Wellington Airport’s target return and risk allocation are generally appropriate given Covid impacts

The Commerce Commission has today confirmed that Wellington Airport’s pricing decisions and allocation of risk are generally appropriate after considering external factors including the impacts of COVID-19 on its customers.

Wellington Airport’s target return and risk allocation are generally appropriate given COVID-19 impacts

The Commerce Commission has today confirmed that Wellington Airport’s pricing decisions and allocation of risk are generally appropriate after considering external factors including the impacts of COVID-19 on its customers.

The Commission has considered the reasons and evidence provided by Wellington Airport for its target return of 5.88%. It also sought views from interested parties. The Commission is broadly satisfied that the target return is reasonable, and consistent with promoting the long-term benefit of consumers.

Wellington, Auckland, and Christchurch Airports are regulated under Part 4 of the Commerce Act, and must publish information about pricing decisions to inform all those with an interest in airports.

The Commission’s role is to review evidence provided and share its views on pricing decisions to improve people’s understanding of airports’ expected profitability and other areas of their performance, and to allow consumers to assess airports’ performance. This form of regulation is known as “information disclosure regulation”.

The Commission says it is reasonable in light of the significant impacts of COVID-19 on the industry that Wellington Airport and its major customers have agreed to reallocate risk between them. Wellington Airport introduced a range of revenue adjustments, for example, the deferral of recovery. These adjustments alter how risks are allocated between the Airport and airlines, and provide price relief to major customers in the short term.

This year, the Commission conducted a targeted review process by publishing a consultation paper on its proposed timeframe and initial views on Wellington Airport’s pricing decisions. The targeted review in this instance was partially in response to the fact that airports are still experiencing a difficult operating environment because of the COVID-19 pandemic. Views and comments received in submissions and cross-submissions have been considered in the final report.

The Commission’s review of Wellington Airport’s pricing for the period was originally scheduled for 2019 but was delayed to enable the Airport to focus on completing its long-term capital expenditure planning consultation. It was further delayed because of impacts from the COVID-19 pandemic and related disclosures.

The final report is available on the Commission’s website.

Background

The Commission’s review of Wellington Airport’s price setting is the third of its kind. Its previous review was in 2015, and the earlier review in 2013 also included a review of the effectiveness of the information disclosure regime in regulating Wellington Airport.

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