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Airport proposal a test for airline credibility

19 October 2006

Wellington Airport proposal a test for airline credibility

Air New Zealand’s initial reaction to Wellington Airport’s proposed increase of 3% in landing charges is unfortunate, but sadly not a complete surprise. The annual increase, which amounts to around 30c, is modest compared to the investment programme underway at the airport. “Excessive” it is not.

The 3% increase per annum is a far cry from the 86% figure which airline representatives speculated about only a few months ago in an effort to secure more Government intervention.

The proposed increase of around 30 cents per year means that it will take 5 years for charges to increase by around $1.50 – less than half the price of a coffee (as it costs today). The rate of increase is below current inflation levels and below current wage growth, which has been running around 5%. The idea that this proposal would pose a problem for tourism growth is laughable.

An Air New Zealand spokesman today referred to the proposal as a 16% increase looking out over five years, which is akin to saying that inflation is running at 18%, or that home-loan interest rates are 40%. It is simply misleading.

Most importantly, 3% a year is very modest in the context of a solid and important investment programme. Projects already complete or underway include:

Project Cost Date
Stage 1 of international terminal upgrade (new duty free stores, improved passenger service areas) $12.7m Due for completion Dec 06
Extra aircraft gate, upgrade of aerobridges and improvements to passenger areas $12.7m Due to commence Dec 06
Southern runway end safety area $23.5m Due for completion mid 07
Northern runway end safety area $7.5m Due to commence mid 07
Checked bag screening facilities $1.65m Completed Dec 05
Upgrade of regional aircraft parking areas $600,000 Completed Dec 05
Stage 2 on the international terminal project (expansion of departure lounge, additional aerobridge gate) TBA Dependent on outcome of the application for a Tasman “code-share” between Qantas and Air New Zealand

In providing a moderate pricing offer, Wellington Airport feels entitled to expect something more than pre-programmed and predictable rhetoric. Certainly it would send all the wrong signals to investors if, in the face of a very moderate price proposal and solid investment programme, Government were to give weight to airline rhetoric.

Claims that Wellington Airport charges are high to start with or that we have “over-recovered” simply do not bear close examination. We have provided evidence showing that our base prices are comparable with like airports such as Adelaide and Cairns. The Board of Airline Representatives of Australia, of which Air New Zealand is a member, has spoken positively of charges at those two airports. We have also provided evidence that our revenue per passenger is far from unusual among Australasian airports. This includes Australian airports for which the Australian Productivity Commission recently found no evidence of over-charging.

If that weren’t enough, our approach to pricing was examined exhaustively by the Minister of Commerce only 3 years ago, based on reports from the Commerce Commission and Ministry of Economic Development. No persuasive case of overcharging was established. After the Commerce Commission Inquiry our approach to asset valuation was examined in a binding arbitration overseen by a retired High Court Judge. The airline claims were found wanting and rejected. Airlines agreed to be bound by that decision, but seem unable to accept the outcome.

Wellington Airport last increased its prices in 2002. That increase of 78% brought prices into line with the facilities being provided by the airport. Prior to 2002, prices were far too low to pay for a top class new terminal. The terminal was completed in 1999, although it had been opposed for several years by Air New Zealand. The prices set in 2002 prices were accepted by most airlines years ago and Wellington Airport has an agreement with Air New Zealand.

Air New Zealand has made many claims in recent times about airport prices, labelling some regional airports a “rip off”, and it has criticised other airports for not making their price proposals public. These are surprising claims in the context of Air New Zealand’s own circumstances and other developments in the aviation industry.

The moderate offer from Wellington Airport, made public, is a test for airline rhetoric and for airlines’ willingness to genuinely engage on commercial discussions.


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