Release of FY23-FY27 aeronautical price setting disclosure
Market Release | 17 August 2023
Release of FY23–FY27 aeronautical price
setting disclosure documentation
Auckland Airport has today released its regulatory disclosures in relation to the setting of
aeronautical prices for the 2023-2027 financial years, known as Price Setting Event Four
(PSE4). Reset prices for PSE4 were announced on 8 June 2023.
These disclosures provide information on Auckland Airport’s total regulated aeronautical
activities, as required by the Airport Services Information Disclosure Determination 2010.
The disclosures can be found online:
https://corporate.aucklandairport.co.nz/investors/regulation
ENDS
Analyst and media webcast for PSE4
A webcast for analysts and media with our Chief Executive Carrie Hurihanganui and Chief
Financial Officer Phil Neutze will be held at 11am NZST today.
Analysts and media can dial in to the conference call by:
Registering in advance of the conference using the link provided below. Upon registering,
you will be provided with participant dial-in numbers and a unique registrant ID.
In the 10 minutes prior to the call start time, you will need to use the conference access
information provided in the email received at the point of registering.
Conference call registration link for phone participants:
https://register.vevent.com/register/BI229ffb0665954183a054b0da96275048
Webcast link:
https://edge.media-server.com/mmc/p/7iv3jv53
For further information, please contact:
Investors:
Stewart Reynolds
Head of Strategy, Planning and Performance
+64 27 511 9632
stewart.reynolds@aucklandairport.co.nz
Media:
Libby Middlebrook
Head of Communications and External Relations
+64 21 989 908
Libby.middlebrook@aucklandairport.co.nz
---
Auckland Airport
Price Setting Disclosure
17 August 2023
Price setting event 4
Carrie Hurihanganui
Chief Executive
Philip Neutze
Chief Financial Officer
Page 2
Important notice
Disclaimer
This presentation is given on behalf of Auckland International Airport Limited (NZX: AIA; ASX: AIA; ADR: AUKNY).
ThisdocumenthasbeenpreparedforthepurposeofcomplyingwiththeAirportServicesInformationDisclosureDetermination2010(the“Determination”). AsrequiredbytheDetermination,thedocumentcontainsforward
lookingstatements,forecastsandcommentsaboutfutureevents,includingourexpectationsabouttheperformanceofAucklandAirport'sbusiness. Forwardlookingstatementsandforecastsinvolveinherentrisksand
uncertainties,bothgeneralandspecific,suchthatthereis a riskthatsuchforwardlookingstatementsorforecastswillnotbeachieved.
In particular,aeronauticaldemandforecastsareinherentlyuncertainandshouldnotbereliedonorviewedasmarketguidance.
FactorsthatcouldcauseAucklandAirport'sactualresultstodiffermateriallyfromtheforecastsincludemattersoutsideof ourcontrol,suchastheinherentriskthatactualaircraftandpassengerdemand(whichis basedon
thirdpartyinformation)departsfromforecastdemanddueto globaleconomicconditions,changingairlineprioritiesandothermaterialeventsbeyondthecontrolofAucklandAirport. Formattersoverwhichwehavegreater
control,suchascapitalandoperationalexpenditure,theforecastperiodsin thisdisclosurearelong-dated,runningin someinstancestotenyears. It is verylikelythattheassumptionsinformingtheforecasts,andtherefore
theforecastoutturn,willchangeduringtheforecastperiod.
Assuch,theinformationinthisdocumentmustbeinterpretedwithcare. It mustnotbereliedonforanypurposeotherthantoassesswhetherAucklandAirportis meetingthepurposeofregulationunderPart4 ofthe
CommerceAct. TheinformationinthisdocumentandthestatutoryPriceSettingDisclosureit accompanieswillbesubjecttoa reviewbytheCommerceCommission,whichwillpublisha summaryandanalysisreportin
accordancewiththeCommerceAct1986.
NeitherAucklandAirportnoranyofitsdirectors,employees,advisersnoranyotherpersongivesanywarrantiesorrepresentations(expressorimplied)astotheaccuracyorcompletenessofthisinformation.Tothe
maximumextentpermittedbylaw,noneofAucklandAirport,itsdirectors,employees,advisersoranyotherpersonshallhaveanyliabilitywhatsoevertoanypersonforanyloss(including,withoutlimitation,arisingfrom
anyfaultornegligence)arisingfromthispresentationoranyinformationsuppliedin connectionwithit.
All currency amounts are expressed in New Zealand dollars unless otherwise stated and figures, including percentage movements, are subject to rounding.
PSE4 Price Setting Disclosure
Page 3
Overview
Page 3
Carrie Hurihanganui
Chief Executive
Page 4
Building a better future for Auckland and New Zealand
A period of transformative change at Auckland Airport
Auckland Airport serves as
Aotearoa New Zealand’s
gateway, supporting
thousands of businesses and
millions of travellersto
connect with each other and
the world
As the first and last place
travellerstouch New Zealand,
it is important Auckland
Airport is resilient and able to
facilitate this demand, today
and in future
As custodians, our role is to
think and act forward,
supporting our travelling
passengers, customers,
partnerships, tenants and the
community through building
the services and
infrastructure they need
Investment that reimagines
how we think about and
engage with customers.
Providing experiences and
products and services that
travellers and visitors value
and that Aucklanders and
New Zealanders are proud of
We have taken a long-term
view on masterplanning to
ensure we provide the right
infrastructure at the right
time for the travelling public
We are investing in New
Zealand’s future, ensuring
our national gateway is
efficient and resilient for
years to come
Our investment is critical to
our connection with the
world, unlocking tourism,
trade and our country’s long-
term prosperity
We have carefully prioritised
investment in PSE4 to
deliver once in a generation
changes to aeronautical
infrastructure that will unlock
our country’s economic
prosperity and ensure future
growth
Our investment is focused on
integrating our terminal
precinct to enhance capacity
and customer experience
along withupgrades to
existing facilitiesto
safeguard airport resilience
Auckland Airport will invest
$5.0bn in regulated
investment over PSE4, of
which $3.1bn will
commission and impact
PSE4 prices
Auckland Airport has set
aeronautical charges to
balance returns whilst also
creating the right incentives
for investment, innovation
and efficiency
Aeronautical
recovery
102m
Planning for
the future
Investment in
PSE4
Focus on the
customer
Regulated returns
for PSE4
$3.1bn
of commissioned regulated
capex
7.79%
Total Aeronautical return for
PSE4 (8.73% Target Return)
2044
Auckland Airport Masterplan
of passenger movements
forecast for PSE4
848,000
of aircraft movements
forecast in PSE4
1
1.Comprises both $2.6bn of priced and $0.5bn of non-priced investment
Page 5
Price setting disclosure at a glance
Passenger
forecast
27.7m pax
FY32
Aircraft runway
movements
210k
movements
FY32
Passenger
forecast
Total regulated
commissioned
capex
$6.7bn
Aircraft runway
movements
$3.1bn
Total regulated
commissioned
capex
$5.7bn
priced
$1.0bn
non-priced
Total regulated
commissioned
capex
10-year outlook (PSE4 + PSE5)
5-year forecast (PSE4 only)
Total regulated
commissioned
capex
FY23: 16.0m
FY23: 145k
7.79%
Overall regulated
return PSE4
Regulated Revenue
$2.8bn
On Target
Return of 8.73%
$2.5bn priced
$0.3bn non-priced
$2.6bn
priced
$0.5bn
non-priced
23.9m pax
FY27
FY23: 16.0m
191k
movements
FY27
FY23: 145k
Page 6
Building a better future
Auckland Airport’s purposeis to revitaliseand inspire as we connect people and place. Our 10-year regulated
capital expenditure roadmap intends to deliver$6.7 billion of regulated investment over the next ten years that will
add capacity, create more resilience and deliver important infrastructure upgrades
Extending our aeronautical
network and supporting the
recovery in travel
Driving efficiency in our
operations to improve customer
experience
Continued disciplined approach
to investment in infrastructure
Page 7
Key projects that will transform AucklandAirport
Page 7
Te n-year roadmap
Projects are subject to change and may be replaced, deferred or cancelled
Page 8
Terminal Integration - Enabling & airport resilienceTerminal Integration - Domestic ProcessorTerminal Integration - Transport Hub
Desc.
Multi-year programme of enabling works to relocate infrastructure and
prepare the site for the construction of a new domestic jet pier and
headhouse integrated into the existing international terminal building
(refer Domestic Processor 2nd column)
Domestic jet operations integrated into existing international
terminal, with a new domestic jet pier and terminal headhouse –
due to open in 2028/29
This development will transform how travellers arrive and depart
from the main airport terminal, while paving the way for any future
mass rapid transit to deliver passengers direct to terminal
Details
•Airfield capacity including stands and stormwater upgrades
•New baggage system with greater speed, accuracy and capacity,
providing more convenience to travellers
•Expansion of international check in area to accommodate domestic
passengers
•International arrivals upgrades, and terminal roading and forecourts
•Installation and upgrades of services and utilities to enable the new
terminal
•Domestic headhouse providing dwell, amenities, food and
beverage, and retail
•Full-service pier including gates and airbridges for 12 jet
aircraft stands, gate lounges and bus lounge capable of
servicing two jet aircraft
•Domestic baggage arrivals hall comprising space for two
reclaim carousels
•Capacity to process 44% more departing passengers per hour
on current domestic terminal, with a 20% increase in serviced
aircraft stands
•Pick-up and drop off facilities for passengers
•Dedicated Airport Operations Centre, and offices for airline staff
and other airport users
•Non-aeronautical facilities include four-level multi-story car park
•Future-proofed for mass rapid transit
Value
$1.9 billion
1
– completion in 2028/29
•$1.7 billion investment in priced assets
•$0.2 billion investment in non-priced assets
$2.1 billion
1
– completion in 2028/29
•$2.0 billion investment in priced assets
•$0.1 billion investment in non-priced assets
$163 million
1
– completed by FY27
•$133 million investment in priced assets
•$30 million investment in non-priced assets
Regulated investment
Key programmesof work over PSE4 and PSE5 include:
Page 8
1.Relates to capital expenditure commissioned in the period covering PSE4 and PSE5
Page 9
Key programmesof work over PSE4 and PSE5 include:
Existing domestic terminal building upgradesAeronautical programmeContingent runway
Desc.
Provides the upgrades necessary to accommodate domestic jet
operations through to the opening of the integrated domestic terminal
in 2028/29
The aeronautical capacity programme includes upgrades to the
international terminal and airfield facilities and airport emergency
services
This will re-establish a contingent runway on Taxiway Alpha that is
safe, reliable, meetsfuture demand and complies with the latest
regulatory requirements
Details
•Building upgrades to utilities, refresh of bathrooms and wayfinding
•Forecourt and roading upgrades that provide increased capacity to
existing terminal and will also provide access to the future
integrated Domestic Processor
•Additional regional aircraft stand capacity to meet forecast long-
term regional demand
•Upgraded international transfer security screening
•Improved amenity and facilities in the airside of the
International Terminal (i.e., Pier A)
•Upgrades to existing Airport Emergency Services Station
•International arrivals healthcare facility
•Investment in Airfield Fuel Infrastructure
•Required to continue runways operations while critical main
runway renewal works are undertaken in 2028
•Essential for airport resilience and to ensure long-run safety
through renewals of the main runway
•Improved airfield resilience through the ability to activate the
contingent runway in the event of an incident or emergency at
shorter notice than is currently possible
Value
$154 million
1
– completed by FY27
•$117 million investment in priced assets
•$38 million investment in non-priced assets
$631 million
1
– completed by FY30
•$446 million investment in priced assets
•$185 million investment in non-priced assets
$140 million
1
– completed by FY29
•$140 million investment in priced assets
•Nil investment in non-priced assets
Regulated investment
Page 9
Photo
1.Relates to capital expenditure commissioned in the period covering PSE4 and PSE5
Page 10
Roading programmeUtilities programmeRenewals – airfield pavement & ground lighting
Desc
.
This programme delivers elements of the long-term transport
masterplan, the purpose of which is to increase the capacity and
efficiency of the roading network
Increased capacity of existing utility networks plus new
functionality and systems
Airfield renewals programme will maintain and renew airfield
pavements and ground lighting assets
Details
•Te Ara Korako Drive, a new four-lane road connecting George Bolt
Memorial Drive to Nixon Road in the east
•Widening sections of Puhinui Road and Lawrence Stevens Drive
including a high occupancy vehicle lane in the westbound direction
•Upgrades to the stormwater network to reduce the risk of
terminal flooding in extreme weather events
•Upgrades to precinct fibre networks to increase the overall
resilience of the network
•Decarbonisation activity in the international terminal by
replacing gas boilers with electric
•Pavement renewals are ongoing and part of business-as-usual
practice
•Airfield and ground lighting assets have recently been acquired
from Airways and require substantial maintenance capex and
upgrades
Value
$169 million
1
over 10 years
•$134 million investment in priced assets
•$35 million investment in non-priced assets
$84 million
1
over 10 years
•$74 million investment in priced assets
•$10 million investment in non-priced assets
$601 million
1
over 10 years
•$601 million investment in priced assets
•Nil investment in non-priced assets
Regulated investment
Key programmesof work over PSE4 and PSE5 include:
Page 10
1.Relates to capital expenditure commissioned in the period covering PSE4 and PSE5
Page 11
Regulated investment
Key programmesof work over PSE4 and PSE5 include:
Page 11
Renewals - Other Cargo precinct
Description
Renewals to ensure existing assets are fit for purpose, safe to
operate and enable the efficient day to day operation of the
airport
The new cargo terminal project proposes a dedicated and
consolidated cargo handling facility on the northern side of the
airfield
Details
The specific types of activity undertaken within the programme
include:
•terminal renewals such as bathrooms, airbridges, lifts and
escalators
•technology and systems such as check-in kiosks, airport
operating systems and CCTV
•renewal of existing utility and roading networks
•New Cargo Terminal Operations building shell and services
increases cargo capacity given constraints of existing
facilities
•Airside road connecting cargo buildings to existing airfield
•Unlocks land currently used by the existing cargo facility to
enable future airfield expansion and upgrades
Value
$578
1
million over 10 years
•$486 million investment in priced assets
•$94 million investment in non-priced assets
$285 million
1
– completed by FY28
•$nil million investment in priced assets
•$285 million investment in non-priced assets
1.Relates to capital expenditure commissioned in the period covering PSE4 and PSE5
Page 12
PSE4 Price Setting
Disclosure
Page 12
Philip Neutze
Chief Financial Officer
Page 13
Background
Our price setting disclosure follows the aeronautical pricing decision announced on 8 June 2023 as required under
Part 4 of the Commerce Act
Page 13
Airfield activities
Runways, taxiways and
apron
Terminal activities
Passenger processing
through terminal
e.g. check-in, security space,
gate lounges
Aircraft and freight
activities
Handling of aircraft and
cargo
including fuel provision,
hangars etc
Aeronautical Pricing Activities: Aeronautical pricing
revenue, costs and capital expenditure = target return
on pricing assets (recovered by standard airline
charges)
Other Regulated Activities: Other regulated
revenue, costs and capital expenditure (primarily
recovered through negotiated commercial leases or
licences)
Total Regulated Activities: Total regulated revenue, costs, and capital expenditure =
effective return on total regulatory asset base. Forward looking price setting
disclosure required by regulator, and reported on annually as part of information
disclosure
8 June 2023
Aeronautical prices
for PSE4 set and
announced
17 August 2023
Price setting
disclosure released
as required under
the Commerce Act
•Under Part 4 of the Commerce Act,
Auckland Airport is subject to Information
Disclosure Regulation
•This includes a requirement for Auckland
Airport to provide information following a
change in aeronautical prices
•This presentation summariseskey
financial and operational information for
the current pricing period (PSE4) out to
June 2027
•This is supplemented with longer-term
forecasts for demand and capital
investment out to June 2032
•We also provide an update on Auckland
Airport’s approach to long term funding
and capital management
•This presentation should be read in
conjunction with the accompanying Price
Setting Disclosure
Page 14
Traffic assumptions
Passenger traffic forecast to return to pre-COVID levels in FY25 for domestic and FY26 for international
Page 14
FY23 – FY32 passenger forecast
1
1. Passenger forecast includes non-billable passenger movements including the outbound movement of transit passengers, children under 2 and aircraft positioning crew
Note: Econometric-based demand forecasts sourced from independent experts (DKMA) and informed by airline feedback and price elasticity of demand impact analysis (InterVISTAS)
5.8
6.1
7.0
7.4
7.8
7.7
7.9
8.1
8.3
8.5
2.3
2.4
2.8
2.9
3.1
3.1
3.2
3.2
3.3
3.4
7.8
10.6
10.9
12.1
13.1
13.7
14.2
14.8
15.3
15.8
15.9
19.1
20.6
22.4
23.9
24.5
25.3
26.1
26.9
27.7
0
5
10
15
20
25
30
FY23FY24FY25FY26FY27FY28FY29FY30FY31FY32
PSE4PSE5
Millions
Domestic JetRegionalInternationalFY19 total pax
Page 15
PSE4 Price setting decision
With significant capital investment right across the airport precinctover PSE4, aeronautical charges will increase
but will remain competitive with comparable airports
Page 15
• In setting PSE4 aeronautical charges, we have considered what
capital investment is needed, forecast operating expenditure and
a fair return on investment
• Following the end of the FY23 price freeze, charges will rise from
a low base in PSE3 during which our aeronautical prices were
substantially lower than other comparable airports. The
increases are driven by a combination of:
‒$2.6 billion of priced commissioned assets to be delivered
during PSE4;
‒catch-up of the more than $100 million revenue shortfall in
FY23 (year one of PSE4) owing to the price freeze in place
during the early stages of the COVID recovery; and
‒a higher target return of 8.73% due to higher interest rates,
higher systematic risk and the Commission’s updated market
risk premium – as evidenced by the updated comparable
airport company data, the COVID pandemic has unfortunately
demonstrated that airports operate in a higher risk
environment than previously thought
PSE4 domestic aeronautical charges per passenger
$6.73
$10.25
$11.75
$13.47
$15.46
$4.43
$7.10
$8.14
$9.33
$10.70
$9.92
$11.09
$12.43
$13.97
$6.87
$7.68
$8.61
$9.67
$0
$5
$10
$15
$20
FY23FY24FY25FY26FY27
Domestic Jet - nominalRegional - nominal
Domestic Jet - realRegional - real
PSE4 International aeronautical charges per passenger
$23.39
$32.78
$36.70
$41.13
$46.13
$23.39
$31.73
$34.64
$37.96
$41.68
$0
$10
$20
$30
$40
$50
FY23FY24FY25FY26FY27
International - nominalInternational - real
FY23
Price
Freeze
FY23
Price
Freeze
Note: Real prices based on FY23 dollars
Page 16
Forecast returns
Non-priced IRR below targetdue to the high value of shared regulated capex allocated to non-priced activities
•To support airlines through the post-pandemic recovery, prices were frozen in FY23and
revenue was over $100 million lowerthan required to achieve our PSE4 target return
•The agreed price freeze for FY23 with airlinesstipulated thata full return over the PSE4
pricing period would be targeted. This requires higher revenues in subsequent years to
make-up for the FY23 shortfall
•Post pricing decision adjustments were required to correct the Price Setting Disclosure
to include forecast land transfers, asset disposals and exclude some forecast
operational expenditure (that should have been allocated to land held for the future use).
To correct for these minor omissions and errors, the price setting forecasts includes a
carry-forward adjustment that increases both the closing PSE4 investment value and
forecast priced IRR back up to the targeted 8.73%
Forecast return on invested capital for Total Regulated Activitiesduring PSE4Forecast return on invested capital for Priced Activitiesduring PSE4
1
PSE4 priced activity returns inclprice freeze& post-pricing decision adjustments
Total regulated returns below Target Return due to allocation of shared
infrastructure capex
•Total regulated commissioned capex over PSE4 includes$0.5bn of shared
infrastructure (such as roading, utilities and shared terminal structures) allocated to
non-priced Other Regulated Activitiessuch as the Aircraft & Freight segment, airline
& border agency offices and VIP lounges
•Unlike priced activities, where revenues are determined by the building blocks
model, non-priced revenues from Other Regulated Activities are determined on an
arm's length basis and the extra RAB value indirectly allocated to these segments
does not directly alter the floor area or the market value of the spaces that they
lease. Thereforemarket rents are not forecast to deliver a full economic return over
PSE4 for Other Regulated Activities
•Hence the Total Regulated Activities IRR for PSE4 is 7.79%
3.30%
10.01%
9.03%
9.00%
10.25%
8.73%
0%
2%
4%
6%
8%
10%
12%
FY23FY24FY25FY26FY27
Target return
Post-tax ROICPriced return
3.44%
8.59%
7.77%
7.64%
8.85%
7.79%
0%
2%
4%
6%
8%
10%
12%
FY23FY24FY25FY26FY27
Target return
Post-tax ROICRegulated Return
1. Includes post-pricing decision adjustments to correct asset disposals, land transfers and operational expenditure
Page 17
Total regulated capex cashflow over PSE4 & PSE5
Total regulated capital expenditure of $6.6 billion over PSE4 and PSE5
Page 17
• Total regulated capital expenditure cashflow is
forecast to peak in FY25 at $1.3 billion, and remain
elevated at $1.2 billion in FY26 and FY27
• The total regulated capital expenditure forecast
includes $3.0 billion forecast to commission during
PSE4, $3.5 billion forecast to commission in PSE5,
and $140 million that won’t commission until beyond
PSE5
Forecast regulated investment cash-flow – by commissioning period ($ billion)
$0.0
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
FY23FY24FY25FY26FY27FY28FY29FY30FY31FY32
Billions
PSE4PSE5PSE6+
Page 18
10-year capital investment plan
$6.6bn total regulatedcapex cashflow during PSE4 and PSE5and $6.7bn forecast to be commissioned
Page 18
Note: Under Commerce Commission rules, Auckland Airport is required to share a ten-year capital roadmap at each price setting event. However, this remains subject to change throughout its ten-year life cycle,
with projects potentially accelerated or delayed depending on actual air traffic demandgrowth. Nominal commissioned values include escalation and holding costs
Terminal Integration - enabling & airport resilience
Terminal Integration - Domestic Processor
Terminal Integration - Transport Hub
Domestic Terminal Building Upgrades
Aeronautical Programme
Contingent Runway
Roading Programme
Utilities Programme
Renewals – airfield pavement and ground lighting
Renewals - other
Cargo Precinct
Regulated capex (cashflow) of $6.6bn
($5.0bn in PSE4, $1.6bn in PSE5)
Regulated assets commissioned of $6.7bn
($3.1bn in PSE4, $3.6bn in PSE5)
188
414
302
55
128
108
154
114
97
165
299
29
41
140
523
50
02004006008001,0001,200
PSE4
PSE5
02004006001,8002,000
260
1,495
1,869
398
1,497
1,637
596
168
262
389
285
57
164
88
509
148
124
23
172
299
25
49
229
39
PSE4
PSE5
02004006001,8002,000
$ millions
Page 19
Regulatory timeline
Final Input Methodology determination due in December 2023
Page 19
• Commerce Commission’s draft WACC Input Methodology (“IM”)
determination has been released, to be finalisedin December
2023
• The draft decision includes material changes to the long-standing
WACC IM Methodology that it has actively encouraged regulated
airports to apply since 2010. Auckland Airport continues to
engage on the IM review, ahead of the final decisions on the IMs
to be released in December 2023
• The Commerce Commission staffhave confirmed that the PSE4
pricing decision will be assessed against the current 2016 Input
Methodologyincluding considering the evidence presented by
Auckland Airport that the comparable company data is well out of
date and must be updated as at the start of Auckland Airport’s
PSE4
• We expect the Commission’s review of our PSE4 aeronautical
pricing decision to be published in late H1 calendar 2024.
Auckland Airport will consider the Commission’s view at that
time
United Airlines flight departing Auckland Airport
Page 20
Long term funding and capital management
Auckland Airport will continue to prudently manage the balance sheet to fund the infrastructure programme
Page 20
• Auckland Airport continues to target an A- credit rating from
Standard & Poor’s
• Retaining A- optimisesAuckland Airport’s capital structure and is
expected to maximiseshareholder returns over the next 10 years
relative to any lower credit rating. It also provides access to the
widest range of local and international debt markets at attractive
margins
• The scale of the planned capital investment, both regulated and
continued investment in Till 2 and commercial property, may
require Auckland Airport to raise new equity in the second half of
PSE4
• The timing and scale of any equity raise is uncertain at this stage
and will depend, amongst other things, on any adjustment to our
PSE4 target return, our performance against the PSE4
aeronautical capital expenditure roadmap, the scale of our Till 2
and commercial property investments and Standard & Poor’s
views on the deliverability of our forward capital plans
Emirates’ Airbus A380 parked at Auckland Airport
Appendix
Page 22
Regulatory environment
•Airport charges are designed to achieve a fair return on our investments in essential long-term national infrastructure
•All international and domestic airport charges are collected from airlines and form part of their cost of operationsand ticket prices
•Pricing considerations include the Commerce Commission’s input methodologies, Auckland Airport’s weighted average cost of capita l, the
forecast regulatory asset base and operating costs, and benchmarking of comparable airport charges
•Aeronautical pricesare set for up to five years and typically have annual increments. PSE4 applies to the period from 1 July 2022 to 30
June 2027. Prices from 1 July 2022 to 30 June 2023 were held at FY22 levels during the Price Freeze to assist airlines during the early
COVID recovery phase and while we awaited more certainty re the shape of the recovery to inform the building blocks pricing forecasts.
Capitalexpenditure and PSE4 aeronautical pricing consultation continuedduring the price freeze
•Pricing consultation covers airfield and passenger terminal related services. It excludes other regulated revenues for aircraft and freight,
VIP lounges, airline offices and other airline leased areas in the terminals. Theseother regulated revenues arealso included in this price
setting disclosureper the disclosure regulations. But the Price Setting Disclosure excludes non-aeronautical areas of the business such as
retail, car parking and investment property
•Consultation with airlines on a new domestic terminal has been underway for over a decade. This consultation informed the Auckland
Airport Masterplan in 2014, and subsequent stages of design and refinement of options for a new domestic terminal facility.
•Following the earlier consultation, in February 2020, Auckland Airport announced a multi-billion dollar 10-year aeronautical capital
roadmap. In March 2020, after COVID-19 took hold globally, New Zealand’s border was closed and Auckland Airport’s revenues were
devastated, so almost all the infrastructure development programme was suspended to protect Auckland Airport’s financial viability
•This most recent phase of capital expenditure consultation with airlines to support the PSE4 pricing decision is the outcome of a robust and
constructive consultation process over the past two years.Auckland Airport has actively engaged with the airlines and final prices have
been informed by their feedback
•With the COVID-recovery now advancing strongly, Auckland Airport is progressing a once in a generation airport infrastructureupgrade
Appendix: Background
Page 23
Information disclosure
• New Zealand’s three largest airports including Auckland Airport are subject to Information Disclosure requirements under Part 4 of the
Commerce Act
• Airports disclose certain performance related information (financial, non-financial, historical and forward-looking)
• The Commerce Commission has determined a set of Input Methodologies to ensure information is disclosed in a consistent manner, e .g.,
asset valuation, cost allocation, cost of capital benchmarking
• Information Disclosure and Input Methodologies do not prescribe how prices are to be set
• The aim of the regulation is to enable the Commerce Commission and other interested parties to assess whether the purpose of Part 4 is
being met
• Auckland Airport has increasingly aligned its business with the objectives of Part 4 of the Commerce Act, namely:
‒having an appropriate incentive to invest and innovate;
‒providing services of the quality and range required by consumers;
‒generating efficiencies and sharing the benefits of those efficiency gains with consumers; and
‒earning a fair and reasonable return on the investments made
Appendix: Background
Page 24
Total regulated commissioned capex in PSE4
Auckland Airport plans to commission $3.1 billion of regulated infrastructure during PSE4
Page 24
• $2.6 billion of priced regulated investment completed and
commissioned during PSE4 pricing period including:
‒$1. 5 billionTerminalIntegrationProgramme
‒$1.1 billionin upgradesoftheexistingdomesticterminalbuilding,
newtransporthub,airfieldexpansion&renewalsandnew
baggagesystem
•$0.5billionofnon-pricedregulatedinvestmentcompletedand
commissionedduringPSE4pricingperiodincluding:
‒$0. 1 billionTerminalIntegrationProgramme
‒$0. 2 billionrelatingto thenewcargoprecinct
‒$0. 2 billionotherupgradesandrenewals
•ClosingallocatedRABforPSE4of $4 .2 billionin FY27
Note:
Nominal figures include escalation and holding costs
Forecast regulated asset base (nominal $)
1,316
2,575
(519)
3,331
382
529
40
(119)
821
1,698
3,104
40 (638)
4,152
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
FY23 opening
RAB
Assets
commissioned
Forecast
revaluations
Forecast
depreciation
FY27 closing
RAB
$ Millions
PricedNon-priced
Page 25
Total regulated commissioned capex in PSE5
Auckland Airport plans to commission $3.6 billion of regulated infrastructure during PSE5
Page 25
• $3.1 billion of priced regulated investment completed and
commissioned during PSE5 pricing period including:
‒$1 .7 billionDomesticProcessor
‒$0 .3 billionTerminalIntegrationProgramme
‒$1 .1 billioninairfieldexpansion&renewals,contingentrunway
andregionalsolution
• $0.5billionofnon-pricedregulatedinvestmentcompletedand
commissionedduringPSE5pricingperiodincluding:
‒$0 .1 billionnon-pricedelementsof thenewDomesticProcessor
‒$0 .1 billionrelatingto thenewcargoprecinct
‒$0 .3 billionrelatingtofuelupgrades,thenewcargoprecinctand
otherrenewals
• ClosingallocatedRABforPSE5of $6 .2 billionin FY32
Note:
Nominal figures include escalation and holding costs
Forecast regulated asset base (nominal $)
3,331
3,107
1,262
5,159
821
454
268
1,070
(4,152)
3,560
74 1,530
6,229
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
FY28 opening
RAB
Assets
commissioned
Forecast
revaluations
Forecast
depreciation
FY32 closing
RAB
$ Millions
PricedNon-priced
Page 26
Appendix: Total Commissioned Regulated investment
$mPSE4PSE5PSE4+PSE5
For the year to 30 June
20232024202520262027
Total
TotalTotal
Terminal Integration - enabling & airport resilience54917092512771,3813481,729
Terminal Integration - Domestic Processor2602601,8692,129
Terminal Integration - Transport Hub882611450163
Domestic Terminal Building Upgrades615525229154154
Aeronautical Programme440595108523631
Contingent Runway140140
Roading Programme9596012841169
Utilities Programme15712814552984
Renewals – airfield pavement and ground lighting5160726951302299601
Renewals - other 10693836467414165578
Cargo Precinct 18818897285
Total
2454521,0724498853,1043,5606,664
Nominal priced commissioned values – includes escalation and holding costs
Page 27
Appendix: Regulated Asset Base
$mPSE4PSE5
For the year to 30 June
2023202420252026202720282029203020312032
Opening RAB
1,6981,8592,2153,1743,4504,1526,6316,7746,6826,450
Assets commissioned
2454521,0724498852,6934502408494
Revaluations
9777111515151514
Depreciation
7288113170195229321320330330
Closing RAB
1,8802,2293,1813,4594,1526,6316,7746,7096,4506,229
Nominal priced commissioned values – includes escalation and holding costs
Page 28
Glossary
PSE4 Price Setting Disclosure
AKL or Auckland Airport Auckland International Airport Limited
CPI Consumers price index
IM Input methodology
IRR Internal rate of return
MCTOW Maximum certified take-off weight
PAX Passenger movement
PSE3 Regulatory price setting event 3 from 1 July 2017 to 30 June 2022
PSE4 Regulatory price setting event 4 from 1 July 2022 to 30 June 2027
PSE5 Regulatory price setting event 5 from 1 July 2027 to 30 June 2032
RAB Regulated asset base
WACC Weighted average cost of capital
---
Price Setting Disclosure
In accordance with clause 2.5 of the Airport Services
Information Disclosure Determination 2010
17 August 2023
2
IMPORTANT NOTICE
This document has been prepared for the sole purpose of complying with the Airport Services
Information Disclosure Determination 2010 (the “Determination”). As required by the Determination,
this document contains forward looking statements, forecasts and comments about future events,
including our expectations about the performance of Auckland Airport's business. Forward looking
statements and forecasts involve inherent risks and uncertainties, both general and specific, such that
there is a risk that such forward looking statements or forecasts will not be achieved.
