Don’t Sell Auckland International Airport Shares: Monopoly Watch NZ

Monopoly Watch NZ pooh poohs the idea that Council’s proposed sale of its shares in Auckland International Airport will reduce rates for Aucklanders. Increased charges will offset any imagined relief. The airport operates a monopoly and will extract further “Monopoly Rents” or user taxes from the people – largely rate payers -- who need have no choice but to use it to travel overseas.

Auckland International Airport is a case study of a failed privatisation: there has been a distinct failure to provide regulatory oversight coupled with a failure by Auckland Council to demand board seats to supervise the governance of the airport.

Monopoly Watch submitted to the Council Consultation and noted the following points

1. Auckland Airport, which was privatised for $900m in 1999 with the assistance of Merril Lynch, now has a market capitalisation of $13 billion. It has paid $3,388 billion in total dividends and capital repayments over the last 20 years. Council, which now holds 18% of shares on issue, structured a lousy deal at the outset and failed to improve it over time.
2. The airport has had a 100% dividend policy for most of its existence, which points to a governance failure, for which council bears responsibility. It failed to secure board representation and to ensure that an asset, in which it is the largest shareholder, was putting money aside for the facility upgrades that would obviously be required.
3. The airport runs a two-pot approach to costs and revenues, and ancillary activities (representing over half the revenue streams) are not used to finance infrastructure such as the terminal.
4. Auckland Council is in the business of operating and controlling monopoly infrastructure. It’s essential that Council engage with expert regulatory analysts to better understand airport monopolies and exercise international best practice in the governance of this $2.3 billon “money pit” that holds a monopoly on people coming to and going from the city.
5. It’s a privately held asset that keeps coming back for more from the public trough. Taxpayers have built a tunnel to assist traffic flows, and the Government announced earlier this year that the light rail link between the airport and the city will be partially tunnelled. It is astonishing to consider that the privately owned airport will enjoy the benefit without paying its share.
6. The Commerce Commission has failed to curtail the excessive fees charged to travellers via high landing charges (reflected in ticket costs0 and extortionate parking charges. Mayor Wayne Brown is on the record saying Wellington isn’t working for Auckland. Indeed, no better example exists of the weak and regulatory environment accepted by the Commerce Commission.
7. If Auckland Council abdicates its responsibility to understand such an asset it augurs a further commercial failures will occur in its dealings with other similar assets with monopoly characteristics -- such as water, bus, ferry and power networks.

“It’s a sad historical fact that, since the airport was sold, it has created the same value as six Waterview tunnels, three harbour crossings and enough money to pay for the city rail link five times over,” says Monopoly Watch NZ’s Tex Edwards. “But even this level of failure doesn’t mean Council should give up. Given Commerce Commission’s hands-off approach, Councillors need to work to intellectually engage on monopoly asset classes, better supervise their operation and protect citizens from them.

“Auckland International Airport, is broken The ratepayers of Auckland know that. Airport users know that. Things have reached this state through unbridled monopoly practices, encouraged by the board, and the financial incentives to create as much capital expenditure as possible, as their regulated cost of capital is higher than their actual cost of capital over the long term.”

“Private companies create monopolies, it’s one of the most important jobs of the Council of a super city to protect ratepayers from them.”

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