services at the quality that
consumers demand, there is nothing to prevent the airport setting charges as it sees fit.”

“The NZ Airports Association (NZAA) argued that the airport’s profit is “fair and reasonable”, but this claim sits in
stark contrast to the Commerce Commission’s assessment and earlier analysis by Frontier Economics showing that
Auckland Airport has the second highest profit margin of all analysed international airports,” Dr Roberts said.
Professor Samuel said, “The Commerce Commission’s report reinforces my long-held view that monopolies need to
be held to account by a credible threat of regulatory intervention. New Zealand needs a regulatory framework that
drives airport-airline negotiations to produce better outcomes for consumers, through improved efficiency in the
allocation of resources and targeted investment.” Professor Samuel said.

Dr Roberts added, “We hope that the Commission sees fit to exercise its new powers, under the Commerce
Amendment Bill passed last month, to undertake an inquiry. Unfortunately those powers do not extend to them
imposing a negotiate-arbitrate regime for the airport and its users, but they are able to recommend this to
Government. In the meantime, however, all the excess costs outlined continue to be paid by airlines. Clearly
something needs to change.”

Responding to the NZAA’s description of the charges as ‘modest’, Professor Samuel said “Under the light-handed
regulatory system, AIAL has clearly been able to exercise its market power to extract excessive profits from airport
users. It is a fact that an airport or indeed any business with market power has the ability to sustain prices for its
services above efficient costs or deliver a poor quality of service. This comes at a cost to the New Zealand
community, both financially and through lost opportunities for improving the quality and efficiency of airport
services.”

“We await AIAL’s response to the Commission’s findings, but sensible policy cannot rely on goodwill alone. A4ANZ’s
members want to see a vibrant aviation sector, which is in turn good for both consumers and the economy. To do
this we need to comprehensively address the issue of airport monopolies and market power, through a regulatory
environment that encourages innovation and efficiency.” Professor Samuel said.

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