Potential Competition
3.40 Each of the three airports may face competition from other airports in the provision of airfield services. This competition may be of two kinds: the potential competition from prospective new entrants, and the existing competition from other airports already operating. The former is examined here, and the latter in the following section.
Entry Barriers
3.41 The nature of the investment required in an international airport facility is likely to mean that barriers to entry are high, and that competition from potential entrants is, therefore, unlikely. There are a number of considerations that lead the Commission to this view.
3.42 First, entry would require a large, long-term investment in land, runway, and other infrastructure. A substantial proportion of that investment would be sunk, meaning that it would not be recoverable upon exit, especially where exit was induced by excess capacity and inability to gain market share from an incumbent. Hence, the barriers to exit would be high, and that realisation would in turn discourage entry in the first place.
3.43 Secondly, even if land were available, the environmental and planning implications of a new airport would be wide-ranging and significant. Land-use consents would be time-consuming to acquire, especially given the likely resistance from adversely affected residents or others who would be likely to object to the proposal.
3.44 Thirdly, the time lag between a company considering the possibility of building a new airport and the airport coming into service is likely to be several years. This time lag would give an incumbent ample time to organise strategies to meet the prospective competition, including the building of a second runway if entry had been induced by constraints on its current capacity.
3.45 Fourthly, the building of a new airport would by no means guarantee that airlines would wish to use it. A new airport would probably have to be built further away from the main population centre than the existing one, imposing higher travelling times and costs on passengers, who may, in consequence, resist using the new facility. It may also lack connections to some other domestic and international centres, adding inconvenience for passengers making connecting flights.
3.46 Finally, incumbents are likely to benefit from economies of scale, at least until the point where full capacity is reached, so that few regional markets would be large enough to sustain more than one airport, or even more than one runway. In New Zealand, with even the major airports serving relatively small population centres by international standards, existing airports generally appear to have either significant excess capacity at non-peak times, or the ability to expand incrementally (e.g., by means of additions to existing terminals or by adding a new terminal or runway). This may enable them to meet or undercut the charges of a new entrant, especially given that its facilities would be likely to be under-utilised in the first several years of operation.
Conclusion on Potential Competition
3.47 The Commission's conclusion in the Draft Report was that the potential for airports to be constrained in the provision of airfields services by the threat of entry is weak. This continues to be the Commission's view. The factors listed above combine to suggest that barriers to the entry of new airports are likely to be very high, and hence that the potential competition in airfields services (from new entrants) is insignificant.
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