The Commerce Commission says Auckland Airport’s proposed charge increases to fund infrastructure are 'too high'.
In a statement released this morning, the commission said the five year pricing path is not reasonable and the airport was on track for an excess profit of $200m.
Air New Zealand Airports Association CEO Billie Moore says the airport will have to undergo an additional consultation process before the next report is finalised.
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Speaker 1 (00:00):
And the COMMICS Commission has ruled that Auckland Airport's proposed
charge increased to help fund infrastructure, are too high. The
draft report states the airport's charges would see it make
about two hundred million dollars in excess profits and drive
up airfares. Auckland Airports said it would consider reducing future
charges after further consultation. Billy Moore is the CEO of
(00:21):
New Zealand Airport's Association and is with us now at Curtabilly.
Should I Jack just give us a little bit of
context here, remind us how this all works because Auckland
Airport is effectively regulated by the Commerce Commission.
Speaker 2 (00:34):
That's right. So Auckland, Willington and christ To Airports go
through a process with the Commerce Commission after every pricing round,
so every five years they set their prices and that's
through a consultation process with all the stakeholders, including the airlines.
They make a decision about their capital plans, and the
Commics Commission reviews how they've gone about that process in
(00:57):
order to ensure that they're targeting the right rate of
tune and that the process has been consulative and the
followed in the right way, this is the fourth time
or can the airport has been through this process and
the draft report has come out today is now our
further consultation process before the report is finalized by Q
(01:18):
one next year.
Speaker 1 (01:18):
And there is usually a bit of brainsmanship right between
the airport and the airlines which use those airport facilities,
and certainly this time around there's been a little bit
of tension. Some of the airlines, particularly in New Zealand,
been pretty outspoken and saying they felt the charges were
too high. So talk us through what the draft report
from the Commerce Commissioner's found.
Speaker 2 (01:37):
Yeah, sure, Look, this is a There is always this
kind of brinkmanship at one level or another, and that's
because the airports have to plan really long term. The
airlines are managing really short term, short term framing on
their profitability. So the process is designed to try and
balance those things and evaluate the outcomes to consumers between
(02:00):
those short term and long term issues. So the ComCom
has come out today with a number of draft judgments.
They have said that they think that airport's target rate
of return is too high. Now. Part of this is
because of the fact that when the airport went through
its pricing process. It was having to go by the
twenty sixteen and put methodologies from the Communis Comission. They
(02:22):
didn't account for the pandemic, so that all the airport
itself had to evaluate how to incorporate that risk into
its into its approach. The Commission has taken a different
view on how that should have been managed, so the
consultation process will help to flash that out and how
it should be to manage. So that's the main issue
around the target rate of return. However, on the other hand,
(02:45):
the Commission has said that they believe that the airport
has run a good process, that their expenditure is significant
but reasonable, and they've done an appropriate consultation process in
an appropriate costing process around all the various elements of
the capital plan. So that will be really heartening for
(03:05):
that you prought to hear after twelve years of this
consultation process.
Speaker 1 (03:08):
Yeah, yeah, yeah, because that's a really important point because
I remember some of the criticisms, just going back to
the dispute between the airlines and the airport when this
was being prepared. I think one of the criticisms that
was leveled to the airport and you know, quite forcefully denied,
was that effectively they had sweated the asset right that
shareholders had demanded too many returns to early as opposed
(03:30):
to investing those returns into the future development of the airport.
So do the ComCom have stuff to say about that?
Speaker 2 (03:37):
Look, I'm not sure about that aspect, but it is
a good question, I think in terms of you know,
looking back on the last kind of twelve years, there's
been periods where the infrastructure spen was deferred due to COVID,
which is perfectly reasonable, you know, I needed it wasn't
the time to have some of those costs passed through
(03:58):
to the airlines. There was also period where it was
just an extremely hard slog through the consultation process for
Auklin Airport. And I'm aware of even one airline that
didn't want any infrastructure investment at all. So airlines are
incentivized and it's natural and understandable that they want to
keep their input costs as low as possible. That does
mean that through these consultation process they are trying to
(04:19):
keep infrastructure investment to a minimum. The airport is looking
at the capacity they need to provide to bring in
more competition as well as their own resilience and sayings.
So that does mean that for an airport of this
size that it can be a big debate, it could
take a bit longer, and you could have the process
(04:40):
life longer than the airport would like. So there's lots
of messinations and history around there that the airport will
be able to talk in more detail about. But I
do very much sympathize with it, and now it's time
to get on for the job.
Speaker 1 (04:51):
Yeah yeah, I mean it is actually like when you
break it down like that is such a complex and
kind of unique relationship right between the between the airlines
and and the airport and what both parties in the
ways in which both parties depend on each other and
yet can can sometimes be working against the other's absolute
financial interests. You know, like it is, you can you
(05:12):
can understand what it requires regulation, So talk to us
about the response from today. How has Aukland Airport responded?
