Auckland Airport unveils its plans for its new transport hub. Opening from next year, the 70,000sq m building will cost $300 million. Video / Auckland Airport
Air New Zealand says Auckland Airport charges will make travel unaffordable and is taking its long-running battle to the Government. But the airport has hit back, saying the Government should be monitoring Air NZ’s fares and performance.
The airline today lodged an official request with Commerce Minister Andrew Bayly seeking an urgent inquiry into the regulation that is failing to constrain “overspending” by Auckland Airport.
“Auckland Airport redevelopment costs will make flying unaffordable for some Kiwis unless there is regulatory change, the airline says.
It says Auckland Airport has proposed a massive $7 billion to $8 billion development over the next decade that it argues will be bigger than the combined investment by all three airports regulated by the Commerce Act over the past 30 years.
“This will be paid for by airlines through steadily increasing aeronautical charges, leading to unaffordable airfares for some Kiwis.”
The airport says today’s move to ‘‘circumvent’' a Commerce Commission review of charges is because Air New Zealand has strong commercial incentives to oppose airport investment, both to protect its profit margins and its dominant position in the domestic market.
‘‘Air New Zealand, which is subject to no economic regulation, holds 86 per cent of New Zealand’s domestic travel market and hiked its average domestic and regional airfares by up to 55 per cent or $70 a fare following the pandemic.’'
While Auckland Airport says charges beyond 2028 haven’t been set, Air New Zealand has forecast aeronautical charges at Auckland Airport are forecast to increase from about $9 per domestic passenger today, to about $46 in 2032.
Air New Zealand chief executive Greg Foran says the infrastructure spend is the biggest by a privately owned airport in such a short time, while delivering very little new capacity.
“The new airport will look great, but this spend doesn’t deliver an additional runway and there will be virtually no increase in airside capacity for more customers. By 2032, the value of the airport’s asset base, which dictates the size of its charges, will have increased per-passenger domestic charges five times, with more to come in the future.’'
Foran said Air New Zealand agreed the airport needed redevelopment, but not at a cost that meant some Kiwis couldn’t afford to fly. “This issue affects all passengers flying through Auckland Airport, especially those from the regions.”
The airline, whose profit soared last year, has seen its fares level off in the past nine months.
It says fares have been pushed up by rising costs, with airport charges part of that.
Foran said last year, with the help of the same international experts who worked on the airport’s 30-year master plan, it provided the airport with alternative terminal designs that would be significantly cheaper, while still providing a great facility.
‘‘We also shared data on the serious impact their spending will have on demand for air travel. They have not paused and plan to keep pouring concrete,” said Foran.
“Auckland Airport will argue that it consulted with Air New Zealand, but it has ignored our warnings and there has been no meaningful change.’'
Other airlines and industry groups had provided the same feedback.
Foran said the impasse shows the current Information Disclosure regime within the Commerce Act was failing consumers, but there was a solution.
“The Commerce Act has pre-existing alternative options to keep regulated airports under control. These include steps that require airports to negotiate with their customers on a commercial basis, go to arbitration if that fails, or the regulator can set the price and quality of their service.”
“The good news is neither of these options require new law to be passed — the Commerce Act already provides options, so it’s not a case of more red tape. We are simply asking the Commission to launch an inquiry to determine which regulatory option is best for consumers.”
While Air New Zealand reported its second-best profit last year, the current 12 months are much tougher.
Air New Zealand has warned its pre-tax earnings for the full year will be between $200 million and $240 million, less than half of its spectacular bounce in profit of $574m last year. Its half-year profit reported tomorrow is forecast to be at the lower end of a $180m to $230m range and analysts say steeply increased costs are hitting the airline.
The battle over fees pits the airline against a former executive.
The airport’s chief executive, Carrie Hurihanganui, had a two-decade career at Air New Zealand and rose to chief operating officer. The airport has previously said the airlines have been consulted and the work under rway is long overdue.
“We know travellers are fed up with the domestic travel experience — they’ve told us that clearly. Other key aeronautical infrastructure also needs replacing. The pandemic meant we had to put much of this investment on hold and we are now in catch-up mode,” she said when releasing details of steep price increases last year, doubling over a five-year period for some passengers.
What the interior of Auckland Airport's new domestic terminal could look like. Image / Supplied
“We don’t think any travellers would say we are making the move to upgrade the airport too soon,” she said.
Auckland Airport is forecast by Forsyth Barr to deliver a strong recovery in earnings, given the increase in air traffic over the past 18 months, when it reports its six-month result tomorrow. Underlying profit is forecast to be $134.8m, up from $68.7m in the corresponding period.
In June, Auckland Airport released details of charges to pay for close to $5b in infrastructure work, calculated on a per-passenger basis:
Domestic jet travel (Auckland to/from main centres):
Airline domestic jet charges will average $11.85 over the five-year Price Setting Event Four (PSE4) period. Charges will initially rise $3.50 from $6.75 to $10.25. Auckland Airport says this is lower than current charges at Wellington Airport ($15.20), and at Christchurch Airport ($14.60). Prices will then reach $15.45 by the 2027 financial year (FY27), the final year of PSE4.
Airline regional charges will average $8.15 over the five-year PSE4 period. Regional charges will initially increase by $2.70 in July from $4.40 to $7.10. Auckland Airport says this is $3 to $4 cheaper than comparable current charges at Wellington Airport ($11.20) and Christchurch Airport ($10). Regional charges will reach $10.70 by FY27, the final year of PSE4.
International charges:
Airline international charges will average $37.25 over the five-year PSE4 period. International charges will initially increase by $9.40 from $23.40 to $32.80. Auckland Airport says this is lower than current published equivalent charges at other major international airports in the region including Sydney ($42.20), Melbourne ($35.90) and Brisbane ($56.70). International charges will reach $46.10 by FY27, the final year of PSE4.
This month Auckland Airport applied for a review of the recent Commerce Commission input methodologies in the High Court, and the Commission is separately reviewing its four-year aeronautical pricing, which Forsyth Barr says creates some uncertainty as to the aeronautical returns outlook.
Grant Bradley has been working at the Herald since 1993. He is the Business Herald’s deputy editor and covers aviation and tourism.
