BARNZ Supports MBIE's Review Of Airport Regulation
'The landscape for airports has substantially changed since airport regulation was first put in place. Auckland Airport (AIAL) is now New Zealand's largest monopoly airport – receiving more than 75 per cent of all aircraft flying into, out of and around New Zealand,' says Cath O'Brien, Executive Director at BARNZ.
'In addition, Auckland Airport now owns 25% of Queenstown Airport Company (QAC). QAC has seen greater growth than any other New Zealand Airport post-pandemic, but is not regulated at all, despite having substantial capital plans of its own.'
As New Zealand's greatest monopoly airport, Auckland Airport has taken decisions to spend some $5.9 billion dollars of aeronautical capital between 2023 and 2032 – and took decisions on this before 'consultation' with its airline customers was concluded.
'Having the right regulation in place is important,' says O'Brien. 'Auckland, Wellington and Christchurch Airports are regulated using Information Disclosure. This monitoring regime is the weakest option available in the Commerce Act. Unfortunately, it is backwards looking – which is why the Commerce Commission Report on AIAL prices struck in 2023 is not published until 2025. When airports need to make substantial capital investment which all travellers must pay for, there is no oversight of that spend in the planning – only analysis after the fact.'
O'Brien says the Information Disclosure regime as applies to airports rewards capital expenditure. 'Because airports can set their own return for any capital costs – the higher the proposed capital cost is, the greater the financial reward for airport shareholders. When AIAL sets a capital cost of $5.9 billion dollars – its eyes are focused on their target return. Prices for this period were set targeting 8.73%; a number the regulated monopoly felt it could get away with despite being out of step with the Commission's Input Methodologies.'
AIAL's landing charges have risen substantially since 2023. AIAL has increased landing charges for airlines flying regional routes by 60% between 2023 and 2024. O'Brien says the campaign against the cost of regional flying by airport companies should look closely at the costs being brought to bear on the system by Auckland Airport.
'Prices for all airlines have risen, and will rise further. AIAL's price rises are putting substantial pressure on the aviation system as a whole, and consuming the capacity of airline customers to pay. This makes it more challenging to pay for air traffic control from Airways New Zealand, for Civil Aviation Authority costs, or for the costs of Customs and Biosecurity. Passengers are ultimately payers for all this unchecked spend.'
O'Brien also highlights why the Information Disclosure regulation is not sufficient oversight for substantial capital costs. 'The review of prices completed under Information Disclosure examines things like cost of capital in detail – but does not examine or permit capital spend.
'There are other regulatory tools available in the Commerce Act which do offer options for review of capital expenditure. One of these is an Independent Price Path (IPP), as applies to Transpower. An IPP is the right tool to plan large investments in New Zealand's electricity system – the same consideration should apply to aviation.'
BARNZ also welcomes MBIE's comments about whether the 'dual till' settings are appropriate in the context of capex like AIAL's $5.9 billion dollars. 'New Zealanders might assume that income that AIAL earns from property leasing, car parking, or retail would contribute to the capital costs AIAL tells travellers are needed.
'Unfortunately, this income is not regulated and does not contribute to aeronautical costs – excluding an imbalanced allocation which applies to shared services.'
BARNZ believes Auckland Airport's capex would be much more affordable if the airport company's commercial earnings contributed to the costs. 'Under current regulatory settings – all capital costs are charged to travellers while AIAL's shareholders enjoy a healthy regulated return,' says O'Brien.
'On behalf of airlines doing their best to make their businesses work in a high-cost market like New Zealand, BARNZ is pleased to see these questions being asked,' says O'Brien. 'We remain in regular conversation with officials and Ministers to ensure New Zealand's regulatory settings are able to respond well to the significant capital plans of monopoly airports. We need to make sure charges for outsize airport investment do not create a permanent cost burden for our aviation system – risking New Zealand's tourism and economic recovery.'
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