Inside Air NZ’s stripped-back alternative to Auckland Airport’s $3.9b terminal plan

Air NZ says its terminal plan is much cheaper - Auckland Airport says the building won't work. Image / Supplied

Air New Zealand has released images of what it says is a cheaper alternative to Auckland Airport’s integrated domestic terminal as it turns up the heat on proposed fee changes. The airport has hit back, branding the “nice picture” a publicity stunt.

In the latest round of an increasingly bitter battle, the airline has commissioned a firm that has previously worked for the airport to come up with a building it says could cost $1 billion less than the existing $3.9b plan. The $3.9b figure includes associated works.

The airport plan is under attack from other airlines, including Qantas, whose head of international and freight Cam Wallace (formerly an Air NZ executive) has likened it to being as grand as the Taj Mahal.

While that’s been dismissed as “nonsense” by the airport, Wallace’s tongue-in-cheek comparison may have been less hyperbolic than it first appeared. The cost of building the Taj has been estimated at $1.6b in today’s money, according to a report in the Times of India. That same article put the current cost of building the Great Pyramid of Giza at $1.96b, meaning a job lot for the pair comes in well below the budgeted $3.9b for the new terminal in Auckland.

Where there may be more similarities to the Taj Mahal is the total time the terminal project may take, especially if the airport is forced to go back to the drawing board. Building the Taj started in 1632 and it took about 20 years to complete.

Auckland International Airport (AIA) began consultation with airlines on the integrated terminal in 2011 and, if it sticks to the current timetable, it will open late this decade, replacing the mid-1960s building that is now long past its use-by date.

Air NZ chief corporate affairs officer Mat Bolland, who is fronting the airline’s alternative plan, says it commissioned a global aviation design company to draw up something new when it became apparent that the cost of redevelopment was unaffordable.

The airport’s plan has been forecast to increase the average domestic passenger aeronautical fees over the next eight years from $9 per passenger to $46. The airport says that figure is guesswork.

The design firm, Arup, worked with AIA on its original 2014 masterplan.

Bolland said Air NZ wanted to know whether there were options for a cost-effective alternative that enabled growth while still delivering a quality development.

“The airport design experts developed a range of options showing the proposed redevelopment could be achieved at a lower cost. The option we put forward was not the lowest-cost option but it still showed nearly $1b less could be spent.”

Air NZ says its plan for the domestic terminal redevelopment is much cheaper. Auckland Airport says the building won't work.

Bolland said Qantas had gone $1b better – by its analysis, it had found $2b could be saved on the airport’s capital plan.

“The [Air NZ] designs presented are preliminary but show that the proposed airport development is overdesigned and overpriced,” he said. “Internationally, infrastructure developers are increasingly challenged to deliver capacity in the most cost-effective way possible.

“This is particularly important when they are funded by airport users. Under the current regulatory regime, Auckland Airport is not incentivised to reduce the cost because it can pass the cost on to airlines and their passengers.”

AIA unveiled its integrated terminal plan a year ago. It said then that the terminal itself would cost $2.2b and it would open between 2028 and 2029.

A further $1.7b was for other projects associated with the integration and included forecast increases in construction costs and holding costs.

The airport planned 12 new domestic aircraft gates, up 20 per cent from current levels, with electric charging designed for future aircraft.

It said the combined terminal would mean a five-minute transfer between the domestic and international areas.

It would also have additional shops and rest areas, state-of-the-art check-in and a smart baggage system, using 50 per cent less power to process each bag than a conventional conveyor-based system.

Bolland said its proposal provided the same number of gates on the new domestic terminal pier. It required 25 per cent less space while still meeting the benchmarks required for a domestic terminal in New Zealand.

“It reduces or defers expenditure on items that are not critical to deliver capacity increases, while ensuring aviation-related agencies, like AvSec, get the space they need to improve passenger flows.”

AIA has not specified what might happen to the existing domestic terminal.

Bolland said that, once the majority of domestic jets had moved to the new terminal, airlines wanted to reuse space in the existing terminal for regional services, rather than decommission it early.

“This defers further capital expenditure closer to the time when work can begin on joining up regional gates with the new domestic and international terminals and deliver real value to regional operators.

“We acknowledge that the alternative design is at an earlier stage of development than Auckland Airport’s terminal plans and further design details need to be worked out – our point is that the same international airport experts who worked on Auckland Airport’s masterplan saw very quickly opportunities to take cost out of the design.”

