Greg Foran: Why Auckland Airport needs to take a pause

Air New Zealand CEO Greg Foran. Photo / George Heard

OPINION

As New Zealand enters a recession, those in charge of household budgets are tightening their belts. Most people look at their budget, work out how much money they have to spend and then live within their means. They do this because they have to and because it’s the responsible thing to do. No one else is going to fund their lifestyle.

It’s the same if you were planning to renovate a house. You would have a budget and work out what you could afford to do within that. Perhaps that means composite benchtops instead of marble.

Auckland Airport is about to undergo renovation. Anyone who has flown into the airport lately knows the terminal needs work. That’s not what’s up for debate. What is questionable is whether Auckland Airport is doing the renovation within a responsible budget. Air New Zealand says it’s not.

The reason Auckland Airport doesn’t have to stick to a budget like you would if you were renovating, is because Auckland Airport is not paying for it. Although Auckland Airport makes a profit through car parks and commercial rents, it will be paying for the upgrade to the terminal through aeronautical charges including landing fees, which are paid for by airlines and passengers.

Most households would save up for a major renovation, but Auckland Airport hasn’t done that. For more than 20 years it’s given its profits to shareholders, more than $3.3 billion. That means all of the return on and of the $5.6b aeronautical investment it plans in the next nine years will be recovered from airline customers.

The initial $2.5b redevelopment phase will see aeronautical charges roughly double on international routes by the end of 2027 and more than double on domestic. That’s just the tip of the iceberg. It hasn’t said how much charges will be beyond 2027, but with an additional $3.1b to be spent in the following five years, it is clear the costs will keep rising. This doesn’t include the cost of a second runway.

What’s worse is that this renovation is largely an upgrade, not an expansion. Yes, we want the first impression of New Zealand to be a good one. But we are also a growing country with growing demands and a growing population. The proposed integrated terminal might look nice but doesn’t add much capacity.

Now, at this point, you might look at Air New Zealand and say that this year we will be posting a healthy profit, why not just soak up the increased costs? There’s only so much our business can absorb before eventually something has to give. We are in an inflationary environment. Just like your grocery bill has gone up, so has ours. The cost of everything that goes into providing our services is increasing, and while we’ve had a good financial year, it follows a few very tough ones. And we need to keep making profits over time to help pay for the more than $3.5b in new aircraft we have on order as well as the retrofits of the current fleet.

The longer-term outlook for airfares is downward as capacity constraints ease and other airlines return. However, cost pressures are increasing, limiting how far airfares can fall before airlines have to pass on cost increases. What Auckland Airport is proposing will mean years of permanent, unavoidable increased costs for travellers.

A couple of weeks ago Qantas and Air New Zealand put out a joint statement asking Auckland Airport to take pause and come back to talk to us. It’s unprecedented for us to come together like this which shows how important we think this is. Ultimately though, this is not about us. It’s about passengers. It’s about people being able to afford air travel. It’s about connectivity. It’s about tourism. It’s about trade. It’s about being able to do business affordably. It’s about the wider New Zealand economy given Auckland is the gateway to the rest of the country.

According to independent advice received by Air New Zealand, the demand impacts from the increased costs passed to airlines to pay for Auckland Airport’s redevelopment will be significant. Put simply, air travel may very well become unaffordable for some New Zealanders.

So once again today, I’m asking Auckland Airport to please take a breath and do what’s right for New Zealanders and the New Zealand economy. It’s time to take a look at the budget like a responsible household and do what is affordable. We agree some work needs to be done, but now more than ever, we all need to live within our means.

- Greg Foran is CEO of Air New Zealand.