The Commerce Commission completed its first regulatory control inquiry in 2002 on whether airfield activities should be controlled at the three major international airport companies at Auckland, Wellington and Christchurch. The inquiry considered whether airfield services, provided by the three airport companies, should be controlled under Part V of the Commerce Act. Airfield activities are the activities undertaken (including the facilities and services provided) to enable aircraft to land and take-off. These airports are the three largest in New Zealand by total revenue and volume (aircraft movements, passenger numbers, and freight volumes).
The Commission found that the three airports faced limited competition in their relative geographic markets for the provision of airfield services.
In determining the appropriate asset base for each of the airports, the Commission decided that relevant land should be valued at opportunity cost. The opportunity cost of sunk assets however, was zero as the assets were being used in their best use and there was no alternative use. Consequently, the Commission concluded that specialised airfield assets should be included in the asset base at historical cost.
The Commission calculated the appropriate weighted average cost of capital (WACC) for the airfield services provided by each airport, to provide an indication of the target return for each airport.
In considering whether control was necessary or desirable in the interests of acquirers, the Commission attempted to measure, at each of the three airports, the benefits that acquirers would be likely to receive if airfield services were subject to control. This measurement of benefits was net of the likely costs of such control that would be borne by the same acquirers (where the costs of control were additional to those already being incurred, under the present regulatory regime).
On 1 August 2002, the Commission recommended that the Minister recommend to the Governor-General that an Order in Council be made declaring that the airfield services supplied by Auckland International Airport Limited be controlled.
A copy of the Commission's final report, including an Executive Summary, is available on the Ministry of Economic Development's (MED) website.
