Comment: When Duane Emeny was a teenager, his parents shipped him off to boarding school in Christchurch.
Well, not shipped, precisely. He flew out of the little Chatham Islands Tuuta Airport. “We used to all sneak out the back and smoke cigarettes quickly before jumping on the plane, while no one was watching us,” he remembers.
Now, that airport has a $36 million upgrade underway, courtesy of the Covid shovel-ready project fund. The 1400 metre runway is being extended to 1850m, allowing Air Chathams to upgrade its 1950s Convair 580 craft to 737s. That should cut the travel time from Wellington to less than an hour and increase capacity for passengers and freight.
And now, Emeny is chief operating officer of Air Chathams. This morning he’s speaking out against the scale and cost of a far bigger upgrade: that of Auckland International Airport. $7 to $8 billion over the next 10 years.
At Auckland, his little airline operates way down the distant east end of the old domestic terminal, which will see little improvement.
Out there in the wilds, passengers brave the elements to walk across the tarmac to the small planes.
Or run, sometimes. I remember seeing Christopher Luxon sprinting to his flight once, a case in either hand and coat tails flapping. The former Air NZ chief executive told me he’d never kept a flight waiting.
Auckland Airport is imposing some of its steepest price rises on regional airlines, Emeny says, yet will get the least in return. Air Chathams flies to and from eight airports, but only one destination is overseas – a once-a-week flight in summer from Auckland to Norfolk Island.
So he’s adding his voice to other much bigger airlines.
Air NZ lodged an official request with Commerce Minister Andrew Bayly this week, seeking an urgent inquiry into the regulation that it says is failing to constrain overspending by Auckland Airport. It says prices will quintuple from about $9 per domestic passenger today to $46 in 2032.
Cargo carriers Freightways and NZ Post are equally upset, though they’re expressing their anger behind closed doors. I know this, because the Commerce Commission is, in fact, already scrutinising the airport’s proposed price rises.
In submissions to that review, the freight firms say Auckland Airport is “massively understating” how much money it will make from these price increases. The increased prices won’t just pay for the upgrades, they seem to be suggesting, but will line the pockets of the airport’s shareholders.
As an example, the proposed airport plane-parking model will result in a $4.97m total parking cost to Parcelair, over the next three financial years. “This level of increase is in stark contrast to the parking revenue made public by Auckland International Airport Ltd.”
Bayly has now voiced his concerns to the airport’s chief executive Carrie Hurihanganui, and encouraged her to constructively engage with airlines. But he’s not calling for a deeper Commerce Commission inquiry until it’s first reported back in May on the price review it’s already conducting.
The reason there’s already a review mechanism is because the airport is a monopoly, even more critical to Auckland than Tuuta Airport is to the Chathams. And as part of the review, Bayly notes, the commission can recommend a tougher regulatory regime.
The airport has hit back in uncharacteristically strong language. Stewart Reynolds, the acting chief financial officer, points out to shareholders that its domestic charges have been 40-50 percent lower than other airports for many years. “That has been worth about $470m to Air New Zealand since 2011.”
No doubt guided by his chief executive, who was previously chief operating officer of Air NZ, Reynolds says the airline has strong commercial incentives to oppose airport investment, “both to protect its profit margins and its dominant domestic market position”.
He says the proposed upgrade would increase the airport’s capacity, allowing more airlines to compete. And Air NZ doesn’t want that. “The post-pandemic rises in airfares, and record profits by airlines in the 2023 financial year, have demonstrated how lucrative constrained capacity can be for airlines, and how much it can cost travellers when demand exceeds supply.”
He points out that Air NZ is as much a monopoly as the airport. It holds 86 percent of New Zealand’s domestic travel market and hiked its average domestic and regional airfares by up to 55 percent following the pandemic, yet unlike the airport, is subject to no economic regulation.
Absent from all this is any statement from Auckland Council about the impact on its residents and its economy of the increased prices. Mayor Wayne Brown may well be once bitten, twice shy, after he publicly speculated a year ago that the airport would soon launch an equity raise for a new domestic terminal. The blunder forced the airport to pause trading on the NZX.
I wrote earlier this week about the countervailing arguments over selling off council airport shares in Auckland, Wellington and Christchurch. So could a more activist council owner make a difference to pricing plans in Auckland and elsewhere?
Auckland Council has already sold down 7 percent of its shares, at an average share price of $8.11 per share. That returned $833m, which it says will be used to reduce council debt. It proposes to put its remaining shares into the Mayor’s Future Fund, which would gradually sell off every last one of them.
What’s clear is that the council has been either unwilling or unable to influence the airport’s decision-making. Even when its shareholding was sufficient to hold a seat at the Auckland Airport board table, it declined to nominate a director. Now, with its small remaining shareholding, it’s entirely ineffectual.
So is the concern over the airport’s audacious price hike an argument for government stepping in with additional investment, as it has in the Chathams? No, even Duane Emeny doesn’t think taxpayers should pick up the Auckland tab.
Is it an argument for retaining council ownership? I say no to that, too.
A report to this week’s Auckland Council’s budget committee examines the extent to which community interests can be safeguarded by an ownership share – whether a council can claim step-in rights over infrastructure decisions, provide oversight of price and access for users, or retain responsibility for safety and environmental oversight.
Increasingly, it seem certain that it can’t, and won’t. And realistically, neither should we expect the council to do this. As a shareholder, it’s inevitably conflicted by the need to maximise its return. If Freightways and NZ Post are right (that the airport will earn far more money from its price hikes than it admits) then the council as a shareholder will benefit.
To provide regulation of prices, the Commerce Commission is the appropriate economic regulator, not the council. And is this an argument for the new standalone commission inquiry that Air NZ and now Air Chathams are demanding? Again, I say no.
The commission should be given the chance to do its job in the review it already has underway, before any knee-jerk political response.
