High stakes call on Auckland Airport pricing coming as airlines continue their push for system overhaul

The Commerce Commission’s interim decision on what Auckland Airport can charge is due tomorrow and is set to re-ignite the battle with airlines over the cost of flying.

Airlines say the planned aeronautical charges could make travel unaffordable while the airport says it’s putting up prices to pay for building work that airlines have earlier agreed to.

While there are signs the commission may push back on the charges the airport is proposing, passengers will end up paying the increases as airlines pass them on.

Forsyth Barr says there is a “real risk” that Auckland Airport would need to lower its pricing in “Price Setting Event 4″ (PSE4) which runs from 2023 to 2027 as it did for the last pricing period. With a more subdued passenger outlook, this increases the likelihood of an equity raise.

‘‘Moreover, we can’t ignore the threat of a regulatory inquiry,’' said analysts Andy Bowley and Hugh Lockwood.

Following the release of the draft decision tomorrow, there will be further submissions and a final report is expected towards the end of the year.

Commerce Minister Andrew Bayley said earlier this year he was “concerned” about increased fees at Auckland which will nearly triple for some flights in the current five-year pricing period.

Air New Zealand and the body representing most airlines operating here, the Board of Air Line Representatives (Barnz) want a new regime covering how Auckland Airport can set prices.

They want a negotiate/arbitrate system that is used for some airports in Australia. While airports here must disclose what is driving prices in set periods, they can ultimately set them as they see fit.

Last June the airport released its proposed charges, which included:

Domestic jet travel (Auckland to/from main centres):

Airline domestic jet charges will average $11.85. 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.

Regional airline charges:

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.

The airport said that the new charges will fund part of the much-needed investment in infrastructure that is under way. For the current price period this amounts to $2.5 billion of commissioned infrastructure, airfield, terminal, baggage and transport improvements which will be in use by the end of the five-year period.

Over 10 years, priced aeronautical capital investment is currently estimated at about $5.6b.

An information disclosure (ID) regime requires Auckland, Wellington and Christchurch airports to report annually on aeronautical expenses, and to set pricing.

The commission looks at returns (or weighted average cost of capital) and assesses whether they are targeting excess profits.

Barnz says that the size, scale and timing of the capital expenditure and pricing proposal, the history of lack of aeronautical investment at Auckland International Airport (AIAL) “and the failure to reflect the concerns of customers” in its planning means a special regime for Auckland may be needed.

The current Information disclosure regime cannot appropriately consider AIAL’s spending plan that goes at least to 2032 and likely longer, Barnz says.

“This sort of investment is equivalent to a Transpower network upgrade - it is consequential, impactful, and will run for many years. There is no other scenario in New Zealand where we allow a regulated monopoly to make such substantial investment without oversight.”

Barnz says that to consider whether an additional form of regulation is warranted, the Commission must hold an inquiry, either on its own initiation or if required by Commerce Minister Bayley.

Following the draft there will be further submissions and then we’re expecting a final report towards the end of the year.

Although airfare increases are moderating, Bayley is also worried about them. In May he said he hadn’t ruled out a market study into the sector.

Grant Bradley has been working at the Herald since 1993. He is the Business Herald’s deputy editor and covers aviation and tourism.