Auckland Airport's success in growing passengers helps reduce international charges

 

·      New pricing demonstrates growth in international air services is reducing overall per passenger charges and benefiting travellers

·      Overall per passenger charges for next five years held flat in real terms, remain competitive and still represent only a fraction of the total cost of travel

·      Much needed short-term improvements at domestic terminal requires an increase in domestic charges

 

Auckland Airport published today its new pricing schedule under which overall charges per passengers to airlines remain flat in real (inflation adjusted) terms for the next five years.

The new pricing schedule follows a comprehensive consultation process and features a first-year reduction (averaging 58 cents per passenger) in international charges and an increase (averaging $1.32 per passenger) in domestic charges, largely to fund much-needed capacity relief at the domestic terminal.

Key structural pricing changes, outlined in an attached appendix, include the removal of a separate international terminal service charge, the removal of domestic terminal lease charges relating to passenger processing areas, the introduction of an international transit and transfer charge, and the phased introduction of passenger charges for 2-11 year olds in order to be consistent with most Australian airport pricing practices.

Auckland Airport’s chief executive, Simon Moutter, said average charges would reduce by $0.58 (to $21.55) per international passenger, and would increase by $1.32 (to $5.55) per domestic passenger, for the 2013 financial year commencing 1 July 2012. Over the following four years, average charges would increase by around 2% annually, broadly in line with the expected rate of inflation. All airport charges are collected from airlines and form part of their cost of operations.

Mr Moutter said the reduction in international charges was the first for Auckland Airport since becoming a listed company, and showed how its focus on developing new air services is benefiting travellers through lower pricing.

“Over recent years, we’ve put in a massive effort to grow international passenger volumes. We’ve been investing significantly in initiatives to grow tourism and encourage more airlines to fly here, more often – especially from the high growth travel markets of Asia.

“By increasing the number of passengers passing through Auckland Airport, and by keeping a tight hold on our expenditure and driving operational efficiencies, we are now able to spread airport costs over a larger base and reduce international charges on a per passenger basis. This gives us greater alignment with airlines on the risk and reward of passenger volume growth, and more importantly is great news for the tourism sector, which is such an important contributor to the New Zealand economy.”

He said the increase in domestic charges largely reflected the need to invest in high priority modifications over the next 18 months to expand the capacity of the domestic terminal in the shorter-term, so it can cope with the increasing size of aircraft being used on main domestic routes.

“Travellers will be more than aware we are experiencing space constraints at the current domestic terminal, which was built more than 45 years ago in a very different era. These constraints will only worsen as growth continues and airlines continue to upgrade to larger aircraft. The modifications will patch-up the existing domestic terminal for a few more years while we finalise our longer term plans for a new terminal.”

Mr Moutter said Auckland Airport appreciated many travellers would like to see a brand new terminal sooner rather than later, and had originally hoped to announce plans for a new terminal at the same time as the updated pricing.

“But during consultation, we’ve had lots of constructive feedback from airlines on our initial plans and it’s important we take this into account. The new terminal will be a key part of Auckland Airport, the domestic travel experience and New Zealand’s tourism and trade infrastructure for many years to come, so we firmly believe it’s worth spending a bit more time now getting the plans right.”

He said there were broadly two new terminal locations on the table that were being carefully considered and assessed during ongoing consultation with airlines. One is immediately to the north of the international terminal, while the other is in a similar location to the existing domestic terminal. Timing for resumption of development of the second (northern) runway would also be considered as part of the terminal consultation. 

Mr Moutter noted the new pricing schedule would also bring international and domestic charges more in line with the true underlying costs involved in providing the respective airport facilities and services.

He said Auckland Airport’s domestic charges were currently among the lowest of all airports in New Zealand and Australia and, even with the increase, they would still be below the average.

“Our airport charges are a small fraction of the overall cost of travel and represent a great deal for airlines and travellers. The average charge per domestic passenger, even when increased, will be not much more than the price of a decent cup of coffee.” 

Auckland’s international charges were “middle of the pack” compared with other airports around the world served by Air New Zealand, and the new pricing path would ensure they remained competitive and near or below average, he commented.

Mr Moutter said periodic pricing reviews by Auckland Airport were needed to ensure a reasonable return is made on the huge investments in essential long-term, quality New Zealand infrastructure through appropriate charges on airport users. “If we didn’t price appropriately, we risk not being able to keep up with growth in passenger numbers or the introduction of larger aircraft, which is absolutely essential for New Zealand’s tourism and trade interests.

He said the recently-introduced Information Disclosure regulation overseen by the Commerce Commission, while still in its early stages, was working. The new disclosure framework demonstrates Auckland Airport’s alignment with the purpose of part 4 of the Commerce Act, and has provided a reference point when considering pricing and consulting with airline customers. Auckland Airport is closely aligned with almost all of the Commission’s input methodologies in its assumptions for pricing. In a few instances, it has departed from those methodologies because it considers Auckland Airport specific inputs are more appropriate than the Commission’s generic industry inputs or because it has previously agreed with airline customers to take an alternative approach.

Taken as an overall ‘package’, the new pricing is estimated to achieve an 8.48% after tax return on aeronautical investment over the five year period, based on forecast organic growth in travel. The forecast return is broadly in line with the Commerce Commission’s most recently published point estimate of 8.04% weighted average cost of capital (WACC), as per its input methodologies, after adjusting for Auckland Airport specific inputs, market conditions and a longer-term view.

An appropriate return on investment is required to enable Auckland Airport to source suitable funding from capital markets. This is particularly important because Auckland Airport competes for that capital with other Australasian commercial airports, and because Auckland Airport must also hold land for long periods of time that has been set aside for essential future long-term development, for which it receives no cash return.  

Auckland Airport has been consulting since mid-2011 with its airline customers on the new pricing schedule, as required under the Airport Authorities Act 1966.

“We’ve had a robust and constructive consultation process and as a result, our pricing has changed substantially from our initial pricing proposal following two rounds of detailed consultation,” Mr Moutter commented, “With this new pricing now in place, we look forward to continuing to work together with our airline customers to help grow tourism, travel and trade for the benefit of Auckland and New Zealand.”

“We recognise that what represents revenue for us represents an operating cost to our airline customers, and like any business they would like to keep costs as low as possible, particularly during challenging economic conditions. But at the same time, we have a responsibility to ensure that New Zealand’s tourism and trade growth needs are met by ensuring we can attract capital in a competitive market to fund investment in appropriate infrastructure over the long term. That’s an important balance we always seek to find through consultation.”

The new pricing schedule with a summary of the key changes, plus explanatory notes on pricing, is attached.

NOTE TO EDITORS: The key components of Auckland Airport’s aeronautical charges are fees per aircraft landing and per passenger movement (incoming and outgoing). The average charges referred to in this release are derived from expressing expected aggregate aeronautical revenues on a per passenger basis, based on forecast passenger volumes, aircraft landings and aircraft load factors.