In particular, aeronautical demand forecasts are inherently uncertain and should not be relied on or
viewed as market guidance.
Factors that could cause Auckland Airport's actual results to differ materially from the forecasts include
matters outside of our control, such as the inherent risk that forecast aircraft and passenger demand
(which is based on third party information) departs from actual demand due to material events beyond
the control of Auckland Airport. For matters over which we have greater control, such as capital and
operational expenditure, the forecast periods in this disclosure are long-dated, running in some
instances to ten years. It is very likely that the assumptions informing the forecasts, and therefore the
forecasts themselves, will change during the forecast period.
As such, the information in this document must be interpreted with care. It must not be relied on for any
purpose other than to assess whether Auckland Airport is meeting the purpose of regulation under
Part 4 of the Commerce Act. The information in this document will be subject to a review by the
Commerce Commission, who will publish a summary and analysis report in accordance with the
Commerce Act 1986.
Neither Auckland Airport nor any of its directors, employees, advisers nor any other person gives any
warranties or representations (express or implied) as to the accuracy or completeness of this
information. To the maximum extent permitted by law, none of Auckland Airport, its directors,
employees, advisers or any other person shall have any liability whatsoever to any person for any loss
(including, without limitation, arising from any fault or negligence) arising from this presentation or any
information supplied in connection with it.
All currency amounts are expressed in New Zealand dollars unless otherwise stated and figures,
including percentage movements, are subject to rounding.
3
Table of Contents
1.
The purpose of this price setting disclosure .............................................................................. 4
2. Summary of the Aeronautical Pricing Decision ......................................................................... 7
2.1. Consultation on PSE4 prices .................................................................................................. 7
2.2. Consultation with Substantial Customers on Standard Charges .......................................... 17
3. Forecast total revenue requirement ........................................................................................... 19
3.1. Overview of forecast total revenue requirement ................................................................... 19
3.2. Forecast asset base .............................................................................................................. 21
3.3. Forecast non-asset based revenue....................................................................................... 45
3.4. Cost of capital and returns .................................................................................................... 52
3.5. Other factors.......................................................................................................................... 63
4. Pricing methodology ................................................................................................................... 64
4.1. Summary of pricing methodology.......................................................................................... 64
4.2. Descriptions of methodology ................................................................................................. 68
4.3. Why prices are efficient / identify cross-subsidies ................................................................ 80
4.4. Schedule of standard charges .............................................................................................. 82
5. Demand forecasts ........................................................................................................................ 83
5.1. Process for developing demand forecasts ............................................................................ 83
5.2. Facility planning forecasts ..................................................................................................... 84
5.3. Annual demand forecasts ..................................................................................................... 86
6. Reference tables .......................................................................................................................... 91
6.1. List of figures ......................................................................................................................... 91
6.2. List of tables .......................................................................................................................... 92
6.3. List of appendices ................................................................................................................. 93
4
1. The purpose of this price setting disclosure
Auckland International Airport Limited (“Auckland Airport”) is subject to information disclosure
regulation under Part 4 of the Commerce Act 1986 (“Commerce Act”). This regime requires Auckland
Airport to report information about our price setting decisions and annual performance, applying input
methodologies and information disclosure requirements set by the Commerce Commission
(“Commission”).
Price Setting Event 4 (“PSE4”) for Auckland Airport occurred on 7 June 2023 when Auckland Airport
determined the standard aeronautical charges for airfield activities and certain specified passenger
terminal activities (“Aeronautical Pricing Activities”) that apply from 1 July 2023 to 30 June 2027
(“Standard Charges” for “PSE4”). This followed the price freeze period for FY23, the first year of PSE4,
during which charges remained unchanged from FY22, the final year of PSE3. The approach to the
price freeze was agreed in advance with the vast majority of Auckland Airport’s airline customers
(including those represented by the Board of Airline Representatives of New Zealand (“BARNZ")),
including the forecast recovery of sub-target-returns for FY23 over FY24-27.
This PSE4 pricing decision followed consultation with Substantial Customers
1
in accordance with the
Airport Authorities Act 1966 (“AAA”). This is the price setting event which has triggered this disclosure
requirement.
This document is Auckland Airport’s price setting disclosure under Clause 2.5 of the Airport Services
Information Disclosure Determination 2010 ("Determination") , which requires the disclosure by
Auckland Airport of information following a price setting event. It meets the requirements of the
determination by:
• meeting the requirements of Clause 2.5 (1) by publicly disclosing information that summarises,
explains, sets out rationale, evidences and describes how the total revenue requirement has been
determined, including summarising the views of Substantial Customers on elements of the revenue
requirement where required;
• meeting the requirements of Clause 2.5 (3) by publicly disclosing an overview of the pricing
methodology used to set prices for the PSE4 pricing decision, a description of the services and
prices related to PSE4, and an explanation as to why the application of the pricing methodology
adopted leads to efficient prices; and
• meeting the requirements of Clause 2.5 (4) by publicly disclosing a list of the Auckland Airport’s
standard prices for PSE4, following the PSE4 pricing decision.
Clause 2.5 (2) sets out disclosures which are optional. Where each of the voluntary disclosure
requirements is addressed within this document, it is set out in Table 1 below.
1
Substantial Customers are those that pay, or an entity which represents customers who in aggregate pay, more than 5% of
regulated revenues in the last financial year: see Airport Authorities Act 1966, section 2A. BARNZ is also a Substantial
Customer
5
Table 1: Table of disclosure requirements
Disclosure
Requirement
Disclosure required Where disclosure requirement is met
2.5 (1) (a) and (b) Publication of Schedules 18, 29 and 20 Disclosure Schedules
2.5 (1) (c) (i) Description and explanation of forecast asset base Section 3.2, page 21
2.5 (1) (c) (ii) Description and explanation of forecast cost of
capital
Section 3.4.1, page 52
2.5 (1) (c) (iii) Description and explanation of forecast operational
expenditure
Section 3.3.1, page 45
2.5 (1) (c) (iv) Description and explanation of forecast
depreciation
Section 3.2.6, page 41
2.5 (1) (c) (v) Description and explanation of forecast unlevered
tax
Section 3.3.3, page 51
2.5 (1) (c) (vi) Description and explanation of forecast
revlauations
Section 3.2.7, page 42
2.5 (1) (c) (vii) Description and explanation of forecast other
factors
Section 3.5, page 63
2.5 (1) (d) (e) Forecast carry forward adjustments Section 3.2.3, page 22
2.5 (1) (f) Cash-flow timing assumptions Section 3.4.2, page 59
2.5 (1) (g) Differences in forecast post-tax IRR Section 3.4.1, page 52
2.5 (1) (h) (i) Differences between post-tax WACC and foreacst
cost of capital
Section 3.4.1, page 52
Section 3.4.4, page 61
2.5 (1) (j) Forecast asset base Section 3.2.2, page 21
2.5 (1) (k) Assets held for future use Section 3.2.8, page 43
2.5 (1) (l) (m) Forecast capital expenditure by category, and aims
and objectives of key capital expenditure projects
Description of key capital expenditure projects
Disclosure Schedules
Section 3.2.3, page 22
Appendix A: Summary of Capital Investment
Programme consistent with pricing decision
2.5 (1) (n) Forecast operational expenditure Section 3.1.1, page 45
2.5 (1) (o) Forecast total financial incentives Section 3.3.2, page 50
2.5 (1) (p) Non-standard depreciation methodology Section 3.2.6, page 41
2.5 (1) (q) Forecast depreciation Section 3.2.6, page 41
2.5 (1) (r) (s) Forecast revaluations, CPI used for revaluations Section 3.2.7, page 42
2.5 (1) (t) Alternative methodology with equivalent effect
2.5 (1) (u) Revenue requirement not applicable to price setting
event
Section 3.4.3, page 59
2.5 (3) (a) Summary of pricing methodology Section 4.1, page 64
2.5 (3) (b) Description of price setting event Section 4.2, page 68
2.5 (3) (c) Price efficiency and cross-subsidies Section 4.3, page 80
2.5 (4) List of standard prices Appendix B: Auckland Airport’s schedule of
Standard Charges effective 1 July 2023
6
The Aeronautical Pricing Activities covered by Standard Charges include all airfield and most specified
passenger terminal activities. Aircraft and freight activities include the servicing and maintenance of
aircraft and the handling of freight, and include the provision of assets for hangars, fright facilities,
fuelling, flight catering and waste disposal. These are excluded from the PSE4 price setting decisions,
as are certain specified passenger terminal activities, namely leased identified tenancies and collection
facilities for duty free (“Other Regulated Activities”). Charges for Other Regulated Activities are
individually negotiated with customers outside of the aeronautical pricing consultation on Standard
Charges. Together Aeronautical Pricing Activities plus Other Regulated Activities represent 100% of
specified airport activities under the AAA.
The purpose of this disclosure is to ensure that sufficient information is available to interested persons
to assess whether the purposes of Part 4 of the Commerce Act are being met, per the purpose of
information disclosure regulation at section 53A of the Act. This information will also assist interested
persons to assess whether Auckland Airport’s pricing and investment decisions are efficient.
Except where noted, this disclosure contains forecast information as at 7 June 2023. The forecasts
contained in this disclosure therefore may not represent Auckland Airport’s most recent forecasts and
should not be regarded as market guidance. Interested persons should refer to the important notice on
forward looking statements and forecasts on the inside cover of this document.
The contact person for this disclosure is:
Adam van Lohuizen
Head of Economic Regulation and Pricing
Auckland International Airport Limited
PO Box 73020
Manukau 2150
Email: Adam.vanLohuizen@aucklandairport.co.nz
7
2. Summary of the Aeronautical Pricing Decision
Auckland Airport recognises the importance of our role as New Zealand's major gateway to the world,
and the key role we play in facilitating and supporting New Zealand tourism and trade. We are New
Zealand’s busiest international and domestic airport and act as a key regional hub, serving a city that
represents around a third of the New Zealand population. We take our responsibility as one of New
Zealand’s most important infrastructure assets seriously, and we are conscious that the capacity,
resilience and quality of the facilities we provide directly impacts our airline and cargo customers,
passengers, and the wider regional and national economies.
Our pricing objectives reflect this responsibility, as we seek to deliver the resilience, capacity and
infrastructure needed to respond to recent and forecast growth and to build the airport Auckland and
New Zealand needs, while ensuring our capital and operating costs remain efficient.
Our vision for aeronautical pricing is that charges will be at a level that:
• supports an aeronautical investment programme that provides long-term benefits for airlines, cargo
customers and passengers;
• provides a sound, reliable and resilient quality of service to users of the airport and they benefit
from efficiencies over time;
• incentivises innovation and continuing efficiencies;
• enables the delivery of efficient services with the right balance between capital investment,
operating expenditure, resilience, and the long-run needs of users; and
• provides a fair return for investors on existing infrastructure and the ongoing investment in airport
facilities and services.
When setting prices, Auckland Airport balances economic principles which promote efficient pricing with
practicable price structures. Auckland Airport is now over 50 years old. Airline customers have enjoyed
the lowest aeronautical charges in the region for an extended period of time. Now a step-change in
infrastructure investment is needed to ensure that the airport can meet long-run capacity, safety,
resilience and customer experience requirements. Delays to investment would undermine these
outcomes, and only add further to the long-run cost of capital investment required.
In proceeding with this investment plan, Auckland Airport has been highly cognisant of the cost of the
programme. Aviation was significantly impacted by COVID-19 which required that most aeronautical
projects were put on hold during the pandemic, including the planned terminal development. The
pandemic has also contributed to a permanent step-change increase in construction costs. Accordingly,
we have undertaken extensive analysis to optimise the cost of the capital plan to strike the right balance
between managing capital costs and meeting the long-run capacity, safety, resilience, efficiency and
experience that our customers and passengers expect.
2.1. Consultation on PSE4 prices
The final pricing decision for PSE4 is the culmination of two years of consultation with
Substantial Customers as the aviation industry has emerged from the global COVID-19 pandemic. It is
underpinned by a capital investment programme developed in consultation with customers over a much
longer period. Auckland Airport believes the pricing decision fai rly reflects the operational and capital
investment needed to serve the passengers of today, and to become the airport Auckland and New
Zealand needs for the future. Through this process we have carefully considered the cost of investment
against alternatives, and the resulting impacts on capacity, safety, resilience, efficiency and customer
experience.
Auckland Airport is not required to apply the Commission's input methodologies in pricing. However,
Auckland Airport has been materially guided by the information disclosure regime when developing its
Aeronautical Pricing Decision. We are conscious that all parties were engaged in the development of
the regulatory regime, and we felt it was sensible to leverage the considerable resources that have
been invested in that process when setting prices. Where appropriate, Auckland Airport has adopted
approaches that are consistent with the Commission’s methodologies and/or with the spirit and intent
of Part 4 regulation.
8
2.1.1. FY23 price freeze reduced FY23 revenues by over $100 million
After considering the feedback provided by Substantial Customers on the price freeze consultation that
started in June 2021, in January 2022, Auckland Airport decided to hold prices flat for the 2023 financial
year (“FY”) at 2022 financial year prices (but with the $2.00 / international pax plus Goods and Services
Tax (“GST”) Regulatory or Required investment (“RRI”) charge discontinued) and to delay the PSE4
price reset by a year to support the airlines as the aviation industry recovered from the pandemic.
The decision to freeze prices in the first year of PSE4 resulted in Auckland Airport receiving more than
$100 million lower aeronautical revenue in the 2023 financial year compared with the prices required to
achieve our overall PSE4 Target Return for that year. This was effectively a 30% reduction on
aeronautical charges for FY23. These deferred revenues are forecast to be recovered over the
remaining four years of PSE4. This requires a significant step up in aeronautical prices in FY24. This
early-PSE4 aeronautical pricing relief was welcomed and supported by the majority of Substantial
Customers as the industry recovered from the impacts of the pandemic.
2.1.2. Passenger forecasts from an independent expert, incorporate price elasticity of
demand impacts
To ensure that the passenger forecasts are fair and unbiased, they are based on a set of forecasts from
independent industry experts DKMA. In developing its forecasts, DKMA considered the feedback
received from Auckland Airport and from airlines.
DKMA’s unconstrained forecasts have total passenger traffic growing from 16.0 million passengers in
FY23 (76% of FY19 which is the last full financial year prior to the pandemic), to 24.2 million passengers
in FY27 (115% of FY19). DKMA’s unconstrained forecasts project that domestic traffic will recover faster
than international, exceeding pre-pandemic levels by FY25 (103%), with international traffic expected
to take slightly longer to recover, reaching 105% of pre-pandemic levels in FY26.
Auckland Airport has adjusted the DKMA forecasts to align with our latest forecast outturn for the 2023
financial year and the more recent passenger demand estimates developed by Auckland Airport for its
FY24 budget. Unconstrained forecasts beyond FY24 remain those provided by DKMA.
Potential price elasticity impacts on passenger demand from rising aeronautical charges being passed
through to airfares was an issue that was raised by airlines and considered throughout the consultation.
Based on analysis from global aviation economics experts InterVISTAS, DKMA’s unconstrained
forecasts were adjusted for the potential price elasticity of demand impacts due to Auckland Airport’s
aeronautical charge increases.
Based on the final pricing decision, InterVISTAS estimated that price elasticity of demand impacts could
dampen total passenger numbers over the entire PSE4 period by between 0.6% and 1.1%. It found that
domestic trunk routes will be most impacted, with those passenger numbers estimated to be dampened
over the PSE4 period by between 0.9% to 1.5%. Of note, InterVISTAS' elasticity analysis was based
on average ticket prices that prevailed in FY19 growing in-line with inflation, not the current significantly
higher prices currently being charged by airlines (which if used would have led to lower forecast price
elasticity of demand impacts).
InterVISTAS’ price elasticity of demand estimates were used to prepare the constrained long run
passenger forecasts used to set prices as set out in the following chart.
9
Figure 1: Constrained long-run pricing passenger forecast
2.1.3. Priced capital investment of $2.6 billion forecast to be commissioned in PSE4
Auckland Airport is responsible for long-term master planning and the resilience of the airport system.
It is incumbent on us to consider the short, medium and long term implications of airport infrastructure
decisions. The infrastructure projects in our Final Capital Plan for PSE4 should be viewed in this context,
for example:
• The existing Domestic Terminal Building (“DTB”) faces considerable capacity constraints if it was
to continue to provide terminal services for domestic jets. Under the Auckland Airport Master Plan
the location of the DTB is required for future airfield, therefore any ongoing domestic jet operations
would significantly constrain long-run capacity growth. Extending jet services usage of the DTB
would require substantial capital investment, but still result in a significantly degraded passenger
experience and reduced operational efficiency over the medium to long term.
• Auckland Airport is a single runway operation. A critical resilience requirement is a contingent
runway that can be stood up within an operationally effective timeframe. The new Domestic
Processor location will enable development of the contingent runway, whereas continuing to have
jets operating at the existing DTB would seriously constrain its operation, resulting in substantial
aircraft landing and take-off delays and congestion. The planned pavement renewal projects on the
main runway are essential for resilience and safety reasons. Furthermore, an operating contingent
runway would be essential following any significant aircraft incident that closes the main runway for
a significant period of time. The only other alternative, early delivery of a second runway, would
come at a far greater cost.
• The Auckland Airport Board has decided that the Integrated Terminal Programme is the best option
for replacing the existing domestic terminal, so as to build resilience in the airport system and deliver
the required capacity and customer experience. It will build resilience by enabling the operation of
a contingent runway, responding to climate change including storm water upgrades, and meeting
capacity and regulatory requirements. It will also deliver an enduring, long-term solution aligned to
the 2014 Master Plan.
Regulated capital investment
Total regulated capital investment over the 10-year forecast period out to FY32 is forecast to be
$6.7 billion as set out in Schedule 18. This significant capital investment plan includes priced assets,
which are recovered through aeronautical charges, such as airfield and terminal facilities that are
common-use and used by airlines. The Terminal Integration Programme, including delivery of the new
Domestic Processor is at the core of this plan. These investments have been consulted on extensively
with Substantial Customers. Regulated assets that are not recovered through aeronautical prices, such
0
2
4
6
8
10
12
14
16
FY98FY99FY00FY01FY02FY03FY04FY05FY06FY07FY08FY09FY10FY11FY12FY13FY14FY15FY16FY17FY18FY19FY20FY21FY22FY23FY24FY25FY26FY27FY28FY29FY30FY31FY32
PSE1PSE2PSE3PSE4PSE5
Millions
Domestic
International including transits
10
as cargo facilities, airline lounges, airline offices and the allocated share of common assets to non-
priced assets are also included in this total investment forecast over the 10-year planning horizon.
Priced capital investment for PSE4
The Final Capital Plan for PSE4 pricing includes a forecast of $2.6 billion of commissioned assets (ie
assets to be completed and operational) during PSE4 – this is down $0.5 billion from the initial
$3.1 billion estimated in the first iteration of the capital plan.
For PSE5, the forecast capital plan has decreased by $1 billion from the capital plan first consulted on
with airlines. The less-certain PSE5 aeronautical capital expenditure projects that were consulted on
with airlines were grouped into a high capital investment scenario. Those projects are not reflected in
the baseline forecast set out in Schedule 18. The high capex scenario comprises mainly capacity related
projects that are subject to future optionality and uncertainty. Those projects will be subject to further
consultation ahead of PSE5 pricing, and the forecast commissioned assets for the PSE5 pricing period
will be re-forecast and consulted on ahead of setting prices for PSE5.
Table 2: Assets commissioned forecast for PSE4 pricing, and indicative for PSE5
($million) PSE4 PSE5
Draft Capital Plan 3,115 4,159
Revised Capital Plan 2,793 3,069
Final Capital Plan 2,575 3,107
Airline consultation on capital investment
Auckland Airport has been consulting with Substantial Customers on its capital investment plan,
including the Terminal Integration Programme, for well over a decade. This consultation has informed
the Auckland Airport Master Plan, and refinement of options and design of future domestic terminal
operations at Auckland Airport.
In the most recent phase of formal capital expenditure consultation associated with the PSE4
aeronautical pricing consultation, Auckland Airport has consulted with airlines on three iterations of the
capital plan (draft, revised, and final). These plans were informed by detailed reviews and airline
consultation to identify and assess cost/benefit trade-offs, including workshops with airlines to assess
the trade-offs. Further work to refine and update certain project-specific cost estimates (concurrent to
the value-engineering review) identified cost increases, mostly due to the strong and worldwide
construction inflation which has occurred post-COVID. Those cost increases offset some of the savings
identified.
Terminal Integration Programme
On 16 March 2023, Auckland Airport approved both the Domestic Processor preliminary design and
funding to complete the remaining design phases of the Domestic Processor, and reaffirmed its May
2021 decision to proceed with the Terminal Integration Programme. This was considered to be the best
decision in the long-term interests of airlines, passengers and the New Zealand economy.
The decision to re-affirm the Terminal Integration Programme was taken after extensive consultation,
analysis and careful consideration, but ultimately without the support of airlines. Although
Air New Zealand and BARNZ supported the almost identical Paheko East pathway in August 2021, this
position has changed reflecting the higher forecast airport prices, changes which are partly due to
increased capital expenditure costs, but also resulting from updating our midpoint post tax WACC
estimate as set out in section 3.4.1.
Airlines continue to call for a materially lower cost alternative to be presented, but they have not
proposed any viable, long run alternatives themselves. Auckland Airport has considered a large number
of alternative options throughout the consultation process, in terms of the type of terminal that is built,
its location at the airport, its cost and the extent to which it is integrated. Through this extensive analysis
and consultation, no viable alternatives that could meet all necessary requirements and that would be
materially lower cost were identified by either Auckland Airport or proposed by airlines.
11
Airlines continue to request that we operate the DTB as the main domestic terminal for jet operations
for a longer period of time, ie beyond 2030, to allow more time for an alternative plan to be developed.
The implications of delaying the Terminal Integration Programme have been considered in a number of
ways, including the implications on airfield operations during main runway slab replacement works, as
swell as the impacts on domestic passenger processing capacity, customer experience, safety and
resilience. Given the extensive negative impacts of this option, this was not considered to be a viable
alternative. Auckland Airport continues to be open to incorporating viable alternatives.
Notably, the Board’s 16 March 2023 decision to re-affirm terminal integration and to move to detailed
design had been previously deferred on four occasions since 19 December 2022 (and had been
deferred before that period as well – it was originally scheduled for decision in September 2022) in
response to airline feedback. This was done to ensure all alternatives and options were considered,
including final feedback from airlines.
This process informed the decision taken by the Auckland Airport Board to re-affirm this programme on
16 March 2023. Further detail on how these alternatives were considered is set out below in section
3.2.3.5.
2.1.4. Real operating expenditure per passenger forecast to return close to pre-
pandemic levels
A key component of Auckland Airport’s corporate strategy is to be innovative and efficient in how we
operate. In doing so, we aspire to set our operating costs at a level that maintains sound and reliable
service levels whilst also seeking to optimise our costs of operation to provide efficiencies to our
customers. Auckland Airport also considers potential trade-offs between operating and capital solutions
when making capital expenditure decisions.
Benchmarking indicates that operational costs at Auckland Airport are efficient. The Jacobs 2022 Airport
Performance Indicators report, showed that Auckland ranked 43
rd
out of 50 airports on operating cost
per passenger (where 50
th
has the lowest operating cost per passenger). Airports with a lower operating
cost per passenger were either significantly larger, benefitting from economies of scale, or were in
lower-labour-cost countries when compared to New Zealand (e.g. Mexico, India, Thailand).
Auckland Airport continues to balance the trade-off of the benefits that increased operational
expenditure can have for airport customers and passengers, against minimising aeronautical charges
for airlines. Our operational expenditure forecasts seek to strike the right balance between these two
competing tensions.
The current cost environment has been volatile, amid significant cost inflation and ramping up
operations as volumes have increased following the pandemic. However, forecast aeronautical
operational expenditure per passenger will reduce in both nominal and real terms over the pricing
period, with forecast real operational expenditure per passenger of $6.50 in FY27, returning close to
the pre--pandemic real operational expenditure per passenger of $6.41.
Figure 2: Operating cost per passenger for PSE4
$7.4
$7.7
$7.6
$7.2
$7.2
$7.4
$7.4
$7.2
$6.6
$6.5
$6.4
$0
$2
$4
$6
$8
$10
FY23FY24FY25FY26FY27
Nominal Priced Opex / PaxReal Priced Aero Opex / Pax (FY23$)
Real FY19 Priced Opex / Pax (FY23$)
12
2.1.5. Target return for PSE4 of 8.73%
Auckland Airport adopted a target return for PSE4 priced activities of 8.73%. This was set equal to the
midpoint (50
th
percentile) WACC estimate based on the 2016 WACC IM with updated comparable
company data inputs as at the end of June 2022 (ie the start of PSE4), excluding the prior 5 BPs
downwards adjustment to asset beta and applying the Commission’s most recently published Tax
Adjusted Market Risk Premium (“TAMRP”) estimate. Our approach to setting PSE4 Target Return was
independently reviewed by Dr Tom Hird from Competition Economics Group (“CEG”), whose work also
included evaluating the airline feedback received throughout the consultation process (refer below).
When considering the Auckland Airport approach to removing the 5 basis points downward adjustment
previously applied by the Commerce Commission, Dr Hird noted:
I do not consider that there is a valid conceptual or empirical case for presuming that
aeronautical asset betas are lower than non-aeronautical asset betas
2
Auckland Airport provided airline feedback on cost of capital from the consultation process to Dr Hird
and asked him to consider whether this feedback warranted changes to the target return that had been
proposed for PSE4 pricing. In Dr Hird’s view:
none of the submissions made give reason for AIAL to alter its proposed approach to estimating
the WACC for PSE4.
Auckland Airport is confident in our approach for the PSE4 aeronautical pricing decision is highly
principled and robust. This approach, supported by independent expert analysis, used updated market
data and the Commission’s most recent TAMRP estimate to replicate the Commission’s in force
2016 WACC IM, but it discontinued the now discredited 5 basis points downwards asset beta
adjustment. The input parameters used to support this target return are set out in section 3.4.1.
2.1.6. Charging structure remains largely unchanged from PSE3
Apart from the new washup mechanisms outlined in the next section, the overall structure of charges
remains largely unchanged from PSE3, with landing charges, passenger service charges, check-in
charges, and aircraft parking charges all levied separately. However, we have increased the transit
passenger charge to match the international passenger charge, but continued PSE3’s approach of only
charging once per transit passenger journey (charging on arrival but not departure).
We have also reduced the 48 hour exemption from parking charges for domestic freighters down to 12
hours, in order to manage congestion and encourage efficient use of the airfield. We have deferred the
imposition of these parking changes by twelve months to 1 July 2024 to give these customers time to
adjust their operations, and we will engage with domestic freighter operators on this change ahead of
its implementation. Prices were set on the basis that this adjustment would begin on 1 July 2023,
therefore this deferral means that Auckland Airport is foregoing some forecast FY24 aircraft parking
revenue and this would slightly reduce forecast IRR compared with that set out in this Price Setting
Disclosure.
The Runway Land Charge (“RLC”) is retained in the Schedule of Charges. But given the expected
delayed timing of second runway works, it is not expected to be triggered during PSE4 and has been
set at $0.00 per passenger for all of PSE4.
2.1.7. Wash-up mechanisms address asymmetric risk, and protect airlines from
capex underspend
Auckland Airport has introduced two washup mechanisms for PSE4: an asymmetric risk washup, and
a capex washup.
2.1.7.1. Asymmetric risk sharing wash-up
Auckland Airport has adopted an ex post asymmetric risk sharing washup mechanism in PSE4 to
partially compensate Auckland Airport or airlines for a 15% or greater reduction or increase in
2
CEG Economics, AIAL asset beta and WACC estimates for PSE4
13
aeronautical demand (measured as aeronautical revenues) versus the price setting forecast. Any
washup will only occur to the extent that it coincides with a 75 basis point (i.e. 0.75%) or more reduction
(or increase) in actual PSE4 post-tax IRR versus the Target Return.
If triggered, the washup would recover (or refund) the lesser of the revenue shortfall (or surplus) over
and above the 15% threshold, and the IRR shortfall (or surplus) over and above the 0.75% threshold.
This ex post washup would not impact PSE4 prices; instead it would be carried forward as a positive or
negative pricing asset base value adjustment and be forecast to be recovered via aeronautical prices
over PSE5.
Auckland Airport notes that advice from CEG was clear that WACC does not compensate for
asymmetric risk because the Commission’s global comparable airports used to determine asset beta
enjoy on average more generous asymmetric risk washup mechanisms than the very modest recovery
mechanism proposed by Auckland Airport in the Draft Pricing Proposal (“DPP”). Dr Hird noted:
AIAL is not proposing double compensation. In fact, AIAL’s proposals fail to fully compensate
for asymmetric risk. This is because AIAL’s wash-up mechanism only reduces but does not
eliminate asymmetric risk. AIAL would be justified to, and if it followed UKCAA precedent for
Heathrow AIAL would, include in its building block costs an estimate of the expected cost of
being exposed to the residual asymmetric risk. AIAL has not done so and, therefore, is under-
compensated for exposure to asymmetric risk.
