Air New Zealand says upgrades to Auckland Airport will make flying unaffordable, seeks urgent inquiry
Wednesday, 21 February 2024
Air New Zealand believes Auckland Airport redevelopment cost will make flying unaffordable for some Kiwis unless there is regulatory change
It has lodged an official request with the Commerce Minister for an urgent inquiry into the airport’s regulations
The inquiry is supported by industry groups
Auckland Airport said it is wrong to say its infrastructure upgrade will make travel unaffordable
Air New Zealand claims the redevelopment of Auckland International Airport will make flying unaffordable for many.
It has lodged an official request with Commerce Minister Andrew Bayly for an urgent inquiry into the regulations of the airport, saying they fail to constrain the airport’s overspending.
Auckland Airport has proposed a $7 billion to $8 billion development over 10 years.
Air New Zealand said it will be bigger than the combined investment by all three airports regulated by the Commerce Act over the past 30 years.
It said this will be paid for by airlines through steadily increasing aeronautical charges, leading to unaffordable airfares for some Kiwis.
Air NZ chief executive Greg Foran said this is the most any privately-owned airport has spent in such a short time, delivering very little new capacity.
“The new airport will look great, but this spend doesn’t deliver an additional runway and there will be virtually no increase in airside capacity for more customers.
“By 2032 the value of the airport’s asset base, which dictates the size of its charges, will have increased per-passenger domestic charges five times, with more to come in the future.
“Air New Zealand agrees the airport needs redevelopment, but not at a cost that means some Kiwis can’t afford to fly. This issue affects all passengers flying through Auckland Airport – especially those from the regions.”
Foran said last year Air NZ provided the airport with alternative terminal designs that would be significantly cheaper, while still providing a great facility.
“We also shared data on the serious impact their spending will have on demand for air travel. They have not paused and plan to keep pouring concrete,” Foran said.
“Auckland Airport will argue that it consulted with Air New Zealand, but it has ignored our warnings and there has been no meaningful change. It has received the same feedback from Qantas Group and BARNZ [Board of Airline Representatives] that this is not affordable and will cost the travelling public. The business case has been seriously questioned by IATA [International Air Transport Association].”
Foran said the impasse shows the current ‘Information Disclosure’ regime within the Commerce Act is failing consumers, but there is a solution.
“The Commerce Act has pre-existing alternative options to keep regulated airports under control. These include steps that require airports to negotiate with their customers on a commercial basis, go to arbitration if that fails, or the regulator can set the price and quality of their service,” Foran said.
“The good news is neither of these options require new law to be passed – the Commerce Act already provides options, so it’s not a case of more red tape. We are simply asking the Commission to launch an inquiry to determine which regulatory option is best for consumers.”
The IATA, has also made a submission to the Commerce Commission asking for greater scrutiny of regulated airports in New Zealand as has Qantas Group, Airlines for Australia and New Zealand and the Board of Airline Representatives (BARNZ) which represents 26 airline members and five non-airline members.
A spokesperson for Qantas Group said it strongly supported Air New Zealand’s request for an urgent inquiry into the regulation of Auckland Airport.
It said the 10-year multi-billion dollar redevelopment plan will result in steep increases to passenger charges.
“This will put significant upward pressure on airfares and reduce demand for air travel.
“It will also greatly impact Jetstar’s ability to offer everyday low fares and provide competition to the market.
“Price increase of this size will also harm other airports, tourism, and industries dependent on aviation including agriculture and regional health,” the spokesperson said.
Qantas Group said Auckland Airport proceeded with its plans without proper consultation and despite objections from airlines.
“It’s clear regulatory reform is needed to ensure the regulatory regime governing monopoly airports is fit for purpose and any redevelopment of critical infrastructure is affordable and supports the overall growth of New Zealand’s tourism sector and broader economy.”
BARNZ executive director Cath O’Brien said it is time to look carefully at whether regulation of AIAL is working.
“Large airports in New Zealand like AIAL are monopoly businesses so strong economic regulations must be in place to make sure they are not targeting excess profits and passing unjustified costs to consumers.”
O’Brien said Auckland Airport is a monopoly of monopolies, receiving some 77% of air services bound for New Zealand.
“AIAL’s sharp swing from underinvestment to a bow wave of excessive capital cost forced onto unwilling customers is a sign of regulatory failure. The scale of this proposed investment is larger than any other airport development BARNZ has been able to find in the Asia-Pacific region.
“Airlines have consistently said this is far too expensive but of course, AIAL is not incentivised to reduce its [capital expenditure] costs – the higher these costs are, the greater the regulatory return.
“Capital plans and prices set today will see costs for use of the airport rise at all points. Costs for regional airlines, cargo operators, domestic services and Tasman services will be hard hit. Customers will notice price rises today and in the years ahead.”
Auckland Airport said it is wrong to say its infrastructure upgrade will make travel unaffordable and airlines protesting about airport regulation and investment is nothing new.
A spokesperson for the airport said Air New Zealand’s move to circumvent the review process is because it has strong commercial incentives to oppose airport investment, both to protect its profit margins and its dominant position in the domestic market.
“Investment creates additional capacity that enables airline competition – which is good for customers and the cost of airfares.”
They said it was Air New Zealand that raised its domestic prices by 55% or $70 a fare post-pandemic.
“This has significant impact on airfares, particularly in the regions. Regional airfares grew 16% between 2022 and 2023 alone. Today airfares across the domestic market remain 32% higher on average compared to pre-pandemic.
“New Zealand has one of the least competitive domestic markets in the world and we encourage the Government to follow Australia’s example and actively monitor fares and performance of the market to ensure it is working in the interests of consumers.”
Auckland Airport said delaying infrastructure is not in the country’s best interests, nor can it build half an airport.
“The alternative terminal being promoted by Air New Zealand is a back-of-envelope design that simply isn’t viable,” the spokesperson said.
“It’s full of design holes: A bridge to nowhere; no room for essential security screening; lack of space for government border agencies; and missing a delivery facility for the hundreds of trucks that bring in goods each week so the airport can operate, to name a few examples.
“Auckland Airport’s charges make up a fraction of the cost of an average airfare – just 3 to 5%.
“Auckland domestic charges have been 40-50% lower than other airports for many years, and that has been worth about $470m to Air New Zealand since 2011.
“By 2027 Auckland Airport’s domestic charges will be at a similar level to current charges and other major airports in New Zealand. Prices for 2028 and beyond have not been set and remain subject to consultation.”
Commerce Minister Andrew Bayly said he is concerned by the increased charges Auckland Airport proposes to pass onto airlines and ultimately passengers in the latest price-setting event.
He said he will express his concerns about the effect on the price of air tickets to Auckland Airport chief executive Carrie Hurihanganui, later this week, and encourage the airport to constructively engage with airlines.
“The Commerce Commission is currently reviewing Auckland Airport’s proposed charges and will issue a draft report in May,” Bayly said.
“Stakeholders, including airlines, will have the opportunity to submit on the Commission’s interim assessment. The Commission can also comment on the effectiveness of the type of regulation employed, and whether there is a case for moving to a stronger regime.
“I consider it appropriate to wait until the Commerce Commission has progressed its review. I will closely monitor this process.”