Airline chief wants rein on airports

Tony Tyler is chief executive and director general of the International Air Transport Association. Photo / Brett Phibbs

New Zealand Government's approach to fees seen as too light handed as industry struggles with profitability.

Passengers are suffering because New Zealand's "light-handed" regulation allows airports and Airways NZ to push up fees, says the head of the organisation representing airlines throughout the world.

Tony Tyler, the chief executive and director general of the International Air Transport Association, said regulation was too light-handed.

"Intense competition keeps airline fares in check," Tyler told a business audience in Auckland yesterday. "But a much stronger hand of government is needed for infrastructure providers than exists today. In fact, the Airport Authorities Act basically says that airports can price as they see fit.

"Certainly this should evolve to a structure that forces airports and their airline customers to reach fair commercial agreements."

Tyler met Transport Minister Gerry Brownlee and Commerce Minister Craig Foss on Monday and raised concerns which had been listened to "politely".

While the Commerce Commission said Auckland Airport was making a "reasonable return", Tyler said that over the next five years Wellington airport will collect up to $69 million more than it needs to meet what the commission believed was an appropriate level of return.

But Wellington Airport said its returns were in the lower range in Australasia, were below the Commerce Commission's acceptable benchmark, and the $69 million figure was "an extreme forecast of potential earnings in the future".

Tyler said the light-handed approach to economic regulation had produced unsatisfactory results.

"Frankly, I think that the travelling public is suffering as a result."

Airways New Zealand was also a concern to IATA.

Airways was a past winner of the association's Eagle Award in recognition of the enormous reform efforts that it went through a decade or so ago as it corporatised.

This "well-deserved" good reputation was built on effective collaboration with its customers - the airlines. Tyler said that reputation was at risk.

From Monday Airways NZ imposed a 10.6 per cent fee hike and further planned increases will see a total fee increase of 15.7 per cent by 2015.

Tyler said it was a big problem for airlines and a departure from the partnership built-up since corporatisation.

"We urge Airways New Zealand to work rigorously on cost efficiencies and share the benefits with airlines by minimising or even avoiding the price increases."

Airways' chief financial officer Mark Loveard said there had been extensive consultation with airlines during the past six months.

While any fee increase was regrettable, it was necessary to cover the costs of safety critical infrastructure and Airways remained one of the most efficient air traffic controllers in the world.

Loveard said services it provided allowed airlines to fly more efficient routes and estimated savings of $70 million in fuel over the next five years would help offset the impact of fee rises.

Tyler said the airline industry faced big profitability problems. Last year airlines made about US$2.50 ($3.20) for every passenger carried, which generated a net profit margin of 1.1 per cent - or a US$7.6 billion return on US$680 billion in revenues.

"It's a pitiful return, but if you put it in historical context, making any money at all under current conditions - with a weak global economy and high oil prices - is an amazing achievement.

In 2006 airlines achieved the same 1.1 per cent net profit margin, but with oil prices that were about half of today's prices and the global economy growing at 4 per cent - about double what we are experiencing today."

Aviation industry

*Supports about 57 million jobs.
*Supports US$2.2 trillion in economic activity.
*About US$6.4 trillion of goods traded by air.
*Globally more than half of tourists arrive by air - closer to 100 per cent for NZ.