3
Auckland Airport is not seeking to recover any of the $500 million-plus revenue shortfalls suffered due
to the pandemic versus the price setting forecast for PSE3. This contrasts to certain European
jurisdictions where airports are actively discussing models with regulators to recover previously incurred
pandemic losses through future pricing periods.
4
2.1.7.2. Capex washup
Auckland Airport has adopted a capex washup in PSE4 that is one-way, and can only favour airlines.
This has been adopted at Auckland Airport’s initiative, given the very large increase in forecast capital
expenditure over PSE4 versus Auckland Airport’s historic capex rates, the deliverability challenges that
this material capex increase poses, and the resulting potential for Auckland Airport to materially exceed
our Target Return for PSE4 by under-delivering versus the commissioned capex forecast.
A commissioned capex washup would be triggered where total assets commissioned fall short of
forecast by 7.5% or more and there is an actual priced PSE4 post-tax IRR that exceeds Target Return
by 75 basis points or more. If triggered, the value carried forward would be equal to the lesser of the
economic value of the capex shortfall over and above the 7.5% capex threshold, and the IRR surplus
over and above the 0.75% threshold. These thresholds have been adjusted in response to feedback
that they were set too wide in the DPP.
This is a one-way wash-up. It does not benefit Auckland Airport in the event capital investment exceeds
forecasts. Instead, it only compensates airlines if commissioned capital investment forecasts are not
met for PSE4 and this drives above-target returns for Auckland Airport.
The Regulatory and Requested Investment (“RRI”) policy for capex has also been rolled into the capex
washup to avoid re-setting prices in-period when RRI capex is incurred. An RRI wash up for capex
would be triggered where total assets commissioned exceeds forecast, or where total assets
commissioned falls short of forecast, but priced IRR also falls short of target return by 75 basis points
or more.
2.1.8. Prices for Price Setting Event 4
Following the price freeze in FY23, aeronautical prices increase in FY24, but they are coming off a very
low base. Domestic charges have been 40-50% lower than comparable airports in the Australia and
New Zealand region for a number of years. The PSE4 increases will bring prices in-line with those at
comparable airports.
3
CEG, Review of feedback on AIAL WACC estimates for PSE4
4
CEG Report for AIAL p. 56
14
The rise in aeronautical prices over PSE4 is necessitated by passenger volumes that are still below
pre-pandemic levels, the catch-up from the circa $100 million under-recovery of revenues in FY23, the
significant capital investment that is planned to be delivered during PSE4, and the increase in Target
Return from PSE3 based on updated input parameters. The overall revenue per passenger (“RPP”) of
the pricing decision is outlined below.
The table demonstrates that in the 2024 financial year, Domestic Jet RPP will increase to $10.25 per
passenger; then increase further to $15.46 in FY27, or to $13.97 per passenger in 2023 dollars.
Regional RPP in FY24 will be $7.10 per passenger, increasing to $10.70 per passenger by FY27, or to
$9.67 per passenger in 2023 dollars. International RPP will be $32.78 per passenger in FY24,
increasing to $46.13 per passenger by FY27, or to $41.68 per passenger in 2023 dollars.
Figure 3: Nominal and inflation adjusted RPP price paths, PSE4
The above RPP price paths are based on the key passenger and landing charges set out in the table
below.
$6.73
$10.25
$11.75
$13.47
$15.46
$9.92
$11.09
$12.43
$13.97
$6
$12
$18
FY23FY24FY25FY26FY27
NominalReal
Domestic
Jet
$4.43
$7.10
$8.14
$9.33
$10.70
$6.87
$7.68
$8.61
$9.67
$4
$8
$12
FY23FY24FY25FY26FY27
NominalReal
Regional
$23.39
$32.78
$36.70
$41.13
$46.13
$31.73
$34.64
$37.96
$41.68
$20
$30
$40
$50
FY23FY24FY25FY26FY27
NominalReal
International
15
Table 3: Prices for key charges, PSE4
FY23 FY24 FY25 FY26 FY27
MCTOW charges
<6 tonnes $/Landing $60.24 $75.64 $86.98 $100.03 $115.04
6-40 tonnes
$/tonne per landing
$8.73 $12.74 $14.65 $16.85 $19.38
40 tonnes $14.20 $20.72 $23.83 $27.41 $31.52
Passenger charges
Domestic Passenger
Charge (DPC)
$/pax
$3.10 $5.05 $5.80 $6.67 $7.67
Regional Passenger
Charge (RPC)
$/pax
$2.64 $4.53 $5.21 $5.99 $6.88
International Passenger
Charge (IPC)
$/pax
$15.49 $21.20 $23.56 $26.20 $29.15
Transit Passenger
Charge (TPC)
$/pax
$6.24 $21.20 $23.56 $26.20 $29.15
Runway Land Charge $/pax $1.19 $0.00 $0.00 $0.00 $0.00
Benchmarking of our proposed aero charges for FY24 shows that Auckland Airport’s proposed charges
for PSE4 are in-line with comparable airports in the Australasian region.
We have benchmarked our real (inflation adjusted) aeronautical charges per passenger in FY24 and
FY27 with comparable airports in the region in FY24. By adjusting for inflation, this allows for a like-for-
like comparison over time. FY24 is used as the basis for comparison, as future charges at all major
airports (except for Christchurch) are not publicly available.
For FY24, notwithstanding the step-up following the price freeze, domestic and regional charges will
remain well below that of Christchurch and Wellington airports. In FY27 real domestic jet charges will
be slightly lower than both Christchurch and Wellington airports’ real FY24 charges, while real regional
charges will be lower than Wellington, and consistent with those at Christchurch.
For international charges, Auckland Airport’s FY24 prices are below the published prices of Sydney,
Melbourne and Brisbane airports. By FY27, Auckland’s charges will be higher than the current FY24
charges at Melbourne, slightly higher but broadly in-line with the FY24 charges at Sydney, and below
the charges at Brisbane. Auckland Airport’s FY27 charges could well be lower than Sydney and
Melbourne airports if those airports’ price increases are above inflation over the next four years.
16
Figure 4: Airport charges benchmarks, real $NZD
5
Overall, we consider that our price path for PSE4 is reasonable given the substantial investment in
airfield and terminal infrastructure that we are forecasting to deliver over this period, and the increase
in the cost of capital relative to PSE3. This investment is essential to maintaining capacity, resilience
and quality of the facilities we provide which directly impacts our airline and cargo customers,
passengers, and the wider regional and national economies.
2.1.9. Price Setting Event 5
No decisions on PSE5 aeronautical prices have been taken as part of this PSE4 pricing decision. The
uncertainty of prices beyond PSE4 must be stressed, as they are influenced by demand growth, actual
aeronautical capex delivered and the financial inputs used to derive WACC. However, as set out in the
capital investment forecasts, there is a significant amount of investment forecast to be completed during
PSE5. Recovering a fair return on the cost of this investment will result in higher prices.
Importantly, rising airport charges is not a good reason to not invest in nationally significant long-dated
airport infrastructure. The benefits to the New Zealand economy and the travelling public unlocked
through the planned capital investment at Auckland Airport is substantial. The very large increases in
air fares seen recently because of COVID-related shortages in airline capacity demonstrate that the
cost of constrained airport capacity, including the risk of materially higher airfares, would likely far
outweigh the impact of the higher aeronautical charges (which comprise only a small share of an airfare)
to fund the required airport infrastructure.
5
Charges for year-ended June 2024, except for Wellington where charges are for year ended March 2024, Melbourne where
charges are effective from October 2022. Australian Airports charges are based on published rates, exclude security costs, and
have been converted to NZD at the rate of 1.078 AUD / NZD. All airport charges rebased to FY23 dollars using CPI
$9.92
$13.97
$14.68
$14.10
$6.87
$9.67
$10.81
$9.67
$0
$4
$8
$12
$16
Auckland
FY24
Auckland
FY27
Wellington
FY24
Christchurch
FY24
Auckland
FY24
Auckland
FY27
Wellington
FY24
Christchurch
FY24
Domestic JetRegional
Domestic
Jet
Regional
$31.73
$41.68
$40.82
$34.77
$54.85
$0
$15
$30
$45
$60
Auckland (FY24)Auckland (FY27)SydneyMelbourneBrisbane
International
International
17
Discussions with airlines will continue ahead of the aeronautical pricing decision for PSE5 on options
to mitigate price elasticity of demand concerns raised by airlines for PSE5.
2.2. Consultation with Substantial Customers on Standard Charges
Auckland Airport has obligations to consult with Substantial Customers on significant capital investment
and pricing decisions. While capital expenditure forecasts are a key input into the PSE4 pricing decision,
there were in fact two separate decisions to be made by Auckland Airport under the AAA, and two
separate consultation processes.
2.2.1. Pricing consultation
Section 4B of the AAA requires Auckland Airport to consult with Substantial Customers on aeronautical
charges at least every five years.
Auckland Airport commenced an extensive consultation process with
its Substantial Customers in June 2021 to review and revise its Standard Charges for PSE4.
Given the uncertainty as to the timing and shape of the aviation industry’s recovery from the COVID-19
pandemic, Auckland Airport consulted with Substantial Customers on a delay to the PSE4 pricing
decision. This resulted in a price freeze for the 2023 financial year with the support of the majority of
airlines, which acknowledged that any shortfall in return would be recovered over the balance of PSE4.
The consultation process picked up again following the price freeze with the release of the first of three
consultation papers on 7 July 2022. The consultation process concluded with Auckland Airport releasing
updated Standard Charges on 8 June 2023 that came into effect from 1 July 2023.
Auckland Airport conducted a robust, extensive and meaningful consultation process with Substantial
Customers prior to making the Aeronautical Pricing Decision. Our priority was to ensure that the
consultation process provided Substantial Customers with sufficient information and time to reflect on
and provide their views on Auckland Airport’s proposals, and we consider that we have
comprehensively achieved this objective.
Auckland Airport was flexible and reactive to airline feedback throughout the consultation process. For
instance, in response to the level of concern airlines raised with the scale and cost of the proposed
capital plan earlier in the consultation, Auckland Airport decided that a review of the Draft Capital Plan
was required, and so adjusted the consultation timelines accordingly. Auckland Airport also granted
Substantial Customers extensions to consultation timeframes on numerous occasions where
requested.
Auckland Airport valued the feedback we received from our Substantial Customers, which helped us to
understand their views and priorities, and which informed our final decisions on Standard Charges.
Throughout the consultation process, Auckland Airport tested our proposals with Substantial
Customers, listened carefully to airline feedback, and made a number of material changes to our
proposals in response to airline views.
2.2.2. Capital investment consultation
Auckland Airport has also been consulting with Substantial Customers prior to the approval of significant
capital expenditure (such as the Terminal Integration Programme), pursuant to section 4C of the AAA.
Auckland Airport has been engaging with Substantial Customers on an integrated terminal and related
capital works since 2012. This included the following phases of consultation:
• 2014: Master Plan
• 2017: Terminal Development Plan
• 2018-20: Domestic Jet Facility
• 2021: Paheko Consultation to identify Integrated East Terminal Pathway
• 2022-23: 10-year Capital Plan consultation
The 2014 Master Plan settled on a south-eastern location for the new domestic terminal, integrated with
international, as the optimal terminal layout – a significant change from the previous northern airfield
location, that was proposed by airlines and adopted by Auckland Airport in its Master Plan.
18
Following the most recent phase of formal consultation, on 16 March 2023, Auckland Airport advised
its Substantial Customers that the Board had unanimously resolved to approve both the
Domestic Processor preliminary design and the funding to complete the remaining design phases and
reaffirm its May 2021 decision to proceed with the Terminal Integration Programme, including the
Domestic Processor. The decision reflected the culmination of engagement and consultation with airline
customers on the development dating back to 2012.
The Terminal Integration Programme and Domestic Processor location align with the 2014 Master Plan
and are the outcome of a significant period of planning and consultation. Auckland Airport considers
that this programme is the best option to deliver capacity, resilience and a future growth pathway for
Auckland Airport.
As explained in section 3.2.3, no viable alternatives that could meet all necessary requirements and
that would be materially lower cost were identified by Auckland Airport or proposed by airlines through
the extensive consultation that has been undertaken. This follows Auckland Airport’s extensive
consultation on the Terminal Integration Programme which has taken place since the 2014 Master Plan
during which time Auckland Airport has rigorously considered alternatives in terms of the type of
terminal that is built, its location at the airport and the extent to which it is integrated with existing
facilities. Throughout this engagement and consultation, the expected cost of alternatives has been
considered in assessing choices and trade-offs as the programme has been developed.
19
3. Forecast total revenue requirement
Clause 2.5(1)(c) of the Determination requires a description of how each of the components of Auckland
Airport’s revenue requirement in Schedules 18 and 19 have been determined,
6
including an explanation
of:
• the rationale for the basis of preparing these components and any related assumptions;
7
• the extent to which these components were used to determine the forecast total revenue
requirement;
8
and
• the differences (if any) between the preparation of each component and the most recent
corresponding historical financial information disclosed in accordance with clause 2.3 of the
Determination.
9
Clause 2.5 (1) (d-u) also sets out specific information that is required to be disclosed related to specific
elements of the forecast revenue requirement. These disclosure requirements are met in this section.
3.1. Overview of forecast total revenue requirement
Auckland Airport’s total revenue requirement for its Total Regulated Activities comprises revenue from
three types of activities:
• Aeronautical Pricing Activities: These activities include all airfield and most specified passenger
terminal services provided by Auckland Airport. Revenue associated with these activities is
recovered by way of Standard Charges, where a building blocks model is used to determine the
revenue requirement.
10
• Non-Isolatable Activities: These activities include a small sub-set of specified passenger terminal
services that are not covered by Standard Charges but where the assets and operating costs
cannot reasonably be separately identified from the assets and operating costs associated with
Aeronautical Pricing Activities. The revenue associated with these activities is treated as an offset
to the building blocks revenue requirement for Aeronautical Pricing Activities;
11
and
• Other Regulated Activities: These activities include all aircraft and freight services, along with
those specified passenger terminal activities subject to leases or licences where the relevant assets
and operating costs can be isolated from the assets and operating costs associated with
Aeronautical Pricing Activities. These include leased tenancies (e.g. office space and VIP lounges)
and collection facilities for duty free. The revenue requirement for these activities is determined
through negotiation of individual leases and/or licences between Auckland Airport and individual
customers.
3.1.1. Revenue requirement for Aeronautical Pricing Activities
Auckland Airport has used a building blocks model for Aeronautical Pricing Activities. In forecasting the
required revenue, Auckland Airport’s aeronautical pricing objective was to earn a normal economic
return, ie our PSE4 Target Return, on the forecast priced asset base as well as recovering forecast
depreciation and operating expenses plus unlevered tax.
The priced asset base over PSE4 was forecast by starting with the opening asset base, and then
forecasting each of the building blocks inputs into the asset base, including commissioned capital
6
These components are listed in clause 2.5(1)(c)(i)-(vii) of the Determination.
7
Clause 2.5(1)(c)(viii) of the Determination.
8
Clause 2.5(1)(c)(ix) of the Determination.
9
Clause 2.5(1)(c)(x) of the Determination.
10
This revenue appears in Schedule 19(v): Total Revenue Requirement for Pricing Assets as “Forecast revenue from airport
activity charges applicable to the price setting event”.
11
This revenue appears in Schedule 19(v): Total Revenue Requirement for Pricing Assets as “Forecast lease, rental and
concession income (applicable to the price setting event)” and “Forecast other operating revenue (applicable to the price setting
event).
20
investment and depreciation on current and future assets (there were no forecast revaluations for priced
activities).
The target return was determined based on the midpoint weighted average cost of capital (“WACC”)
estimate calculated by updating the Commerce Commission’s 2016 Input Methodology for the latest
data available as at the start of PSE4 and discontinuing the previous 5 basis points asset beta
downwards adjustment versus the comparable company average.
Other recoverable expenses under the building block model were also forecast, including operational
expenditure and levered tax. The high -level building blocks to determine the revenue requirement are
set out below in Figure 5.
Figure 5: Building blocks to forecast required revenue
For further information on Auckland Airport’s pricing methodology for setting Standard Charges, refer
to section 4.
3.1.2. Other Regulated Activities
We note that a target return and building blocks model is not used to determine the revenue requirement
for Other Regulated Activities, as these revenues are primarily generated through arms-length
negotiated leases. The periodic nature of lease negotiations means that investment planning and
revenue forecasting for these activities does not necessarily align with the five-yearly pricing cycle for
Aeronautical Pricing Activities. The revenue forecasts for all Other Regulated Activities covered by way
of leases (both aircraft and freight activities and tenanted properties within the terminal) are set with
reference to market rents for comparable properties. But, because of the extra RAB value to be
indirectly allocated by our space-based shared asset allocation rules to Other Regulated Activities over
PSE4, market rents are not forecast to deliver a full economic return on that additional indirectly-
allocated RAB. This is associated with Auckland Airport’s terminal development programme, much of
which will not directly alter the floor area or the market value of the spaces leased to aeronautical
customers. Hence forecast returns from Other Regulated Activities are well below our Target Return for
PSE4.
21
3.2. Forecast asset base
3.2.1. Disclosure requirement
Clause 2.5(1)(c)(i) and Schedule 18(vi) require Auckland Airport to provide a description of how the
components of the “revenue requirement” for specified airport service“ ("Total Regulated Activities”)
has been determined.
Schedule 19(v) requires Auckland Airport to provide an equivalent explanation for the subset of
specified airport activities covered by the Aeronautical Pricing Decision“ ("Aeronautical Pricing
Activities”).
3.2.2. Opening asset base
A fundamental input into the building block approach is the asset values used to determine required
revenue, of which the opening asset base is a key input. Auckland Airport’s information disclosures
provide a robust starting point for determining the opening asset base.
Unlike in past years, where the opening asset base for the pricing period would need to be forecast as
the final year of the previous pricing period is normally not yet complete at the time we set prices, given
the price freeze for the first year of PSE4 the closing regulated asset base for PSE3, as reported through
information disclosure, was available at the time of the pricing decision and this disclosure.
Key steps in determining the opening asset base included:
• updating the closing RAB for financial year (“FY”) 2022 as per information disclosure, to reflect the
updated allocation rules determined through the PSE4 pricing consultation;
• determining the priced asset base by allocating the opening regulated asset base between priced
and non-priced activities; and
• maintaining the moratorium on revaluations for priced assets.
This section of the paper meets the disclosure requirements under clause 2.5 (1)(c)(i), and clause 2.5
(1)(j) of the Determination.
3.2.2.1. Opening total asset base for PSE4
The opening RAB for PSE4 has been based on the closing RAB for the 2022 financial year, as per the
information disclosures for the 2022 financial year, adjusted for updated allocation rules that have been
determined through the PSE4 pricing consultation.
Updates to the allocation rules for PSE4 resulted in an upwards adjustment to the opening PSE4 RAB
from the closing 2022 information disclosure RAB of $59.6 million. This change in allocations can be
attributed to the forecast recovery of aeronautical activities relative to non-aeronautical activities over
PSE4 versus the 2022 financial year, as they were still dampened in 2022 by the lingering impacts of
the pandemic.
The asset valuations used for the opening asset base remain unchanged from Auckland Airport’s 2022
information disclosures.
Table 4: Reconciliation of PSE4 opening RAB (total regulated activities)
Opening Regulatory Asset Base $(‘000)
Regulatory asset base as at 30 June 2022 1,638,341
Adjustment resulting from cost allocation 59,550
Estimate of regulatory asset base at start of price setting event 1,697,891
Source: Schedule 18 (vii)
22
3.2.2.2. Determining the priced asset base
The opening RAB for total regulated activities was allocated between Aeronautical Pricing Activities and
Other Regulated Activities. Under information disclosure, the total asset base is categorised into three
activities – airfield activities, terminal activities, and aircraft and freight activities. Determining the priced
asset base required two main steps to be undertaken:
• remove the value of all aircraft and freight assets from the total asset base; and
• allocate and remove the value to non-priced terminal activities within the terminal activities asset
category.
Non-priced terminal assets include airline lounges, airline offices, and the duty-free collection point. The
floor space – and the associated proportionate share of the value of the domestic and international
terminals – occupied by these non-price aeronautical activities was excluded from the priced asset
base. The allocations of the priced and non-priced components of the aeronautical asset base are set
out in the table below.
Table 5: Allocation of total asset base to priced asset base
$(‘000) Priced Non-priced Total
Airfield $676,499 $- $676,499
Terminal
$639,089 $239,833 $878,922
Aircraft and Freight
$- $142,470 $142,470
Total asset base
$1,315,588 $382,303 $1,697,891
3.2.2.3. Moratorium on asset valuations
Auckland Airport has maintained the moratorium on revaluations of priced aeronautical assets from
2006. This approach, which is consistent with past practice, has been subject to extensive consultation
and scrutiny in previous PSEs. Accordingly, Auckland Airport continued the carry-forward of the $86.1
million downwards adjustment to remove historic airfield and terminal land revaluations.
Further information related to the carry-forwards adopted to reflect the moratorium on asset valuations
is included in section 3.2.3.
3.2.3. Capital Investment
This section together with Appendix A meets the disclosure requirements under clause 2.5(1)(l-m) of
the Determination. Specifically, clause 2.5(1)(l) requires the disclosure of forecast capital expenditure
by category and the aims and objectives of key capital expenditure projects. Clause 2.5(1)(m) requires
Auckland Airport to publicly disclose, for the period of five consecutive years immediately following the
price setting event, a description of each key capital expenditure project as disclosed in accordance
with Schedule 18, including an explanation of:
(i) the process by which the need for the key capital expenditure project was determined,
including any assessment criteria;
(ii) any consumer engagement undertaken as part of the process referred to in clause 2.5(1)(m),
including a description of how consumer demands have been assessed;
(iii) any alternative expenditure projects considered, and the rationale for excluding those
alternative projects;
(iv) the extent to which the key capital expenditure project is reflected in pricing; and
(v) any constraints or other factors on which successful completion of each key capital
expenditure project is contingent.
The key capital expenditure projects for the period of five consecutive years immediately following PSE4
which are referred to in this section and are detailed in Appendix A are set out in Schedule 18(xi) which
also includes the key capital expenditure projects forecast until 30 June 2032.
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This section provides a high-level overview of Auckland Airport's approach to capital expenditure
planning and developing its capital investment programme.
3.2.3.1. Overview of Auckland Airport’s capital expenditure planning
Auckland Airport is now over 50 years old and a step-change in infrastructure investment is needed to
ensure the airport delivers a reliable, resilient, safe service that meets the expectations of users, and
caters to future demand and capacity requirements. Auckland Airport’s Capital Plan seeks not only to
expand capacity to meet expected future growth, but to address constraints that are a result of the
existing legacy infrastructure from when the airport was developed.
These plans have been in development since 2012 in consultation with partner airlines. This
engagement culminated in 2019 with plans for the major development of a new Domestic Jet Hub,
which was to be delivered with connections to the international terminal, planned to be open and
operational in 2023. However, the global pandemic happened. In response, all major projects at
Auckland Airport were put on hold amid considerable uncertainty for the aviation industry and the future
of travel.
The pandemic was highly disruptive. It closed international borders and required people to stay at home,
with aviation one of the most impacted industries. This included inflationary pressures becoming
common globally, and a permanent step-change increase in construction costs..
During the period aviation was significantly impacted by COVID-19, and while most aeronautical
projects remained on hold, Auckland Airport re-examined its long-term aeronautical infrastructure
development plans to ensure they were appropriate for the post-pandemic world. This exercise
confirmed that Auckland Airport still required a new domestic terminal facility and identified the optimal
location and pathway to delivering this critical infrastructure.
At the heart of our ten year aeronautical investment plan is the terminal integration programme. This
includes several distinct projects required to develop the Domestic Processor – ie a new domestic
terminal facility integrated with the existing international terminal, with common facilities including
check-in, baggage, and pick-up drop-off areas.
This investment will enable the relocation of domestic jet services from the existing Domestic Terminal
Building (“DTB”) into the new integrated facility, enhancing customer experience and unlocking
additional domestic capacity to meet long-term demand forecasts. Jet operations using aircraft stands
and gates on the southern side of the existing DTB would constrain capacity of contingent runway
operations to such an extent that it would result in substantial delays and not be fit for purpose. These
operations are necessary for airport resilience and safety reasons, including renewal of slabs at the
centre of the main runway.
Many of the projects in the Terminal Integration Programme address airport resilience, such as services
upgrades or increasing stormwater capacity. These have been included in the programme as it is the
most efficient way of delivering this infrastructure. These works would be required even if the Terminal
Integration Programme was not being delivered. This programme will ensure that Auckland Airport
remains fit for the future and is able to meet demand for airport capacity. Not delivering this capacity
would constrain growth, cause a deterioration in the passenger experience, and increased operational
inefficiency and delays.
A shortfall in capacity would also risk significantly higher airfares paid for by passengers. As we have
seen post-pandemic, airfares have increased significantly owing to COVID-19 related airline capacity
shortages (aircraft and aircrew) as passenger demand has recovered. New Zealand-wide,
post-pandemic airfares are up around 60 per cent in nominal terms – or by around one-third after
inflation.
Forecast five- and ten-year capital investment programme
The aeronautical pricing process involves a thorough review of infrastructure priorities for the next
ten-years. The forecast capital plan represents our best estimate of project delivery as at June 2023.
Projects that are forecast to be completed within the five year price setting event window are reflected
in the building blocks approach to forecasting required aeronautical revenues.
The 10-year forecast gives a long-term view of airport investment that is planned, including projects that
are not due to be completed and reflected in aeronautical prices until the subsequent pricing period
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(PSE5 and beyond). While no decision on PSE5 prices has been taken as part of the PSE4 pricing
decision, throughout the consultation process, Auckland Airport provided airlines with a view on the
outlook for PSE5 to inform their responses on the PSE4 plans. Discussions with airlines will continue
ahead of the aeronautical pricing decision for PSE5 which is due in H1 calendar 2027.
Inherent uncertainty in forecasting capital investment programme
Forecasting the need and cost of capital investment required for the airport over 10 years is not an
exact science and inherently involves a significant amount of uncertainty due to a number of factors
including demand growth, changes in asset condition, changes in cost to deliver infrastructure, and new
information that may emerge on the needs and requirements of users. There has been significant
volatility as a result of the pandemic, adding additional uncertainty to long-term demand forecasts.
Auckland Airport’s approach to forecasting capital expenditure has been challenging given the amount
of disruption caused by the pandemic. The pandemic has disrupted demand, created uncertainty over
the short-medium term recovery of passenger volumes and caused construction cost inflation.
Auckland Airport sets out in this price setting disclosure and Schedule 18, the projects that are forecast
to be undertaken over the 10-year forecasting window. The programmes of work, and underpinning
projects included in Schedule 18 reflect the projects that we have a high degree of certainty will be
necessary to maintain operations of the airport and deliver the terminal integration programme.
The forecast capital plan includes the step-change of capital investment required to ensure Auckland
Airport it is fit for the future. Auckland Airport is highly cognisant of the cost of this programme. Airlines
have raised concerns about the overall scale of the capital investment programme during the lengthy
consultation period, and the impact that will have on future aeronautical charges. Therefore we have
considered an extensive number of options and alternatives to manage the overall cost of the
programme, including any lower whole of life cost and operational solutions. We have also considered
requests to delay the programme, however without any plausible alternative solution being proposed
by airlines this would only compound costs, and risk adverse impacts on airport resilience, safety,
capacity and passenger experience.
Summary of the 10 year capital plan
As outlined in Schedule 18, the 10-year investment plan includes 11 major programmes of work, total
capital investment cashflow on regulated assets of $6.6 billion is forecast over the 10 year forecast
period. At the centre of the plan is the Terminal Integration Programme. These programmes are
summarised in the below table. Further detail on these particular investment programmes, in
accordance with disclosure requirements, is included in Appendix A: Summary of Capital Investment
Programme consistent with pricing decision.
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Table 6: Summary of forecast capital expenditure
Capital Investment
Programme
Description 10-year
investment
($m)
Terminal Integration –
enabling projects and
airport resilience
Multi-year programme of enabling works to relocate infrastructure and
prepare the site for the construction of a new domestic jet pier and
headhouse integrated into the existing international terminal building
, and to
provide upgrades to improve airport resilience.
1,641
Terminal Integration —
Domestic Processor
Domestic jet operations integrated into existing international terminal, with a
new domestic jet pier and terminal headhouse – due to open in 2028-29
2,092
Terminal Integration —
Transport Hub
This development will transform how travellers arrive and depart from the
main airport terminal, while paving the way for any future mass rapid transit
to deliver passengers direct to terminal
163
Domestic Terminal
Building Upgrades
Provides the upgrades necessary to accommodate domestic jet operations
through to the opening of the integrated domestic terminal in 2028-29
148
Aeronautical Programme The aeronautical capacity programme includes upgrades to the international
terminal and airfield facilities and airport emergency services.
738
Contingent Runway This will re-establish a contingent runway on Taxiway Alpha that is safe,
reliable and fit for purpose for operation with expected future demand and
the latest regulatory requirements – this enables main runway slab renewals,
and defers the need for a second runway further into the future
137
Roading Programme This programme delivers elements of the long-term transport masterplan; the
purpose of which is to increase the capacity and efficiency of the roading
network
164
Utilities Programme The purpose of this programme is to either increase the capacity of existing
utility networks such as electricity or water or to introduce new functionality to
existing networks such as airside electric vehicle charging facilities or
wastewater recovery systems across the airport precinct
82
Renewals – airfield
pavement and ground
lighting
Airfield renewals programme will invest to maintain and renew airfield
pavements and ground lighting assets 584
Renewals — other The primary aim of this programme is to ensure that Auckland Airport’s
existing assets are fit for purpose, safe to operate and enable the efficient
day to day operation of the business
561
Cargo Precinct Given the capacity constraints of the current facilities, the new cargo terminal
project proposes a dedicated and consolidated cargo handling facility on the
northern side of the airfield at Manu Tapu
285
Total 6,596
Base and high capital expenditure scenarios
The less-certain PSE5 aeronautical capital expenditure projects that were consulted on with airlines
were grouped into a high capital investment scenario. Those projects are not reflected in the baseline
forecast set out in Schedule 18. The high capex scenario comprises mainly capacity related projects
that are subject to future optionality and uncertainty. Those projects will be subject to further
consultation ahead of PSE5 pricing, and the forecast commissioned assets for the PSE5 pricing period
will be re-forecast and consulted on ahead of setting prices for PSE5.
