Grant Bradley

Aviation, tourism and energy writer for the Business Herald

Airlines warn of high airport profit

Commerce Commission says company could make up to $77.9 million in excess earnings over next five years.

International benchmark figures supplied by the airport showed that total charges to operate at Auckland Airport are 'middle of the pack'. Photo / Natalie Slade
International benchmark figures supplied by the airport showed that total charges to operate at Auckland Airport are 'middle of the pack'. Photo / Natalie Slade

Airlines are warning Auckland Airport could make $78 million of excess profits during the next five years, a figure the airport says is a theoretical extreme.

The Commerce Commission yesterday released a draft report that found the airport's annual returns on capital of 8 per cent over 2012-2017 were at the top end of the range, but were reasonable.

Commission deputy chairwoman Sue Begg said information disclosure regulations had a positive influence on Auckland Airport's behaviour.

"Notably, it has been effective in limiting Auckland Airport's ability to extract excessive profits."

However, the Board of Airline Representatives said there was a need for a better pricing regime and it was worried that landing charges could skyrocket after 2017.

The board's executive director John Beckett said it took comfort from the commission's assurance it intends to closely monitor Auckland Airport when it next sets charges.

"This still leaves the travelling public vulnerable to monopoly pricing at our largest airport," Beckett said.

The commission said at the high end the airport could make up to $77.9 million in excess profits over the next five years. Excess returns are the dollar value at the start of the pricing period discounted by the cost of capital.

This would represent returns of 6.6 per cent higher than revenues considered appropriate, the commission said.

Auckland Airport chief executive Adrian Littlewood said: "It's [$77.9 million] a theoretical position that puts it out to the far extreme of what is possible and I guess it's natural that Barnz would pick up on that."

The draft report found the disclosure regime effectively promoted innovation, quality of services and pricing efficiency at the airport, but was unable to draw conclusions on operational expenditure efficiency, efficiency of investment, or whether it shared the benefits from efficiency gains.

Littlewood said big capital projects needed to be able to be built in stages, could not be gold plated and needed airline input.

"Airlines have different views about how the world will unfold but someone's got to make the call and say now's the time to invest in the future," he said.

"We have a very long horizon, airlines have a very short horizon."

The airport this year would make a decision on a new domestic terminal near the international terminal, the first stage of which could cost $150 million. Airlines' concerns about congestion charging are also noted in the draft report.

International benchmark figures supplied by the airport showed that total charges to operate at Auckland Airport are "middle of the pack" and domestically were below the average for airports in this region.

The draft finding contrasts with the commission's report on Wellington Airport, which was likely to recover between $38 million and $69 million more than it needs to for a reasonable return in the same five-year period, sparking anger from airlines.

The final report for Commerce Minister Craig Foss and Transport Minister Gerry Brownlee is expected to be completed by July 31.

Airport charges

$5.55 per domestic passenger.
$21.55 per international passenger.

- NZ Herald

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