Air New Zealand CEO Christopher Luxon talks about the relationship the airline has with Auckland Airport. / Dean Purcell
Airlines are piling the pressure on Auckland Airport, saying the company can give the ''single finger salute'' to those who object to its prices.
An Australasian group, Airlines for Australia and New Zealand (A4ANZ), says the airport has been targeting ''excessive profits'' amounting to $3.6 billion since privatisation 19 years ago.
It says that figure is based on earnings that were more than expected normal commercial returns (across the whole airport - not just airfield income) in each of the years since 1998. With its individual airline members, the group is pushing for tighter rules to cover airports.
''Under the law as it stands, Auckland can give the single finger salute to the Commerce Commission and the airlines - it can charge what it likes,'' said A4ANZ chairman Graeme Samuel.
Airlines say the airport could make excess profits in the current five-year period by setting a weighted average cost of capital (WACC) - the figure that determines the overall return for a firm - of 6.99 to 7.06 per cent.
The group's submission to the commission says the difference between the WACC set by the airport and the commission's mid-point of 6.41 per cent is significant.
'It would result in customers paying an extra $65 million in airport charges over the five-year pricing period.''
The commission, in a draft ruling this year, has also said the airport might make excessive profits and is concerned that it is not targeting appropriate returns.
But in its submission, Auckland Airport says because of the big building programme now under way, and the ''unprecedented circumstances'' it faced at this stage of the investment cycle, it needs help to support its investment.
Airlines for Australia and New Zealand chairman Graeme Samuel. Photo / Supplied
The company has acknowledged it has been caught out by rapid passenger growth during the past few years as tourism boomed. It now handles close to 20 million passengers a year.
Airlines say the company should have started improving passenger facilities sooner.
Samuels told the Herald the airport's monopoly position had allowed it to run down its facilities.
''Auckland is now talking about an infrastructure deficit, but to let your primary international and domestic airport fall into the state of inadequacy and deficiency in terms of quality, and at the same time we pay 100 per cent of profit to shareholders, there is something wrong,'' he said.
His group represents Air New Zealand, Qantas, Jetstar, Virgin Australia, Tigerair and Rex Regional Express, and said in its submission that Auckland's 79 per cent operating margin was second only to Sydney in a group of 20 airports studied around the world.
Wellington Airport (72 per cent) had the fifth highest margin in the group.
''These comparisons demonstrate the extraordinarily high profits of Auckland Airport, compared to airports of a similar magnitude that may have less market power, face increased competition or are subject to regulation,'' the submission says.
Samuel said his group was not advocating a regulated price cap, but what it wanted was meaningful action by a regulator.
''What we want is simply the Sword of Damocles - the threat of regulatory intervention which says to monopolies 'behave yourself or else'.''
The commission does not regulate the prices that Auckland, Wellington and Christchurch International Airports charge, but it does require them to disclose information.
These airports may set prices as they see fit, but must consult substantial customers, like airlines, on charges and any major capital expenditure plans.
The regulation does not cover other services such as carparks and retail facilities, which are increasingly important for airports, and which airlines argue should be part of any target pricing.
The Commerce Act is being reviewed and although there are not likely to be major changes to the light-handed oversight of regulated industries such as airports and electricity companies, airlines are pushing for new negotiating systems and beefed up powers for the commission.
The chief executive of A4ANZ, Alison Roberts, said high margins at Auckland Airport were a reason financial analysts regard the company so positively.
Airlines for Australia and NZ chief executive Alison Roberts. Photo / Supplied
"In order to comprehensively address the issue of airport monopolies and market power, a multi-faceted approach involving genuine industry engagement and consultation will be required, to ensure that both the community needs of New Zealand and those of the broader economy are met, through sensible policy, and a regulatory environment that encourages innovation and efficiency,'' she said.
In its submission, Air New Zealand criticised the airport's capital spending programme, which will involve spending $1.2 billion on aeronautical infrastructure during the current five years. It says that is happening well behind growth, to the benefit of shareholders.
The airline says the work did not require investment from shareholders, as the airport company returned 100 per cent of net profit as dividend.
In paying out $454 million in 2014, says the airline, the airport company ensured all its shareholders were protected from having to make a reasonable investment in regulated assets — aircraft, freight, airfield, and passenger terminal activities — on the pretext of being assessed as cash positive by credit agencies.
''A good steward of monopoly infrastructure would have anticipated required investment at the time and invested at least a portion of those excess earnings in infrastructure.''
Late this afternoon the New Zealand Airports Association responded, saying airports faced huge challenges to build infrastructure to meet the tourist boom, and airlines needed to get on board.
The country had a ''great'' regulatory regime that worked and airlines should stop their carping and engage in the process, said association chief executive Kevin Ward.