In total, the additional capital expenditure projects included in the high scenario were forecast to have
around $1.1 billion of commissioned cost, of which around $1 billion was forecast to apply to
aeronautical charges in PSE5. These projects, not included in the Schedule 18 10 year capital
investment forecast, are summarised in the below table. While it is possible any of these projects will
be delivered during PSE5, the likelihood that they would all be delivered is lower.
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Table 7: Capital investment projects in high capital investment scenario, assets commissioned
forecast in PSE5
Capital Investment
Programme
Comments Base
scenario ($m)
Additional
spend in high
scenario ($m)
Renewals — Other Choices remain for other renewals activity (excluding AGL
and pavement). Operational solutions, and ongoing
assessment of the condition of assets would inform the
need for this investment going forward.
165 164
Capacity — roading Choices remain whether roading projects are delivered in
PSE5 for Southern Access (Pūkaki Bridge) and Eastern
Ring Route.
41 465
Capacity — aeronautical Choices remain whether Pier B gates, and Arrivals Stage
2 are delivered in PSE5. Operational solutions could
defer the need for infrastructure.
197 424
Capacity — utilities 50% of potential utility development could be deffered,
and will remain subject to ongoing assessment.
29 24
Total 270 1,077
Second runway project – subject to further consultation
Current estimates of demand indicate that demand growth at Auckland Airport could trigger the need
for a second runway. and will be subject to more detailed analysis and consultation. The most recent
estimate of the need for additional runway capacity is the pre-pandemic estimate of 2032.
The case for the second runway remains highly uncertain. It will be subject to a number of changing
variables including future passenger demand, changes in technology, aircraft improvements and
changes to fleet mix. More detailed analysis and consultation is necessary to consider the need and
expected timing of this project. The high capital expenditure scenario included an assumption that there
could be $710 million of spend on this long-lead-time project incurred out to 2032, but no assets were
forecast to be commissioned and recovered through pricing in this period..
3.2.3.2. Benefits to consumers of the capital investment programme
The ten-year forecast capital plan comprises a significant step-change in infrastructure investment to
deliver the long-term capacity required to support growth and to meet future resilience and quality
requirements. The planned projects will provide an airport that is safe, regulatory-compliant, delivers
needed airport capacity, supports resilience of airport services, enhances customer experience, and
supports delivery of Auckland Airport’s sustainability targets.
Safe and compliant
Operating a safe and compliant airport was prioritised highly in developing the capital investment plan.
Key investments include renewals of concrete pavements, with over 23,000 concrete slabs and 600,000
m
2
of asphalt on the airfield, a continuous program of renewals is required to maintain pavement
integrity. Operation of the contingent runway will enable the renewal of concrete slabs on the main
runway. Without it, the alternative would be to deliver a second runway which would come at a far
greater cost. Renewal of existing ground lighting equipment and supporting infrastructure, is also
required to ensure it is compliant, resilient, and remains fit for purpose.
Works are also being undertaken in the existing domestic terminal, to upgrade key building systems
such as fire, vertical transportation, HVAC, electrical and water to accommodate operations and
maintain building code compliance through to 2030.
A safe airport, compliant with regulations is a non—negotiable, and in the long-run interest of
consumers.
Airport capacity
The capital plan and the Terminal Integration Programme will deliver a future growth pathway for
Auckland Airport aligned to the Auckland Airport Master Plan. This new domestic jet capacity will
replace the capacity-constrained existing domestic terminal which is forecast to no longer operate jets
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from 2028-29. Capacity needs during the construction phase are also met, with investment in additional
aircraft stands that are displaced through construction of the Domestic Processor.
Ensuring Auckland Airport is able to meet capacity requirements is to the benefit of consumers. As
recently demonstrated following the pandemic, aviation capacity shortfalls can significantly increase
airfares. By ensuring that Auckland Airport has the capacity to meet future demand, this will enable
competition in the market which gives consumers choice and puts downward pressure on airfares.
Airport resilience
The Terminal Integration Programme will build resilience into the airport system by addressing key
points of resilience. Auckland Airport is a single runway operation, which carries the risk of not having
operational runway capacity during pavement renewal projects, as well as in the event of an aircraft
incident on the main runway which could have a significant impact on air traffic for New Zealand.
A critical resilience factor is the new contingent runway that will be able to be stood up within an
operationally effective timeframe. The new Domestic Processor location enables the development and
efficient operation of the contingent runway, whereas the Jet operations using aircraft stands and gates
on the southern side of the existing DTB would constrain capacity of contingent runway operations to
such an extent that it would result in substantial delays and not be fit for purpose. The alternative of
delivering a second runway would come at a far greater capital cost. Enabling the contingent runway
defers this cost further into the future.
Airport resilience is also supported by responding to climate change including storm water upgrades in
a number of key projects that form part of the terminal integration programme. The recent flood event
at Auckland Airport has underlined the need to ensure that airport operations are resilient to climate
change. Planned projects will increase stormwater capacity. For utilities infrastructure including fibre,
business technology, and electricity, forecast demand requirements and resilience of existing
infrastructure have informed the investment programme.
Investing in airport resilience is in the long-term benefit of consumers. It ensures that the airport can
provide a consistent and reliable service. The impacts of a loss of resilience, including delays and
capacity impacts ultimately come at a cost to consumers. Many of the projects in the Terminal
Integration Programme address airport resilience (e.g. increasing stormwater capacity). These have
been included in the programme as it is the most efficient way of delivering this infrastructure. These
works would be required even if the Terminal Integration Programme was not being delivered.
Customer experience
Investments in the existing Domestic Terminal Building are being made to upgrade and refresh key
guest facing parts of the building such as bathrooms and helpdesks. These works to improve the
customer experience reflect feedback we have received directly from passengers.
The Terminal Integration Programme and design of the Domestic Processor will provide a new modern
passenger experience, consistent with other international airports. Scope and design of the
development has appropriately balanced scope and cost against operational efficiency and future
passenger experience, with floor space benchmarked against comparable airports and International Air
Transport Association (“IATA”) level of service standards.
The customer experience is considered across all elements of the airport system. Projections of future
transport travel times into and out of the airport inform the parameters of roading projects to ensure the
entire passenger experience is fit for purpose.
Delivering the customer experience that passengers expect is completely aligned to the long-term
benefit of consumers. The long-lead times of delivering infrastructure mean that significant forward
planning to ensure that the solutions will meet customer needs is integral and embedded in the planning
process.
Sustainability
We acknowledge that the aviation sector contributes to climate change and are working with our aviation
partners to reduce this impact. The effects of climate change, including rising sea levels and
unpredictable weather patterns will impact our business, community and country.
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Auckland Airport’s sustainability objectives including Auckland Airport’s net zero target by 2030, are
embedded within the capital projects we are delivering,. Projects include initiatives to decarbonise the
existing international terminal facilities, with different elements of the terminal delivered through different
projects where the opportunities are aligned.
We have brought forward investment into the stormwater network and commenced the development of
a stormwater masterplan which identifies the necessary upgrades and development of infrastructure,
including new stormwater ponds.
As a large-scale business, we work hard to reduce the impact our operations have on the surrounding
environment by implementing best-practice environmental controls and ongoing monitoring of our
environmental performance. In addition, we implement resource use efficiency and waste minimisation
measures. For new infrastructure we draw on sustainable design principles to guide our decision-
making through the planning, design and construction phases.
Auckland Airport’s location is of historical and cultural significance to Māori. Building strong and
enduring relationships with tangata whenua is important to us. We also strive to be a good neighbour
and play an active part in creating value for the whole community as we continue to develop the airport.
We work alongside local iwi on the design of projects across the precinct, including the Transport Hub,
terminal development and Mānawa Bay. The infrastructure programme, and airport operations more
broadly creates employment opportunities for the local community.
Benefits delivered from the Domestic Processor
The objective of integrating domestic jet and international operations in a single terminal has been a
core part of Auckland Airport’s masterplan since 2012. Delivery of the Domestic Processor will create
an enhanced customer experience for domestic travel (while also avoiding a degradation in the existing
experience), provide additional capacity above the existing Domestic Terminal, which is capacity
constrained, and unlock expansion pathways to enable long-run growth at Auckland Airport.
Specifically, delivery of the Domestic Processor will meet the following objectives:
• a new domestic terminal facility with capacity to meet the IATA Optimum Level of Service through
to 2033;
• expansion pathways for future domestic terminal capacity beyond the 2044 masterplan horizon;
• improved customer experience for domestic and international passengers;
• significant reduction of minimum connect times between domestic and international services;
• International and domestic BHS capacity through to 2033. All day check-in via automated Early
Bag Storage and significantly improved all round BHS performance, resilience and expandability;
• maximising capacity of contingent runway operations, enabling main runway pavement repairs; and
• improved operational efficiency by having optimal airfield layout (aircraft push-backs no longer onto
taxiways), Code E MARS capable stands providing more operational flexibility for airlines,
infrastructure will enable contactless passenger journeys, more efficient baggage systems including
all-day check-in, efficiencies generated through integrated facilities for airlines, government
agencies, and ground handlers.
3.2.3.3. The process for determining the need for capital investment
This section of the paper together with Appendix A meets the disclosure requirement under clause
2.5(1)(m)(i) of the Determination. It outlines Auckland Airport’s approach to investment planning and
assessing the need for capital expenditure, including the assessment criteria and development
principles that inform Auckland Airport’s capital expenditure decisions. Appendix A summarises the
process for determining the need at a key capital expenditure programme level.
Auckland Airport is responsible for long-term master planning and airport system resilience. It is
incumbent on us to consider the short, medium and long-term implications of airport infrastructure
decisions. The infrastructure projects in our Capital Plan for PSE4 and PSE5 have been planned in this
context, with reference to the Auckland Airport Master Plan.
29
Development principles
Aviation is an industry that has historically been subject to material and ongoing changes in demand,
supply and operational dynamics. This has recently been demonstrated by the significant impacts due
to the COVID-19 pandemic, resulting in significant short-term volatility in demand.
As passenger demand has recovered, we continue to plan for the long-term needs of Auckland and
New Zealand, and how Auckland Airport can best meet those requirements. Auckland Airport draws on
the following development principles when deciding to invest in long-life assets and seeking to manage
the associated uncertainty:
• Safe and secure: Our operation must remain safe and secure, meeting new regulatory and statutory
requirements that change over time.
• Demand driven: We must look at the medium to long-term trends as the short-term view can be
volatile.
• Timely and resilient: Airport infrastructure takes time to plan, design and build. These development
timeframes need to be allowed for. Resilience is required to maintain operations through periods of
development and in the event of outages.
• Affordable, stageable and efficient: We seek to identify manageable stages that best match demand
and capacity, while also considering the efficient development of the overall programme of works
in a given year. Smoother inter-year capital profiles generally support these principles.
• Flexible and innovative: We need to manage and influence the levers which can create headroom
from existing infrastructure (e.g. technology and continuous improvement) and think creatively in
identifying the range of options for resolving a given issue to most efficiently operating the existing
infrastructure.
These development principles have informed Auckland Airport’s planning process for aeronautical
investment for PSE4.
Auckland Airport’s capital plan has also been informed by the design objectives embedded in the
Master Plan. Consistent with the objectives of the Master Plan, and as per the approach in PSE3,
Auckland Airport’s planning process for PSE4 and PSE5 has therefore sought to:
• ensure the long-term operational, safety and commercial aviation requirements of the airport
continue to be met. This includes the delivery of additional capacity that will enable economic growth
and that is informed by long-term thinking;
• deliver an overall airport system with the capacity and ability to adapt to changing environmental,
social, technological and economic conditions and pressures;
• meet the needs of modern airport users, including airlines and passengers;
• provide a high quality connection for passengers transferring between domestic and international
services;
• provide access to and from the airport for the maximum range of transport modes, including
facilitating public transport access and protecting for future connectivity (including rail) in a clear,
efficient and effective manner;
• design and deliver infrastructure in a manner that enables Auckland Airport’s role as an
international, national and regional gateway for airlines, commuters, tourists, visitors and workers;
and
• reflect the distinctive character of Auckland Airport, including promoting and enhancing
New Zealand’s unique culture and heritage.
Demand forecasts to inform the capital investment plan
Forecast future demand is used to inform capital planning. This includes development of forecasts of
peak demand based on standard aeronautical planning principles using peak hour forecasts. This
approach is important to underpin that Auckland Airport is planning to deliver the right infrastructure, at
the right time.
The Draft Capital Plan was developed based on demand forecasts that were developed in consultation
with airlines during the pandemic. Following the completion of an updated set of demand forecasts by
independent advisors DKMA for this PSE4 aeronautical pricing consultation, the peak demand
forecasts were also updated. The peak hour forecast for domestic passengers and aircraft movements
was largely consistent in the medium term with the earlier forecasts, but peak demand forecasts for
30
international passengers was lower out to 2032. These updated peak hour forecasts informed revisions
to the projects included in 10 year investment plan and their timing.
Further detail on how these forecasts were developed by DKMA is set out in section 5.2.
3.2.3.4. Consumer engagement on capital expenditure
This section provides a high-level description and timeframe of Auckland Airport’s consultation with
Substantial Customers regarding capital expenditure, while Appendix A specifies at a key capital
expenditure project level the nature of Auckland Airport engagement with Substantial Customers and
assessment of consumer demands as required by clause 2.5(1)(m)(ii).
Auckland Airport’s capital plan is the result of extensive consultation with Substantial Customers. At the
centre of the capital investment plan is the Terminal Integration Programme, which culminates decades
of engagement and consultation with airline customers dating back to 2012. An overview of the
extensive consultation and engagement that has been undertaken in developing the Terminal
Integration Programme is outlined below.
Pre-2014 Master Plan
Prior to the 2014 Master Plan, Auckland Airport consulted with airlines on a proposal for a future
northern runway to service domestic aircraft movements, with domestic operations to be located in a
midfield location (i.e. north west of the existing international terminal). As part of this consultation, an
alternate proposal for a long-term concept was presented to Auckland Airport by airline customers, with
the key features of the proposal to:
• retain domestic activity in the existing Domestic Terminal Building;
• move domestic jets into a new facility located between the existing domestic and international
terminals from 2020; and
• expand international traffic northward from a new Pier B expansion by 2030 (or earlier if triggered).
2014 Master Plan
In 2014 the Auckland Airport Master Plan developed the long-term airport layout to cater for expected
traffic volumes to 2044, when 40 million annual passengers were forecast to use the airport. The Master
Plan noted the physical constraints that exist at Auckland Airport, including its location at the eastern
side of Manukau Harbour and being surrounded by water on three sides.
When considering the optimal terminal layout, the 2014 Master Plan considered four terminal
configurations:
• Domestic North/International South;
• Domestic South/International North;
• Domestic South and then relocated to the North, a flip; and
• Split Domestic either side of the International Terminal.
Through development of the Master Plan these configurations were assessed, with the Domestic
South/International North configuration scoring the highest of the options as it provided:
• Short-term advantage in terms of tangible operational benefits for domestic operators and derisking
and decoupling of terminal and runway capacity issues;
• Medium-term benefit by allowing integrated terminal expansion and providing appropriate stand
capacity for small domestic aircraft to the south and east in an area which is not suitable for
widebody international aircraft; and
• Long-term advantage in terms of providing a linear development pathway of domestic to south and
international to the north, which has advantages for airline operations in terms of track miles.
Comprehensive engagement on the overall draft Master Plan was undertaken with key stakeholders,
including the Substantial Customers and feedback was requested over the period of November 2013
to February 2014. This included seeking support on the terminal configurations as well as the integrated
terminal concept. Collectively, there was a good level of support for the overall draft Master Plan.
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Figure 6: 2014 Master Plan airport layout
2017 Terminal Development Plan:
The 2017 Terminal Development Plan (“TDP”) built on the 2014 Master Plan by breaking down the
Master Plan into projects and testing the feasibility and timing of these projects. For the Domestic
Processor, the TDP considered options which balanced depth of integration against both the benefits
of integration, and the ability to build a fully integrated terminal within an operational environment.
Options spanned an adjacent domestic terminal connected to international via a link bridge only at one
extreme, to a fully joined terminal (continuous floor plate) on initial opening at the other extreme.
Figure 7: Domestic Terminal options considered in 2017
At the time of the TDP, no window of low traffic opportunity was foreseen which would allow floor plate
construction over the complex east part of the existing international terminal without very significant risk
of operational disruption and hence an adjacent terminal was initially proposed by Auckland Airport.
This proposal received criticism from airlines who favoured a fully integrated terminal on opening.
Through consultation a compromise was reached where the new domestic terminal would initially open
as adjacent, transitioning to fully integrated as part of a second stage of development.
32
That solution would re-provide existing complex east terminal infrastructure (plant, baggage) as part of
Stage 1, allowing demolition of these facilities when the floor plate was joined as part of Stage 2. All
Substantial Customer airlines supported Stage 1 in principle. Some, but not all, airlines also supported
Stage 2, while some airlines raised concerns over the cost of the development and considered it
excessive.
2018-20 Domestic Jet Facility
Following the broad support for the concept design of the TDP, the development of the Domestic Jet
Facility (“DJF”) was launched, initially examining the position of key facilities such as individual airline
check-in and D-I transfer arrangements. Ten different options were analysed through this process. The
majority of airlines supported the layout identified under ‘Option 10’, which was developed to reflect a
combination of options 4 and 7. An airline also requested a commitment from Auckland Airport to the
delivery of the completely integrated terminal (all stages of a multi-stage build) within a reasonable
timeframe.
Further work in 2019 post airline feedback focused on developing and fast-tracking the Stage 1 build
with the aim of opening during 2023. The DJF project was publicly announced in February 2020, but
then terminated due to the pandemic in March 2020 at which point Preliminary Design (considered to
be 30% of full detailed design) had been completed.
2021 Paheko Consultation
In late 2020, the COVID-19 pandemic presented the opportunity for a project team to identify the
detailed requirements and feasibility of integrating domestic jet operations into the existing ITB,
including to consider alternatives.
This was done to determine if there was a rapid and cost effective way to migrate domestic jets into the
international terminal, using existing international capacity that was not being used due to the closure
of international borders. This involved a detailed engagement programme with key stakeholders,
identifying the “Integrated West” pathway which relocated domestic operations into the existing
international terminal building.
This was compared to the “Integrated East” pathway, that was consistent with the DJF concept, but
took advantage of the low traffic environment to deliver a more integrated facility in the up-front build,
rather than re-visiting this later through a second stage as was planned under the DJF plan. The
Integrated East pathway was shown to be of a lower cost than the Integrated West pathway.
Both pathways were presented to airlines and formal feedback requested. The total investment cost,
and indicative price paths were presented to airlines as part of this consultation. Airline feedback
considered that Integrated East provided the most viable pathway for terminal integration, however
some feedback objected to the investment given the cost of the build.
Following this process, and having considered the feedback received, the Integrated East solution was
approved by the Auckland Airport Board, and a public announcement, with support for integration from
Air New Zealand and BARNZ was made in August 2021. Airline engagement continued following this
decision to enable refinement of design.
July 2022: Draft Capital Plan and investment commitments for 2023 financial year
Auckland Airport released the Draft Capital Plan to airlines in July 2022, which set out a forecast of the
10-year aeronautical capital investment plan, the key projects and an indicative forecast of the impact
on aeronautical prices.
Auckland Airport also sought feedback on specific capital commitments that were scheduled to occur
during the 2023 financial year, ie the first year of PSE4 during the price freeze. These largely related to
some of the enabling works that were required to facilitate the Integrated East terminal development,
and ongoing design of the domestic processor.
All Substantial Customers raised concerns with the size and cost of the Draft Capital Plan, although
feedback on the specific projects varied. There was some support for the terminal integration
development pathway in principle, but airlines sought options to reduce the cost and scope of these
developments, or to defer elements of the plan before construction started.
33
Some airlines supported the terminal integration programme continuing to progress, with explicit
support for the enabling works elements included in the capital commitments proposed for FY23,
including progression of Domestic Processor design. These projects with an estimated cost of $470
million facilitated the continued development of the Integrated East terminal pathway.
Airlines also raised concerns over the potential price elasticity of demand impacts that may arise due
to the forecast increase in aeronautical prices. Further consideration of price elasticity of demand
impacts is set out in section 5.3
November 2022: Draft Capital Plan Review and airline workshops
Following the feedback on the Draft Capital Plan, given the feedback on the scale and cost of the
proposed capital plan, Auckland Airport decided that a review of the Draft Capital Plan was warranted,
and so adjusted the PSE4 consultation timelines accordingly, including the postponement of capex
commitment decisions related to the design of the Domestic Processor to accommodate this review
including further consultation.
The review considered opportunities to reduce cost, assess the certainty of the timing and scope of key
projects, and consider scope optimisation and value engineering opportunities for key terminal
integration projects that were still in design phase.
The savings opportunities identified through the review were presented to Substantial Customers at
workshops during November 2022, where the trade-offs were considered and discussed. The
workshops also presented information to airlines on the measures that were incorporated in the capital
plan for climate change adaption, including the provision of stormwater capacity being incorporated into
projects to meet future expected climate change requirements.
Auckland Airport requested airlines’ written feedback on the matters presented in the workshops to
inform the revisions to the capital plan to inform the Draft Pricing Proposal.
February 2023: Release of Revised Capital Plan with Draft Pricing Proposal
A Revised Capital Plan was then provided to airlines as part of the Draft Pricing Proposal, which adopted
many of the savings identified through the Draft Capital Plan review, as well as other subsequent
changes to the plan. These subsequent changes included further cost revisions to key projects, a risk
adjustment to the plan for deliverability, deferrals of projects, the impact of capitalising work-in-progress
at target return rather than forecast interest expense (in -line with the Commerce Commission Input
Methodologies) and changes to the construction cost escalation forecasts.
The net impact of these changes reduced the value of commissioned priced investment during PSE4
by $430 million, but increased the overall cost over the 10-year investment programme as the savings
identified in the Capital Plan review had been offset by growing construction cost escalation and other
adjustments to the forecast.
For projects that were forecast to be completed and commissioned beyond the PSE4 pricing period,
Auckland Airport took into consideration the scale and deliverability of the capital plan and opted to
factor in several deliverability adjustments and deferrals into the base-scenario. These adjustments
reflect that, while projects may be triggered based on demand forecasts in PSE5, they could likely be
delayed given the scale of the overall programme, future technological advances and changes to the
shape of future peak periods.
March 2023: Auckland Airport decision to re-affirm the Terminal Integration Programme
On 16 March 2023, Auckland Airport approved both the Domestic Processor preliminary design and
funding to complete the remaining design phases of the Domestic Processor, and reaffirmed its May
2021 decision to proceed with the Terminal Integration Programme. This was considered to be the best
decision in the long-term interests of passengers and the New Zealand economy.
The decision to re-affirm the Terminal Integration Programme was taken after extensive consultation,
analysis and careful consideration, but ultimately without the support of airlines. Although
Air New Zealand and BARNZ supported the Paheko East pathway in August 2021, this position has
changed, in large part based on increased cost and forecast airport prices.
Airlines continue to call for a materially lower cost alternative to be presented but have been unable to
propose any viable, long run alternatives themselves. Auckland Airport has considered options
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throughout the consultation process, in terms of the type of terminal that is built, its location at the airport
and the extent to which it is integrated. Through this extensive analysis and consultation, no viable
alternatives that could meet all necessary requirements and that would be materially lower cost were
either identified by Auckland Airport or proposed by airlines.
Airlines continue to request that we operate the DTB as the main domestic terminal for jet operations
for a longer period of time, beyond 2030, to allow more time for an alternative plan to be developed.
The implications of this have been considered in a number of ways, including the implications of
delaying the Terminal Integration Programme, the airfield impacts on the DTB that allow for efficient
airfield operations, the impacts on airport capacity of remaining in the DTB for longer, the safety and
resilience implications for contingent runway operations and main runway slab renewals due to
extending jet operations at the DTB, and the further deterioration on passenger experience and service
that would result. Given the extensive negative impacts of this option, this was not considered to be a
viable alternative. Auckland Airport continues to be open to incorporating viable improvements.
Notably, the Board’s 16 March 2023 decision to re-affirm terminal integration and to move to detailed
design had been previously deferred on four occasions since 19 December 2022 (and had been
deferred before that period as well – it was originally scheduled for decision in September 2022) in
response to airline feedback. This was done to ensure all alternatives and options were considered,
including final feedback from airlines.
This process informed the decision taken by the Auckland Airport Board to re-affirm this programme on
16 March 2023. Further detail on how these alternatives considered is set out below in section 3.2.3.5.
June 2023: Final Capital Plan for PSE4
The Final Capital Plan for PSE4 (which included the Terminal Integration Programme reaffirmed by the
Board in March 2023) reflected the extensive consultation on the capital plan since the Draft Capital
Plan was tabled with airlines in July 2022 (including feedback received in response to the plan in the
Draft Pricing Proposal) as well as wider consultation on the terminal integration programme since 2012.
Final updates to the plan reflected changes to project timing based on the latest available information.
However, aside from these adjustments, the changes from the Revised Capital Plan tabled in February
were minimal – a reflection of the extensive consultation, analysis and feedback previously undertaken.
3.2.3.5. Alternative capital expenditure projects considered
This section of the paper together with Appendix A meets the disclosure requirements under clause
2.5(1)(m)(iii) of the Determination. Appendix A specifies where Auckland Airport considered alternatives
to specific key capital expenditure projects and the rationale for excluding any such alternative projects.
Alternatives to the Terminal Integration Programme and Domestic Processor
The Terminal Integration Programme and Domestic Processor location align with the 2014 Master Plan
and are the outcome of a significant period of planning and consultation. Auckland Airport considers
that this programme is the best option to deliver capacity, resilience and a future growth pathway for
Auckland Airport. Many of the projects in the Terminal Integration Programme address airport resilience.
These have been included in the programme as it is the most efficient way of delivering this
infrastructure. These works would be required even if the Terminal Integration Programme was not
being delivered.
As explained below, no viable alternatives that could meet all necessary requirements and that would
be materially lower cost were identified by Auckland Airport or proposed by airlines through the
extensive consultation that has been undertaken.
The summary of airline engagement above outlines Auckland Airport’s extensive consultation on the
Terminal Integration Programme which has taken place since the 2014 Master Plan during which time
Auckland Airport has rigorously considered alternatives in terms of the type of terminal that is built, its
location at the airport and the extent to which it is integrated with existing facilities.
35
Alternative design
Auckland Airport’s assessment of alternative terminal designs throughout the consultation process
concluded that an acceptable alternative terminal design would not deliver materially reduced cost. Key
to this is that an acceptable alternative terminal design is unlikely to materially reduce terminal
floorplate, which is the key driver of cost.
Extensive analysis was undertaken before confirming the terminal design, including benchmarking the
floor areas in the Domestic Processor design. This analysis indicated that there were some areas of
opportunity to reduce scope and cost, and these were further pursued through the value engineering
consultation process as part of design refinement. Changes were adopted through this process, but
wholesale changes were not justified.
Other options analysed by Auckland Airport included:
• operating the Integrated Terminal without a pier — which would require a bus lounge or some
form of walk out canopy to a new domestic apron. In terms of operation and passenger experience,
the product would be a significant step down from the current domestic terminal, without providing
the benefit of a substantial uplift in capacity; and
• construction of a single level walk-out pier — a walk-out pier of this type would be a considerable
reduction below the current Domestic Processor design in terms of customer experience, ease of
operation, and overall resilience, particularly in the event of off-schedule arrivals and departures.
The potential cost savings of this approach were marginal in comparison to the deterioration in
passenger experience, operational efficiency and resilience.
This analysis indicated that these options were not considered to offer an acceptable alternative solution
to the favoured design.
Alternative locations
Alternative locations for domestic terminal services had been considered throughout the consultation
process since 2012. The terminal location was set out in the 2014 Master Plan, then refined and re-
affirmed through subsequent rounds of analysis, planning and consultation.
At the end of 2022, Auckland Airport re-considered previous work on potential lower cost alternative
locations for a domestic terminal, including a northern precinct development for domestic services that
is not integrated to existing international terminal facilities. It was re-confirmed that a northern option
would not deliver a materially different, lower cost option for the following reasons:
• The various terminal studies since 2017, whether adjacent or combined had consistently
demonstrated floor area requirements of between 6,000 and 7,000 m2 per million annual
passengers. The overall size of a terminal in the northern precinct would not be significantly different
from that currently designed, and the cost of the new terminal facility is largely determined by its
size.
• Additional infrastructure requirements to service a northern terminal would add costs – additional
airfield works would be required, including taxiways and aircraft stands to service a new terminal
location. Additional landside roading and infrastructure would be required. The cost of additional
infrastructure was expected to more than offset any savings generated by building in a more
greenfield environment; and
• A terminal in the northern precinct would result in a duplication of infrastructure that would create
additional cost, including facilities like passenger pick-up and drop-off, baggage system, security
screening areas.
In addition, a terminal in the northern location would result in additional operational costs and reduce
efficiency for airlines, with greater taxi times for aircraft from a mid-field location, relative to the proposed
location which is much closer to the southern runway. In the long-run, this would create further
inefficiencies for a dual runway operation, as flight paths make it more efficient for the emphasis of
domestic operations to be on the southern runway, and international operations on the northern runway.
This 2022 review also acknowledged that since the approval of the integrated east terminal pathway by
the Auckland Airport Board in May 2021, with the support of Air New Zealand and BARNZ, Auckland
Airport had been progressing the enabling works projects to deliver the terminal integration pathway
and these projects are now committed costs and are being delivered, in-line with that Board decision.
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Delaying Terminal Integration and operating the existing Domestic Terminal for longer
Auckland Airport has extensively considered the implications of remaining in the DTB for longer. As part
of this analysis, Auckland Airport has considered the financial cost and future capacity costs and
implications of delaying the Terminal Integration Programme, as well as the operational impacts. This
analysis found that delays to the programme would:
• add costs through construction cost escalation – recent spikes in construction costs have
demonstrated how they can rise quickly. These costs rarely go backwards and a delay of 5 years
would add around half a billion dollars to the overall cost
• constrain domestic capacity – the existing Domestic Terminal Building faces considerable
capacity constraints if it continues to provide terminal services for domestic jets. Capacity
constraints span many terminal functions including baggage, airside dwell, security screening, land
transport and airfield. If the Domestic Processor is not delivered as planned it would significantly
impact the ability to grow domestic traffic and international connectivity, constrained airport capacity
risks higher airfares for passengers;
• reduce resilience to climate change – projects within the programme include a range of measures
which provide climate adaption. The most significant of these in the short term following the recent
flooding event is the additional stormwater infrastructure provided by the remote stands airfield
project;
• reduce the efficiency of contingent runway operations – operation of jet aircraft from the DTB
significantly reduces the airfield capacity while operating the contingent runway, resulting in
substantial delays, not making it fit for purpose. Contingent runway operations will provide vital
airport resilience, and are necessary to undertake renewals of slabs on the main runway;
• impact on customer experience – as the capacity of the DTB remains constrained while
passenger demand grows, the customer experience would deteriorate with the terminal operating
above capacity for longer;
• not avoid need for new domestic terminal capacity in alternative location – the Auckland
Airport Master Plan sets out the development of airfield in the south to meet future demand, with
the current location of the DTB to be replaced by future airfield as well as terminal piers. Delaying
the Terminal Integration Programme would not avoid the need for a new domestic terminal.
