The Commerce Commission has today published its final report on Auckland Airport’s 2022 – 2027 price setting event, concluding the Airport’s forecast revenue is excessive and its targeted returns are unreasonably high.
Commissioner Vhari McWha says that while the Commission does not regulate the prices set by the Airport, the review helps determine if the Airport’s pricing decisions and expected performance promote the long-term benefit of consumers.
The Commission estimates the total value of excess profits targeted by Auckland Airport to be between $150.2 million and $226.5 million.
“The Airport is targeting excess profit of about $190 million and its charges are too high, with businesses and consumers likely to end up carrying much of the cost-burden,” said Commissioner McWha.
The excess profit represents a targeted return of 8.73% from priced aeronautical activities — for example aircraft landing and passenger terminal charges — compared to the Commission’s estimated reasonable return of between 7.3% and 7.8%.
“Price increases will fund investment needed to improve customer experience, build more resilient infrastructure and add additional capacity, but the increases are higher than what is needed to achieve these outcomes,” says Ms McWha.
Among Auckland Airport’s projects is a new domestic terminal to replace the almost 60-year-old existing domestic terminal building. Integrated with the international terminal, the Airport says it will improve service quality and customer experience, especially for transit passengers, and provide capacity for long-term growth in passenger numbers.
When it comes to costing its investment plan, Ms McWha says the Airport followed appropriate processes.
“While views on the type, size and timing of the investment differ among the Airport’s customers, our analysis shows Auckland Airport engaged multiple third-party experts to assist with costing its investment plan and considered a wide range of options for its new terminal building,” she said.
“There are a range of investment outcomes that are consistent with what we’d expect to see in a competitive market. This range reflects uncertainty about future demand and choices about factors such as service quality. We are satisfied that Auckland Airport’s decision is within this range.”
The Commission also concluded that a different approach to recovering depreciation of the new terminal infrastructure would better serve consumers’ interests. Depreciation refers to how capital investment is recovered through airport charges over time. This approach would lower charges in the short term and be more consistent with outcomes in a competitive market, said Ms McWha. Auckland Airport has signalled it will reconsider this issue when it next sets prices and the Commission is satisfied this is sufficient to capture most of the investment value.
The Commission’s final conclusions are largely in keeping with its draft conclusions, which were published in July last year.
In response to the release of the Commission’s report today, Auckland Airport said it would discount its prices for airline passenger charges.
In a statement, the airport confirmed it would discount per passenger airline charges on an average basis by about $1.10 for regional travel to $9.00, $1.70 for domestic jet travel to $12.80, and $4.80 for international travel to $38.90[1] over the next two financial years.
The updated charges, which are for airlines’ use of the airfield and other essential airport services, represent a new targeted return of 7.82% (down from 8.73%) overall for PSE4, in line with the range considered reasonable by the Commerce Commission, the Airport stated.
Auckland Airport Chief Executive Carrie Hurihanganui said: “We respect the regulator’s findings and since receiving[2] an embargoed copy of the report, we have worked to apply price discounts for the remainder of the pricing period. These discounts will bring our prices within the range the Commerce Commission found to be reasonable.
“Auckland Airport carefully balances how we set charges with the need to invest in the future resilience and capacity requirements of New Zealand’s gateway airport and one of the country’s most critical infrastructure assets. To support this, investors require fair returns and a stable regulatory regime.
“In July 2024, following the Commission’s draft report, we said we would discount our charges if the Commission’s final report took a different view on what a reasonable target return for PSE4 was, bearing in mind the challenges involved when incorporating new information about pandemic risk into the weighted average cost of capital (WACC).
“The airport’s decision to discount PSE4 prices demonstrates the regulatory regime working as it’s intended to.
“The Commission’s new approach to WACC is subject to a merits review appeal by all regulated airports and the New Zealand Airports’ Association, due to be heard in July 2025 in the High Court. While Auckland Airport has aligned its PSE4 target return with the Commission’s target return range in the final report, the merits review remains important to resolve the differences in views on the best methods for estimating WACC,” she said.
In its report, the Commission noted Auckland Airport’s charges will remain at or below other regulated New Zealand airports during PSE4.
“For the first two years to date of PSE4, Auckland Airport’s reported return was 5.53%. We anticipate there will continue to be a significant gap to the targeted return for the remainder of the pricing period.”
Ms Hurihanganui said the airport would take on board feedback from the report on the airport’s approach to PSE5 and PSE6 pricing. This includes considering methods to smooth long-term prices, an issue which had already been discussed with airline customers as part of PSE4 consultation.
View the final report.
[1] Reflects the average of discounted charges per passenger over the final two years of the PSE4 pricing period, financial years 2026 and 2027, rounded to nearest 10 cents.
