Opinion: Stephen Franks questions Wellington Airport's proposed charge hike and wonders whether they're expecting price controls are on the way?

Opinion: Stephen Franks questions Wellington Airport's proposed charge hike and wonders whether they're expecting price controls are on the way?

By Stephen Franks*

Have the airports decided that price controls may be inevitable, and they might as well be hung for a sheep as for a lamb? Are they gambling on getting a major pricing increase in before control cuts in, so they start from a higher base?

Why else would they go for price increases that are so far above what the Commerce Commission has signalled as the appropriate level?

At present they are only subject to disclosure regulation. But the Commission's announced input methodology for regulated disclosure could be simply converted to price control. This Stuff report quotes Air New Zealand CEO Rob Fyfe as surprised that Wellington airport had been "quite so flagrant in their disregard" of the commission's guidelines.  

If Wellington Airport has adopted what it describes as its actual cost of capital of 11.3 per cent a year, when the Commerce Commission methodology says an appropriate figure for airports is 7.8 per cent,  the gloves are clearly off.

The airports, and the lines companies and other bodies appealing against the Commission's announced methodologies may be counting on tying the courts up in procedural knots for the foreseeable future, so that the new methodologies are not applied. The new  merits review regime in the Commerce Act was supposed to prevent such gaming of the law for companies subject to price control (making it theoretically profitless by applying methodologies under challenge in the interim).

Perhaps the monopolies believe they have found ways to persuade the Courts to sidestep that anti-gaming provision.

Or perhaps for the airports at least there is a more simple calculation. The report mentions Court hearings in October. They are on the Commission's procedures, not the substantive methodology decision. It is now likely there will not be an outcome to substantive argument before 3rd quarter 2012. And then there will be appeals. So a methodology that Parliament meant to apply from 2010 could be in limbo for years to come.

Perhaps the airports calculate that price control is unlikely to be imposed while the methodology remains under challenge. They could feel that they should go for broke in pricing while they have the Commission tangled in court.  This theory would make sense of procedural challenges and advocacy for long delayed hearings, after an initial argument to the courts that airport matters demanded quick resolution, so much so that they should be separated out from appeals against methodologies for other sectors, and heard by a separate court.

The early airport position and their later arguments have not hung well together. The theory above would explain the discrepancy.

Disclosure – Franks & Ogilvie is acting for user/consumer parties (represented by MEUG) in appeals against the Commission's announced input methodologies.


* Stephen Franks is a commercial and public lawyer who represented the ACT Party in Parliament from 1999 to 2005 as its justice and commerce spokesman. He also stood for the National Party in the 2008 election as its Wellington Central candidate.

He writes his own blog at stephenfranks.co.nz.

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A solution that may work to rein in New Zealand monoply infrastructure owners could be to focus not on the input side but on the output only and use international benchmarking to establish prices. For Wellington airport We could look at a basket of small essentially regional airports in the US, China and other markets with similar number of takeoff and landings and use such benchmarking to establish the price. This could be gamed as well but if we leave it the way it is we will never have a freemarket in new Zealand- free of toll both operations such as Wellington Airport.