Executive Summary
1. Many airports have strong natural monopoly characteristics. A sound regulatory regime should enable the regulator to identify the extent of monopoly pricing which should encourage airports to price their services in a manner consistent with the outcomes of a workably competitive market. The current regulatory regime for airports fails to do this.
2. In the context of the review of the regulatory control provisions in the Commerce Act, some members of the aviation sector made a number of submissions on the regulatory regime for airports.23 The key problems identified with the current regulatory regime for airports are, that airport companies are empowered to set prices as they see fit the lack of a credible and timely threat to constrain the exercise of substantial market power by major airports in setting airport charges. This problem has been exacerbated by the lack of guidelines on both the desired outcomes from the regulatory regime, and on appropriate input methodologies (how to value assets, calculate weighted average cost of capital) to provide guidance on desired regulatory outcomes.
3. To address the inadequacies of the current regime it is proposed that a decision be made now to provide for a strengthened information disclosure price monitoring regime for Auckland, Wellington and Christchurch airports under the Commerce Act. It is also proposed that further work be undertaken in 2008/2009 on whether further regulation is required for other airports in New Zealand as well as in addition to the proposed regulatory changes for Auckland, Wellington and Christchurch.
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