Cath O'Brien: Board of Airline Representatives Executive Director on Auckland Airport targeting excess profits

Auckland Airport is being urged to be responsible with its charging of airlines. 

A Commerce Commission draft investigation has found the airport's planned expansion is justified, and some price increases are necessary to fund the investment. 

However, it found the organisation's targeted returns from airlines is around $200 million over what's reasonable. 

It found that travellers would most likely bear much of that cost. 

Board of Airline Representatives Executive Director Cath O’Brien told Ryan Bridge that this is the second period in a row where Auckland Airport has been found to be targeting excess profits. 

She said that they’re targeting a return of 8.73% on aeronautical caps, against the Commission midpoint of 6.98%. 

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Episode Transcript

Speaker 1 (00:00):
Commerce Commission says Auckland Airport's planned charges to airlines over
the next five years are too high and could result
in excess profits. The airport is set to undergo a
multi billion dollar redevelopment, including a combined domestic and international terminal.
Auckland Airport was set to increase aeronautical charges to airlines,
a cost which would have been passed on to passengers

(00:22):
according to those airlines. The executive director of the Board
of Airlines Representatives, Catho Brian is with me Kath good morning.
They have found that the charges, well the plans for
expansion were reasonable, but that the profit was going to
be too high.

Speaker 2 (00:38):
Yeah, that's right. So you know, for the second period running,
given that airport's at pricices every five years, Auckland Airport
has been found to be targeting excessive profits, which is
what the commission, the language like commission uses and they
are doing that by setting a target return that is
too high. Again the kind of rule set that the

(01:01):
Commission requires them to follow, and you know in this
case it really is extremely high. So Auckland Airport this
time is targeting a return of eight point seventy three
percent on aeron recall capex and against the commission midpoint
of six point ninety eight. So you know, and those

(01:22):
are all numbers, right, but actually what that that kind
of looks like is something like two one hundred and
twenty six million dollars of excess profits. So not all
the profits, just profits that are unreasonable.

Speaker 1 (01:34):
Quite a lot, quite a lot, quite a lot, right,
quite a lot, Keith, what is that? What is that?
Because because the original plan they the airline said would
have increased fares by forty six dollars for a domestic
fare by twenty thirty two, do you think now the
airport will just come back and say, all right, we'll
adjust our pricing in line with what the ComCom says

(01:54):
and everything will be fine.

Speaker 2 (01:56):
I think that's exactly what they will say, you know.
And the last time they set prices and pricesing Event three,
they reduced their prices by thirty three million, But then again,
at that time the delta was much smaller, so at
that time they were targeting a much less high like return,
if you like. And this time they've really gone to town.
So it was pretty clear that the Commission was going

(02:18):
to find that this way, that average return or whack
was too high, and so here we are. And so
I don't think that deals with the problem of how
expensive the capital plan that the airport has is. At
six odds billion, do.

Speaker 1 (02:36):
You think are you saying, do you think they're baking
in a bit of fat when they take these plans
to the conquer?

Speaker 2 (02:44):
Well, I guess you know. The rules say that the
airport can can set its capex and can set a
target return, and the rules say that the airport can
set those prices as they wish, and that airlines must pay.
And you know, we we don't have any kind of
contract or agreement. We just get the bill, and so

(03:04):
you can see why we get a little bit wound
up about it.

Speaker 1 (03:06):
Certainly when you're getting an IOU that's got two hundred
million dollars potentially in excess profits attached to it, I
can see why you would be. Kat, thank you very
much for your time. We have to leave it there.
Kath O'Brien, who is with us from the Board of
Airlines Representatives this morning. For more from News Talks b
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