Using the International Terminal as overflow
The use of the international terminal building for domestic operations was considered as part of the
analysis and consultation undertaken with airlines on terminal integration options in 2021. This option
named ‘Integrated West’ identified a number of challenges and risks with that pathway including
operating shared airside spaces with both domestic and international passengers including that the
return of international traffic post-COVID would trigger the need for additional investment in international
terminal and airfield infrastructure to meet international demand displaced by domestic operations using
existing international facilities.
The now rapid post-COVID recovery of international services means that the ITB is now back operating
at close to 2019 levels of demand. Therefore capacity to operate domestic services, even if harmonised
screening and common dwell could be achieved, would be limited due to a lack of stand capacity at the
ITB, particularly during peaks hours.
Consideration of these alternatives
Having considered the identified alternatives, Auckland Airport’s Board decided that the Integrated
Terminal Programme remained the best option for replacing the existing domestic terminal, building
resilience in the airport system and delivering a future growth pathway for Auckland Airport. The
programme will build resilience into the airport system by addressing key issues such as operation of a
contingent runway, responding to climate change including storm water upgrades, and meeting capacity
and regulatory requirements. It will also deliver an enduring, long-term solution aligned to the 2014
Master Plan, which will provide the airport capacity to meet demand and avoid capacity constraints that
may result in higher airfares paid by passengers.
Having considered all of the factors, proceeding with the Terminal Integration Programme was the right
choice for New Zealand and the travelling public.
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3.2.3.6. Key capital expenditure projects reflected in pricing
Appendix A meets the disclosure requirements under clause 2.5(1)(m)(iv) of the Determination.
Specifically, it includes a table which sets out the commissioned aeronautical projects that have been
reflected in aeronautical charges for PSE4.
3.2.3.7. Constraints or contingency factors
Appendix A meets the disclosure requirements under clause 2.5(1)(m)(v) of the Determination.
Specifically, it specifies for each key capital expenditure project whether there are constraints or other
factors on which successful completion of the project is contingent.
3.2.4. Asset allocations
This section sets out how assets have been allocated to Aeronautical Pricing Activities, and other
Regulated Activities.
Aeronautical Pricing Activities
Auckland Airport based its asset allocation methodology on the approach required by the Commission
for the purpose of information disclosure regulation, making minimal adjustments for pricing consultation
as appropriate.
Auckland Airport’s asset allocation methodology involved the following key steps:
• identifying assets that are directly attributable to Specified Airport Activities and directly attributing
them accordingly;
• identifying assets that are indirectly attributable to Specified Airport Activities (i.e. that are common
or shared) and allocating those assets to Specified Airport Activities using allocation rules;
• separately identifying assets held for future aeronautical use; and
• adjusting asset allocators if required for the purposes of setting Standard Terms to align with pricing
consultation decisions.
Each allocation rule has a primary allocation which segments costs between regulated and
non-regulated activity including Aeronautical Pricing Activities, and Other Regulated Activities, and a
secondary allocation which segments the regulated cost to the various aeronautical activities to which
the investment relates.
Allocation rules used were based on the same approach as the allocation rules used for information
disclosure. The key changes from the FY22 information disclosure allocation rules was that where
allocation rules are based on usage or activity, pre-pandemic allocation rules were used to more
accurately reflect the expected activities in the more normal operating environment expected for PSE4.
Where space was the basis of the allocation, the same rules used for information disclosure in FY22
were used.
As noted above, some adjustments were made for the purpose of setting Standard Charges and
determining the revenue requirement as set out in Schedule 19. By way of summary, Auckland Airport
made the following adjustments for aeronautical pricing purposes:
• Nixon Road – airline feedback during consultation considered that Nixon Road should not form part
of the aeronautical roading network. While Auckland Airport notes that Nixon Road does have a
number of aeronautical uses (it serves AIAL engineering services, passengers use it to park
vehicles, it diverts traffic off the main roads in the network that would otherwise need higher
capacity, it provides resilience in the event of closure of main arterials).As a concession to airlines
the aeronautical allocation for Nixon Road was reduced to 50% for the PSE4 pricing period, down
from 76%. This concession has resulted in a reduction in the opening priced RAB of $2.2 million
for the PSE4 pricing period.
• Bathroom allocations — bathrooms requirements are based on the number of passengers using
the terminal, and are not influenced by non-aeronautical activities. During consultation airlines
considered that these facilities should have shared costs with non-aeronautical uses. As a
concession to airlines, we have allocated bathroom facilities based on the relevant terminal space
rules for both the ITB and DTB rather than allocated directly to aeronautical terminal assets. This
allocates bathrooms as shared use, and results in a 61% priced RAB allocation of the value of
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bathrooms (65% in the International terminal and 52% in the domestic terminal). This decision not
only reduced the aeronautical allocation of bathrooms, but flowed on to reduce other aeronautical
asset allocations influenced by terminal space rules. This reduces the opening priced RAB by ~$2
million and forecast commissioned assets over PSE4 by $3.5 million.
Other Regulated Activities
Allocation rules for Other Regulated Activities define the share of assets associated to identified
tenancies (eg aeronautical offices and VIP lounges) in the terminal, collection point and aircraft and
freight facilities.
3.2.4.1. Assets Commissioned Forecast
The following table provides the assets commissioned forecast for Aeronautical Pricing Activities, and
Other Regulated Activities. This is the assets commissioned forecast that has been used to determine
the forecast revenue requirement for PSE4.
Table 8: Assets commissioned forecast for PSE4
$m FY23 FY24 FY25 FY26 FY27 PSE4
Aeronautical Pricing Activities 223 352 935 411 654 2,575
Other Regulated Activities 22 101 137 38 231 529
Total Regulated Activities 245 452 1,072 449 885 3,104
Differences to financial year 2022 information disclosure
The assets commissioned forecast has been prepared on the same basis as the 2022 information
disclosures. Where rules were space based, they were based on the FY22 information disclosure
values and were rules were reliant on activity measures that were impacted by the pandemic, pre-
pandemic values were used to determine the allocations.
3.2.5. Carry-forwards
There are two opening carry-forward adjustments, and two closing carry-forward adjustments included
in the PSE4 price setting disclosure.
The moratorium on land revaluations for priced assets has been reflected with an opening and closing
carry-forward adjustment for PSE4. The second carry-forward adjustment reflects a carry-forward of
$1.7 million due to the under-recovery of revenue under the Regulatory and Requested Investment
Policy, which was associated with the costs of segregating the international terminal to facilitate ‘green
zone’ and ‘red zone’ passengers during the pandemic, to enable quarantine free travel to and from
Australia and to the Pacific Islands. There is also a closing carry-forward adjustment included to reflect
adjustments made following the aeronautical pricing decision on 7 June 2023. These post-pricing
decision adjustments have been made to reflect land transfers and disposals forecast to occur during
the pricing period that were not accounted for at the time of the pricing decision, and corrections to
allocation of operational expenditure between pricing and assets held for future use.
This section of the paper meets the disclosure requirements under clause 2.5(1)(d-e) of the
Determination.
3.2.5.1. Moratorium on revaluations of priced assets
To reflect the moratorium on revaluations of priced assets, there is a negative opening carry forward
adjustment of $86.1 million to exclude revaluations between the start of the moratorium in 2006 and the
start of information disclosure in 2010 (the “Moratorium Adjustment”) for airfield and terminal assets.
This is matched by an identical closing carry-forward adjustment, therefore forecast investment value
throughout PSE4 is net of the Moratorium Adjustment. The Moratorium Adjustment is intended to be
carried forward at the same value in future periods unless the moratorium on asset revaluations is
unwound and a revalued asset base is used for aeronautical pricing purposes in the future.
The value of the Moratorium Adjustment was established in detail for PSE3 and carried into PSE4
unchanged. Further information on how it was calculated can be found in the PSE3 price setting
disclosure.
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Background to the moratorium on asset revaluations
When Auckland Airport set prices in 2007, with the support of airlines, it introduced a moratorium on
terminal and airfield asset valuations which meant that it would not revalue its aeronautical asset base
used for pricing purposes for at least 10 years.
After that decision was made, in late 2010 the Commission introduced its Ims setting out how land and
specialised assets should be valued for monitoring purposes as part of information disclosure regulation
under the Commerce Act 1986. These Ims specified that land should be valued at its Market Value
Alternative Use (“MVAU”) as at 30 June 2009, and the value of specialised assets should be based on
an airport’s most recently reported values, rolled forward to 2009. The High Court subsequently ruled
that the initial value of land in the RAB should be its MVAU as at 30 June 2010.
The regime also required Auckland Airport to index (i.e. revalue) the regulatory disclosure value of both
land and specialised assets at CPI each year, and permitted periodic MVAU revaluations of land assets
in the regulatory asset base (“RAB”). When Auckland Airport consulted on PSE2 pricing, we raised the
possibility of lifting the moratorium, in part to reflect the regulatory disclosure requirement then to
revalue these assets regardless of any moratorium applied for pricing. But the moratorium was
ultimately retained for PSE2 in response to customer feedback. All parties recognised, however, that
this resulted in a pricing approach that differed (for legitimate reasons) from the Commission’s
information disclosure monitoring regime. Auckland Airport noted that it would need to consult with
airline customers and BARNZ ahead of PSE3 about whether the moratorium remained in place, was
adapted, or, if the disclosure valuation methodology was applied and the moratorium lifted, how any
revaluation gains or losses would be treated.
In December 2016, the Commission published amendments to its original Ims, requiring airports to not
index regulatory asset values if revaluations were not applied for pricing. This decision required
Auckland Airport to restate its historical disclosed asset values to wind back previous mandatory
evaluations under the old IM.
Summary of views from Substantial Customers
Auckland Airport consulted on our proposed retention of the PSE3 Moratorium Adjustment during the
PSE4 pricing consultation. All Substantial Customers supported an ongoing moratorium on revaluations
including the proposed continued carry-forward of the $86.1 million downwards adjustment.
3.2.5.2. Regulatory and Requested Investment Policy Carry-forward
In PSE3, as in PSE2, the Regulatory and Requested Investment (“RRI”) policy was included in Standard
Charges to compensate Auckland Airport should unforecast capital investment or opex be triggered by
a new central government or local government directive, legislative or regulatory mandate or be
requested specifically to meet the needs of a customer. The RRI policy enables the pass-through of
80% of unforecast expenditures relating to a government, legislative or regulatory directive. The less
than 100% pass-through requirement reflects Auckland Airport’s commitment to discharging any such
obligations efficiently.
During PSE3, the RRI was invoked to enable 80% recovery of unforecast capital investment required
to segregate Auckland Airport’s international terminal to facilitate “Red Zone” MIQ-travel
contemporaneously with quarantine free travel for safer international destinations nominated by the
government during the COVID19 pandemic, e.g. the trans-Tasman “bubble” .
Calculation of the carry-forward adjustment
Auckland Airport originally forecasted the “Red Zone” RRI operational costs at $6.3M . Following
consultation with airlines, a $2+GST increase to the International Passenger Charge (“IPC”) and Transit
Passenger Charge (“TPC”) was adopted for the period of 1 October 2021 to 30 June 2022, based on a
forecast of 2.5 million pax generating $5 million in revenue over the period.
After the trans-Tasman bubble was closed and Auckland went into lockdown it became evident that the
RRI charges would not generate the forecast revenue. But partially offsetting lower revenues, the
suspension of the Red Zone obligations on 14 March 2022 also reduced costs versus forecast. The
net impact was that the Red-Zone RRI charges in the 2022 financial year under-achieved the targeted
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80% cost recovery by $1.73 million. Accordingly, per the RRI policy, Auckland Airport has washed up
these under-recovered costs into our PSE4 prices. Table 9 shows the difference in passenger forecasts,
revenue differences and cost impact for the year.
Table 9: RRI adjustment final reconciliation
RRI adjustment calculations Original
forecast ($m)
Final impact RRI
for FY22 ($m)
Passengers (inc. transits) from Oct-21 to Jun-22 (m) 2.5 1.1
RRI Charge per INT pax ($) 2.0 2.0
Expected revenue ($m) 5.0 2.3
Estimated total cost ($m) 6.3 5.0
80% of recovery of estimated cost ($m) 5.0 4.0
Revenue over/under recovery - (1.7)
Summary of views from Substantial Customers
Early in the second quarter of calendar 2022, we consulted with airlines on the forecast under recovery
of the RRI adjustment and options on how the under-recovery could be addressed. Alternatives
considered included maintaining an RRI adjustment charge into FY23 (on top of the price freeze), or
“washing-up” the value of the under-recovery into the PSE4 price reset. The latter approach was
supported by the majority of airlines. Following this consultation, Auckland Airport opted to not continue
the RRI adjustment in the 2023 financial year, and to “wash up” any residual under or over-recovery
into the PSE4 pricing decision.
3.2.5.3. Post-pricing decision closing carry-forward adjustment
Following the PSE4 pricing decision announced on 8 June 2023, Auckland Airport identified errors and
omissions relating to three inputs into the pricing model that must be corrected for this price setting
disclosure, namely:
• omitted land transfers into the priced RAB with a value of $48 million. These primarily relate to land
parcels required for the construction of remote stands and the Domestic Processor. Making this
adjustment increases the value of both assets commissioned and the closing RAB;
• $41 million of priced RAB assets that are forecast to be disposed of during PSE4 for $nil
consideration. These primarily relate to assets being demolished to enable construction of the
Domestic Processor, wider Terminal Integration and superseded by upgrades to the existing
Domestic Terminal. Reflecting this adjustment reduces the value of the closing RAB; and
• $17 million of operating expenses previously included in the PSE4 forecast for priced activities,
which have subsequently been identified as relating instead to assets held for future use (“AHFU”).
These costs do not impact the priced IRR and will not be recovered through aeronautical charges
for priced activities. These primarily comprise rates on the land set as aside for the second runway.
Reflecting this adjustment reduces the operational expenditure forecast.
The forecast timing of these post-pricing decision adjustments is outlined in the below table.
Table 10: Post-pricing decision adjustments
Adjustment $000 FY23 FY24 FY25 FY26 FY27
Land transfers 14,405 11,659 21,541 - -
Disposals
16,715 12,518 5,150 6,449 (59)
Operational expenditure (3,103) (3,276) (3,557) (3,633) (3,761)
The net effect of correcting these errors is to reduce the forecast PSE4 IRR for priced activities. In
order to reflect the correct closing investment value, reflecting these adjustments, Auckland Airport has
included a forecast closing carry-forward adjustment in PSE4 that increases the forecast closing PSE4
investment value by $42.3 million. This adjustment correctly reflects the value that Auckland Airport
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intends to recover in subsequent pricing periods, as it raises the forecast PSE4 IRR back to the Target
Return of 8.73% for aeronautical priced activities.
This approach is considered appropriate because it avoids the alternatives of altering PSE4 prices,
incorrectly presenting the pricing disclosure schedules by presenting incomplete forecasts or incorrect
information, or forecasting an IRR that is below the appropriate return on capital.
This carry-forward adjustment could then be offset in the next PSE5 pricing period. As these
adjustments were made following the pricing decision, customer views on this carry-forward adjustment
from Substantial Customers have not been sought. Views from Substantial Customers would be sought
ahead of any recovery of this carry forward adjustment, which would be via PSE5 charges for priced
activities.
3.2.6. Depreciation
Auckland Airport has used a standard straight-line depreciation approach for determining the
depreciation forecasts to be recovered through aeronautical charges for priced activities. This is
consistent with past practice. Shorter asset lives have been adopted for the capital expenditure forecast
to upgrade the existing DTB, reflecting its expected lifespan. Under the disclosure requirements, these
depreciation rates continue to meet the definition of standard depreciation, as depreciation is be
calculated based on the forecast useful life of the assets.
This section of the paper meets the disclosure requirements under clause 2.5(1)©(iv) and clause
2.5(1)(p-q) of the Determination.
3.2.6.1. Description of and rationale for forecast depreciation
Auckland Airport’s approach to forecast depreciation in this price setting event is outlined below.
Aeronautical Pricing Assets
Auckland Airport’s approach to forecast depreciation was:
• all assets in existence as at 30 June 2006 have been depreciated according to the economic life
ascribed in the Opus specialised asset valuation reports used to determine the value of specialised
assets in the initial RAB and the pricing asset base;
• all assets added to the RAB from 30 June 2006 to 30 June 2022 have been depreciated according
to the economic life as determined at or near the date of commissioning. The economic life used
was extended slightly because, for regulatory disclosure purposes, depreciation can only
commence in the financial year immediately following the commissioning date; and
• all asset additions after 30 June 2022 are depreciated by asset class according to the average
economic life of that asset class determined with reference to the historical cost weighted
depreciation of assets in existence prior to 30 June 2022. As per asset additions from 30 June 2006
to 30 June 2022, depreciation commences in the financial year immediately following the
commissioning date.
Other Regulated Assets
With the exception of assets allocated directly to aircraft and freight activities, the same approach was
used to forecast depreciation for assets employed in Other Regulated Activities as that used for
forecasting depreciation for Aeronautical Pricing Activities.
Assets allocated directly to aircraft and freight activities were depreciated using modified straight line
depreciation. A modified approach was used to be consistent with the CPI-based revaluations that we
have forecast for these assets, reflecting that rentals are reset periodically for these assets based on
market-based revaluations. The modified straight line method uses the same economic life as the
straight line method, but the standard depreciation expense, based on the original asset cost, has been
escalated in-line with the CPI-based revaluations.
3.2.6.2. Depreciation forecasts
In the following table we provide the depreciation forecast for Aeronautical Pricing Activities, and Other
Regulated Activities. This is the depreciation forecast that has been used to determine the forecast
revenue requirement for PSE4.
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Table 11: Depreciation forecast for PSE4
$m FY23 FY24 FY25 FY26 FY27 PSE4
Aeronautical Pricing Activities 58.3 73.1 92.8 137.2 157.4 518.9
Other Regulated Activities 13.3 15.1 20.5 33.0 37.2 119.1
Total Regulated Activities 71.6 88.1 113.4 170.2 194.6 638.0
Differences to financial year 2022 information disclosure
The depreciation forecast has been prepared on the same basis as the 2022 regulatory disclosures. As
noted above, updated allocation rules used for PSE4 created a difference between the closing asset
base in 2022 as per information disclosure, and the 2023 opening asset base. The updated opening
asset base was used for the depreciation forecast adopted for PSE4.
3.2.6.3. Application of standard depreciation
Auckland Airport has used standard depreciation to determine the forecast revenue requirement
disclosed in Schedules 18 and 19, and in the pricing model for Standard Charges. Standard
depreciation is appropriate because:
• it is simple, easy to use, and has been used for the majority of Auckland Airport’s assets in the past
for aeronautical pricing purposes, information disclosure and statutory financial reporting;
• it is the best estimate of an asset’s life at the time of commissioning; and
• we have not identified circumstances where non-standard depreciation would be appropriate to
either reflect our airport-specific characteristics, reflect the expected value or utilisation of the RAB
or parts of the RAB, or deliver a better outcome for consumers.
Changes in forecast asset lives
Auckland Airport has not made any changes to forecast asset lives for PSE4, except for using shorter
asset lives for some investment in the existing DTB (see below).
Shorter asset lives for DTB upgrade investments
Auckland Airport has adopted shorter asset lives for some of the DTB upgrade projects, i.e. fully
depreciating these assets by June 2029 when the existing DTB is forecast to be decommissioned.
Consistent with the Input Methodologies and GAAP, the depreciation period for these assets will match
the period they are expected to be in use.
3.2.7. Revaluations
This section of the paper meets the disclosure requirements under clause 2.5(1)(c)(vi) and clause
2.5(1)(r-s) of the Determination.
3.2.7.1. Description of and rationale for forecast revaluations
Aeronautical Pricing Activities
Auckland Airport’s approach to asset valuation for Aeronautical Pricing Activities has been to retain the
moratorium on priced asset revaluations for the pricing period (ie no forecast revaluations apply to those
assets). All Substantial Customers supported this approach.
Other Regulated Activities
Other regulated activities comprise terminal assets (those which are non-priced), and aircraft and freight
assets. For terminal assets no revaluations have been forecast, as these are similar assets to those
covered by Standard Charges, so the approach to revaluations of these assets has been kept consistent
with that of priced assets under the moratorium.
For aircraft and freight activities, revenues are driven by contracted rental rates and renegotiated at the
end of the term of the lease. Prices are struck through benchmarking to comparative market rentals.
43
For aircraft and freight activities, revaluations have been included in the asset forecast and are
disclosed as part of the calculation of the forecast regulatory profit in Schedule 18(vi). Forecast
revaluations for aircraft and freight assets reflect indexing at CPI inflation expectations, as set out in
Schedule 18(xiv).
3.2.7.2. Revaluation forecasts
The following table summarises the forecast value of revaluations relevant to the forecast total revenue
requirement. CPI forecasts reflect forecasts from the New Zealand Treasury.
Table 12: Revaluations forecast for PSE4
$m FY23 FY24 FY25 FY26 FY27 PSE4
Aeronautical Pricing Activities - - - - - -
Forecast CPI 6.2% 3.3% 2.6% 2.3% 2.1%
Other Regulated Activities 9.0 6.5 6.9 6.6 10.7 39.7
Total Regulated Activities 9.0 6.5 6.9 6.6 10.7 39.7
Differences to financial year 2022 information disclosure
The depreciation forecast has been prepared on the same basis as the 2022 information disclosure. As
noted above, updated allocation rules used for PSE4 created a difference between the closing asset
base in 2022 as per information disclosure, and the 2023 opening asset base. Revaluation forecasts
have been applied to these updated asset values. The revaluation methodology for other regulated
activities (i.e. indexed at CPI) remains consistent with past practice.
3.2.8. Assets held for future use
Schedule 18 provides the PSE4 forecasts for assets held for future use (“AHFU”).
Auckland Airport decided to retain the Runway Land Charg“ ("”LC") as part of the Schedule of Charges
for PSE4 but set it to $0.00 in recognition of the delay to expected timing of the second runway from
the late 2020’s to at least the late 2030’s or beyond. As such, there is no forecast revenue associated
with the RLC for the purposes of disclosure in Schedule 18(x). However, we have forecast a small
amount of AHFU revenue comprising lease rentals on land held for future use.
Holding costs for AHFU are forecast to continue to accumulate in relation to land that is held for the
second runway. Auckland Airport will consult with airlines on the timing and need of the second runway
following the PSE4 pricing decision.
This section of the paper meets the disclosure requirements under clause 2.5(1)(k) of the
Determination.
3.2.8.1. Runway Land Charge
Auckland Airport has decided to retain the Runway Land Charge which was introduced in PSE3 as a
mechanism to reduce the final commissioned cost of the second runway and reduce long term second
runway price elasticity impacts. It would also provide additional cashflow for the construction of the
second runway by recovering some of the land holding costs via cash receipts at the time they were
incurred, rather than carrying them forward and compounding them into the final second runway
commissioned asset value. The RLC was designed to be NPV neutral, and come into effect once certain
triggers for the second runway project were met, but these were not invoked for PSE3 and so the RLC
charge was never levied on airlines.
After carefully considering feedback from Substantial Customers which opposed the RLC being applied
for PSE4, Auckland Airport decided to retain the RLC in the Schedule of Charges for PSE4 but set it at
a price of $0.00.
Further background on the rationale and purpose of the RLC is set out in the PSE3 price setting
disclosure.
44
3.2.8.2. Other AHFU revenue
Auckland Airport currently earns a small amount of revenue on land held for aeronautical development
(approximately $0.1 million annually). This is more than offset by the operating costs in relation to this
land (predominantly rates expenses) of approximately $2.2m to $2.7m per annum over PSE4. This
amount is disclosed in the “Forecasts assets held for future use net revenue” line of Schedule 18(vi).
The table below shows the forecast net revenues from assets held for future use over PSE4.
Table 13: AHFU forecast for PSE4
$000 FY23 FY24 FY25 FY26 FY27 PSE4
Revenue 96 169 169 169 169 771
Expenses 3,103 3,276 3,557 3,633 3,761 17,330
Forecast net
revenue from
assets held
for future use (3,007) (3,107) (3,388) (3,465) (3,592) (16,559)
All revenues and operating costs in the table above are expressed pre-tax. We note that the forecast
revenue information presented in Schedule 18(vi) is expressed pre-tax, whereas Schedule 18(x) shows
net revenue after deducting operating costs and tax.
45
3.3. Forecast non-asset based revenue
This section sets out the basis for the forecast revenue requirement for operational expenditure, airline
incentives, and unlevered tax.
3.3.1. Operational expenditure
This section of the paper meets the disclosure requirements under clause 2.5 (1)(c)(iii) and 2.5(1)(n)
of the Determination.
3.3.1.1. Description of and rationale for forecast operational expenditure
Auckland Airport has disclosed its total forecast operational expenditure for Specified Airport Activities
in Schedule 18, and its forecast operational expenditure relevant to Aeronautical Pricing Activities and
Non-Isolatable Activities in Schedule 19.
Auckland Airport seeks to control operating cost growth while providing the service levels expected by
our customers and we carefully consider potential trade-offs between operating and capital solutions.
A key component of Auckland Airport’s corporate strategy is to be innovative and efficient in how we
operate. In doing so, we aspire to set our operating costs at a level that seeks to maintain sound and
reliable service levels whilst also seeking to optimise our costs of operation to ensure we are efficient
for our customers. Auckland Airport carefully considered potential trade-offs between operating and
capital solutions as part of expenditure decisions, ensuring we deliver the right outcomes for
stakeholders that operate at the airport.
Auckland Airport considers that our operational cost forecasts have been subject to a very high level of
scrutiny internally, in particular during the budget setting processes for FY23 and FY24, and externally
through the airline consultation process. The current environment has been volatile, with strong cost
escalation being observed both for input costs, and wages and salaries. These forecasts will be very
challenging for the business to operate within.
Process to prepare operating cost forecasts
Auckland Airport has had the following objectives when setting the operating cost forecast for PSE4:
• to set a fair and reasonable forecast based on known information about service level requirements,
forecast changes and trends;
• to take a transparent approach, guided by the information disclosure regime;
• to benchmark the reasonableness of the operating cost forecast; and
• to be clear about the known risks in the forecast, and what is included and excluded.
To prepare operating cost forecasts, Auckland Airport has:
• forecast consolidated Company-wide operating costs for the PSE4;
• identified operating costs attributable to single regulated aeronautical activities and directly
attributed them to that activity;
• identified common costs that are shared across more than one regulated activity and/or between
regulated and non-regulated activities;
• used causal allocators where appropriate to allocate those common costs across regulated and/or
non-regulated activities;
• allocated the remainder of common costs using proxy allocators; and
• excluded the costs associated with terminal space that is leased to commercial tenants, VIP
lounges and The Collection Point as well as aircraft and freight buildings and facilities that are
leased to aircraft and freight operators.
Auckland Airport used forecast FY23 operating costs as the baseline for the draft operating cost forecast
for PSE4 with future years’ operating costs based on projected changes in cost drivers from FY23
onwards, being forecast cost inflation, individual Business Unit (“BU”) opex forecasts developed in
consultation with key Auckland Airport personnel and passenger volume forecasts. During the
46
forecasting process, the Board approved Auckland Airport’s operating expenditure budget for FY24 and
the PSE4 forecast for FY24 was aligned to this budget.
Cost drivers
The table below sets out the key aeronautical cost drivers that have been used for final operating cost
forecasts for PSE4.
Table 14: Forecast cost drivers for PSE4
FY23 FY24 FY25 FY26 FY27 Source
Cost inflation
6.0% 3.3% 3.0% 2.8% 2.7%
Non-tradeable inflation, The
Treasury
Aero FTE
12
480 556 587 586 585 Business forecast
Other FTE 124 135 138 136 135 Business forecast
PAX 15.9m 19.2m 20.3m 22.1m 23.6m FY23 and FY24 based on
Business forecast, FY25+ based
on constrained forecast before
adjusting for transits passengers
Cost inflation drivers were used to develop the opex forecasts, and non-tradeable inflation forecasts
from the New Zealand Treasury were adopted as the cost driver. Using New Zealand Treasury forecasts
provided an independent reference point for cost inflation. We adopted non-tradeable inflation forecasts
as the cost inflation driver for the operational expenditure forecasts because these were considered to
be the best indicator of Auckland Airport’s operational cost drivers, which are largely domestic based
services and labour costs. To adopt headline CPI would include costs that are less aligned to Auckland
Airport’s cost base, and to adopt average hourly earnings would exclude non-labour costs in the cost
escalation driver.
New Zealand Treasury updated its forecasts in the 2023 Budget which revised down the forecast
outlook for non-tradeable inflation (relative to its previous forecast). This change in forecast
non-tradeable inflation was adopted in the pricing decision. We note that the non-tradeable inflation
forecast now sits well below the hourly earnings (ie labour cost) forecast over the PSE4 pricing period.
With around one-third of operational expenditure on personnel costs, to the extent that the wages
growth outturn matches The Treasury’s forecast, the forecast wage growth adopted by Auckland Airport
for PSE4 pricing will be too low. There are currently strong wage pressures in the New Zealand
economy, wage inflation currently above 6 per cent, with Air New Zealand increasing its entry level
wages by 27 per cent in order to attract staff. Auckland Airport too faces similar wage pressures. In that
context, forecast non-tradable inflation was a very cost-efficient forecast cost driver.
Figure 8: New Zealand Treasury forecasts, 2023 Budget
12
Headcount allocated on primary purpose of business unit. Individual functional allocations may differ
0
2
4
6
8
Jun-22Jun-23Jun-24Jun-25Jun-26Jun-27
Per cent
Non-tradeable inflationCPIAverage hourly earnings
47
Headcount
Auckland Airport considered and analysed airlines’ feedback which challenged the forecast growth of
aeronautical FTEs and determined that the 72 increase in forecast headcount from FY23 to FY24 is
justifiably driven by:
• Infrastructure delivery +35: This headcount increase is driven by the Terminal Integration
Programme. Notably, the majority of the costs relating to this programme will be capitalised during
construction and therefore are not included in the opex forecast; and
• Guest experience +17: This additional headcount is driven by additional front-line staff required as
a result of increased passenger throughput plus extra resources to manage areas of disruption and
construction as the terminal integration programme gets underway.
