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Auckland Airport CEO Littlewood downplays criticism of new pricing by airlines

Thursday 8th June 2017

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Auckland International Airport's new landing charges strike a fair balance says chief executive Adrian Littlewood, downplaying criticism from the Board of Airlines Representatives that the charges are "unjustifiably high".

"To be able to put $1.8 billion of investment in and to be able to hold prices at a very modest, almost flat level I think is a good outcome for travellers," Littlewood told BusinessDesk. "We have tried to set a very fair balance in terms of investing for the future and also setting reasonable prices."

Auckland Airport today announced plans to invest $1.8 billion in aeronautical infrastructure by 2022 and said over the next five years average international passenger charges will reduce by 1.7 percent in real terms each year while domestic passenger charges will increase by 0.8 percent per annum. According to the company, its new prices for the 2018-2022 financial years will target a return on investment of 6.99 percent. It is expecting total passenger numbers to rise from 19.8 million in the current financial year to 22.6 million in 2022.

In nominal terms, however, average revenue on a per passenger basis is expected to be $22.98 in the current financial year and will rise to $23.50 by 2022. For domestic passengers, it is expected to be $5.73 this year and $6.57 in 2022. The new prices will apply to airlines operating at Auckland Airport between July 1, 2017, and June 30, 2022.

The Board of Airlines Representatives, which represents 28 airlines including national carrier Air New Zealand, Air China and Qantas Airways, said the target return on capital exceeds a profit benchmark set by the Commerce Commission. “The airport company has not demonstrated that consumers will benefit from paying these high prices. These prices will only benefit AIA shareholders,” it said in a release.

Littlewood said the remarks were a bit disappointing as Auckland Airport has engaged with the lobby group and all the major airlines on the pricing structure for the past 12 months in what he said was a “robust and transparent process”. Regarding whether the charges exceed the commission's benchmark he said the Board of Airline Representatives had honed in on the sector-wide mid point of return and overlooked the fact that the regulator said specific circumstances would require different answers.

"I don't think anyone can deny the unique circumstances of a $1.8 billion investment in critical infrastructure," he said. The planned investment will provide three more contact gates for international aircraft, a new domestic jet terminal, the border processing area and public arrivals space will be expanded, the international check-in area will be upgraded and investment will be used for public transport, roading, and walking projects.

The company also said over the next five years it will take significant steps toward opening a second runway it currently expects to be required by 2028. Based on an opening date of 2028 it expects earthworks to start around 2020 or 2021. If the construction is confirmed, it will introduce a runway landing charge of $1.19, excluding GST, per passenger at that time, it said. Littlewood said that confirmation is expected at the beginning of the 2021 financial year so the runway landing charge would be in place by July of that year.

Board of Airlines Representatives criticised the fact that passengers could be asked to pay for something they won't use for several years. Littlewood said, however, the aim was to mitigate the pricing impact on passengers. “You can either bring it in one big hit and it would have quite a significant impact on prices” or you can “smooth it over time, minimising the impact on end users.” He declined to give a dollar figure for the new runway but said there would be an update in August when it presents its 10-year plan.

Looking ahead, Littlewood said he expects tourism growth to continue but said it is unlikely to be as strong.

"It's been unprecedented to add 60 percent to the number of airlines servicing here in the past two years," he said. “We will still have strong tourism growth into the future but it's probably unlikely to be at the pace we have seen in the last couple of years,” he said.

Auckland Airport shares fell 2 percent to $7.155 and have climbed around 17 percent this year.

(BusinessDesk)

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