Airport forced to defend profits
The consumer watchdog is concerned Auckland International Airport’s profits may be too high over the next five years.
The Commerce Commission found in its draft report on its review of Auckland Airport’s pricing decisions that it was targeting a return of 7.06 per cent on its regulated asset base, which is above the commission’s midpoint benchmark of 6.41 per cent.
Commission deputy chairwoman Sue Begg said the airport had not yet satisfied the watchdog that its targeted returns were appropriate.
Higher costs for passengers would add up to $47 million in profits after tax, she said.
‘‘This difference in target returns could result in customers paying an additional 61 cents per flight over the next five years,’’ she said, ‘‘or put another way – Auckland Airport earning an additional $47 million in profits after tax.’’
The commission considered the higher return targeted by Auckland Airport would result in the value of the assets held for its proposed second runway it was proposing to build in 2028, possibly being overstated by $8 million. The runway is slated to be built in 2028.
Begg said the airport needed to provide more information to convince the commission that the higher rate of return was justified.
‘‘There may be legitimate reasons for Auckland Airport to target higher returns than our benchmark,’’ she said.
‘‘However, based on the information they have provided to date, we are yet to be satisfied that they will be acting in the longterm interest of consumers and limited in their ability to earn excessive profits.’’
Auckland Airport is subject to information disclosure, which is a lighthanded form of regulation where the commission reviews pricing decisions to provide greater understanding about the airport’s financial performance.
Auckland Airport’s chief financial officer, Phil Neutze, said in an NZX announcement that the airport would review the commission’s draft report and respond with an explanation for its target return figure.
‘‘Auckland Airport continues to believe that its prices for the five financial years to June 30 2022 are fair and reasonable given the approximately $2 billion investment the company is making in long-term infrastructure over that period,’’ Neutze said.
‘‘It’s also important to remember that our charges are only a small fraction of the overall cost of air travel,’’ he said.
Board of Airlines Representatives New Zealand executive director Justin Tighe-Umbers said Auckland Airport needed to stop using airlines as a bank and reinvest some of its shareholder dividends into the redevelopment programme.
‘‘Our members should not be having to pay an extra $115 million in fees, including $50m for a future runway they can’t use for nearly 10 years,’’ he said.
‘‘It’s a question of what is fair. We believe the airport should be getting shareholders to contribute with their fair share as they are the ultimate beneficiaries of the investment.’’
The commission’s light-handed regulatory regime meant it was unable to impose limits on what airports could seek from airlines, and called for tighter regulation through the Commerce Amendment Bill currently going through Parliament.
This legislation would give more power to the commission to conduct inquiries and recommend stronger regulation.