Speaker 2 (05:20):
So, Auckland Airport has said in response to the Commerce
Commission's comment upon its targeted rate of return, they've said, look,
you know, we'll engage in the consultation process. As the
final report confirms that position, then we will lower our
landing charges and Look, this is this is a really
good commitment from Aucklan Airport to see it shows the
(05:41):
regulatory process working the way it should. And many listeners
might recall that last time we went through this process
with all Clane Airport, a similar process happened where the
ComCom provided feedback and all couldybook did adjust their prices.
So essentially they're signaling look, of course we'll take the
commerce can view seriously. There's lots of technical stuff in
(06:03):
this process and they will they will respond so to
me having to monitor this kind of stuff across the
airports then and around the state of the system, that's
that's good. That's the kind of process that we that
we need to see happening.
Speaker 1 (06:20):
Yeah, I'm just thinking about this from a strategic perspective.
Is it kind of like a negotiation of sorts, and
that Auckland Airport can put forward its plans and the
other regulated airports and they always go in a bit
high knowing that the ComCom is going to peg them
back a little bit.
Speaker 2 (06:37):
No, I wouldn't say that. I think that can happen
in jurisdictions overseas where they some jurisdictions do require what
we call the negotiate arbitrate process, and often because there's
arbitration and the airport you know, might go high knowing
that they're going to have to negotiate down. Our system
allows the airport to make the final decision on their plan,
(06:59):
and that avoids that process. In my view, Essentially, our system,
which has been tested over many years and I think
is in a pretty good field state. It keeps the
airport with the power to set prices. It requires them
to do all that consultation, but they can make the
final call. And what that does is it means that
(07:20):
you know, they will be you know, pulled apart through
the Commerce Commission process, as they should be, but ultimately
they can get the infrastructure moving. And when we look
at other infrastructure classes around New Zealand where there is
deferral and delay, for instance, the council wants to keep
rates down to and will defer water, infrastructure maintenance, things
(07:40):
like that, we can avoid that phenomenon kind of happening
across the airport sector because of the ability to put
airports to take into account all the issues and still
kind of make a plan and move forward and get
down infrastructure moving. So to me, that's a really important
part of the system that helps us, you know, keep
going with the capacity and the infrastructure that our communities need.
Speaker 1 (08:03):
Yeah, hey, thank you so much. Billy, really really appreciate
your time this evening. That's Billy Moore, who is the
CEO of New Zealand Airport's Association. As we said too,
that Auckland Airport is I mean, they're in the process
already of a really really significant upgrade. But yeah, it'll
be interesting to see when that final report has returned
from the Commerce Commission what has decided in terms of
(08:24):
fees that are likely to be passed on to us
as airline passengers. For more from Hither Duplessy Allen Drive,
listen live to news talks. It'd be from four pm weekdays,
or follow the podcast on iHeartRadio
And the COMMICS Commission has ruled that Auckland Airport's proposed
charge increased to help fund infrastructure, are too high. The
draft report states the airport's charges would see it make
about two hundred million dollars in excess profits and drive
up airfares. Auckland Airports said it would consider reducing future
charges after further consultation. Billy Moore is the CEO of
(00:21):
New Zealand Airport's Association and is with us now at Curtabilly.
Should I Jack just give us a little bit of
context here, remind us how this all works because Auckland
Airport is effectively regulated by the Commerce Commission.
Speaker 2 (00:34):
That's right. So Auckland, Willington and christ To Airports go
through a process with the Commerce Commission after every pricing round,
so every five years they set their prices and that's
through a consultation process with all the stakeholders, including the airlines.
They make a decision about their capital plans, and the
Commics Commission reviews how they've gone about that process in
(00:57):
order to ensure that they're targeting the right rate of
tune and that the process has been consulative and the
followed in the right way, this is the fourth time
or can the airport has been through this process and
the draft report has come out today is now our
further consultation process before the report is finalized by Q
(01:18):
one next year.
Speaker 1 (01:18):
And there is usually a bit of brainsmanship right between
the airport and the airlines which use those airport facilities,
and certainly this time around there's been a little bit
of tension. Some of the airlines, particularly in New Zealand,
been pretty outspoken and saying they felt the charges were
too high. So talk us through what the draft report
from the Commerce Commissioner's found.
Speaker 2 (01:37):
Yeah, sure, Look, this is a There is always this
kind of brinkmanship at one level or another, and that's
because the airports have to plan really long term. The
airlines are managing really short term, short term framing on
their profitability. So the process is designed to try and
balance those things and evaluate the outcomes to consumers between
(02:00):
those short term and long term issues. So the ComCom
has come out today with a number of draft judgments.
They have said that they think that airport's target rate
of return is too high. Now. Part of this is
because of the fact that when the airport went through
its pricing process. It was having to go by the
twenty sixteen and put methodologies from the Communis Comission. They
(02:22):
didn't account for the pandemic, so that all the airport
itself had to evaluate how to incorporate that risk into
its into its approach. The Commission has taken a different
view on how that should have been managed, so the
consultation process will help to flash that out and how
it should be to manage. So that's the main issue
around the target rate of return. However, on the other hand,
(02:45):
the Commission has said that they believe that the airport
has run a good process, that their expenditure is significant
but reasonable, and they've done an appropriate consultation process in
an appropriate costing process around all the various elements of
the capital plan. So that will be really heartening for
(03:05):
that you prought to hear after twelve years of this
consultation process.
