Latest / Best of Business / Billie Moore: Air New Zealand Airports Association CEO on the Commerce Commission saying Auckland Airport charges are too high

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Billie Moore: Air New Zealand Airports Association CEO on the Commerce Commission saying Auckland Airport charges are too high · Best of Business

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  Speaker 2: And the Commerce Commission has ruled that Auckland Airport's proposed
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  Speaker 2: charge increased to help fund infrastructure, are too high. The
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  Speaker 2: draft report states the airport's charges would see it make
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  Speaker 2: about two hundred million dollars in excess profits and drive
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  Speaker 2: up airfares. Auckland Airport said it we're consider reducing future
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  Speaker 2: charges after further consultation. Billy Moore is the CEO of
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  Speaker 2: New Zealand Airport's Association and is with us now a Curtabilly,
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  Speaker 2: should I Jack just give us a little bit of
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  Speaker 2: context here, remind us how this all works because Auckland
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  Speaker 2: Airport is effectively regulated by the Commerce Commission.
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  Speaker 3: That's right. So Auckland, Wellington and christ Airports go through
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  Speaker 3: a process with the Commerce Commission after every pricing round,
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  Speaker 3: so every five years they set their prices and that's
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  Speaker 3: through a consultation process with all the stakeholders, including the airlines.
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  Speaker 3: They make a decision about their capital plans and the
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  Speaker 3: Commics Commission reviews how they've gone about that process in
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  Speaker 3: order to ensure that they're targeting the right rate of
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  Speaker 3: return and that the process has been consulative and followed
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  Speaker 3: in the right way. This is the fourth time or
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  Speaker 3: can the airport has been through this process and the
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  Speaker 3: draft report has come out today is now our further
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  Speaker 3: consultation process before the report is finalized by Q one
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  Speaker 3: next year.
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  Speaker 2: And there is usually a bit of brinksmanship right between
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  Speaker 2: the airport and the airlines which use those airport facilities,
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  Speaker 2: and certainly this time around there's been a little bit
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  Speaker 2: of tension. Some of the airlines are particularly in New Zealand,
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  Speaker 2: been pretty outspoken and saying they felt the charges were
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  Speaker 2: too high. So talk us through what the draft report
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  Speaker 2: from the COMMOSCE Commissioner has found.
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  Speaker 3: Sure, Look, this is a there is always this kind
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  Speaker 3: of brinkmanship at one level or another, and that's because
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  Speaker 3: the airports have to plan really long term. The airlines
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  Speaker 3: are managing really short term, short term framing on their profitability.
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  Speaker 3: So the process is designed to try and balance those
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  Speaker 3: things and evaluate the outcomes for consumers between those short
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  Speaker 3: term and long term issues. So the ComCom has come
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  Speaker 3: out today with a number of draft judgments. They have
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  Speaker 3: said that they think the airport's target rate of return
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  Speaker 3: is too high. Now. Part of this is because of
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  Speaker 3: the fact that we look at the airports went through
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  Speaker 3: its pricing process, it was having to go by the
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  Speaker 3: twenty sixteen and put methodologies from the Commerce Commission. They
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  Speaker 3: didn't account for the pandemic, so that the airport itself
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  Speaker 3: had to evaluate how to incorporate that risk into its
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  Speaker 3: into its approach. The Commission has taken a different view
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  Speaker 3: on how that should have been managed, so the consultation
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  Speaker 3: process will help to flash that out and how it
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  Speaker 3: should be to manage. So that's the main issue around
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  Speaker 3: the taket rate of return. However, on the other hand,
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  Speaker 3: the Commission has said that they believe that the airport
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  Speaker 3: has run a good process, that they are expending nature
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  Speaker 3: is significant but reasonable, and they've done an appropriate consultation
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  Speaker 3: process in an appropriate costing process around all the various
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  Speaker 3: elements of the capital plan. So that will be really
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  Speaker 3: heartening for that you prought to here after twelve years
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  Speaker 3: of this consultation process.
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  Speaker 2: Yeah, yeah, yeah, because that's a really important point because
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  Speaker 2: I remember some of the criticisms just going back to
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  Speaker 2: the dispute between the airlines and the airport when this
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  Speaker 2: was being prepared. I think one of the criticisms that
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  Speaker 2: was leveled to the airport and you know, quite forcefully denied,
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  Speaker 2: was that effectively they had sweated the asset right, that
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  Speaker 2: shareholders had demanded too many returns to early as opposed
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  Speaker 2: to investing those returns into the future development of the airport.
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  Speaker 2: So do the ComCom have stuff to say about that.
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  Speaker 3: Look, I'm not sure about that aspect, but it is
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  Speaker 3: a good question, I think in terms of you know,
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  Speaker 3: looking back on the last kind of twelve years, there's
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  Speaker 3: been periods where the infrastructure has been was deferred due
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  Speaker 3: to COVID, which is perfectly reasonable. You know, I needed
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  Speaker 3: it wasn't the time to have some of those costs
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  Speaker 3: pass through to the airlines. There was also a period
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  Speaker 3: where it was just an extremely hard slog through the
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  Speaker 3: consultation process for Aukland Airport. And I'm aware of even
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  Speaker 3: one airline that didn't want any infrastructure investment at all.
