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Company entitled to earn a profit ­

By Graeme Kennedy

Friday 8th August 2003

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Auckland International Airport must earn a reasonable rate of return on its aviation assets to provide for future investment, new chief executive Don Huse says as controversy and anger at airport pricing issues continue to divide the New Zealand airline industry.

"We must have a pricing mechanism that gives incentives to meet future capacity and the requirements of the airlines," Mr Huse said.

"They realise the company must have appropriate returns to make those investments and that the company is entitled to earn a profit provided it demonstrates economic efficiencies in what it does."

But charges of monopoly pricing are still being made against the country's major airports ­ Air New Zealand has taken High Court action against Wellington over its landing charges which the carrier estimates will increase some fees by well over 100%.

And the Board of Airline Representatives NZ is disappointed Commerce Minister Lianne Dalziel rejected the Commerce Commission's recommendation to impose price controls at Auckland.

Barnz has also asked Transport Minister Paul Swain to review the Airport Authorities Act which empowers airports to set pricing.

"Airports like Auckland have natural monopoly characteristics but we are open and transparent with our customers in pricing the supply of facilities and services," Mr Huse said.

"We have an obligation under the act to consult airlines on pricing and AIAL has a strong record of doing that."

Mr Huse said pricing was based on a formula that included current and forecast traffic volumes, the costs of running the dedicated aviation side of the airport's business, the current value of aviation assets, depreciation and return on capital.

"There is no dispute there as it is a formula which has been accepted," he said. "The debate, however, has focused on what assets you plug into the formula and at what value ­ such as the land we are holding for the second runway.

"We say we bought at the right time for the future benefit of the airlines and they say it is not being used and should not be included in the formula but we are a business that has to look to the future.

"The beneficiaries of our foresight will be the airlines."

Auckland landing fees are $4700 for a Boeing 747 and $750 for a 737. Charges were increased 7.5% in 2000 and 5% in 2001 and the company said no more rises would be imposed until 2007 with increased revenue during the five-year moratorium coming from volume growth.

The airport last year gained 50.2% of its total $201.1 million revenues from aviation activities including $53.6 million in landing fees and $32.5 million from its development charge (departure tax) while 49.8% came from commercial and retail rentals and leases including property developments, car parks and shops.

Its full-year results to be announced on August 28 will again show record results with a profit about $78 million on revenues of $230 million-$240 million.

Mr Huse, who replaced the CEO of 10 years John Goulter, was Wellington Airport CEO from 1991 to 1998 and CFO at Sydney until moving to the top Auckland job.

"Sydney and Auckland have a lot in common," he said. "Both are front doors to their countries although Auckland is a bigger gateway to New Zealand than Sydney is to Australia.

"We have 70% of all international visitors while the majority of Sydney's passengers are domestic and that makes Auckland a high-yield airport due to the higher proportion of overseas traffic.

"That gives us the opportunity to provide additional services in terminal facilities, more retail and car-parking for larger numbers of meeters and greeters ­ international is more valuable traffic and generates more revenue.

"We have a dual-till approach to airport economics with aviation and commercial activities which stand separate from each other.

"Auckland is highly regarded as a world-class international airport with strong growth prospects and the commercial and retail side will continue to grow."

Mr Huse has had a dream start to his new job, with an expected 30% increase in seat capacity over this summer due to the arrival of newcomers Emirates, Asiana and Royal Brunei and expanded services from existing carriers.

The airport has won an Aviation Industry Association safety award for its runway rehabilitation project in which 16,000 sq m of concrete was replaced in the centre of the main runway without incident.

And Mr Huse has the new record financial results to announce in three weeks ­ but the anger over airport pricing issues will not go away quickly.

Bond Offer: Infratil Ltd, 7.2 year & 10.2 year unsecured unsubordinated bond


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