Executive Summary
2. Many airports, particularly the larger international airports, have strong natural monopoly characteristics. A regulatory regime is required to encourage them to price their services in a manner consistent with the outcomes of a workably competitive market.
3. The current regulatory regime for airports is very light-handed, comprising information disclosure (though with no guidance on input methodologies and no independent monitoring), a requirement to consult, a statutory right to "set charges as they see fit" under the Airport Authorities Act, and the threat of price control under the Commerce Act. Airports and airlines have made submissions to Ministers over the past few years with airlines arguing for a stronger regime and airports defending the current regime.
4. In the context of the review of the Commerce Act (see companion paper), the international airports (Auckland, Wellington and Christchurch), Air New Zealand, Virgin Blue, BARNZ (Board of Airline Representatives) and IATA made extensive representations on the regulatory regime. The airports argued in favour of the current regime, while other parties advocated a more robust regime with information provided by both parties on evidence or the lack of evidence of excessive pricing.
5. Although an independent review of the claimed over-charging has not been undertaken, given the Commerce Commission's findings relating to market power of major international airports in its 2002 inquiry, a requirement for airports to consult only, and the power of airports to set charges unilaterally, there is a case for strengthening the current regime. The need for a robust regime is pressing given the current overseas interest in acquiring greater shareholding in Auckland airport.
6. We consider that the current regulatory system for the three major international airports is inadequate. Consequently we are recommending that the current weak information disclosure system should be replaced with meaningful disclosure requirements along with active monitoring of the disclosed information by the Commerce Commission.
7. We are also recommending that consultants should be engaged in 2008/09 to report on whether further regulation is warranted for airports, and whether the coverage of regulated airports should be widened (including the option of a negotiate/arbitrate regime). Any resulting legislative change would be implemented in time for the next five year pricing period due to commence on 1 July 2012.
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