Auckland Airport trims loss and plans for increased capacity

Carrie Hurihanganui has been chief executive of Auckland Airport since February 8. Photo / Supplied

Auckland Airport has emerged from "a year of two halves" with a brighter financial forecast but some near-term clouds ahead.

While the aviation rebuild is following strong trends overseas, the airport says uncertainty is fuelled by operational challenges, the global competition for airline capacity and any impact of belt-tightening by travellers facing higher living costs.

''The long-term fundamentals remain strong but there is uncertainty about the shape of recovery ahead of us in this next 12 months," said airport chief executive Carrie Hurihanganui.

There was no lack of demand but there was a challenge for airlines to keep up with it. Slot filings indicate international capacity should be at 70 per cent pre-pandemic levels by December and by the middle of next year could be as high as 85 per cent.

Hurihanganui - formerly chief operating officer at Air New Zealand - said discussions were already under way with airlines which had agreed last year on a pathway to building the $1 billion-plus integrated terminal. It will replace the domestic building, which is more than half a century old.

''We have no interest in investing more than required or having prices going higher than they need to because that's not good for anybody.''

She said the last financial year was hit by Covid restrictions and outbreaks impacting what had been booming domestic demand that more than offset late gains in international movements.

During the Auckland lockdown a year ago the airport was nearly deserted, handling the same number of passengers it did in 1966 but, after some stuttering starts due to the Omicron outbreak, traffic is recovering strongly.

International passengers are higher yielding than domestic ones and there will be around 950,000 seats available by the end of December - up from 233,000 in March although well shy of the 1.2 million seats in March 2019, as the pandemic hit.

Some countries had capacity above pre-Covid levels and Hurihanganui said New Zealand was tracking on a similar trajectory to those which had opened up earlier.

''We're seeing very strong demand coming through many other markets and actually by the time we get to December of this year across the Middle East, Asia, the Americas, the Pacific, we're seeing quite good coverage,'' she said.

But there remained uncertainty over New Zealand's second-biggest inbound market before Covid.

''There is that big question mark for China if and when that they look to loosen some of those restrictions and start to travel again.''

Sky-high air fares

The company's annual report details further the international rebuild and reveals how tight capacity has driven up prices on the most popular international route.

Scott Tasker, general manager customer and aeronautical commercial, said it was a competitive market globally, with travel volumes skyrocketing in other parts of the world, but New Zealand had made a ''spirited'' comeback in recent months as border restrictions have fallen away.

In the six months to June 30, the recovery of international travel ramped up, with passenger numbers reaching one million, 147 per cent up on the corresponding period in the 2021 financial year.

The gradual reopening of the border between February and June saw airlines like Latam restore services, with 17 airlines flying to 28 destinations at Auckland Airport.

Crossing the Tasman, there were 648,000 passengers in the 12 months to June 30.

The market dynamics have shifted, with two main airlines, Air New Zealand and Qantas, operating without competition from Virgin Australia.

Capacity was at 43 per cent in June 2022 compared with pre-Covid-19 levels, with the average airfare across the Tasman between 40 per cent and 60 per cent higher than pre-pandemic levels in the current capacity-constrained environment.

After the extended Auckland lockdown, domestic demand rebounded quickly during the six months to June. Air New Zealand's domestic seat capacity was operating at 77 per cent of its normal schedule, while Jetstar was operating at about half of its usual seat capacity.

Overall, domestic passenger numbers reached 4.3 million in the 2022 financial year, 27 per cent down on the previous year.

Cargo was also a solid performer, with 180,941 tonnes of international cargo passing through Auckland Airport in the 2022 financial year, an increase of 9 per cent year on year and representing 90 per cent of New Zealand's airfreight cargo.

By Christmas, 23 airlines connecting to 37 destinations are expected to be flying to Auckland.

Rent relief

With the gradual reopening of the border in the second half of the year, Auckland Airport focused on a range of other capital expenditure projects to take advantage of the low traffic environment, including progressing $82.4m in works to enable the development of a new purpose-built domestic facility, to be merged into the eastern end of the existing international terminal.

Auckland Airport also continued to support tenants affected by the pandemic, providing $173m in rent reductions to tenants in the international terminal in the year, making a total contribution of $358m in retail rent abatements over the past two financial years.

Retailer lease occupancy across both terminals was 94 per cent.

The removal of border restrictions has led to a boom in air travel. Photo / Sylvie Whinray

Support for airlines included more than $8m in relief for aircraft parking across the 2022 financial year as well as the introduction (in January this year) of a price freeze to aeronautical charges for the 2023 financial year in response to continued uncertainty in the aviation market.

Hurihanganui said this support would be scaled back according to passenger number recovery and the airport wouldn't expect customers to go ''cold turkey'' by suddenly ending help.

Pay day - or not

The airport pays dividends out of underlying profit - not the $191m reported tax after profit. Dividends suspended when the pandemic hit would not be paid.

Auckland Council is the biggest single shareholder, with 18 per cent of the company. It is popular with small retail investors, with 43,000 of them holding 5000 shares or less.

The airport added 44 staff during the year, finishing with a total of 468, in spite of a challenging hiring environment. Hurihanganui said all staff are paid at least the living wage and pay increases this year had been in the region of 4 per cent. Almost 10 per cent of the total staff are paid $200,000 or more.

Former chief executive Adrian Littlewood finished his role on November 12 last year and with long-term and short-term incentives was paid $1.32m for the period from July 1. During the previous full year, his remuneration was $2.5m.

Fixed annual remuneration for Hurihanganui is $1.2m. She earned $272,000 in short-term incentives for the period from February to the end of June.