Auckland Airport considered that this recruitment plan is achievable and appropriate, given the
accelerating recovery from the pandemic.
Operational expenditure forecasts are efficient
Benchmarking indicates that operational costs at Auckland Airport are very efficient. Jacobs 2022
Airport Performance Indicators report showed that Auckland ranked 43
rd
out of 50 airports on operating
cost per passenger (where 50
th
has the lowest operating cost per passenger). All the other airports with
a lower operating cost per passenger were either significantly larger (enjoying economies of scale) or
were in lower-wage cost countries when compared to New Zealand (e.g. Mexico, India, Thailand).
Auckland Airport continues to balance the trade-off of the benefits that increased operational
expenditure can have for airport customers and passengers, against minimising aeronautical charges
for airlines. Our operational expenditure forecasts seek to strike the right balance between these two
competing tensions.
Figure 9: Jacobs Airport Performance indicators 2022, operating costs per passenger
Source: Jacobs 2022 Airport Performance Indicators, operating costs per passenger represented as Special Drawing Right
(“SDR”) rates in a single unit of currency, not in dollars. 1 NZD = 2.1 SDR.
This forecast indicates that operational expenditure per passenger will reduce in both nominal and real
terms over the pricing period, with forecast real operational expenditure per passenger of $6.50 in FY27,
returning to be in-line with pre-pandemic real operational expenditure per passenger of $6.41. The
return of operational expenditure per passenger to pre-pandemic levels in real terms sets out how the
operational expenditure forecast is efficient.
48
Figure 10: Priced operating cost per passenger for PSE4
Forecast operational expenditure per passenger reduces in both nominal and real terms over the pricing
period, with forecast real operational expenditure per passenger of $6.50 in FY27, returning very close
to with pre-pandemic real operational expenditure per passenger of $6.41.
The impact of the pandemic and the volatility created by the disruption cannot be understated.
Significant short-term cost savings were implemented to protect financial viability in response to the
significant drop in airport activity as borders were closed during the pandemic. As activity has ramped
up again, labour shortages and cost inflation have combined to create a volatile cost environment.
Uncontrollable expenses such as insurance and rates have increased substantially. The return to
pre-pandemic operational expenditure over the forecast period, reflects an efficient outlook for
operations as economies of scale return with passenger numbers.
3.3.1.2. Extent to which operating costs have been used to determine the forecast total
revenue requirement
The following table summarises the forecast operating costs that were used to determine the forecast
revenue requirements.
Table 15: Forecast operating costs PSE4
Opex Forecasts ($’000)
FY23
FY24
FY25
FY26
FY27
PSE4
Total
Aeronautical Pricing Activities and Non-
Isolatable Activities
116,426 144,585 154,955 158,680 169,910 744,555
Other Regulated Activities 14,091 16,984 18,084 18,503 19,715 87,376
Total Regulated Activities forecast
operating costs
130,517 161,569 173,038 177,183 189,624 831,931
The table below outlines a breakdown of the nominal priced operating cost forecasts by expense
category and on a per PAX basis for PSE4.
$7.4
$7.7
$7.6
$7.2
$7.2
$7.4
$7.4
$7.2
$6.6
$6.5
$6.4
$0
$2
$4
$6
$8
$10
FY23FY24FY25FY26FY27
Nominal Priced Opex / PaxReal Priced Aero Opex / Pax (FY23$)
Real FY19 Priced Opex / Pax (FY23$)
49
Table 16: Priced operational cost forecasts by category
PSE3 PSE4
FY22 FY23 FY24 FY25 FY26 FY27
Personnel costs - $m 32.0 39.6 46.9 51.3 54.4 57.2
- per PAX ($) 5.71 2.53 2.54 2.53 2.46 2.42
Other staff costs - $m 1.7 3.5 4.2 4.6 4.8 5.0
- per PAX ($) 0.30 0.22 0.23 0.23 0.22 0.21
Outsourced operations - $m 10.6 14.6 15.2 15.9 16.5 17.3
- per PAX ($) 1.89 0.93 0.82 0.78 0.75 0.73
Repairs and maintenance - $m 16.1 12.8 20.7 23.1 24.7 26.6
- per PAX ($) 2.87 0.82 1.12 1.14 1.12 1.13
Utilities exp - $m 5.2 6.0 10.0 11.1 11.9 13.2
- per PAX ($) 0.94 0.39 0.54 0.55 0.54 0.56
Cleaning - $m 3.4 8.6 9.3 9.9 10.5 11.2
- per PAX ($) 0.60 0.55 0.50 0.49 0.48 0.47
Telecoms and Computer - $m 7.5 11.6 13.0 13.4 13.7 14.1
- per PAX ($) 1.34 0.74 0.70 0.66 0.62 0.60
District plan noise
obligation
- $m 0.0 0.0 0.0 0.0 0.0 0.0
- per PAX ($) 0.00 0.00 0.00 0.00 0.00 0.00
Rates - $m 2.1 3.1 3.3 3.6 3.7 3.8
- per PAX ($) 0.38 0.20 0.18 0.18 0.17 0.16
Insurance - $m 3.4 4.0 5.1 5.2 5.4 5.5
- per PAX ($) 0.60 0.25 0.27 0.26 0.24 0.23
Marketing, Promotions and
PR
- $m 0.5 3.6 3.8 3.2 3.0 3.1
- per PAX ($) 0.10 0.23 0.21 0.16 0.13 0.13
Consultancy, audit and
legal
- $m 2.5 5.2 4.9 4.8 5.0 5.9
- per PAX ($) 0.45 0.33 0.26 0.24 0.23 0.25
Shareholder expenses - $m 0.6 0.6 0.6 0.6 0.7 0.7
- per PAX ($) 0.11 0.04 0.03 0.03 0.03 0.03
Other exps - $m 8.5 3.2 7.6 8.3 4.4 6.3
- per PAX ($) 1.51 0.33 0.45 0.56 0.36 0.46
Total - $m 94.0 116.4 144.6 155.0 158.7 169.9
- per PAX ($) 16.79 7.56 7.85 7.81 7.35 7.38
3.3.1.3. Difference compared to the most recent corresponding historical financial
information
Consistent with previous price setting events, Auckland Airport has based its cost allocation
methodology on the prescribed approach for information disclosures and adjusted downwards cost
allocations to priced activities (airfield and priced passenger services) to exclude non-priced activities.
Excluded non-priced assets and operating costs relate to the regulated Aircraft & Freight segment, VIP
lounges, airlines offices, The Collection Point and other areas of the terminals subject to exclusive
leases. We note that this methodology has been transparently disclosed and broadly accepted since
2006.
Auckland Airport has refined our indirect allocation approach for PSE4 to ensure that operating costs
associated with non-priced aeronautical activities are accurately excluded from aeronautical pricing.
We first applied the same indirect allocation rule differentials as estimated for PSE3 for the Passenger
Terminal segment between Regulated vs Priced activities, then completed further work to refine this
approach for PSE4. The final PSE4 indirect cost allocation rules are outlined in the table below.
50
Table 17: PSE4 operating expenditure allocation percentages for key indirect allocation rules
Indirect Rules Airfield
Passenger
Terminal
Aircraft &
Freight
Total
Regulated
Of which is
priced
Non-
regulated
Company-wide
28% 40% 3% 71% 69% 29%
Aeronautical revenues rule
38% 54% 3% 95% 91% 5%
Airfield and terminal
revenues rule
39% 55% 0% 94% 94% 6%
Electricity utilities
1% 19% 0% 20% 20% 80%
Water utilities
2% 37% 0% 39% 38% 61%
Gas utilities
23% 33% 2% 58% 56% 42%
Drainage & Stormwater
44% 12% 5% 61% 56% 39%
Roadways
27% 33% 3% 64% 60% 36%
Engineering Support
Services
17% 63% 0% 81% 81% 19%
For the 2022 annual information disclosure, the most recent year, a split of the Terminal segment into
priced and non-priced activities is not available, however the below table summarises the indirect cost
allocation rules across the three regulated activities for comparison.
Table 18: 2022 information disclosure operating expenditure allocation percentages for key
indirect allocation rules
Indirect Rules Airfield
Passenger
Terminal
Aircraft &
Freight
Total
Regulated
Non-
regulated
Company-wide
40% 26% 8% 74% 26%
Aeronautical revenues rule
54% 35% 11% 100% 0%
Airfield and terminal
revenues rule
61% 39% 0% 100% 0%
Electricity utilities
1% 16% 0% 17% 83%
Water utilities
10% 32% 1% 43% 57%
Gas utilities
29% 19% 6% 54% 46%
Drainage & Stormwater
45% 13% 5% 62% 38%
Roadways
2% 69% 1% 72% 28%
Engineering Support
Services
20% 70% 0% 90% 10%
3.3.2. Incentives
This section of the paper supports the information provided at (xii) of Schedule 18 which meets the
disclosure requirements under clause 2.5(1)(o) of the Determination.
Auckland Airport considers that airline incentives are a valid aeronautical operating cost to be recovered
through aeronautical pricing. Incentives are provided by all major airports to airlines establishing new
routes or expanding capacity. They were also provided to support airlines to recover from the pandemic.
They provide material economic benefit to the country and passengers through greater aviation services
choice, more competition, and reduced prices. They also provide significant benefits to airlines receiving
the incentives, and those that benefit from consequential traffic flows.
Over the long run, incentivising new routes increases passenger volumes which helps bring down
aeronautical charges by dividing the costs amongst a greater pool of passengers and aircraft
movements. For these reasons Auckland Airport considers that it remains appropriate that these
programs are continued, and that the costs are recovered through aeronautical charges. The current
allocation of 80% remains unchanged for PSE4, with the dollar values allocated to aeronautical activities
presented in the table below.
51
Table 19: Incentives forecast for PSE4
Forecast financial incentives ($’000) FY23 FY24 FY25 FY26 FY27 PSE4
Pricing incentives 8,318 7,523 9,741 10,833 10,410 46,825
Other incentives 1,117 1,187 386 – – 2,690
Total 9,434 8,709 10,127 10,833 10,410 49,514
3.3.3. Unlevered tax
This section of the paper meets the disclosure requirements under clause 2.5 (1)(c)(v) of the
Determination.
3.3.3.1. Description of and rationale for forecast unlevered tax
Aeronautical Pricing Activities
Auckland Airport used a tax rate of 28%. Consistent with the aeronautical disclosure regulations, which
themselves are consistent with forecast aeronautical pricing period revenues being set to deliver a
WACC-based Target Return, tax is forecast on an unleveraged basis. Auckland Airport calculated tax
by multiplying the investor average tax rate by revenue less opex, tax depreciation and income from
disposals.
Tax depreciation was calculated using two methods:
• for existing assets, tax depreciation is forecast per the tax fixed asset register, overlaid with
aeronautical allocations; and
• for tax depreciation on forecast commissioned capex, average tax depreciation rates were applied
by asset class (referencing historical cost weighted tax depreciation rates for the same classes of
existing assets) overlaid with aeronautical allocations.
3.3.3.2. Extent to which tax has been used to determine the forecast total revenue
requirement
The following table summarises the forecast unlevered tax that has informed the forecast revenue
requirements.
Table 20: Forecast tax related to the total revenue requirement
$m FY23 FY24 FY25 FY26 FY27 PSE4
Tax – Aeronautical Pricing
Activities
$15.1m $54.6m $60.6m $81.6m $108.5m $320.4m
Tax – Other Regulated Activities $8.8m $8.3m $7.4m $6.9m $10.1m $41.4m
Total Regulated Activities forecast
tax
$23.9m $62.9m $68.0m $88.4m $118.6m $361.7m
3.3.3.3. Difference compared to the most recent corresponding historical financial
information
The impacts of the pandemic were significant in the most recent annual disclosure year, resulting in a
much lower amount of tax payable due to significantly lower revenues. Hence forecast PSE4 tax is
higher than shown in the historical financial information (FY22: $(1.9)m).
52
3.4. Cost of capital and returns
This section sets out the basis for the weighted average cost of capital, the cash-flow timing
assumptions adopted, the non-priced regulated revenue that is forecast to be collected, and the forecast
internal rate of return (“IRR”).
3.4.1. Weighted average cost of capital
This section of the paper meets the disclosure requirements under clause 2.5 (1)(c)(ii) of the
Determination. In addition, Auckland Airport is required to describe its approach to the forecast cost of
capital and its target return at Schedule 18(v) and Schedule 19(v) of the Determination. This section
should be read as part of Schedules 18 and 19 as is addressed those requirements.
3.4.1.1. Forecast cost of capital overview
In its decisions on the 2016 IM Review, the Commission clearly established that the cost of capital used
by an airport in pricing could be different to the Commission's industry-wide mid-point estimate. And the
Commission’s reviews of airports’ price setting decisions under the current regulatory regime, plus direct
Commission statements, have clearly demonstrated that if an airport applies a different Target Return
to the Commission’s own industry wide mid-point WACC calculation (for first financial year of the pricing
period), the airport must provide robust evidence supporting its approach. For example, the Commission
made it very clear when reviewing and opining on Auckland Airport’s PSE3 price setting decision that
a departure in target return from its benchmark midpoint WACC calculation would be acceptable if, and
only if, accompanied by compelling evidence to support such departure. That is the purpose of this
disclosure.
Auckland Airport's updated 2016 WACC IM calculations as at the start of our PSE4 pricing period
provided very compelling evidence that the 2016 WACC IM comparable company input data was badly
out of date and would determine a materially inaccurate midpoint airport sector WACC estimate.
Auckland Airport adopted a target return for PSE4 priced activities of 8.73%. This was set equal to the
midpoint (50th percentile) WACC estimate based on the 2016 WACC IM with updated comparable
company data inputs as at the end of June 2022 (ie the start of PSE4), excluding the prior 5 BPs
downwards adjustment to asset beta and applying the Commission’s most recently published Tax
Adjusted Market Risk Premium (“TAMRP”) estimate. Our approach to setting PSE4 Target Return was
independently reviewed by Dr Tom Hird from Competition Economics Group (“CEG”), whose work also
included evaluating the airline feedback received throughout the consultation process (refer below).
Auckland Airport is confident that our approach for the PSE4 aeronautical pricing decision of replicating
the Commission’s in force 2016 WACC IM, except for discontinuing the 5 basis points downwards asset
beta adjustment, but using updated market data and the Commission’s most recent TAMRP estimate
(and supported by expert independent analysis) is highly principled and robust.
During PSE4, revenue from Other Aeronautical Activities is forecast to be well below the target return
that has been adopted for PSE4. This has diluted the forecast post-tax IRR for Total Regulated Activities
to 7.79% versus the 8.73% Target Return used for priced activities.
The Commerce Commission’s post-tax WACC calculation for FY23, the first year of our PSE4, is 6.98%
(refer to its Cost of Capital determination for Auckland and Christchurch airports for disclosure year
2023). The difference between the 8.73% Target Return adopted for PSE4 and the Commission’s
midpoint post-tax WACC estimate for FY23 of 6.98% is due to Auckland Airport updating the
comparable company input data and TAMRP as at the end of June 2022 and discontinuing the 5 BPs
downwards asset beta adjustment. CEG’s independent opinion was that this approach was highly
principled and entirely appropriate as set out in the following sections.
The input parameters used to support this target return are set out in the table below.
53
Table 21: Comparison of post-tax WACC estimates
3.4.1.2. Forecast cost of capital for Aeronautical Pricing Activities
As set out in the table above, the difference between our PSE4 Target Returns for Aeronautical Pricing
and Total Regulated activities versus the Commission’s FY23 mid-point WACC estimate is due to us
applying updated comparable company asset beta and leverage data as well as the Commission’s most
recent in-force TAMRP estimate as at the end of June 2022. All other input parameters were kept
consistent with the Commission’s post-tax WACC as at 1 July 2022, including all input parameters for
the cost of debt.
Asset beta, leverage and equity beta
To commence PSE4 aeronautical pricing consultation with airlines over 12 months ago, Auckland
Airport, with support from LJK consulting, estimated updated input parameters for asset beta (0.79) and
leverage (14%). We also shared empirical analysis that demonstrated the 5 basis point downward
adjustment to the airport asset beta was unwarranted and we have therefore discontinued that
adjustment. Also, to ensure that this approach was robust and further inform the Draft Pricing Proposal,
we commissioned the first independent expert report from CEG. CEG was asked to opine on:
• the consistency of Auckland Airport’s approach for updating comparable company asset beta and
leverage with the approach set out in Commission’s 2016 WACC IM;
• the accuracy of our updated asset beta estimate; and
• Auckland Airport’s approach of not adjusting the average comparable company asset beta estimate
downwards by five basis-points.
Dr Tom Hird from CEG found our approach to updating asset beta and leverage consistent with
available market evidence. Dr Hird’s report reached the following key conclusions which informed the
approach adopted to calculate target return:
14
• the asset beta for PSE4 for AIAL should be estimated using data up to June 2022 (the beginning
of PSE4) and should follow the New Zealand Commerce Commission’s (NZCC’s) 2016 Input
Methodologies (IM) approach and reasoning with the exception that there should be no presumption
that aeronautical asset betas are lower than non-aeronautical asset betas.
13
Implied asset beta of actual return targeted accounting for land transfers forecast to enter the priced asset base
14
CEG Economics, AIAL asset beta and WACC estimates for PSE4, February 2023
WACC element
Post-tax IRR
(Aeronautical Pricing
Activities)
13
Post-tax IRR
(Total Regulated
Activities)
Commission’s post-tax
WACC (at 1 July 2022)
Risk free rate 3.60% 3.60% 3.60%
Investor Tax Rate 28% 28% 28%
Asset Beta 0.80 0.674 (implied) 0.60
Equity Beta 0.930 0.784 (implied) 0.74
TAMRP 7.50% 7.50% 7.0%
Cost of equity 9.57% 8.08% 7.77%
Debt margin 1.17% 1.17% 1.17%
Debt Issuance Costs 0.20% 0.20% 0.20%
Cost of debt (pre-tax) 4.97% 4.97% 4.97%
Corporate tax rate 28% 28% 28%
Ratios
Debt to Value ratio 14% 14% 19%
Equity to Value ratio 86% 86% 81%
Post-tax WACC 8.73% 7.79% 6.98%
54
• The sample of comparators should be the same as the sample used in the 2016 IM with the only
exceptions being that:
- airports that have been delisted/newly listed are removed/added to the sample; and
- Airport Facilities and GMR Industries are removed on the basis that the majority of their
operations and revenue streams are unaffected by passenger volumes.
• I consider that it would be a serious error for the NZCC to move away from its 2016 IM method and
attempt to shrink the size of sample by excluding comparators that do not have “stable” asset betas
and/or operate in countries with market risk premiums that are “substantially different to the market
risk premium for New Zealand”.
I estimate a sample average asset beta of 0.80 which is consistent with estimates from CEPA and
LJK consulting (for the same sample). The sample average leverage is 14% (15% in the five years
to June 2017 and 13% in the 5 years to June 2022).
• In summary, I do not consider that there is a valid conceptual or empirical case for presuming that
aeronautical asset betas are lower than non-aeronautical asset betas.
• Conceptually, aeronautical cash-flows are more exposed to temporary economic shocks than
non-aeronautical cash-flows and have average risk exposure to permanent economic shocks. If
anything, this suggest higher risk for aeronautical activity than non-aeronautical activities.
• Empirically, the available evidence suggest that if any adjustment were to be made it would be
positive. That is, the evidence suggests that, if anything, aeronautical operations are higher risk
than non-aeronautical operations at the average airport.
A second report from CEG was commissioned to assess the Target Return feedback received from
airlines in relation to the Draft Pricing Proposal and whether it warranted any changes to the proposed
target return. In this report Dr Hird concluded:
15
• In my view, none of the submissions give reason for AIAL to alter its proposed approach to
estimating the WACC for PSE4.
A summary of the key issues considered by CEG, analysis undertaken, and advice received is outlined
below.
Most recent 10-year asset beta observations
CEG noted Auckland Airport’s approach of updating the comparable company asset beta observation
period to include the most recent 10 years of data immediately preceding our five-year PSE4 period
captures a period impacted by the COVID-19 pandemic.
In Dr Hird’s opinion, continuing to replicate the Commission’s traditional rolling 10-year data analysis
period would provide an actuarially fair attribution to all macro-economic events across time. This is
because all years will be equally represented in pricing decisions over the long-run. An approach of
removing data impacted by COVID-19 (and potentially other future macroeconomic shocks) from the
analysis period would, on the other hand, result in a material under-estimation of airport sector
systematic risk over the long term.
Those economic shocks and associated periods of higher systematic risk are not hypothetical. They
are indeed experienced by regulated airport companies through the course of time and must be
captured in their target returns so as to deliver investors their required risk-adjusted return over the long
term.
CEG cautioned against manipulating asset beta data sampling periods to under-weight periods
impacted by economic shocks such as the COVID-19 pandemic, the Global Financial Crisis, Severe
Acute Respiratory Syndrome, Avia Flu, etc, etc. Dr Hird noted that to the extent that the impacts of any
such economic shocks are regarded as ‘over-represented’ in a sample period that’s impacted by such
economic shocks, it will be under-represented in periods where such shocks do not occur.
15
CEG Review of feedback on AIAL WACC estimates for PSE4, this report has been provided to the Commerce Commission
55
The probability ex ante of such economic shocks impacting the upcoming pricing period is greater than
zero. It is clear therefore that if regulated airports and/or the Commission were, at each aero pricing
reset, to attempt to adjust the data set (or downwardly adjust the calculated average asset beta) to
exclude or reduce the impacts of economic shocks that occurred during the sample period, they would
also need to make similar but opposite adjustments to include those non-zero risks in the asset beta
calculations for future periods where the data isn’t impacted by such economic shocks. This would
clearly be a minefield.
To get the right result over the long run, airports and the Commissions would need to be able to perfectly
forecast the probability of such future economic shocks. Since perfect foresight isn’t possible in this
context, an approach that attempts to adjust measured asset beta results for economic shocks will
deliver the wrong result over time. The better approach is to include the impacts of any such shocks in
the periods that they impact the comparable company data; not attempting to adjust the asset beta
results from these analysis periods downwards, nor attempting to adjust them upwards for periods not
impacted by such shocks.
CEG also considered the Commission’s suggestion for the airport sector of lengthening the asset beta
observation window as part of its 2023 IM Review proposals for the WACC IM. Dr Hird noted that the
most important factor is that over the long run, each year of comparable company data gets equal
weighting. As explained above, that is the only way to achieve the actuarially correct asset beta result
over the long term.
He also observed that it would be sensible for such asset beta re-calculations to occur immediately prior
to each regulated airport’s five-yearly aeronautical price reset so that the calculated asset beta reflects
the most recently available period of data and to ensure that all data is weighted correctly. CEG pointed
out if the Commission (and or regulated airports) were to shift from the rolling 10-year analysis period
that was used to calculate asset beta and leverage for PSE2 and PSE3 to a 15-year window for PSE4
(and presumably for all future PSEs after that) this would mean that the five years of data to June 2012
would be overweighted. This is because this period was given a 50% weighting to determine asset
beta in PSE2 and PSE3. But each five-year data period from the period ending June 2017 onwards
would only get a 33% weighting in each pricing period from PSE4 onwards if we moved to a 15 rolling
15-year period.
More importantly perhaps, there is the potential for such a change to be perceived as an illustration of
asymmetric regulatory risk. That is, where an ad hoc change is introduced in an attempt to dilute a
period of realised high systematic risk, whereas a period of realised low systematic risk would be
unlikely to elicit a similar response. On this basis, CEG recommended that Auckland Airport continue
to adopt the Commission’s traditional rolling 10-year analysis period to calculate asset beta for our
WACC and target return calculations, updated to the period ended 30 June 2022.
Dr Hird also advised that departing from 2016 IM parameter values to update the data for the purpose
of setting the WACC to govern PSE4,is the only approach that gives a reasonable and consistent
approach to historical data for the purpose of estimating WACC parameters and, in particular, asset
beta.
Auckland Airport considered it appropriate to maintain the approach to update the input data based on
the information available prior to the commencement of this and future pricing periods.
Asset beta estimate and leverage accuracy
CEG was asked to undertake its own asset beta estimate by:
• applying its understanding of the Commission’s criteria around comparable companies meeting the
eligibility of being included within the company sample and excluding companies no longer meeting
the criteria;
• using comparable company data over two consecutive five-year periods ended 30 June 2022 per
the current WACC IM so as to calculate two five-year average estimates of both weekly and four-
weekly asset beta, which are then averaged to give an overall average asset beta result for the
upcoming pricing period; and
• comparing the approach with previous work undertaken by Auckland Airport and also work
undertaken recently by the Commission’s consultant CEPA.
56
CEG’s overall average asset beta result (0.80) was almost identical to CEPA’s estimate for the purposes
of the 2023 IM Review (0.79) and the previous work undertaken by LJK Consulting for Auckland Airport
(0.79). Accordingly, Auckland Airport’s decision to update the asset beta for PSE4, and the magnitude
of the increase from the Commission’s 2016 WACC IM determination is strongly evidenced.
CEG’s estimate further refined the comparable company sample set and was up to date for the ten
years ended 30 June 2022 (the start of our PSE4). Auckland Airport has therefore applied CEG’s 0.80
asset beta estimate to calculate WACC and Target Return for PSE4.
Pandemic impacts
Dr Hird commented on the potential to de-weight the impact of COVID-19 having regard to UKCAA
precedent, and explained his view that applying the 2016 IM (with updated data) is the only method that
can result in accurate compensation for systematic risk over time.
He considered that a full account of the UK precedent in relation to COVID-19 if applied to Auckland
Airport would result in a permanent increase in compensation for all future PSEs equivalent to an asset
beta uplift of more than four times the increase in asset beta attributable to COVID-19 in the 2016 IM
method adopted by Auckland Airport to establish the PSE4 Target Return. Moreover, he noted that
Auckland Airport's method only results in a temporary lift from COVID-19.
Based on this analysis and advice, Auckland Airport has maintained its approach to make no
adjustments to the asset beta measurement for pandemic impacts.
The 5 basis point downward adjustment to the comparable company asset beta estimate in the 2016
IM
Finally, CEG was asked to opine on whether Auckland Airport was justified by the evidence in
discontinuing the 2016 IM 5 basis points downward adjustment to the calculated overall average
comparable company asset beta result.
Dr Hird both considered this issue conceptually and reviewed available data from global airports that
report revenue and/or profit separately for their aeronautical and non-aeronautical business segments.
At a conceptual level CEG considered a range of scenarios of permanent and transient shocks to
demand and considered the expected impact for both aeronautical vs non-aeronautical segments. On
this analysis Dr Hird concluded that transient shocks would likely affect the aeronautical segment more
than non-aeronautical segments. Permanent economic shocks to demand can be expected to also
impact the aeronautical segment, but this is partly offset by the ability of airports to reset prices
periodically to adjust for changes in forecast demand.
CEG supplemented the conceptual analysis with an empirical investigation of the Commission’s
(adjusted) comparable company sample. Given the COVID-19 pandemic was a global shock to
aeronautical passenger demand – a time series of business segment performance over this period
provides a useful observation period to see how the different segments performed with a sudden shock
to passenger demand.
Overall, CEG found that non-aeronautical revenues and profits over the COVID-19 period showed more
resilience than aeronautical revenues and profits from airport companies. This performance through an
unanticipated shock to passenger demand (and the following recovery period), that was correlated with
an overall reduction in share prices of listed companies across entire share markets (and a following
recovery), demonstrated that non-aeronautical airport business segments demonstrated lower
systematic risk than aeronautical segments during this period of economic shock and recovery.
CEG also conducted a regression analysis using the Commission’s (adjusted) comparable company
sample of asset beta over the five years to 30 June 2022 versus the proportion of reported revenue
from non-aeronautical business segments in 2019 and found a significant negative relationship between
the proportion of non-aeronautical revenue and asset beta. For example, the higher the proportion of
non-aeronautical revenues, the lower the measured asset beta value over that five-year period.
Given both CEG’s conceptual conclusions and empirical analysis, Dr Hird found no clear support for
Auckland Airport adopting the Commission’s 5 basis points downward adjustment to the overall global
comparable company average asset beta result for the regulated aeronautical component. In fact, the
empirical evidence suggests that there should instead be an upwards adjustment for the aeronautical
57
component. However, Auckland Airport did not make any such upwards adjustment for our PSE4
WACC calculation and target return determination.
Given that the most robust evidence presented to date does not support the contention that aeronautical
activities are lower systematic risk than non-aeronautical activities, the downwards adjustment
previously adopted by the Commission has not been applied to determine Auckland Airport’s target
return for PSE4.
CEPA analysis
The findings of CEG were also consistent with the findings of CEPA, the expert advisor to the
Commerce Commission in the 2023 IM Review. CEPA was directed by the Commission to update the
previous 2016 IM Review estimate of asset beta and leverage for airports and energy businesses
regulated under Part 4 using exactly the same approach to update the analysis that was used in 2016.
CEPA found an updated asset beta of 0.79 for the airports sample set, with leverage of 14%. Whilst the
time period measured by CEPA was slightly different, as Auckland Airport measured data as at 1 July
2022 (the start of the PSE4 pricing period), the findings were very consistent. This provided an
additional, independent point of verification that the asset beta estimate adopted in the PSE4 pricing
decision was a reasonable estimate of asset beta.
Conclusion on asset beta
Based on this analysis and advice from Dr Hird, the consideration of airline feedback received, and the
Commission’s own independent expert analysis, Auckland Airport adopted an asset beta input
parameter of 0.80 for Aeronautical Priced Activities, and leverage of 14%. This resulted in an equity
beta adopted of 0.93. This was based on a highly principled and robust approach of updating the
Commission’s 2016 WACC IM analysis except for discontinuing the now discredited 5 basis points
downwards asset beta adjustment.
Tax adjusted market risk premium
The other key element of the cost of equity is the overall market risk premium demanded by investors
for committing capital. For its most recent decisions, the Commission has adopted a tax-adjusted
market risk premium (“TAMRP”) of 7.5%.
16
This was determined by the Commission for Chorus under Part 6 of the Telecommunications Act and
for Gas Pipeline Business owners under Part 4 of the Act. This had increased from the 7% it identified
in 2016 when setting the WACC Methodology for Airports.
Given the TAMRP is an economy-wide measure of investor expectations, Auckland Airport applied the
Commission’s most recent estimate when setting our target return. This was considered to be the best
approach given that it was the most recent estimate of a sector-agnostic measure, and considered
appropriate by our independent expert advisor, CEG.