The inability to get the airport to adjust its plan “underpins our call for an urgent inquiry into whether an alternative regulatory regime would be better for consumers” he said.

Air NZ, other airlines and industry groups want a “commercial referee” to step in to rule when they can’t agree on airport charges and it’s invariably AIA where the most bitter price fights break out. They say the existing system, by which airports must consult but effectively set prices as they see fit to cover the cost of development, doesn’t work for the airlines or their passengers.

Air NZ has interested the Government in its case. Commerce Minister Andrew Bayley has expressed concern at price rises already imposed by AIA, has met AIA chief executive Carrie Hurihanganui and reminded the Commerce Commission it can have a look at whether a stronger regulatory regime is needed. The commission is reviewing prices for the current five years.

Auckland Airport pushback

AIA has pushed back strongly against criticism from airlines. Last year it took the unusual step of releasing figures on airlines’ tardy punctuality after they said congestion was an airport problem.

Hurihanganui finished a two-decade career at Air NZ as chief operating officer and is acutely aware of airlines’ concerns.

When Air NZ launched its latest salvo on aeronautical pricing last month, AIA made the (fair) point that the national carrier had a stranglehold on the domestic market (86 per cent) and had put up fares around the country by 55 per cent since the pandemic.

It released figures showing regional airfares rose 16 per cent between 2022 and 2023 and said fares across the domestic market were 32 per cent higher on average than before the pandemic.

An AIA spokesperson said Air NZ had shared its design after consultation closed and after a decade of discussions on a terminal replacement.

“Infrastructure is expensive and, in good faith, we took the time to check Air New Zealand’s alternative design in detail. In short, it is full of design holes and missing core operational areas,” the spokesperson said.

“Basic services that keep the terminal running just aren’t there – we’re talking core operational areas and utilities to support a functioning airport that meets regulatory requirements and basic customer needs. It just doesn’t work.”

Last month Air NZ didn’t help itself in the latest PR battle with the airport. The day after calling for Government intervention, it said it needed to boost sagging second-half profits by putting up base domestic fares.

Leisure travel remains strong and domestic competition limited. Where Air NZ faces real competition – flights to and from the United States – profitability is much weaker and this week it launched another long-duration sale with sharp promotional prices to all its US destinations.

Departing Virgin Australia boss Jayne Hrdlicka has started the push to get pets on planes.

The right CV for VA

The looming departure of Jayne Hrdlicka as head of Virgin Australia (VA) has opened up a high-profile role and two former Air NZ names have been floated as having the right credentials.

Ed Sims ran Air NZ’s international wide-body business during a 10-year career at the airline, headed Airways NZ and his most recent chief executive experience was at Canada’s WestJet, an airline with similarities to Virgin. Besides other aviation-related board roles (and being a KiwiRail director), Sims has been a board safety adviser to Virgin Australia so knows how the airline ticks.

An industry insider has suggested another name: Stephen Jones was Air NZ’s chief strategy, networks and alliances officer for close to five years during an 11-year career there and is currently president and chief executive of Canada’s Flair Airlines, a low-cost carrier with the slogan “Plane and Simple”. He has also held leading roles in fast-growing central European budget carrier Wizz Air.

Australian media have suggested former Qantas loyalty boss Olivia Wirth as a contender to succeed Hrdlicka, whose brutal axing at VA was said to have come out of the blue. VA owner Bain Capital, a US private equity firm, pushed her out over dissatisfaction with her performance.

Even though the airline is profitable again, it was thought it could have performed even more strongly against a wounded Qantas, which was suffering severe reputational damage issues.

But VA is about to announce a much-improved interim profit. A widely reported internal memo shows it made a profit of A$236m, with margins up to 8.5 per cent from 5 per cent a year earlier.

The outlook isn’t so rosy for all airlines, so the new boss will face headwinds as he or she works to get VA’s long-awaited IPO over the line. The new boss will have to steer through a pet project after Hrdlicka announced on Thursday that Virgin would seek regulatory approval to allow cats and small dogs to travel with their owners.

The departing boss showed a cuddly side at the Pets on Planes launch.

“Our love for animals has always been in the Virgin Australia DNA,” she said. “Overwhelmingly, our guests tell us they want to travel with their pets, and we are now on a journey to make that a reality. It’s something that commonly happens overseas and is proven to work well.”

The new chief executive will have to get the plan past regulators and those customers who may not be as enthusiastic about it.

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