Regulation

Aeronautical and non-aeronautical activities

Auckland Airport’s business is divided, in economic terms, into two ‘tills’. One is the aeronautical till, which is subject to economic regulation. The second is the non-aeronautical till, which is subject to open market competitive forces. A dual till regime also applies in Australia, though the scope of activities and monitoring processes differ.

Aeronautical activities comprise all elements of the company that relate to its aeronautical services, including:

• airfield facilities to enable the landing, take-off and movement of aircraft, such as runways, taxiways and aprons;
• terminal facilities for the processing of passengers; and
• aircraft and freight facilities for the maintenance and service of aircraft (including re-fuelling) and the handling of freight.

For airfield facilities, Auckland Airport charges landing fees and parking charges to the airlines on a user-pays basis. Landing charges are based on an aircraft's Maximum Certified Take-Off Weight. This means that large, heavy aircraft pay more than small, light aircraft. Heavier and larger aircraft require longer, wider and stronger runway pavements, take up more space on the aprons and typically deliver more passengers to use the terminal facilities. Parking charges are levied on hourly rates by size of aircraft.

For terminal facilities, Auckland Airport charges the airlines passenger service charges and check-in charges. These changes include recoveries for terminal space, plant and equipment and services.

Auckland Airport has also set a Runway Land Charge associated with holding land for the future aeronautical development of a second runway at Auckland Airport.

All other activities are non-aeronautical. These activities compete with other similar businesses, are tendered by way of concessions/ licences to operate, or are discretionary to the users of the airport. Examples include the retail outlets in the terminals (duty free stores, speciality stores, news and book stores, and food and beverage outlets), taxis, public transport, car parks, car rental tenancies and property leases. The company gains revenue from these sources through commercially negotiated concession agreements, rental agreements, licence fees and direct charges for parking or the use of other facilities.

Current regulatory framework for airports

Auckland Airport’s aeronautical activities are subject to information disclosure regulation under Part 4 of the Commerce Act 1986. This regulation is designed to provide airport businesses with the right incentives to act in a way that benefits consumers over the long term. The Commerce Commission monitors airport performance and price setting, as well as the effectiveness of the information disclosure regime.

The information disclosure regime includes:

• annual disclosure and monitoring of financial performance, quality (as measured by reliability measures, passenger satisfaction and operational improvement processes), capacity utilisation indicators and capital investment
• a price setting disclosure following the setting of standard aeronautical prices (every five years) which provides information on the basis for pricing and targeted returns

Annual Disclosures

Shown below are Auckland Airport's most recent aeronautical annual disclosures:

Previous years

Pricing decisions

Auckland Airport is subject to the Airport Authorities Act 1966, which requires consultation with major airline customers on aeronautical charges at least every five years, as well as consultation on significant capital expenditure projects.

Auckland Airport’s FY18-22 aeronautical price path consultation with major airlines and representatives began in early FY17, with the most recent pricing decision announced in June 2017. Each pricing decision triggers a requirement for Auckland Airport to release a price setting disclosure. These disclosures are set out below.

August 2017 pricing setting disclosure – FY18-FY22 (PSE3)

• PSE3 Disclosure (commentary)
• PSE3 Disclosure (schedules)
• Appendix A: Cross reference table of Information Disclosure Determination requirements and where information can be found in the Price Setting Disclosure
• Appendix B: PSE3 Aeronautical Capital Expenditure Programme
• Appendix C: PSE3 Standard Aeronautical Charges, Terms and Conditions
• PSE3 Presentations:
  • 1 August 2017 Price Setting Disclosure
  • 8 June 2017 Aeronautical Pricing

Please note:

• This Price Setting Disclosure is disclosed pursuant to clause 2.10(3) of the Determination.
• Under the Determination, Price Setting Disclosures must be completed only in relation to specified airport services.
• Accordingly, these Price Setting Disclosures should not be interpreted or read to cover the total operations of the company – the Price Setting Disclosure relates specifically and solely to specified airport services.

Commerce Commission review

A key part of the regulatory regime is the Input Methodologies (“IMs”). IMs set out how airports must calculate aspects of their annual disclosures (e.g. how assets are valued for regulatory disclosures) and other aspects of the regulatory regime (e.g. how the regulator estimates the industry-wide cost of capital for monitoring purposes).

The IMs must be reviewed at least every seven years, and the Commerce Commission completed a review of the current IMs in December 2016. The final decision reaffirmed that the Commission does not set prices for airport services and that its focus is on ensuring there is transparency in relation to the pricing decisions made by airports.

Shown below are links to the Commerce Commission review documents:

• Airport Information disclosure determination (20 December 2016)
• Airport Input methodologies determination (20 December 2016)
• Commerce Commission decision documents

Regulatory and other disclosures in relation to Auckland Airport’s electricity distribution network

The Electricity Industry Act 2010 (“Act”) requires us to publicly disclose on our website, and provide to the Electricity Authority, certain information that arises from our status as an electricity distributor and Mercury NZ Limited (“Mercury”, formerly Mighty River Power Limited) as a connected retailer, by virtue of Dr Patrick Strange and Mr James Miller being directors of both companies and Mercury’s involvement in retailing more than 5 GWh of electricity in the last financial year to customers connected to our network.

Dr Strange and Mr Miller have both been granted exemptions from compliance with sections 75, 77 to 79 and 88 of the Act, enabling them to be appointed as a director of both companies. The exemptions are subject to certain conditions.

Section 77 of the Act sets out requirements in relation to use of systems agreements between a distributor and a connected retailer which the directors of the distributor must comply with. Attached is the latest Director’s Certificate signed by all directors except Dr Patrick Strange and Mr James Miller (as they been granted exemptions from compliance with s.77), and the Mercury use of system agreement, which together meet the requirements of section 77.

• Director’s Certificate for the preceding calendar year in relation to s77
• Use of system agreement between Auckland Airport and Mighty River Power Limited dated 27 March 2002
• Variation to the above use of system agreement between Auckland International Airport Limited and Mighty River Power Limited dated 30 April 2013

Section 88 of the Act sets out requirements in relation to disclosure of the quantity of electricity sold each financial year by connected retailers to customers who are connected to the distributor’s network. Attached is the latest Director’s Statement signed by a director other than Dr Patrick Strange and Mr James Miller (as they been granted exemptions from compliance with s.88) which meets the requirements of section 88.

• Director’s Statement for the preceding financial year in relation to s88