KEY POINTS:
On the face of it Auckland International Airport's landing fee increases - 2.5 per cent a year for the next five years - don't look too heavy-handed.
At about 13 per cent over five years they clock in at less than the likely rate of inflation and well
short of the increases Auckland ratepayers will cop over the same period.
So what's eating the airlines?
They believe Auckland Airport's charges should be decreasing, not increasing. Therefore any increase - however small - represents an unreasonable demand.
As the number of passengers increases, they argue, so the relative cost per passenger of using the assets should be falling.
They also argue that higher charges deter travellers. Lower charges could increase numbers, which would be good news for the airport, the airlines and the whole tourist industry.
Of course Auckland Airport doesn't buy that.
It argues it is spending $500 million upgrading the airport to cope with those passenger numbers and to ensure Auckland has a world-class facilities - which should also be good news for the whole tourist industry.
And, it says, it would be remiss as a private company not deliver it shareholders a reasonable return on that investment.
In the end, it comes back to the weighted average cost of capital (WACC).
The WACC is basically the average rate of return a company can expect from its investment in capital.
Airport management has said it expects the aeronautical part of its business - the runways, controls towers and so on - to make after-tax returns of between 8.67 per cent and 10.88 per cent. It has independent advice that says that is reasonable - conservative even.
But the airlines have independent advice that says it is excessive - by an average of about 1 per cent.
Hmmm ... does this look like a job for the Commerce Commission?
Well yes, but no and maybe.
That's the other thing that really bugs the airlines about this whole process. Under current legislation - the Airport Authorities Act - the commission has no power to enforce rulings.
The Act says there must be consultation with airlines but in the end it gives the airport the power to set charges "as it sees fit". And it has pretty much done just that.
The airlines already have a complaint lodged with the commission over the recent increase in Wellington Airport charges, and they may yet add Auckland Airport to that complaint.
But a win with the commission might provide little more than a moral victory.
That's what happened in 2002, the last time landing charges were raised.
The commission ruled in favour of the airlines, warning of monopolistic behaviour and recommending regulatory change.
The power to act on that ruling was with the Minister of Commerce, Lianne Dalziel.
She decided not to act, perhaps because (unlike her colleague David Cunliffe,
the Minister of Communications) she felt tougher regulation might discourage vital investment in infrastructure.
Meanwhile, the Ministry of Economic Development has begun a wider review of the Commerce Act. That will look at the role of monopoly providers and will certainly take another look at the rules around airports.
It seems unlikely that the minister would act unilaterally on any Commerce Commission ruling while that wider review is under way.
So the reality is the airlines are probably going to have to live with these latest rises.
But they will be hoping the ministry review recommends a change to the rules so in five years' time they have more say in the price-setting process. In fact submissions on the review close next week.
You can bet both sides will be making their views heard loud and clear.
* Liam Dann is the Business Herald's aviation reporter.
