PROJECTS

Christchurch Airport Price Review, New Zealand

The problem

Christchurch Airport had seen a drastic increase in the volume of passengers, from 200,000 in 1960 to 6 million by 2010, and its terminal was too small to accommodate these numbers. A major redevelopment of the terminal was completed in 2011. As the opening of the new terminal was approaching, Christchurch Airport needed to reach agreement with the airlines on to ensure that its passenger and other fees covered its costs and provided a return on investment.

How we helped

Christchurch Airport was subject to a light-handed regulatory regime, requiring it to negotiate with airlines in good faith subject to information disclosure rules and non-enforceable regulatory opinion issued by the Commerce Commission. Castalia helped the Airport with the negotiations. We developed a pricing framework which embedded a set of regulatory good practice approaches to calculate reasonable and efficient charges, thus providing a principled basis for the negotiations. The model calculated regulatory cost building blocks, estimated efficient costs, and calculated charges that would recover costs and a reasonable return on capital. To address concerns that increased charged would reduce use of the airport, we analyzed airline yields for Christchurch services and assessed how new charges would affect demand from the airlines. This included analysis of how different charging structures would affect airlines choices about aircraft types used and whether or not to open new routes.

Impact

The airport achieved prices for airport services that ensured its financial sustainability. The first stage of the terminal project was completed in 2011, in time for New Zealand’s hosting of the Rugby World Cup. The full airport upgrade was completed in 2013.