During consultation, no evidence or arguments were provided by airlines as to why the Commission’s
most recent TAMRP estimate prior to PSE4, which is a sector-agnostic parameter, should not be
adopted. Auckland Airport considered that using the Commission’s most recent TAMRP estimate
available at the time was consistent with the updating of all input parameters to reflect the most recent
information prior to the pricing period commencing. This approach was maintained for the final pricing
decision.
Input parameters consistent with the Commission’s cost of capital determination
Other input parameters into the target return calculation were based on the Commerce Commission’s
Cost of capital determination for disclosure year 2023 for information disclosure regulation as at
1 July 2022, published in August 2022.
These parameters published by the Commission represented the latest available information at the start
of the PSE4 pricing period.
16
Commerce Commission, Fibre Input Methodologies Determination 2020, published 13 October 2020 and Commerce
Commission, Gas Distribution Services Input Methodologies Amendment Determination (No.1) 2022, 25 March 2022,
Commerce Commission, Gas Transmission Input Methodologies Amendment Determination (No.1) 2022, 25 March 2022
58
Table 22: Commerce Commission cost of capital determination, August 2022
WACC element Commission’s post-tax WACC input
parameters adopted in target return
Risk free rate 3.60%
Investor Tax Rate 28%
Debt margin 1.17%
Debt Issuance Costs 0.20%
Cost of debt (pre-tax) 4.97%
Corporate tax rate 28%
The risk-free-rate
The current practice in New Zealand is to set the risk-free-rate (“RFR”) for lenders to be commensurate
with the length of the pricing period. Therefore, we have used New Zealand government bonds
(“NZGB”) with a yield to maturity coinciding with a five-year term. The prevailing RFR is based on the
Commission’s daily observation of qualifying New Zealand Government Bonds over the period of April,
May and June 2022. This methodology results in a RFR of 3.60% as published in the Commission’s
Cost of Capital Determination on 2 August 2022.
Debt issuance cost allowance
The target return includes the Commission’s 20-basis point allowance for debt issuance costs.
Debt premium
The debt premium is the addition to the RFR required for the benchmark facility to debt finance its
capital requirement based on the assumed (A-) credit rating for the business. The debt premium is
based on an arithmetic average of debt premium observations across five years of qualifying trading
corporate bonds. The averaging of the debt premium assumes refinancing occurs every year for five
years with the prevailing rates embodied in the averaged debt premium. The average debt premium of
1.17% was published in the Commission’s 2 August 2022 Cost of Capital Determination.
Tax rate
The New Zealand corporate tax rate of 28% was adopted, consistent with the Commission’s Cost of
Capital Determination.
Overall calculation of Auckland Airport’s WACC estimate
Dr Hird's advice provided a strong, evidenced based position to maintain the 0.80 asset beta and the
post-tax target return of 8.73%. After considering airlines' feedback and Dr Hird's analysis, Auckland
Airport decided to adopt a target return for the PSE4 pricing period of 8.73%. Auckland Airport is
confident that our approach for the PSE4 aeronautical pricing decision of replicating the Commission’s
previous WACC IM, except for discontinuing the now discredited 5 basis points downwards asset beta
adjustment, using updated comparable company data at the start of PSE4, using the Commission’s
most recently published TAMRP estimate and supported by expert analysis is highly principled and
robust. The input parameters used to support this target return are set out in the table below.
59
Table 23: Final WACC input parameters for PSE4 target return
3.4.1.3. Forecast cost of capital for Total Regulated Activities
The forecast post-tax IRR for Total Regulated Activities (7.79%) is lower than the forecast cost of capital
for the PSE4 pricing period. This is driven by sub-WACC returns for Other Regulated Activities. The
revenues for these activities are based on arms-length negotiations that are subject to standard
commercial dispute resolution processes, rather than calculated using a building blocks model targeting
a particular return that aligns with Auckland Airport’s five-yearly aeronautical pricing cycle. The forecast
sub-Target Return for this segment over PSE4 mainly reflects the significant additional RAB indirectly
allocated to Other Regulated Activities (for example using space-based allocation rules) that’s
associated with Auckland Airport’s wider PSE4 capex programme for priced activities. In many cases
this indirect allocation of additional RAB does not change the physical nature of the actual spaces
leased by aeronautical tenants and therefore there are no direct sources of revenue to generate an
economic return on that incremental shared RAB value.
3.4.2. Cash-flow timing assumption
This section of the paper meets the disclosure requirements under clause 2.5 (1)(f) of the
Determination.
Auckland Airport confirms it has adopted the default cash-flow timing assumptions under the Information
Disclosure Determination of all expenditure occurring 182 days before the end of the disclosure year,
and all revenue 148 days before the end of the disclosure year.
3.4.3. Non-priced revenue
Clause 2.5(1)(u) requires, for each service that is included in the revenue requirement not applicable to
the price setting event as disclosed in accordance with Schedule 18, Auckland Airport to publicly
disclose:
• a description of the service;
• the forecast total revenue requirement that is forecast to be earned from the service for each
disclosure year of the price setting event;
17
Cost of Capital Determination for Disclosure Year 2023 for Information Disclosure Regulation [2022] NZCC 28, 2 August
2022
18
Fibre Input Methodologies Determination, 13 October 2020, Gas Distribution Input Methodologies Determination 25 March
2022 and Gas Transmission Input Methodologies Determination 25 March 2022
WACC element Input element Reference
Risk free rate 3.60% Commerce Commission
17
Investor Tax Rate 28%
Asset Beta 0.80 CEG Report
Equity Beta 0.930 Calculation
TAMRP 7.50% Commerce Commission
18
Cost of equity 9.57% Calculation
Debt margin 1.17% Commerce Commission
15
Debt Issuance Costs 0.20% Commerce Commission
15
Cost of debt (pre-tax) 4.97% Calculation
Corporate tax rate 28%
Ratios
Debt to Value ratio 14% CEG Report
Equity to Value ratio 86% Calculation
Post-tax WACC 8.73% Calculation
60
• the revenue earned from the service during the most recent disclosure year; and
• reference to any price setting event that the service has been applicable.
In this section the disclosure requirements are set out for the categories of service that form part of the
forecast total revenue requirement but that did not form part of the price setting event consultation (i.e.
Other Regulated Activities). These are:
• aircraft and freight services; and
• other passenger terminal services.
3.4.3.1. Aircraft and freight services
Under Section 2 of the AAA, aircraft and freight activities mean the activities undertaken (including the
facilities and services provided) to enable, within a security area or areas of the relevant airport, the
servicing and maintenance of aircraft and the handling of freight transported, or to be transported, by
aircraft; and includes:
(a) the provision within a security area or areas of the relevant airport, of any one or more of the
following:
(i) hangars;
(ii) facilities and services for the refuelling of aircraft, flight catering, and waste disposal;
(iii) facilities and services for the storing of freight; and
(iv) security, customs, and quarantine services for freight; and
(b) the holding of any facilities and assets, including land acquired or held to provide aircraft and
freight activities in the future (whether or not used for any other purpose in the meantime).
Auckland Airport's aircraft and freight activities predominantly involve renting buildings to tenants who
provide aircraft and freight services to airlines and cargo operators. The rental agreements for these
tenancies are periodically negotiated between parties and are generally based on market comparables,
and subject to normal commercial dispute resolution procedures. A key exception to this is the licence
fee for the Joint User Hydrant Installation (“JUHI”), which relates to the provision of assets by Auckland
Airport to enable fuel suppliers to deliver aviation fuel to aircraft. The price for this service is set on an
annual basis following consultation. In practice agreement is reached with JUHI as the licensee.
The following table sets out the revenue that is forecast to be earned for aircraft and freight services for
each disclosure year of the price setting event. The estimate of revenue earned from these services for
FY23 is $32 million (FY22: $19 million). The $13.1m increase in forecast revenue in FY23 compared to
the prior year is driven by JUHI (reflecting increased aircraft movements and associated fuel usage)
and increased aeronautical ground rents and lease income (after removing previous rent abatements
and reflecting any lease renewals).
Table 24: Aircraft and freight revenue
$m FY22 FY23 FY24 FY25 FY26 FY27
Aircraft and freight forecast revenue
19.2 32.3 34.2 38.2 41.6 60.5
3.4.3.2. Other passenger terminal facilities
Under Section 2 of the AAA, specified passenger terminal activities mean the activities undertaken
(including the facilities and services provided) in relation to aircraft passengers while those passengers
are in a security area or areas of the relevant airport; and includes:
(a) the provision, within a security area or security areas of the relevant airport, of any one or
more of the following:
(i) passenger seating areas, thoroughfares, and airbridges;
(ii) flight information and public address systems;
61
(iii) facilities and services for the operation of customs, immigration, and quarantine
checks and control;
(iv) facilities for the collection of duty-free items; and
(v) facilities and services for the operation of security and Police services.
(b) any activities undertaken (including the facilities and services provided) in a passenger
terminal to enable the check-in of aircraft passengers, including services for baggage
handling; and
(c) the holding of any facilities and assets (including land) acquired or held to provide specified
passenger terminal activities in the future (whether or not used for any other purpose in the
meantime),
but does not include the provision of any space for retail activities.
Most specified passenger terminal activities fall into Aeronautical Pricing Activities that are covered by
Standard Charges (typically passenger charges). However, some of these services relate to space in
the terminals rented to aeronautical tenants, with revenues set through arms-length negotiations
between the landlord and the tenants. The exceptions to this are services owned and operated by
Auckland Airport, namely the Strata Lounge, VIP Meet & Assist Service and the Duty-Free Collection
Point.
The following table sets out the revenue that is forecast to be earned for these services for each
disclosure year of the price setting event. The estimate of revenue earned from these services for FY23
is $19.2 million (FY22: $12.3m). The $6.9 million increase in forecast revenue in FY23 compared to the
prior year is driven by revenue relating to the Strata lounge (which was closed in FY22) and higher
lease income from aeronautical tenancies in the international terminal (after removing previous rent
abatements and reflecting any lease renewals).
Table 25: Other passenger terminal services total revenue
$m FY22 FY23 FY24 FY25 FY26 FY27
Other passenger terminal services forecast revenue
12.3 19.2 22.5 23.9 27.6 27.7
3.4.4. Internal rate of return (“IRR”)
This section sets out the forecast revenue requirements and IRR for priced activities, and total regulated
activities for PSE4.
3.4.4.1. Priced IRR
The forecast revenue requirements for Aeronautical Priced Activities are set out below. These are
consistent with schedule 19 of the Pric e Setting Disclosures.
62
Table 26: Forecast pricing asset base revenue requirements for PSE4
($000) FY23 FY24 FY25 FY26 FY27
Opening RAB 1,315,588
Opening carry forward
adjustment
87,810
Opening RIV 1,227,778
Revenue
19
232,854 423,494 494,684 612,828 742,931
Assets Commissioned 223,460 351,746 934,904 410,639 654,483
Revenue from Disposals 0 0 0 0 0
Operational Expenditure 116,426 144,585 154,955 158,680 169,910
Unlevered Tax 15,116 54,640 60,621 81,501 108,474
Closing RAB 3,331,059
Closing carry forward
adjustment
43,744
Closing RIV 3,287,315
IRR
8.73%
NPV $0.0
3.4.4.2. Total regulated IRR
The forecast revenue requirements for Total Regulated Activities are set out below. These combine the
revenue requirements outlined above and are consistent with schedule 18 of the Pric e Setting
Disclosures.
Table 27: Forecast Total Regulated Activities asset base revenue requirements for PSE4
($000) FY23 FY24 FY25 FY26 FY27
Opening RAB 1,697,891
Opening carry forward
adjustment
87,810
Opening RIV 1,610,080
Revenue 284,355 480,191 556,827 682,039 831,200
Assets Commissioned 245,105 452,331 1,072,231 448,808 885,378
Revenue from Disposals 0 0 0 0 0
Operational Expenditure 130,517 161,569 173,038 177,183 189,624
Unlevered Tax 23,944 62,897 67,997 88,352 118,554
Closing RAB 4,151,598
Closing carry forward
adjustment
43,744
Closing RIV 4,107,855
IRR
7.79%
NPV $0.0
19
Revenue for IRR model is net of airline incentives forecast
63
3.5. Other factors
The Determination requires Auckland Airport to describe any “other factors” that were a component of
the Report on the Forecast Total Asset Base Revenue Requirements in Schedule 18 and the Report
on the Forecast Pricing Asset Base Revenue Requirements set out in Schedule 19.
“Other factors” is defined in the Determination to mean the value of any factor used to determine the
forecast total revenue requirement as required by clause 2.5(1) other than:
• forecast asset base;
• forecast operational expenditure;
• forecast depreciation;
• forecast unlevered tax;
• forecast revaluations; and
• forecast other operating revenue.
All factors considered in determining the total revenue requirement have been discussed above.
64
4. Pricing methodology
As required by clause 2.5(3) of the Determination, this section provides an overview of Auckland
Airport’s pricing methodology used to set Standard Charges, and other pricing-related information
underpinning Auckland Airport’s Standard Charges for FY23 to FY27 for Price Setting Event 4.
As required by clause 2.5(4) of the Determination, the schedule of Standard Charges is attached as
Appendix B.
4.1. Summary of pricing methodology
As discussed in Section 3 above, the pricing methodology used to set Auckland Airport’s Standard
Charges for Aeronautical Pricing Activities was based on a building blocks approach. The required
revenues were estimated using an Excel-based model that allocated assets, depreciation and operating
expenditure between non-aeronautical and aeronautical activities and, within aeronautical activities,
between priced domestic and international passenger terminal and airfield activities versus non-priced
activities including the aircraft and freight segment. Required revenues for priced activities were set to
achieve a forecast target return of 8.73% after tax for PSE4, but overlaid by some pricing concessions
made as a direct result of feedback from Substantial Customers during the aeronautical pricing
consultation.
As in PSE3, Auckland Airport’s overarching rationale in reaching its Aeronautical Pricing Decision for
PSE4 was to earn a fair and reasonable return on an appropriate asset base, as well as recovery of
depreciation and efficient operating costs.
As discussed in section 3.4.1, to determine our target return for PSE4, Auckland Airport updated the
Commission’s in-force 2016 cost of capital Input Methodology with the latest available comparable
company data and discontinued the now discredited 5 basis points downward adjustment for
aeronautical activities. We adopted a target return equal to the mid-point WACC estimate applying this
methodology.
4.1.1. General approach to pricing methodology and efficiency
Auckland Airport recognises the importance of our role as New Zealand's major gateway to the world,
and the key role we play in facilitating and supporting New Zealand tourism and trade. We are New
Zealand’s busiest international and domestic airport and act a key regional hub, serving a city that
represents around a third of the New Zealand population. We take our responsibility as one of New
Zealand’s most important infrastructure assets seriously, and we are conscious that the capacity,
resilience and quality of the facilities we provide directly impacts our airline and cargo customers,
passengers, and the wider regional and national economies.
Our PSE4 pricing approach reflect this responsibility, as we seek to deliver the capacity and
infrastructure needed to respond to forecast growth and to build the airport of the future for Auckland
and New Zealand. This is particularly important as the aviation industry recovers from the global
pandemic.
Our vision for aeronautical pricing is that charges will be at a level that:
• Provides a fair economic return on the aeronautical investment programme that will provide long-
term benefits for airlines, cargo customers and passengers;
• Facilitates a sound and reliable quality of service to users of the airport; and
• Incentivises innovation and efficiencies that customers benefit from over time; and
• balances economic principles which promote efficient pricing with practicable price structures.
Auckland Airport has maintained the fundamental price structure from PSE3, with only minor changes
made to the structure of the schedule of charges. This reflects the pricing efficiency embedded in the
current charging structure over PSE2 and PSE3. Further detail on how Auckland Airport’s pricing
structure has evolved over time are set out in the PSE3 price setting disclosure, where Auckland Airport
determined that its pricing methodology and the resulting charges should:
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• be consistent with achieving economic efficiency;
• encourage efficient use of Auckland Airport’s assets, and ensure that Auckland Airport is
encouraged to invest in the airport and run it efficiently;
• seek to reflect the costs driven by the consumption of Auckland Airport’s services;
• reflect long-run costs by having reference to a five-year building block approach, and introducing
an additional charge to start to provide efficient pricing signals and for efficient price smoothing
ahead of the second runway development; and
• balance economic principles which promote efficient pricing with price structures that are
transparent, easy to understand, stable over time, and simple for the airport and airlines to
administer.
These principles have been carried forward into PSE4. The pricing structure remains largely
unchanged from PSE3 with the exception of washup mechanisms to protect against an under-delivery
of the commissioned capital expenditure forecasts used to set PSE4 prices casing material windfall
economic gains for Auckland Airport and to protect against any material excess or shortfall in
aeronautical demand versus the price setting forecasts from causing material windfall economic gains
or losses for Auckland Airport.
Consistent with previous practice, Auckland Airport sought to set prices considering the following key
principles:
• allow airlines to consume and pay for only what they consume by:
- setting Standard Charges for a common set of needs for aircraft and passenger movements;
- treating specific asset requirements separately, eg through leases and common-user licenses
including VIP Check-In, VIP Lounges, office space, dedicated plant, etc; and
- remaining open to entering into negotiations with individual airlines to reach agreement on
variations from "charged services" (e.g. more for more or less for less, although
acknowledging the challenges of this in a common user environment).
• reflect different cost drivers by:
- separating services where there are distinctly different cost drivers or demand-side factors
(price elasticity) (e.g. domestic vs international);
- setting prices such that charges for a service are no more than its stand alone cost;
- recognising that, to a significant degree, airfield services are related to the aircraft type rather
than the passengers on board, and therefore that it is appropriate to continue to use maximum
certificated take-off weight ("MCTOW") based charges for aircraft landings, and a combination
of aircraft size and a time to reflect the utilisation of apron and/or stands associated with
aircraft parking; and
- using per passenger charges for passenger movements and associated terminal costs.
• reflect demand-side factors by:
- allocating common costs using Ramsey Pricing principles that allocate higher proportions of
costs to services with the lowest demand elasticity;
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- considering the transition of price paths from current prices to the new prices for different
services to minimise price "shocks" to a service;
- considering long-run pricing issues and seeking to price in a way that minimises price shocks
in future pricing periods where appropriate; and
20
Ramsey pricing principles are used to vary the amount of common and fixed costs allocated to user types based on the likely
impact of such a cost change on user behaviour. Users whose demand for service is more (less) sensitive to cost changes are
allocated a proportionately smaller (larger) amount of common and fixed costs. Ramsey pricing principles are commonly used
to assign fixed and common costs in large networks.
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- treating the cost of common goods, such as roads, forecourts, utilities and landside circulation
areas as common costs, the aeronautical portion of which are included in passenger charges
and allocated between passenger types, in a way that is likely to enhance price efficiency.
• consider congestion costs. Auckland Airport carefully considered whether peak pricing was
appropriate including airline feedback during consultation and concluded that it was not appropriate
for PSE4, but could be appropriate in future pricing periods if there are no cost effective options to
expand supply.
Auckland Airport's pricing philosophy also involved:
• benchmarking charges to ensure they are competitive with charges offered by other airports;
• seeking to smooth prices to the extent practical; and
• being mindful of the economic conditions faced by our airline customers due to the global pandemic.
FY23 price freeze reduced FY23 revenues by over $100 million
After considering the feedback provided by Substantial Customers to the price freeze consultation that
started in June 2021, in January 2022 Auckland Airport decided to hold prices flat for the 2023 financial
year at 2022 financial year prices (but with the $2.00 / international pax plus Goods and Services Tax
(“GST”) Regulatory or Required investment (“RRI”) charge discontinued) and to delay the PSE4 price
reset by a year to support the airlines as the aviation industry recovered from the pandemic.
The decision to freeze prices in the first year of PSE4 resulted in Auckland Airport receiving more than
$100 million lower aeronautical revenue in FY23 compared with the prices required to achieve our
overall PSE4 Target Return for that year. This is effectively a 30% reduction on aeronautical charges
for FY23. These deferred revenues are forecast to be recovered over the remaining four years of PSE4.
The early-PSE4 aeronautical pricing relief was welcomed and supported by the majority of Substantial
Customers as airlines recovered from the impacts of the pandemic.
4.1.2. Price Structure for PSE4
Auckland Airport has decided to retain the existing charging structure for PSE4 as used in PSE3 with
small changes to transit and aircraft parking charges, plus the introduction of capex and aeronautical
demand washup adjustment mechanisms.
Auckland Airport’s overall pricing structure for its regulated aeronautical business includes landing
charges based on the weight of aircraft landing, passenger charges based on the number of passengers
that use the airport, aircraft parking charges based on the time aircraft are parked on the airfield, and
check-in charges based on the use of the check-in facilities in the international terminal.
The small changes Auckland Airport has made the charging structure for PSE4 are outlined below. We:
• maintained the overall pricing structure approach, including landing charges, passenger charges,
check-in charges, and aircraft parking charges;
• increased the price of the transit passenger charge to align it to the international passenger
charge, but continued to apply it only to arriving transiting passengers – consistent with practice at
other airports;
• from FY25 onwards, reduced the aircraft parking exemption for domestic freighters to 12 hours
(down from 48 hours) to encourage efficient use of the airfield and manage congestion;
• maintained the current check-in pricing structure which incentivises airline and passenger usage
of more efficient technology-based kiosk check-in solutions; and
• retained the runway land charge ("RLC") as part of the Schedule of Charges for PSE4, but set it
to $0.00 in recognition of the delay to expected timing of the second runway from the late 2020’s
to the late 2030’s or beyond.
At the start of the pricing consultation process, Auckland Airport sought feedback from customers on
current aeronautical pricing structure. Substantial Customer feedback was that overall, customers
supported the current framework of charges for priced aeronautical services. Auckland Airport agreed
that the current pricing structure was appropriate and remained fit for purpose.
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4.1.2.1. Risk allocation
Auckland Airport has introduced two washup mechanisms for PSE4: an asymmetric aeronautical
demand risk washup, and a capex washup. Changes to the Regulatory and Requested Investment
(“RRI”) policy for capex have also been made to roll it into the capex washup, which avoids changes to
prices in-period if any RRI capex investment is undertaken.
Overall Auckland Airport considers that these policies reflect an appropriate balance of risk, with
demand risk only partially shared with airlines in the event of a significant asymmetric shock, and the
capex wash-up ensuring that a shortfall in commissioned capital investment does not result in materially
excess returns.
Asymmetric aeronautical demand risk-sharing wash-up
We have introduced an ex post asymmetric aeronautical demand risk sharing washup mechanism in
PSE4 to partially compensate Auckland Airport or airlines for a 15% or greater reduction or increase in
aeronautical demand (measured as aeronautical revenues) versus the price setting forecast. Any
washup will only occur to the extent that it coincides with a 75 basis point (i.e. 0.75%) or more reduction
(or increase) in actual PSE4 post-tax IRR versus the Target Return. If this mechanism was in place
during PSE3, then 17% of the 32% aeronautical revenue losses experienced (due to COVID-19) vs the
price setting forecast would now be forecast to be recovered during PSE4. Similarly, should, and to the
extent that, PSE4 priced aeronautical revenues exceed forecast by 15% and IRR exceeds Target
Return by 75 basis points, then that excess would reduce the future revenue requirement in PSE5.
We note European airports are discussing similar demand risk sharing mechanisms with their
regulators, albeit we understand that those mechanisms will provide far greater revenue protection than
Auckland Airport’s PSE4 demand washup mechanism. For example, the Traffic Risk Sharing (“TRS”)
mechanism recently determined for Heathrow Airport by the UK CAA would recover 28% of the 32%
reduction in priced aeronautical revenues experienced by Auckland Airport during PSE3, versus the
17% protection that Auckland Airport’s PSE4 asymmetric demand risk washup mechanism would have
provided. But over and above the TRS, Heathrow Airport will also: (i) carry forward an additional £300m
($625m) in RAB from 2021 onwards; (ii) enjoy an additional £25m ($52m) per annum of aeronautical
revenue to compensate for residual pandemic risk (over and above that compensated by the TRS); and
(iii) it has adopted a 0.87% lower forecast of passenger numbers than the UKCAA’s “most likely”
estimate. Despite Auckland Airport being subject to higher demand risk relative to Heathrow Airport,
our newly introduced asymmetric demand risk wash-up mechanism for PSE4 does not mitigate demand
risk for Auckland Airport anywhere near the extent of the protection now enjoyed by Heathrow.
Capex wash-up
We have also introduced a commissioned capex washup in PSE4 that is one-way and can only favour
airlines. This has been adopted at Auckland Airport’s initiative given the very large increase in forecast
capital expenditure over PSE4 versus Auckland Airport’s historic capex rates. This will pose
deliverability challenges and, absent the implemented washup mechanism, could potentially result in
PSE4 returns materially exceeding our Target Return for PSE4 should delivered commissioned capex
fall materially behind the PSE4 price-setting forecast. Like the aeronautical demand washup
mechanism, this washup would only apply to the extent that PSE4 IRR exceeds Target Return by more
than 75 basis points.
Changes to Regulatory and Requested Investment Policy
Auckland Airport has also updated the Regulatory and Requested Investment (“RRI”) Policy capex
washup to link it to the new overall commissioned capex wash-up mechanism, rather than continuing
the current intra-period RRI reset of charges. We decided that the RRI thresholds remain appropriate
at $5 million capex and $1 million opex before any washup can be triggered. But the RRI capex washup
can only occur to the extent that total commissioned capex exceeds the PSE4 price setting forecast, or
if PSE4 IRR falls short of Target return by more than 75 basis points. This approach will ensure that
Auckland Airport doesn’t enjoy any windfall RRI washup into PSE5 if total PSE4 commissioned capex
fall short of forecast. But a washup for unforecast RRI capex can be triggered if there is another major
demand shock, like COVID-19, that results in IRR falling materially short of the Target Return.
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4.2. Descriptions of methodology
The section meets the requirements of clause 2.5(3)(b) of the determination.
4.2.1. Description of charged services
A “charged service” under the Determination means a category or group of specified airport services in
respect of which a standard charge applies. Auckland Airport’s “charged services” in respect of the
Aeronautical Pricing Decision are as follows:
Table 28: Charged services for Aeronautical Pricing Activities
Services Charge Basis of Charge
Airfield landing
facilities and
services
• Landing charge
• Runway land charge ($0.00)
• Aircraft MCTOW landed
Airfield parking
facilities and
services
• Airfield parking charge
• Hourly rate by aircraft code (after
six hours)
Passenger
terminal facilities
and services
• Domestic Passenger Charge (“DPC”)
• Regional Passenger Charge (“RPC”)
• International Passenger Charge (“IPC”)
• Transit Passenger Charge (“TPC”)
• Per passenger
Check-in facilities
and services
• Check in charge
• Varies according to check-in
mode
We have retained the Runway Land Charge introduced in PSE3 associated with holding land for the
future aeronautical development of a second runway at Auckland Airport, but this has been set to $0.00
for the PSE4 pricing period.
Airfield facilities and services
Airfield landing charges and parking charges are payable in respect of the facilities/assets and
operational costs directly associated with:
• runway, taxiways and taxilanes;
• aprons including hardstands and aircraft manoeuvring areas;
• nose-in guidance and ground power units for international contact stands;
• airside safety services;
• airport fire services;
• asset management of airfield services, including planning, repairs and maintenance;
• a share of common costs associated with corporate-wide functions (e.g. Chief Executive and board,
corporate, accounting and finance, legal, human resources, information technology, health and
safety, security and shared aeronautical functions); and
• a share of infrastructure, including the utility networks and access roads.
Landing charges are charged on the basis of an aircraft's MCTOW. Parking charges are levied on hourly
rates by size of aircraft.
Passenger terminal facilities and services
The DPC and the RPC cover the common use facilities (assets) and operational costs associated with:
• check-in hall (domestic only);
• a share of landside congregation, circulation areas, toilets and egress for passengers and visitors;
• a share of airside congregation, circulation, seating, and public areas, toilets and egress for
passengers and visitors;
• baggage makeup hall, baggage claim areas, breezeway, conveyor areas outside baggage halls,
baggage collection area;
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• common use airbridges and bussing costs;
• terminal systems required for processing or administration of passengers including security, flight
display system, public address system, building fire system, closed circuit television system and
communication systems;
• public facilities and services for aviation security, including queueing areas;
• a share of building infrastructure and plant;
• operations staffing and management to facilitate effective daily operation of the terminal building
and interaction with airlines;
• asset management services including planning and repairs and maintenance for Auckland Airport
common use assets;
• a share of common costs associated with corporate-wide functions (e.g. Chief Executive and board,
corporate, accounting and finance, legal, human resources, information technology, health and
safety, security and shared aeronautical functions); and
• a share of infrastructure including the utility networks, access roads and forecourts.
International passenger charges (which include the IPC and TPC) cover the facilities/assets and
operational costs associated with:
• a share of landside congregation and circulation areas, toilets and egress for passengers and
visitors;
• a share of airside congregation, circulation areas, seating areas and lounges, toilets and egress for
passengers and visitors;
• operational areas for New Zealand Customs and the Ministry of Primary Industries operational
space;
• baggage makeup areas, baggage claim areas, breezeway, conveyor areas outside baggage halls,
baggage collection area; baggage trolleys
• airbridges or bussing, including inter-terminal busses;
• terminal systems required for processing or administration of passengers including security, flight
display system, public address system, building fire system, closed circuit television system and
communication systems;
• a share of building infrastructure and plant;
• operations staffing and management to facilitate effective daily operation of the terminal building
and interaction with airlines;
• asset management services including planning and repairs and maintenance;
• share of common costs associated with corporate wide functions (e.g. Chief Executive and board,
corporate, accounting and finance, legal, human resources, information technology, health and
safety, security and shared aeronautical functions); and
• a share of infrastructure including the utility networks, access roads and forecourts.
The Standard Charges adjustment policy sets out the mechanisms to enable adjustments for risk
sharing washup adjustments, and regulatory or requested investment.
Check-in facilities and services
The check-in charge covers common use facilities and operational costs associated with the ITB check-
in hall. The check-in charge does not cover dedicated single-user areas that are separately charged by
way of lease or licence. For PSE4, the structure of the check-in charges varies according to the check-
in mode adopted.
Traditional international check-in facilities are charged on a time per counter basis, based on allocated
counter time (as opposed to actual usage). Facilities such as kiosks and bag drops are charged on a
dollar per customer departing passenger rate. Different rates apply to dedicated kiosks versus shared
facilities. Auckland Airport has an allocation policy for counters, kiosks, bag-drops and mobile exception
desks.
The structure of check-in charges remains consistent with PSE3 charges, which encourage the uptake
of more efficient check-in technology.
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4.2.2. Description of relationship between quality of service and cost for each
charged service
Charged services relate to services provided in a common-user environment.
