Qantas and Air New Zealand, the two largest customers of Auckland International Airport Limited (AIAL), have come out swinging against the airport’s planned redevelopment and are calling for an urgent rethink of the plan.
AIAL announced in March this year that it would spend $3.9 billion on the initial phase of the airport redevelopment over the next 5-6 years. The cost of that redevelopment will be paid for by airport users.
Air New Zealand and Qantas have each provided AIAL with details of their network impact, underpinned by independent economic analysis. This shows the cost of the Airport’s planned redevelopment is predicted to increase airport charges to the point that air travel may become unaffordable for a significant number of travelers. This would impact both airlines, including Qantas’ subsidiary Jetstar.
AIAL has made a market disclosure and published its increased aeronautical charges. Indicative per passenger charges will roughly double on international routes by the end of this five-year pricing period (FY27), and more than double on domestic. Given AIAL’s intention to spend billions more, there will have to be further significant increases to follow in the next pricing period, the extent of which AIAL has remained silent on.
Airports should be building their assets to fulfill the needs of their customers and the two major airline customers don’t agree with the scale and cost of the current plan. It’s also important to note that AIAL may have only released the first phase of the redevelopment plan, and it appears that the costs will keep climbing. One analyst estimates the overall costs for phases one and two of AIAL’s four phase master plan will likely be $6 billion. As such there will be significantly more cost to come in the future.
“We all agree that some investment in Auckland Airport is necessary,” says Air New Zealand Chief Executive Greg Foran. “However, this is an enormous spend over a short period of time that adds almost no additional capacity. All it is expected to result in is more costs for everyone who uses, relies on, or passes through the airport, including the aviation industry, the tourism industry, the whole economy, and Air New Zealand’s passengers.”
“Airlines accept that investment is needed, but what AIAL is proposing goes far beyond what is needed or affordable,” says Qantas Chief Executive Alan Joyce. “Based on Qantas’ experience, the necessary first phase of this redevelopment could be delivered for significantly less than $3.9 billion, and we’re conscious that the final number will probably be higher, with cost overruns common to most large infrastructure projects.”
Industry analysis shows the longer-term pricing outlook for airfares is downwards as capacity constraints ease globally. However, cost pressures for the airline industry are increasing, limiting how far airfares can fall. Both airlines are calling on Auckland Airport to reconsider its approach.
Auckland Airport however, believes it is on the right track.
With the post-pandemic recovery now well underway, Auckland Airport Chief Executive Carrie Hurihanganui said Auckland Airport has set its new charges following consultation with major airlines – something that happens once every five years in accordance with the Airport Authorities Act.
The new charges will fund part of the much-needed investment in infrastructure that is underway at Auckland Airport. For PSE4, this amounts to $2.5 billion of commissioned infrastructure, focusing on important airfield, terminal, baggage and transport improvements to be completed and in use by airlines by the end of the five-year period.
Hurihanganui said the increase in PSE4 airline charges also reflected the higher cost of capital in the current economic environment compared to the previous price setting event. “Travel is back, and the recovery is taking place more quickly than anyone expected. Now is the time for investment in Auckland Airport if we are to deliver the resilience and customer experience travellers want and the gateway New Zealand needs for the future,” Hurihanganui said. “Our domestic terminal is 57 years old and needs replacing. We know travellers are fed up with the domestic travel experience – they’ve told us that clearly. Other key aeronautical infrastructure also needs replacing. The pandemic meant we had to put much of this investment on hold and we are now in catch-up mode. We don’t think any travellers would say we are making the move to upgrade the airport too soon,” she said.
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