Speaker 1 (03:08):
Yeah, yeah, yeah, because that's a really important point because
I remember some of the criticisms, just going back to
the dispute between the airlines and the airport when this
was being prepared. I think one of the criticisms that
was leveled to the airport and you know, quite forcefully denied,
was that effectively they had sweated the asset right that
shareholders had demanded too many returns to early as opposed
(03:30):
to investing those returns into the future development of the airport.
So do the ComCom have stuff to say about that?
Speaker 2 (03:37):
Look, I'm not sure about that aspect, but it is
a good question, I think in terms of you know,
looking back on the last kind of twelve years, there's
been periods where the infrastructure spen was deferred due to COVID,
which is perfectly reasonable, you know, I needed it wasn't
the time to have some of those costs passed through
(03:58):
to the airlines. There was also period where it was
just an extremely hard slog through the consultation process for
Auklin Airport. And I'm aware of even one airline that
didn't want any infrastructure investment at all. So airlines are
incentivized and it's natural and understandable that they want to
keep their input costs as low as possible. That does
mean that through these consultation process they are trying to
(04:19):
keep infrastructure investment to a minimum. The airport is looking
at the capacity they need to provide to bring in
more competition as well as their own resilience and sayings.
So that does mean that for an airport of this
size that it can be a big debate, it could
take a bit longer, and you could have the process
(04:40):
life longer than the airport would like. So there's lots
of messinations and history around there that the airport will
be able to talk in more detail about. But I
do very much sympathize with it, and now it's time
to get on for the job.
Speaker 1 (04:51):
Yeah yeah, I mean it is actually like when you
break it down like that is such a complex and
kind of unique relationship right between the between the airlines
and and the airport and what both parties in the
ways in which both parties depend on each other and
yet can can sometimes be working against the other's absolute
financial interests. You know, like it is, you can you
(05:12):
can understand what it requires regulation, So talk to us
about the response from today. How has Aukland Airport responded?
Speaker 2 (05:20):
So, Auckland Airport has said in response to the Commerce
Commission's comment upon its targeted rate of return, they've said, look,
you know, we'll engage in the consultation process. As the
final report confirms that position, then we will lower our
landing charges and Look, this is this is a really
good commitment from Aucklan Airport to see it shows the
(05:41):
regulatory process working the way it should. And many listeners
might recall that last time we went through this process
with all Clane Airport, a similar process happened where the
ComCom provided feedback and all couldybook did adjust their prices.
So essentially they're signaling look, of course we'll take the
commerce can view seriously. There's lots of technical stuff in
(06:03):
this process and they will they will respond so to
me having to monitor this kind of stuff across the
airports then and around the state of the system, that's
that's good. That's the kind of process that we that
we need to see happening.
Speaker 1 (06:20):
Yeah, I'm just thinking about this from a strategic perspective.
Is it kind of like a negotiation of sorts, and
that Auckland Airport can put forward its plans and the
other regulated airports and they always go in a bit
high knowing that the ComCom is going to peg them
back a little bit.
Speaker 2 (06:37):
No, I wouldn't say that. I think that can happen
in jurisdictions overseas where they some jurisdictions do require what
we call the negotiate arbitrate process, and often because there's
arbitration and the airport you know, might go high knowing
that they're going to have to negotiate down. Our system
allows the airport to make the final decision on their plan,
(06:59):
and that avoids that process. In my view, Essentially, our system,
which has been tested over many years and I think
is in a pretty good field state. It keeps the
airport with the power to set prices. It requires them
to do all that consultation, but they can make the
final call. And what that does is it means that
(07:20):
you know, they will be you know, pulled apart through
the Commerce Commission process, as they should be, but ultimately
they can get the infrastructure moving. And when we look
at other infrastructure classes around New Zealand where there is
deferral and delay, for instance, the council wants to keep
rates down to and will defer water, infrastructure maintenance, things
(07:40):
like that, we can avoid that phenomenon kind of happening
across the airport sector because of the ability to put
airports to take into account all the issues and still
kind of make a plan and move forward and get
down infrastructure moving. So to me, that's a really important
part of the system that helps us, you know, keep
going with the capacity and the infrastructure that our communities need.
Speaker 1 (08:03):
Yeah, hey, thank you so much. Billy, really really appreciate
your time this evening. That's Billy Moore, who is the
CEO of New Zealand Airport's Association. As we said too,
that Auckland Airport is I mean, they're in the process
already of a really really significant upgrade. But yeah, it'll
be interesting to see when that final report has returned
from the Commerce Commission what has decided in terms of
(08:24):
fees that are likely to be passed on to us
as airline passengers. For more from Hither Duplessy Allen Drive,
listen live to news talks. It'd be from four pm weekdays,
or follow the podcast on iHeartRadio
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