Airport does u-turn on charging
Auckland Airport says it will review some smaller projects after bowing to pressure and cutting charges to airlines by $33 million over five years. The company is in the midst of a $2 billion capital spend on the early stages of building the “Airport of the Future” and, while its eight anchor projects are still on track, smaller capital works would be reviewed, said chief executive Adrian Littlewood. It has 228 projects on its books. “We haven’t resiled from those big anchor projects — but there are hundreds of smaller projects you naturally look at and make sure they’re still delivering value for money, are they still valued by airlines and passengers? Do they still deserve to go ahead?”
Some capital spending has already been delayed.
In its results for the six months to December 31, the airport lowered its capital expenditure forecast for the year to $280m to $330m from a previous estimate of $450m to $550m, as it changed the timing of some anchor projects in the upgrade.
The airport has won praise from airlines for its charging backdown and also averted a showdown with the Commerce Commission which found last October the company may have been overcharging by $37m for regulated aeronautical services over the current five-year period.
Forsyth Barr head of research Andy Bowley said the move to reduce charges would ease the risk of tougher regulation of airport pricing and give greater certainty long term.
The concession by the airport amounted to about 2 per cent of its earnings and would not be “overly material” but would be felt long term, he said. “The lower revenue will impact them longer term. It creates a precedent and a line in the sand for their behaviour and how the ComCom reviews airport pricing.”
Over the current five-year pricing period it equates to 31 cents per passenger per flight and Littlewood said he hoped it would be passed on.
Commerce Minister Kris Faafoi met the airport earlier this week for what he said was a “constructive conversation” on the commission’s report and the regulatory regime for major airports, including new powers available to him under law changes.
The Board of Airline Representatives in New Zealand (Barnz) said the $33m will flow back to airline customers’ pockets.
Executive director Justin TigheUmbers said it had been a “long journey to get closer to fair pricing”, with consultation beginning in 2016.
“Each airline makes its own decision on ticket prices, but due to the competition New Zealand has with airlines there is strong incentive on airlines to flow this through.”
Asked if there were fears of tougher regulation, Littlewood said the airport was always “mindful of the regime” which was being tested by an unprecedented investment programme.
The price-cut move had been tipped in the Herald and he said it would help with negotiations with airlines over infrastructure projects. The airport has reduced its target return from 6.99 per cent to 6.62 per cent, compared with the commission’s benchmark for airports of 6.41 per cent.
Previously, effective international charges per passenger fell by 1.7 per cent a year in real terms. Now the reduction is 2.5 per cent a year. Effective domestic charges per passenger will, instead of increasing by 0.8 per cent a year in real terms, fall by 0.1 per cent.
The company reported a net profit of $147.2m from $165.9m. That included a smaller property valuation gain of $11.1m in the latest period, compared to a $41.5m increase a year earlier. Underlying earnings increased 2.9 per cent to $136.9m.
The airport restated guidance for annual underlying earnings of $265m-$275m, reflecting lower regulated pricing and higher interest and depreciation from the infrastructure spending.
It will pay an interim dividend of 11 cents per share, payable on April 5 with a March 22 record date. That’s up from 10.75 cents last year.
Its share price rose after the announcement with trading up by more than 2 per cent, closing at $7.42 yesterday.