Everyone seems to agree that Auckland Airport needs an upgrade, but the vexed question of who pays for it has soured the relationship between the airport company and its biggest customer, Air New Zealand.
In separate opinion articles written for the Herald, Auckland Airport CEO Carrie Hurihanganui and Air NZ CEO Greg Foran signalled that the battle lines are being redrawn, bringing to an end a Covid-era spirit of rapprochement.
Foran said the reason Auckland Airport doesn’t have to stick to a budget, as any household would, is because the company is not paying for the project.
“Although Auckland Airport makes a profit through car parks and commercial rents, it will be paying for the upgrade to the terminal through aeronautical charges including landing fees, which are paid for by airlines and passengers,” Foran said.
“We agree some work needs to be done, but now more than ever, we all need to live within our means.” Foran urged the airport to take a look at its budget, “and do what is affordable”.
Meanwhile, Hurihanganui, who is a former Air NZ executive, said that if there is one thing New Zealanders have learned in recent times, it’s the vital importance of investing in infrastructure.
“So it was disappointing to see Air NZ calling for even further delay in upgrading airport infrastructure,” she wrote.
“These are improvements the airline itself has previously supported. Further delay now is false economy. It is also not the right thing for New Zealand.”
She said Auckland is one of the most affordable airports for airlines to fly to domestically – just $7 per passenger, and half the cost of other airports such as Christchurch and Wellington.
Next year, domestic charges will rise by less than $4 per passenger. In 2027, domestic charges will be $8.70 per passenger higher than they are now – still a small portion of an airfare – and bringing charges in line with those at Wellington and Christchurch.
Hurihanganui pointed out that new charges will also be independently reviewed by the Commerce Commission, while Air NZ is not regulated in this regard.
One market source, who did not want to be named, said it was fascinating to see the airport and airline chief executives pen opinion pieces along the lines of how “outrageous” and how “reasonable” the airport’s expansion plans are.
“A period of good relations between Auckland Airport and its largest customer Air NZ has clearly ended,” the source said.
The airport company’s announced capital programme would see about $4.5b of new aeronautical assets commissioned over the next seven years.
This would lift Auckland Airport’s regulated asset base by about 300 per cent by the end of the decade, with the cost of this investment being passed on to airlines and ultimately passengers.
Air NZ and Qantas have taken issue with both the scale and timing of the investment, highlighting the fact that the cost of the largest planned project, the new integrated terminal, will far exceed the total current value of all the airport’s aeronautical assets, while lifting domestic capacity by only 25 per cent.
Another key sticking point is the high targeted return on capital that Auckland Airport is looking to charge its customers.
“However this looks likely to be pared back to more acceptable levels following the Commerce Commission’s latest analysis on regulated industries,” the source said.
“While the market is not entirely on one page, there is a general view that the Commerce Commission work is quite reasonable and well grounded.
“It’s not rocket science to see that if AIA can earn an unduly high return, it is incentivised to ‘gold plate’ the capex by spending far more than is required in a more utilitarian spend that Air NZ would prefer,” he said.
“After years of underinvestment from AIA, it seems the regulatory framework is not achieving one of its key objectives – efficient and timely capital investment.
“By going so hard on price and capex size, AIA may be putting at risk a regime that has been very beneficial for them.”
The New Zealand sharemarket today is at the halfway point for the year, showing a 1.6 per cent gain on the S&P/NZX50 gross index.
At the top of the winners’ list is Serko - a technology company focused on innovative solutions for corporate travel and expense management - with a 62 per cent gain, and clearly still basking in the afterglow of a favourable business update earlier in the year.
Serko doubled down on its positive outlook at this week’s annual meeting. The company said it had experienced a strong start to the 2024 financial year and affirmed its guidance provided in May that it continues to anticipate 2024 total income of between $63m and $70m and total spending of between $86m and $90m.
“If June 2023 quarter trends continue, Serko anticipates total income to be above the midpoint of this guidance range,” the company said.
Serko is holding $88m in cash and has no debt.
Retirement company Ryman has also enjoyed a return to favour, ranking as the second-biggest gainer with a 29 per cent return.
Energy company Mercury (14 per cent), infrastructure investor Infratil (12.4 per cent) and cinema software company Vista (10.5 per cent) followed.
On the flip side, cancer diagnostics company Pacific Edge was by far the worst performer with an 81 per cent decline, followed by dairy company Synlait (down 53 per cent), discount retailer The Warehouse (down 35 per cent) and infant formula marketer a2 Milk (down 29 per cent).
Craigs Investment Partners investment director Mark Lister said the index’s gain over the six months, after tanking last year, was good news for investors.
“The bad news is that is still a pretty modest increase - sideways at best.
“We have lagged other sharemarkets around the world. The US, in particular, has had a cracking run - up 14 per cent.”
He noted that many of the local market’s best performers over the period were rebounding after a difficult period last year.
“For Ryman, it still has a long way to go to recover, and that [$902m] capital raising is still a painful one for the company to have gone through, and for shareholders to accept.
“For Serko, it’s the tech angle - part of the market that rallied so much offshore, plus the return of tourism and travel, which has been a positive.
“Vista is a similar story, a tech-related story as well as the reopening post-Covid and people returning to cinemas.”
All up, Lister said it was difficult to draw conclusions about what it all means for the sharemarket, because many of those moves were stock-specific.
A case in point was Pacific Edge, which slumped after advising the market that American health insurer Medicare’s coverage of the company’s Cxbladder tests was expected to stop from July 17. Over the half, Pacific Edge dropped by 81 per cent.
“That’s really a Pacific Edge issue, not a New Zealand economy issue.”
Likewise, falls in Synlait Milk, The Warehouse and a2 Milk were all due to specific, company-related issues.
Lister said that, given the economy fell into recession in the six months to March, the market overall had held its ground.
“You have got to remind yourself that the market bottomed out about a year ago and has not been a terrible performer over these last 12 months,” he said.
“It’s probably in better shape than some might think.”
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
'Developers are a good target for a council under financial pressure.' - Steve Evans