Auckland International Airport says it will continue with its $2.2 billion terminal upgrade despite opposition from airlines, after reporting its first profit in three years.
A sharp increase in both domestic and international passengers helped the airport to earn its first underlying profit since the pandemic, in the year ended June 2023
The total number of passengers almost tripled to 15.9 million, with domestic up 90% at 8.1m and international up 480% at 7.8m. Last year travel was still limited by the pandemic.
Revenue doubled to $635.9 million, which allowed the airport to report an underlying net profit of $148.1 million and pay shareholders a 4 cent dividend.
Actual net profit was much lower at $43 million, but was affected by a $140m property valuation cut and other financial adjustments.
Both international and domestic seat capacity recovered to about 90% of pre-pandemic levels during the year, while international freight capacity was back to 95%.
North American routes have been driving much of this recovery and capacity is likely to exceed 2019 levels this summer.
Travel to and from China has begun to bounce back after their zero-covid strategy ended late last year, but remains at just 78% of pre-covid levels.
Having a domestic
Auckland Airport has started work on a new domestic terminal and other related infrastructure upgrades, which will also allow it to charge higher rates to airlines.
However, the airlines which land at the airport have opposed the development, arguing that it would make air travel unaffordable for many passengers.
In June, Qantas and Air New Zealand released a joint statement titled: Auckland Airport closes the door on New Zealand. The two airlines said some investment was necessary but the airport’s proposal went beyond what was “needed or affordable”.
Patrick Strange, chair of Auckland Airport’s board of directors, said the development plan would go ahead as it was vital to Auckland and New Zealand’s future growth.
“Airlines have asked us to pause investment. We appreciate their concern about cost, as infrastructure is a significant investment,” he said.
“However, we remain committed to the current programme of work we have underway to pave the way for a new domestic terminal. Delaying infrastructure is not in New Zealand’s best interests – we know where that road leads.”
He said not building the terminal would constrain domestic capacity, put upward pressure on airfares, and reduce the airport’s resilience.
The existing international terminal was badly flooded during the Auckland Anniversary floods, although the domestic one was less affected.
Carrie Hurihanganui, the airport’s chief executive, said the 57-year old domestic terminal was reaching capacity and new development was essential for growth.
The airport plans to build a $2.2 billion integrated terminal which would allow for a 26% increase in domestic passenger traffic with new gates for larger aircrafts.
It would cut queuing times with 44% more passenger processing capacity and be a five-minute indoor walk from the international terminal, when it opens in 2029.
Currently, passengers have to walk outdoors for ten minutes, or take a shuttle bus, to move between the two terminals.
“Airlines are asking to stay longer in the domestic terminal – well beyond 2030 – and for alternative, additional designs to be considered,” Hurihanganui said.
The airport had been considering the upgrade for a decade and was confident the plan was in the best interest of all users.
Playing monopoly
Auckland Airport has a monopoly on aircraft landings but it does not have regulated pricing controls like internet fibre or electricity line providers.
Instead, the Commerce Commission requires it to consult with its major customers and provide extra disclosure about its pricing.
After freezing prices for a year after the pandemic, the airport has lifted its airline charges from $6.75 per passenger to $10.25 over the 2024 financial year and then to $15.45 by 2027.
Qantas and Air NZ said the billions in extra infrastructure spending will mean further increases in the next pricing period which the airport had “remained silent on”.
The Commerce Commission is currently reviewing the new aeronautical charges, but does not have the legal authority to block them.
The regulator assesses the airport’s profitability as a percentage return on the value of its asset base. This approach has been criticised as it could incentivise regulated businesses to build bigger and more expensive assets, so they can earn more revenue from them.
Auckland Airport expects its underlying profit to continue to grow in the current financial year and end up somewhere between $260m and $280m by the end of June 2024.
14 Comments
It is not a good operational airport. But don’t think that is in itself inhibiting traffic. So to turn that around how does the modelling here prove that these costly improvements will increase passenger numbers? Put more simply, why would a prospective passenger suddenly decide they should now travel to NZ just because there is now a great airport at Auckland.
Yip, but that's a cost of past decision-making. The fact that excessive profits have been realised at the expense of asset quality should be well understood by all stakeholders - the piper needs to be paid eventually. There is however a good case to be made that this cost should be born by shareholders rather than customers. After all, they sanctioned the decisions that have led to this point.
Amazing airports usually site themselves in great transit hubs. For instance, Singapore, Dubai. Other hubs such as JFK, LHR are great by default, sheer number of flights out of day by day necessity, but hardly amazing aesthetically, at least. Auckland though is not a transit hub in comparison. It is at the Sth East end of the line. If Auckland should over price itself then that compromises NZ tourism, hardly transit passengers. Still there is potential for introduction of wide bodied flights ex Christchurch to such as Nth America. Singapore Airlines very early on began a one stop to Europe eastwards which were almost immediately well supported. American Airlines were close to opening up the same westwards before covid.
The climate is quite normal where I live, in fact it's colder this year than last year. The climate change mania is a nothing but a massive bubble, and bubbles always attract dupes.
Without fail. What happened to running out of oil, running out of water, the ozone layer disappearing and acid rain? Remember those?
They don't care about through traffic. It's intentionally inconvenient as through traffic doesn't pay the bills and is a liability.
They could invest in better public transport infrastructure to enable more people in less vehicles, but there's no financial case for that, especially when the bottlenecks are at the motorway junctions
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