Cath O'Brien: BARNZ Executive Director on Auckland Airport cutting its airline charges after Commerce Commission investigation

Auckland Airport has cut its airline charges after the Commerce Commission found the airport’s forecast revenue was “excessive” and its targeted returns were unreasonably high.

In June, the commission said Auckland Airport’s revenue and targeted returns exceeded what was reasonable, but the airport’s planned investment seemed appropriate.

In its final report today, the regulator again said the airport’s forecast investment was within a reasonable range, but said its targeted returns were unreasonably high.

BARNZ Executive Director Cath O'Brien explains how this happened.

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Episode Transcript

Speaker 1 (00:00):
Play and Bread. Commerce Commission found that Auckland Airport has
been overcharging airlines since twenty twenty three. The airport lowered
their upcoming price increases after being found to have overcharged
by one hundred and ninety million dollars. Barnes executive direct
to Katho Brian's with us now, kath good evening.

Speaker 2 (00:17):
Good evening, Ryan.

Speaker 1 (00:18):
How is it possible to overcharge by that amount without
realizing what you're doing?

Speaker 2 (00:24):
Well? The wonderful thing in New Zealand is that airports
can set prices as they see fit, which means that
they can set their target return kind of as they wish,
and they do that, and then a couple of years
later the Commerce Commission comes along and has a little
look at that and in this case has found that
it's a little bit excess. So Auckland Airport has very
slightly lowered those prices or that all that target return,

(00:47):
which has an effective lowering the prices, and then they
will gaily carry on increasing prices to cover the infrastructure happily.

Speaker 1 (00:55):
Ever after, how does this impact airlines? How is it
impacting airlines?

Speaker 3 (01:01):
Oh?

Speaker 2 (01:01):
Look, you know the age old problem of Auckland Airport.
You know this, this monopoly of monopoly airports that is
seventy five percent or thereabouts of the traffic into New Zealand,
you know, is building a substantial you know, airport building.
It essentially a new airport to replace the old one.
And that's costing something like six billion odd dollars which

(01:23):
will be recovered all from airlines flying here. And that
has the effect of raising prices for airlines all the time.
And this report today is just about the target return
or the profit margin that Auckland Airport can also recover
as well as the cost of the bills. But we
still have to pay for the cost of the build.

(01:44):
So that's the real challenges that prices will continue to
rise for years and years and years.

Speaker 1 (01:49):
That's your big bug bear, isn't it. It's the build not.

Speaker 2 (01:52):
Yes, but it really is.

Speaker 1 (01:53):
But if we will all get a better airport out
of it, and if we don't invest now, it'll cost
us more tomorrow.

Speaker 2 (02:00):
Yeah, look totally. And if we we do need to invest,
and we do need to improve the airport, but I
am not so sure that we need to spend you know,
upwards of six billion odd dollars without even getting a
second runway, you know, to get to get the job done.
And what concerns me more is that the increasing prices
may impact demand for destination. New Zealand Auckland Airport is

(02:24):
already seeing flat demand for air services and that would
be fine if airport's all over the world we're also
seeing flat demand.

Speaker 1 (02:31):
Yeah, but they're not. But they're not typle of recovering
quicker than Usah, So have we got like the Ferrari
if we're comparing this to the ferries, Have we got
a Ferrari version of an airport upgrade when what we
need is a Toyota?

Speaker 3 (02:44):
Is that what you're saying, Well, certainly, we've got a
very expensive airport upgrade that includes a wonderful road that
goes all the way to a shopping mall, and eventually
we'll have to include a bridge to join from the south,
you know, replacing that connection because of the traffic to
the shopping walls.

Speaker 2 (03:00):
And we've got an extensive property portfolio that surrounds the airport.
None of them come from which actually has to go
into the airport are building. All of that is recovered
from prices. So we have this regulatory setup which is
actually doing new Zealand as a disservice. And one of
the great things about this Commerce Commission report that's come

(03:21):
out today is that it actually canvases the sorts of things,
sorts of other regulation that policymakers could apply if they
so chose, and if there was to be an investigation,
these are the sorts of things that we would consider.
And so I think, you know, really that places the
ball firmly in Minister Simpson's court, the Minister of Commerce,

(03:43):
to see whether he will make a move.

Speaker 1 (03:46):
Interesting, well, they've certainly got a n apptite for making
moves at the moment.

Speaker 2 (03:49):
It might be that.

Speaker 1 (03:50):
You've timed it right, Kath. Thank you very much for
your time. Appreciate it. Kath O'Brien, executive director of Barnes.
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