Auckland Airport trims airline charges after Commerce Commission found forecast revenue ‘excessive’

Auckland Airport has cut its airline charges after the Commerce Commission found the airport’s forecast revenue was “excessive” and its targeted returns were unreasonably high.

In June, the commission said Auckland Airport’s revenue and targeted returns exceeded what was reasonable, but the airport’s planned investment seemed appropriate.

In its final report today, the regulator again said the airport’s forecast investment was within a reasonable range, but said its targeted returns were unreasonably high.

“The airport is targeting excess profit of about $190 million and its charges are too high, with businesses and consumers likely to end up carrying much of the cost-burden.”

Auckland Airport received an embargoed copy of the report and said it had worked over the weekend to make changes.

A key issue was whether the airport’s investments would lead to costs being passed on to travellers.

Air New Zealand has questioned some of the airport’s spending, with chief executive Greg Foran saying last year the infrastructure spend was huge, but set to deliver little new capacity.

The airport in September launched a $1.4 billion equity raise to help pay for billions of dollars in developments, including the domestic terminal’s $2.2b upgrade.

“Price increases will fund investment needed to improve customer experience, build more resilient infrastructure and add additional capacity, but the increases are higher than what is needed to achieve these outcomes,” commissioner Vhari McWha said today.

The commission has acknowledged each airline could decide how to manage extra costs, but said travellers were likely to bear much of that and did not really have a choice, so the regulator was stepping in.

Auckland Airport had been targeting an 8.73% return from priced aeronautical activities such as aircraft landing and passenger terminal charges, compared with the commission’s “estimated reasonable return”.

That reasonable return was previously estimated at 7.28-7.51%, but today the regulator said it was 7.3-7.82%.

The airport today said its new changes for costs such as airfield use and other essential airport services represented a new targeted return of 7.82%, down from 8.73%.

Auckland Airport chief executive Carrie Hurihanganui this morning said the airport carefully balanced how to set charges with the need to invest in future resilience and capacity requirements.

“To support this, investors require fair returns and a stable regulatory regime.”

She said for the first two years of the latest price-setting period, Auckland Airport’s reported return was 5.53%.

“We anticipate there will continue to be a significant gap to the targeted return for the remainder of the pricing period,” Hurihanganui said.

In a cross-submission last October, Qantas said: “The costs of wasted investment continue to grow, impacting consumers, investors and the economy.”

Qantas said it wanted the commission to reduce the incentive to over-invest by confirming it did not accept the excessive returns demanded by Auckland Airport.

But at about the same time, the NZ Airports Association (NZ Airports) said airline submissions were “heavily coloured by an overarching strategy to seek regulatory change”.

NZ Airports previously suggested airlines were “simply aiming to make Auckland Airport, and the regulatory regime, look as bad as possible”.

Today, NZ Airports said the commission’s final report showed Auckland Airport’s infrastructure build was appropriate and followed a rigorous process.

“Auckland Airport said it would adjust its charges if the commission recommended it, and has done so immediately,” NZ Airports chief executive Billie Moore said.

“The airport has confirmed that its new target return is within the range the commission considers reasonable. The commission has welcomed this and confirmed this means there is no overcharging. That’s exactly how good regulation should work.”

Moore took a swipe at “monopolistic or oligopolistic markets” and suggested, without naming names, that a local airline should be scrutinised.

“When monopolistic conditions go unregulated, as we’re seeing in the domestic airline market, prices rise, service suffers, and consumers are left with fewer choices.”

Moore added: “Frankly, everything the Government said about the grocery sector yesterday – high prices, limited competition, and the need for a strong new player – applies even more to the domestic airline market.”

Consumer NZ in October suggested Air New Zealand’s “virtual monopoly” of domestic aviation was pushing up prices

But Air New Zealand at the time said any competition study into the aviation sector should look at the whole industry, and consider all factors affecting aviation market competition.

The Board of Airlines Representatives of New Zealand (Barnz) today said the Minister of Commerce should take decisive action to ensure airport pricing did not undermine the country’s tourism and economic recovery.

Barnz executive director Cath O’Brien said Auckland Airport’s new 7.82% target was a step in the right direction but airlines had been paying “excessive prices” since July 2023.

“Auckland Airport is the mega-monopoly of New Zealand airports, handling around 75% of our country’s air traffic. Its $6 billion capital plan is funded wholly by airlines who fly to from and within New Zealand,” O’Brien added.

Commercial operators: Airport overhaul excessive

Aviation Industry Association (AIANZ) chief executive Simon Wallace today welcomed the commission’s final report.

He said the report reinforced concerns the AIANZ expressed last year about Auckland Airport’s charging regime which had “aviation operators and their customers bearing significant additional costs to fund the airport’s projects”.

Wallace said the proposed domestic airport expansion’s estimated cost of $7b was excessive.

“The cost of expansion would fall on all operators, not just larger airlines, but air ambulance and emergency services, commuter and regional carriers, freight activities and other general aviation activities by smaller aircraft such as survey operations,” Wallace said.

He added: “AIANZ will be keeping a close eye to see how Auckland Airport responds to the Commerce Commission in lowering its unfair charges”.

Some in the sector, including Air New Zealand, have also complained in recent weeks about a range of other charges or levies.

These included costs imposed by the Aviation Security Service (AvSec), the Civil Aviation Authority (CAA), as well as airport levies, fees, and charges.

Earlier this month, air traffic management service provider Airways New Zealand proposed an average annual price increase of 7.7% for airline customers from July 1.