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  Speaker 3: So airlines are incentivized and it's natural and understandable that
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  Speaker 3: they want to keep their input costs as low as possible.
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  Speaker 3: That does mean that through these consultation process they are
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  Speaker 3: trying to keep infrastructure investment to a minimum. The airport
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  Speaker 3: is looking at the capacity they need to provide to
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  Speaker 3: bring in more competition as well as their own resilience
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  Speaker 3: and sayings. So that does mean that for an airport
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  Speaker 3: of this size that it can be a big debate,
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  Speaker 3: It could take a bit longer and you could have
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  Speaker 3: the process life longer than the airport would like. So
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  Speaker 3: there's lots of messinations and history around there that the
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  Speaker 3: airport will be able to talk in more detail about.
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  Speaker 3: But I do very much sympathize with it, and now
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  Speaker 3: it's time to get on the jobs.
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  Speaker 2: Yeah, yeah, I mean it is actually like when you
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  Speaker 2: break it down like that is such a complex and
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  Speaker 2: kind of unique relationship right between the between the airlines
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  Speaker 2: and the airport and what both parties in the ways
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  Speaker 2: in which both parties depend on each other and yet
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  Speaker 2: can can sometimes be working against the other's absolute financial interests.
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  Speaker 2: You know, like it is, you can you can understand
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  Speaker 2: what it requires regulation, So talk to us about the
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  Speaker 2: response from today. How has aucind the airport responded So.
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  Speaker 3: Auckland Airport has said in response to the Commerce Commission's
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  Speaker 3: comment upon its targeted rate of return, they've said, look,
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  Speaker 3: you know, we'll engage in the consultation process. As the
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  Speaker 3: final report confirms that position, then we will lower our
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  Speaker 3: landing charges. And look, this is this is a really
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  Speaker 3: good commitment from Aucklane Airport to see it shows the
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  Speaker 3: regulatory process working the way it should. And many listeners
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  Speaker 3: might recall that last time we went through this process
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  Speaker 3: with all Clane Airport, a similar process happened where the
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  Speaker 3: ComCom provided feedback and or could he put it adjust
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  Speaker 3: their prices. So essentially they're signaling look, of course we'll
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  Speaker 3: take the Commerce commissions to you. Seriously, there's lots of
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  Speaker 3: technical stuff in this process and they will they will
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  Speaker 3: respond so to me having to monitor this kind of
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  Speaker 3: stuff across the airports and around the state of the system,
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  Speaker 3: that's that's good. That's the kind of process that we
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  Speaker 3: that we need to see happening.
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  Speaker 2: Yeah, I'm just thinking about this from a strategic perspective.
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  Speaker 2: Is it kind of like a negotiation of sorts in
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  Speaker 2: that Auckland Airport can put forward its plans and the
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  Speaker 2: other regulated airports and they always go in a bit
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  Speaker 2: high knowing that the ComCom is going to peg them
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  Speaker 2: back a little bit.
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  Speaker 3: No, I wouldn't say that. I think that can happen
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  Speaker 3: in jurisdictions overseas where they some jurisdictions do require what
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  Speaker 3: we call the negotiate arbitrate process, and often because there's
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  Speaker 3: arbitration and the airport you know, might go high knowing
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  Speaker 3: that they're going to have to negotiate down. Our system
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  Speaker 3: allows the airport to make the final decision on their plan,
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  Speaker 3: and that avoids that process in my view. Essentially, our system,
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  Speaker 3: which has been tested over many years and I think
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  Speaker 3: is in a pretty good field state. It keeps the
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  Speaker 3: airport with the power to set prices, it requires them
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  Speaker 3: to do all that consultation, but they can make the
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  Speaker 3: final call. And what that does is it means that
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  Speaker 3: you know, they will be you know, pulled apart through
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  Speaker 3: the commus commission process, as they should be, but ultimately
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  Speaker 3: they can get the infrastructure moving. And when we look
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  Speaker 3: at other infrastructure classes around New Zealand where there's deferral
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  Speaker 3: and delay, for instance, the council wants to keep rates
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  Speaker 3: down to and will defer water infrastructure maintenance, things like that,
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  Speaker 3: we can avoid that phenomenon kind of happening across the
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  Speaker 3: airport sticktor because of the ability to put airports to
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  Speaker 3: take into account all the issues and still kind of
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  Speaker 3: make a plan and move forward and keep the infrastructure moving.
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  Speaker 3: So to me, that's a really important part of the
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  Speaker 3: system that helps us keep going with the capacity and
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  Speaker 3: the infrastructure that our communities need.
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  Speaker 2: Yeah, hey, thank you so much. Billy, really really appreciate
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  Speaker 2: your time this evening. That's Billy Moore, who is the
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  Speaker 2: CEO of New Zealand Airport's Association. As we said too,
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  Speaker 2: that Auckland Airport is I mean, they're in the process
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  Speaker 2: already of a really really significant upgrade. But yeah, it'll
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  Speaker 2: be interesting to see when that final report has returned
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  Speaker 2: from the Commerce Commission what has decided in terms of
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  Speaker 2: fees that are likely to be passed on to us
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  Speaker 2: as airline passengers.
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