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Auckland Airport - Section 53B review of FY18–FY22 prices

Auckland Airport has received the Commerce Commission’s draft report on the aeronautical prices set by the company for the period 1 July 2017 to 30 June 2022 (“PSE3”). The review is focusing on the reasonableness of the airport’s targeted returns, forecast capital and operating spend and pricing efficiency. The Commission’s draft report broadly supports our PSE3 pricing decision, but it requests further evidence to support our target return.

The Commerce Commission’s draft report recognises that Auckland Airport is investing heavily in new infrastructure in response to growth, and that planned andactual investment is occurring at an appropriate time.  However the Commission requires Auckland Airport to provide more evidence to support our decision to target a return – based on Auckland Airport specific factors – that is above the Commission’s midpoint airport-sector weighted average cost of capital estimate.  The Commission’s sector-wide estimate was based on an analysis of a range of almost entirely overseas based airport companies.

Phil Neutze, Auckland Airport’s chief financial officer, says “Auckland Airport will further review the draft report that was released this morning and then engage with the Commission on the detail of the report. We will also respond to any submissions that are made on the draft report by other parties.”

“The Commission has previously said that it expects regulated airports to consider their own airport specific factors when determining their target return for PSE3. Auckland Airport has done this and our submission on the draft report will provide further clarification to the Commission on our approach and its justification.”

“Auckland Airport continues to believe that its prices for the five financial years to 30 June 2022 are fair and reasonable given the approximately $2 billion investment the company is making in long-term infrastructure over that period. It’s also important to remember that our charges are only a small fraction of the overall cost of air travel,” concludes Mr Neutze.

In real terms, over the next five years Auckland Airport’s average charges reduce by 1.7% per annum for international passengers and increase by 0.8% per annum for domestic passengers. The introduction of a runway land charge of $1.19 (excluding GST) per passenger from the start of the 2021 financial year has also been signalled, once construction of the second runway is confirmed.

Some of the key infrastructure projects planned for delivery at Auckland Airport in this pricing period include:

  • expanding and upgrading the international departure experience;
  • providing three more contact gates for international aircraft, such as the A380 and B787 – two of which have already been completed;
  • building a new domestic jet terminal joined onto the existing international terminal;
  • improving the international arrival experience by expanding the border processing area and public arrivals space;
  • upgrading the international check-in area; and
  • investments in public transport, roading and walking projects.

The Commerce Commission will publish its final report in September 2018.