Airlines protest at rising landing fees

A report in The Dominion Post says that Auckland International Airport’s position on landing charges has moved from untenable to unreasonable, according to the airport’s largest customer – Air New Zealand.

New Zealand’s largest airport announced it would increase landing charges for airlines by 2.5 per cent a year for the next five years, with the first rise taking effect on September 1.

The airport departure fee will increase from $25 by $1 a year for three years from July 1, 2008 and from that date the airlines, rather than the airport, will collect the fee, which will be split between departing and arriving passengers.

As part of the landing charge package the airport made some concessions to the airlines, including: imposing a 10-year moratorium on asset revaluations for aeronautical pricing purposes; adopting an opportunity cost approach to airfield land valuation rather than valuing the land at its existing use; and crediting the airlines $99 million in recognition of unanticipated increases in land values over the last pricing period.

But both Air New Zealand and the Board of Airline Representatives NZ (Barnz), which represented the airlines in almost three years of consultation with the airport over the charges, said the increases were unjustifiable and had not been agreed to.

Air New Zealand chief financial officer Rob McDonald said the increases exposed the failings of having no effective regulatory regime to protect the interests of travellers from monopoly abuse.

He said that the airport’s revaluation moratorium was a cynical attempt to divert attention from the Economic Development Ministry’s review of the effectiveness of the Commerce Act to bring entities under price control. “They (the airport) are taking a `no smoke here, move on’ approach,” Mr McDonald said.

Barnz executive director Stewart Milne said the board had still not decided whether it would ask the Commerce Commission to investigate the price increases, having recently asked the commission to investigate Wellington International Airport’s plan to lift its landing charges by up to 2.85% a year for the next five years.

Mr Milne said that if the commission decided to investigate Wellington Airport, then the guidelines resulting from that investigation could be applied to Auckland.

He also acknowledged that Auckland Airport had moved much further toward Barnz’s position and the commission’s recommendation on the valuation of airport land than Wellington Airport had.

Auckland Airport chief executive Don Huse said the prices were reasonable given the airport’s significant investment programme during the past five years. The current regulatory settings were working. “There are no infrastructure deficits at the airport and that’s a real plus for the New Zealand economy.”

He said the airport and the airlines were closer on landing charge issues than before. Mr Milne agreed that the two parties were closer than they were last time but said there were still major differences.

The airport’s weighted average cost of capital (Wacc) return of 9.8% post-tax and 14% pre-tax was still well above the advice received by Barnz that it should be 8.4%.

The current approach to regulating airport pricing was not working, Mr Milne said.

Barnz wanted clear guidelines covering asset revaluations and how Wacc was calculated, he said. Barnz hoped these guidelines might emerge from either a commission investigation into Wellington Airport or the Economic Development Ministry’s Commerce Act review.

First NZ Capital analyst Rob Bode said the airport had made an effort to address some of the issues it had with the airlines but it appeared they were still some way off an agreement.

Report by The Mole and The Dominion Post.