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Auckland Airport
appreciates the importance of providing quality services to customers and we endeavour to maintain a
good quality of service that meets the requirements of our airlines and passengers.
Auckland Airport's complex operating system involves many organisational stakeholders including
airlines, border agencies, ground handlers, and Auckland Airport, which are all responsible for different
elements of the service experience that matters to customers.
Auckland Airport monitors and manages service level outcomes at an operational level, measuring
performance and working with all stakeholders on improving service level outcomes. Given the airport
ecosystem was significantly disrupted during the pandemic, we believe that continuing to manage
service levels through operational forums will deliver the best service level outcomes.
Auckland Airport is taking active steps to improve customer outcomes by dedicating resources focused
on improvement in this area. In developing its operational expenditure forecast and operational
budgets, Auckland Airport has strived to balance the competing needs of cost efficiency with improved
outcomes for airlines and passengers.
Capital investment is also fundamentally important to service quality. Airport infrastructure must be fit
for purpose to meet our customer’s capacity and service level requirements.
4.2.2.1. Key support functions
Auckland Airport provides a number of key support functions to deliver the quality of service required
by airline customers and passengers for charged services. These include:
• operations: a monitoring centre with support staffing provided 24 hours per day to enable the prompt
resolution of minor service interruptions, CCTV monitoring, service breaches, alarm door
activations, fire alarm monitoring and general customer service responses via trained staff in the
contact centre;
• Emergency Operations Centre ("EOC"): a fully equipped EOC is activated and co-ordinated by
Auckland Airport. The EOC operates under the Co-ordinated Incident Management System. Part
of this service includes an emergency notification system via text to all airlines and relevant
agencies;
• incident management: Auckland Airport Operations Centre co-ordinates all on-airport incidents
(outside of EOC), for example unattended luggage, medical emergencies, suspicious
articles/devices and vehicle traffic incidents on airport roads;
• maintenance: undertaking planned preventative maintenance programmes and responding
reactively to unplanned breakdowns in facilities;
• infrastructure: Auckland Airport provides and maintains high quality airfield, terminals, leases
hangars, cargo handling, roading, water, electricity, fibre, jet fuel and gas infrastructure;
• airside: a monitoring team for compliance and safety issues for all aircraft movement areas;
• fire and rescue service: emergency response service required by Civil Aviation Authority
regulations, marine search and rescue services as required by Maritime New Zealand, and pre-
hospitalisation emergency care as required by international health standards;
• health and safety: Auckland Airport leads and co-ordinates at least three health and safety forums
across the airport. This includes regular joint stakeholder auditing and reporting of hazard
identification and risk;
• medical and environmental: Auckland Airport provides first response to medical and environmental
incidents;
• peak period management: during peak periods Auckland Airport proactively deploys staff to reduce
wait times during peak period through improved queue management (although we do not consider
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Where a customer has additional service level demands to the common-user requirements, these are met through specific
leasing arrangements with those customers. Examples include dedicated check-in areas, VIP check-in areas and VIP lounges.
In these instances, the cost of the charged service is based on market-based rental comparisons.
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this displaces the fundamental need of MPI and other Government agencies to provide adequate
resource during peak periods); and
• sustainability: Auckland Airport operates a sustainable airport and facilitates other airport users to
adopt sustainable practices.
4.2.2.2. Collaborative working group approach for managing service levels for charged
services
Airports are a complicated system where a number of parties have an important role to play in
influencing performance across a range of services and facilities, including airlines, government
agencies, other third parties, and the airport itself.
Auckland Airport has a number of processes in place to foster a collaborative approach where all parties
work together to improve the quality-of-service performance and outcomes across the overall airport
system. These processes served Auckland Airport and airlines well during the challenges that have
been presented during the pandemic.
An outcome of the pricing consultation from PSE3 was a commitment from Auckland Airport to using
the Collaborative Operating Group ("COG") forums to establish a working group on service levels. The
Senior COG (see below) has fulfilled this function.
The COG forum operates at multiple levels across the key organisations – these forums include:
• the CEO COG — held quarterly;
• Common User Safety Protocols ("CUSP") senior safety user group – held quarterly;
• the Senior COG — held monthly; and
• the Tactical COG — held daily.
The COG framework has had a positive effect on inter-agency cooperation and overall quality and
performance at Auckland Airport. It has worked well throughout the pandemic and will continue to
provide important service quality governance throughout PSE4.
4.2.3. Methodology used to allocate costs to particular charged services
Auckland Airport has set two key types of charges in the Aeronautical Pricing Decision – landing
charges and passenger charges. Together these represent 95% of the forecast revenue consulted on
for PSE4 as part of the Aeronautical Pricing Decision. Auckland Airport’s process for allocating assets
and costs to charged services was to develop separate building blocks information for airfield services
and passenger terminal services.
Consistent with previous price setting events, Auckland Airport has based its cost allocation
methodology on the approach also required for information disclosure regulation which requires the
allocation of assets and costs to airfield, passenger terminal and aircraft and freight services. Auckland
Airport has made adjustments to allocations for “priced activities” (aircraft and priced passenger
services) to exclude non-priced activities. Excluded assets and operating activities relate to the
regulated Aircraft & Freight segment, VIP lounges, airlines offices, The Collection Point and other areas
of the terminals subject to exclusive leases.
Key principles of the allocation methodology involved direct allocation of costs in the first instance and
allocation of common costs using causal or proxy allocators. Asset categories help ensure asset related
costs are matched to the users of those assets in the charging structure. These categories include
airfield, domestic terminal, international terminal, and common assets. Where assets have a shared
use, these are allocated using allocation rules that are based on space, usage or revenue.
Analysis has been undertaken of the activities conducted by each business unit. For common costs
which are shared across the entire business, the company-wide business rule is an important allocator
and forms the basis of the allocation between regulated and non-regulated activities. Common costs
attributed using the company-wide business rule are first shared between regulated and non-regulated
activities based on international terminal space usage and then across airfield, terminal and aircraft and
freight activities in proportion to relative revenues.
Only common costs are shared by the company-wide rule. Costs that are directly attributable to non-
regulated activities, e.g. investment property, retail and car parking, including the specific management
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overhead associated with those activities, are not allocated in any proportion to regulated aeronautical
activities.
As discussed above, high level assessments and sense checks were made to ensure that the Standard
Charges covered the direct costs associated with airfield and terminal services and common costs were
allocated between domestic and international users applying Ramsey Pricing principles to minimise
demand impacts. Required revenues for passenger terminal and airfield services were set to deliver
NPV = 0, ie Standard Charges were set so as to recover the forecast PSE4 building blocks costs –
namely opex, depreciation and target return - associated with these services and their related assets.
4.2.4. Description of significant changes to, or rebalancing of prices from, the
previous pricing period
As set out above the charging structure has remained largely consistent with that in PSE3. Prices have
increased, reflecting updated operating cost and RAB forecasts.
4.2.4.1. FY23 price freeze reduced FY23 revenues by over $100 million
After considering the feedback provided by Substantial Customers during the price freeze consultation
that started in June 2021, in January 2022 Auckland Airport decided to hold prices flat for the 2023
financial year at 2022 financial year prices (but with the $2.00 / international pax plus Goods and
Services Tax (“GST”) Regulatory or Required investment (“RRI”) charge discontinued) and to delay the
PSE4 price reset by a year to support the airlines as the aviation industry recovered from the pandemic.
The decision to freeze prices in the first year of PSE4 has resulted in FY23 aeronautical revenue falling
short of the revenue requirement to meet our Target Return in that financial year by more than $100
million. This represents a 30% reduction on aeronautical charges for FY23. As set out in the consultation
materials on how the price freeze would work, these deferred revenues are forecast to be recovered
over the remaining four years of PSE4. This requires a significant step up in aeronautical prices in FY24.
The early-PSE4 aeronautical pricing relief was welcomed and supported by the majority of Substantial
Customers as the industry recovered from the impacts of the pandemic.
4.2.4.2. Aeronautical prices for PSE4
The increases in aeronautical prices over PSE4 are necessitated by a range of factors including lower
total passenger volumes than PSE3, forecast to remain below pre-pandemic levels until FY26, the
catch-up from the circa $100 million under-recovery of aeronautical revenues in FY23, the significant
capital investment that is planned to be delivered during PSE4, and the increase in Target Return
compared with PSE3 reflecting updated comparable company WACC input parameter data as at the
start of PSE4. The overall revenue per passenger (“RPP”) of the pricing decision is outlined below.
The table demonstrates that in the 2024 financial year, Domestic Jet RPP will increase to $10.25 per
passenger; then increase further to $15.46 by the end of the pricing period, or to $13.97 per passenger
in 2023 dollars. Regional RPP in FY24 is $7.10 per passenger, increasing to $10.70 per passenger by
FY27, or to $9.67 per passenger in 2023 dollars. International RPP will be $32.78 per passenger in
FY24, increasing to $46.13 per passenger by FY27, or to $41.68 per passenger in 2023 dollars.
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Figure 11: Nominal and inflation adjusted RPP price paths, PSE4
The above RPP price paths are based on the key passenger and landing charges set out in the table
below.
Table 29: Prices for key charges, PSE4
FY23 (and
FY22)
FY24 FY25 FY26 FY27
MCTOW charges
<6 tonnes $/Landing $60.24 $75.64 $86.98 $100.03 $115.04
6-40 tonnes
$/tonne per landing
$8.73 $12.74 $14.65 $16.85 $19.38
40 tonnes $14.20 $20.72 $23.83 $27.41 $31.52
Passenger charges
Domestic Passenger
Charge (DPC)
$/pax
$3.10 $5.05 $5.80 $6.67 $7.67
Regional Passenger
Charge (RPC)
$/pax
$2.64 $4.53 $5.21 $5.99 $6.88
International Passenger
Charge (IPC)
$/pax
$15.49 $21.20 $23.56 $26.20 $29.15
Transit Passenger
Charge (TPC)
$/pax
$6.24 $21.20 $23.56 $26.20 $29.15
Runway Land Charge $/pax $1.19 $0.00 $0.00 $0.00 $0.00
$6.73
$10.25
$11.75
$13.47
$15.46
$9.92
$11.09
$12.43
$13.97
$6
$12
$18
FY23FY24FY25FY26FY27
NominalReal
Domestic
Jet
$4.43
$7.10
$8.14
$9.33
$10.70
$6.87
$7.68
$8.61
$9.67
$4
$8
$12
FY23FY24FY25FY26FY27
NominalReal
Regional
$23.39
$32.78
$36.70
$41.13
$46.13
$31.73
$34.64
$37.96
$41.68
$20
$30
$40
$50
FY23FY24FY25FY26FY27
NominalReal
International
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The FY23 prices shown above equal the closing prices for the PSE3 pricing period in FY22.
We have benchmarked our real (inflation adjusted) aeronautical charges per passenger in FY24 and
FY27 with comparable airports in the region in FY24. FY24 is used as the basis for comparison, as
future charges at these airports (except for Christchurch) are not publicly available. By adjusting for
inflation, this allows for a like-for-like comparison over time.
For FY24, notwithstanding the step-up following the price freeze, domestic and regional charges will
remain well below that of Christchurch and Wellington airports. In FY27 real domestic jet charges will
be slightly lower than both airports’ real FY24 charges, while regional charges are lower than
Wellington, and consistent with those at Christchurch.
For international charges, Auckland Airport’s FY24 prices are below the published prices of Sydney,
Melbourne and Brisbane airports. By FY27, Auckland’s charges are higher than the current FY24
charges at Melbourne, slightly higher but broadly in-line with the FY24 charges at Sydney, and below
the charges at Brisbane. Charges at Auckland by FY27 could well be lower than Sydney and Melbourne
airports where price increases are above inflation over the next four years.
Figure 12: Airport charges benchmarks, real NZD
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The overall structure of charges remains largely unchanged from PSE3, with landing charges,
passenger service charges, check-in charges, and aircraft parking charges all levied separately.
Excluding the aeronautical demand and capex washup mechanisms described above, the most
significant changes to the pricing structure are outlined below.
4.2.4.3. Transit passenger charge
The price of the TPC has been increased to align it with the IPC for the remaining years of PSE4,
however the TPC will continue to only be charged once (i.e. on arrival) per two-way transit passenger
22
Charges for year-ended June 2024, except for Wellington where charges are for year ended March 2024, Melbourne where
charges are effective from October 2022. Australian Airports charges are based on published rates, exclude security costs, and
have been converted to NZD at the rate of 1.078 AUD / NZD. All airport charges rebased to FY23 dollars using CPI
$9.92
$13.97
$14.68
$14.10
$6.87
$9.67
$10.81
$9.67
$0
$4
$8
$12
$16
Auckland
FY24
Auckland
FY27
Wellington
FY24
Christchurch
FY24
Auckland
FY24
Auckland
FY27
Wellington
FY24
Christchurch
FY24
Domestic JetRegional
Domestic
Jet
Regional
$31.73
$41.68
$40.82
$34.77
$54.85
$0
$15
$30
$45
$60
Auckland (FY24)Auckland (FY27)SydneyMelbourneBrisbane
International
International
75
journey. Aligning the headline TPC and IPC charges will increase the transit charges per movement to
50% of the IPC. This continues to represent a material discount for transit passengers that is consistent
with other Australasian airports.
4.2.4.4. Domestic freighter parking exemption
From FY25 onwards, the aircraft parking exemption for domestic freighters will reduce to 12 hours
(down from 48 hours) to encourage efficient use of the airfield and manage growing congestion issues
given the scarcity of available space.
4.2.4.5. Runway Land Charge
The runway land charge has been retained as part of the Schedule of Charges for PSE4 but set to
$0.00 in recognition of the delay to expected timing of the second runway from the late 2020’s to the
late 2030’s or beyond.
4.2.4.6. Landing charges for aircraft < 6 tonne
Auckland Airport removed an anomaly in the ratios of the < 6 tonne landing fee, and the 6-40 tonne
MCTOW charge, that was resulting in aircraft with a MCTOW between 6.0-6.9 tonne paying a lower
landing fee than aircraft < 6 tonne which paid the fixed landing rate. The ratios of these charges have
been amended so that aircraft < 6 tonne do not pay more per landing than aircraft > 6 tonne.
4.2.5. Description of methodology for determining pricing for charged services and
how these were reconciled with the forecast revenue requirement
In determining pricing for charged services, Auckland Airport endeavoured to:
• ensure that prices covered direct costs and an appropriate share of common costs (set out above
in section 4.2.3);
• ensure that prices were set on an NPV = 0 basis for airfield and priced terminal services (set out
above in section 3.4.4); and
• minimise price shocks and provide a smoothed price path where possible.
Prices were then determined based on the revenue requirement, and volume forecasts, considering
demand impacts.
4.2.5.1. Smoothing aeronautical prices during PSE4 pricing period
Impact of the price freeze on FY23 revenues
The FY23 price freeze has held prices flat at FY22 levels (but we also terminated the $2.00 (plus GST)
per international passenger RRI charge that applied over the last 9 months of FY22). As set out in the
following table, an additional $102 million of forecast FY23 revenue would have been required to
achieve our PSE4 Target Return. So prices were discounted by 30 per cent for airlines during the 2023
financial year, which has supported the industry’s recovery from the pandemic.
As explained in the price freeze consultation proposal, which was supported by airlines, the prices set
are forecast to make up this shortfall over the remainder of PSE4.
76
Table 30: Impact of price freeze on revenue in FY23
$000 FY23
Forecast revenue 241,171
Forecast NPBT 55,006
Forecast NPAT 41,172
Average RIV 1,299,934
Target return 8.73%
NPAT at Target Return 113,485
NPBT at Target Return 157,619
Difference in post-tax return 72,313
Difference in revenue 102,613
Equivalent reduction in FY23 prices 30%
Price smoothing over PSE4
Given the price freeze resulted in a significant under-recovery during FY23 relative to target return, this
required higher aeronautical prices over the remainder of PSE4 (compared to if target return was
achieved in FY23). In order to achieve the required revenue forecast, this required a significant step-up
in FY24 to achieve the required revenue forecast over the pricing period. We considered airline
feedback in calibrating the balance between the size of the step-up in FY24, against stronger annual
growth in the price path for the remainder of the pricing period. We consider that the price path adopted
strikes the right balance of mitigating the FY24 price shock against balancing stronger price escalation
later in the pricing period. The forecast annual priced ROIC over PSE4 was considered in determining
the growth profile, as shown in the figure below the profile remains relatively flat over the pricing period.
Figure 13: PSE4 forecast annual return on invested capital and target return
4.2.5.2. Determining aeronautical prices
The prices were determined based on the forecast revenue requirement on an NPV = 0 basis for
Aeronautical Priced Activities, and the forecast volumes over the five year pricing period. Volume
forecasts were developed consistent with the price paths. More explanation of volume forecasts is set
out in section 5.
The tables below show the forecast prices, volumes and revenues for the Aeronautical Pricing Decision
to each of the standard charged services.
3.30%
10.01%
9.03%
9.00%
10.25%
8.73%
0%
2%
4%
6%
8%
10%
12%
FY23FY24FY25FY26FY27
Post-tax ROICPriced return
77
Table 31: PSE4 pricing decision – Schedule of Charges
FY23 FY24 FY25 FY26 FY27
MCTOW charges
<6 tonnes $/Landing $60.24 $75.64 $86.98 $100.03 $115.04
6-40 tonnes
$/tonne per landing
$8.73 $12.74 $14.65 $16.85 $19.38
> 40 tonnes $14.20 $20.72 $23.83 $27.41 $31.52
Parking charges
ICAO A or B
$/hour in excess of 6
hours
$20.00 $21.00 $22.05 $23.15 $24.31
ICAO C (designated
apron)
$/hour in excess of 6
hours
$60.00 $63.00 $66.15 $69.46 $72.93
ICAO C or D
$/hour in excess of 6
hours
$129.89 $136.00 $142.80 $149.94 $157.44
ICAO E or F
$/hour in excess of 6
hours
$259.78 $273.00 $286.65 $300.98 $316.03
Passenger charges
Domestic Passenger
Charge (DPC)
$/pax $3.10 $5.05 $5.80 $6.67 $7.67
Regional Passenger
Charge (RPC)
$/pax $2.64 $4.53 $5.21 $5.99 $6.88
International Passenger
Charge (IPC)
$/pax $15.49 $21.20 $23.56 $26.20 $29.15
Transit Passenger
Charge (TPC)
$/pax $6.24 $21.20 $23.56 $26.20 $29.15
Runway Land Charge $/pax $1.19 $0.00 $0.00 $0.00 $0.00
International check-in
Traditional counter $/counter per hour $33.28 $36.00 $37.80 $40.97 $43.34
Dedicated kiosk and bag
drop
$/per customs
departing pax
$1.33 $1.40 $1.47 $1.59 $1.69
Common use kiosk and
bag drop
$/per customs
departing pax
$1.07 $1.10 $1.16 $1.25 $1.32
Check-in charges for
units above the
standard allocation
Counter or bag drop
counter
$/counter per hour $59.90 $62.50 $65.63 $71.13 $75.25
Kiosk $/kiosk per hour $13.31 $15.00 $15.75 $17.07 $18.06
Mobile exception desk $/kiosk per hour $9.98 $11.25 $11.81 $12.80 $13.54
78
Table 32: PSE4 pricing decision – volumes forecast
FY23 FY24 FY25 FY26 FY27
MCTOW charges
<6 tonnes Landings 4,675 5,633 5,751 5,835 5,903
6-40 tonnes
Tonnes landed
485,838 499,720 562,975 590,425 614,716
40 tonnes 5,642,632 6,973,027 7,273,920 7,989,632 8,568,521
Parking charges
ICAO A or B Hours in excess of 6
hours
4,453 4,285 4,716 4,804 4,867
ICAO C (designated
apron)
Hours in excess of 6
hours
47,733 47,247 53,523 56,090 58,372
ICAO C or D Hours in excess of 6
hours
14,826 19,665 20,833 22,666 24,090
ICAO E or F Hours in excess of 6
hours
27,798 35,242 34,128 37,801 40,710
Passenger charges
Domestic Passenger
Charge (DPC)
Pax 5,699,314 5,974,626 6,856,363 7,276,685 7,661,866
Regional Passenger
Charge (RPC)
Pax 2,290,655 2,398,275 2,742,376 2,900,306 3,043,307
International Passenger
Charge (IPC)
Pax 7,120,399 9,639,129 9,761,176
10,868,16
7
11,752,58
8
Transit Passenger
Charge (TPC)
Pax 287,303 416,249 490,652 535,393 573,643
Runway Land Charge Pax N/A N/A N/A N/A N/A
International check-in
Traditional counter Hours 94,940 102,230 72,848 40,268 0
Dedicated kiosk and bag
drop
Departing Pax 183,022 534,033 869,490 1,294,981 1,755,560
Common use kiosk and
bag drop
Departing Pax 183,022 534,033 869,490 1,294,981 1,755,560
Check-in charges for
units above the standard
allocation
Counter or bag drop
counter
Hours 4,747 5,111 3,642 2,013 0
Kiosk Hours 119 346 564 840 1,138
Mobile exception desk Hours 119 346 564 840 1,138
79
Table 33: PSE4 pricing decision – revenue forecast
$000
FY23 FY24 FY25 FY26 FY27
MCTOW charges
<6 tonnes $/Landing $282 $426 $500 $584 $679
6-40 tonnes $/tonne per landing $4,241 $6,366 $8,248 $9,948 $11,911
40 tonnes $80,125 $144,500 $173,345 $218,962 $270,050
Parking charges
ICAO A or B $/hour in excess of 6
hours
$89 $90 $104 $111 $118
ICAO C (designated
apron)
$/hour in excess of 6
hours
$2,864 $2,977 $3,541 $3,896 $4,257
ICAO C or D $/hour in excess of 6
hours
$1,926 $2,674 $2,975 $3,399 $3,793
ICAO E or F $/hour in excess of 6
hours
$7,221 $9,621 $9,783 $11,377 $12,866
Passenger charges
Domestic Passenger
Charge (DPC)
$/pax
$17,668 $30,144 $39,781 $48,553 $58,791
Regional Passenger
Charge (RPC)
$/pax
$6,047 $10,856 $14,276 $17,363 $20,951
International Passenger
Charge (IPC)
$/pax
$110,295 $204,320 $229,999 $284,765 $342,556
Transit Passenger Charge
(TPC)
$/pax
$1,793 $8,823 $11,561 $14,028 $16,720
Runway Land Charge Pax $0 $0 $0 $0 $0
International check-in
Traditional counter $/counter per hour $3,160 $3,680 $2,754 $1,650 $0
Dedicated kiosk and bag
drop
$/per customs
departing pax
$243 $748 $1,278 $2,063 $2,959
Common use kiosk and
bag drop
$/per customs
departing pax
$196 $587 $1,004 $1,621 $2,325
Check-in charges for units
above the standard
allocation
Counter or bag drop
counter
$/counter per hour
$284 $319 $239 $143 $0
Kiosk $/kiosk per hour $2 $5 $9 $14 $21
Mobile exception desk $/kiosk per hour $1 $4 $7 $11 $15
Other priced revenue $4,734 $4,876 $5,022 $5,173 $5,328
Total priced revenue
23
$241,171 $431,017 $504,425 $623,661 $753,341
23
Total priced revenue presented here includes aeronautical charges which are incentivised
80
4.2.6. Description of terminal access charges and the methodology for determining
any differentiation in terminal access charges
There is no specific charge for terminal access in Auckland Airport’s Standard Charges. For PSE4,
Auckland Airport has maintained a charging structure that has no explicit differential terminal access
charge for airbridges, transfer bus or walking access.
4.3. Why prices are efficient / identify cross-subsidies
Auckland Airport recognises the importance of our role as New Zealand's major gateway to the world,
and the key role we play in facilitating and supporting New Zealand tourism and trade. We are New
Zealand’s busiest international and domestic airport and act a key regional hub, serving a city that
represents around a third of the New Zealand population. We take our responsibility as one of New
Zealand’s most important infrastructure assets seriously, and we are conscious that the capacity,
resilience and quality of the facilities we provide directly impacts our airline and cargo customers,
passengers, and the wider regional and national economies.
Our pricing objectives reflect this responsibility, as we seek to deliver the capacity and infrastructure
needed to respond to recent and forecast growth and to build the airport of the future for Auckland and
New Zealand. This is particularly important as the aviation industry recovers from the global pandemic
that had significant impacts on the industry over the past three years.
Our vision for aeronautical pricing is that charges will be at a level that:
• Supports an aeronautical investment programme that provides long-term benefits for airlines, cargo
customers and passengers;
• Provides a sound and reliable quality of service to users of the airport and they benefit from
efficiencies over time;
• Incentivises innovation and continuing efficiencies; and
• Provides a fair return for investors on existing infrastructure and the ongoing investment in airport
facilities and services.
When setting prices, Auckland Airport balances economic principles which promote efficient pricing with
practicable price structures.
4.3.1. Why prices are efficient
Auckland Airport considers that its pricing methodology fully implements the pricing philosophy referred
to in section 4.2 above, and therefore leads to efficient prices. Auckland Airport considers that its
Standard Charges reflect an efficient price structure that has been developed over time.
PSE4 has dealt with a number of challenges given the disruption from the pandemic. The price freeze
implemented for FY23 resulted in lower prices for that year than otherwise would have been set. This
was during a period of significant uncertainty as the industry emerged from the pandemic, thus
supporting airlines during the recovery period. Prices across the remainder of the pricing period recover
in NPV terms the efficient costs forecast to be incurred during the PSE4 pricing period out to June 2027.
The pandemic also demonstrated the asymmetric risk that airports face, for which downside risk exists
where there is no commensurate upside, as passenger volumes reached their lowest levels since 1966
during the pandemic.
Two ex-post wash-up mechanisms have been introduced as part of the Aeronautical Pricing Decision
for PSE4. The asymmetric risk wash-up mechanism seeks to address the asymmetric risk faced by
airports, whilst the capex wash-up mechanism has been introduced given the significant increase in
investment forecast during PSE4, it ensures that Auckland Airport does not benefit through excess
returns in the event that capital expenditure commissioned is materially below forecast.
81
4.3.2. Cross-subsidies
There are no cross-subsidies in Auckland Airport’s Aeronautical Pricing Decision. Standard Charges
for airfield and terminal services are forecast to achieve NPV = 0 over the pricing period.
24
The allocation methodologies adopted were intended to reflect the principles that all charges should, at
a minimum, cover the directly attributable costs of the relevant service and all other costs should be
recovered having regard to Ramsey pricing principles.
These principles have been applied to operational costs, with 88% of shared terminal operational costs
and airline incentives allocated to international charges and 12% allocated to domestic charges. This
shared cost allocation reflects our assessment of the greater operational costs of servicing international
passengers, and is consistent with Ramsey pricing principles of seeking to minimise price elasticity of
demand impacts by allocating higher cost recoveries to higher value / less elastic air fares.
24
Subject to very small rounding errors.
82
4.4. Schedule of standard charges
We have provided an updated schedule of standard aeronautical charges and payments policy in-line
with the PSE4 pricing decision, this is included at Appendix B which outlines the approved tariff
structures for PSE4, including the approved prices out to FY27. It also sets out the policies that apply
for aeronautical pricing including the new wash-up mechanisms.
83
5. Demand forecasts
Auckland Airport has completed the Report on Demand Forecasts set out in Schedule 20 of the
Determination. All quantitative demand forecast outputs can be found in that Schedule. Schedule 20
requires Auckland Airport to provide a description of the basis for its forecasts, and/or assumptions
made in forecasting. These are set out below for:
• facility planning forecasts for a ten year forecast period, specifically:
- annual busy hour passenger forecasts; and
- annual busy period aircraft movement forecasts.
• aeronautical pricing forecasts for a ten-year forecast period:
- passenger forecasts; and
- aircraft movements and MCTOW forecasts.
5.1. Process for developing demand forecasts
Forecasting demand is a challenging exercise at the best of times, because in practice information
changes constantly and facility forecasts depend on baseline throughput forecasts. The challenges of
thi s exercise were exaggerated due to the disruption caused by the global pandemic, which closed
borders and caused passenger volumes to collapse. The uncertainty caused by the pandemic was a
key reason as to why the price freeze was proposed and implemented in the first year of PSE4.
During the pandemic, Auckland Airport in consultation with airlines, produced a consensus forecast of
the expected pandemic recovery. This forecast, undertaken at a high level, and subject to significant
uncertainty, was used to inform early stages of the PSE4 pricing consultation with airlines.
DKMA forecasts – aviation forecasting specialist
Auckland Airport then commissioned DKMA as an independent aviation forecasting specialist to
prepare unconstrained passenger and air traffic forecasts. The intention of having an independent
expert develop the demand forecasts was to ensure that these forecasts were objective, fair and
unbiased. Auckland Airport then consulted with Substantial Airline Customers on the forecasts
produced by DKMA. The feedback received from airlines was considered, and provided to DKMA to
consider, before arriving at the final forecasts developed by DKMA for PSE4 aeronautical pricing.
Adjustments to annual forecasts
For the final PSE4 price setting forecasts, Auckland Airport made the following adjustments to DKMA's
unconstrained forecasts:
• Aligned FY23 with our latest forecast outturn for that financial year and aligned FY24 with the
forecasts developed by Auckland Airport for its FY24 budget – so as to use the most recent
information;
• Price elasticity of demand analysis was commissioned from InterVISTAS and the unconstrained
forecasts were softened based on its elasticity estimates; and
• Removed non-billable passengers (e.g. passengers less than two years old, and airline positioning
crew).
Forecasts of peak demand
Schedule 20 also sets out DKMA’s passenger busy hour, runway busy hour and busy day forecasts.
These forecasts have informed the outlook for peak demand, which was provided to airlines during the
pricing consultation process, and have informed the timing, sequence and scope of projects included
in the capital plan.
84
5.2. Facility planning forecasts
The forecast flight schedules and peak hour projections have a dual purpose - 1) a regulatory purpose;
and 2) they serve as inputs to the master plan / capital planning which inform the development of
aeronautical infrastructure and facilities. Given the disruption caused by the pandemic, initial capital
planning was based with reference to pre-pandemic peak period demand forecasts, which were then
updated reflecting the anticipated rate of post-pandemic recovery. These forecasts were then updated
with the more detailed DKMA post-pandemic forecasts, with adjustments made to planning assumptions
where required.
5.2.1. Determining baseline for passenger busy hour and day forecasts
To identify the peak hours and the busy day, DKMA relied on Auckland Airport's tower log data. The
data set provides detailed traffic data covering both domestic and international flights as well as
passenger numbers throughout the whole year, and enabled DKMA to identify the peak hours and a
representative busy day.
DKMA's analysis is based on FY2019 which was the last ‘normal’ year pre-pandemic. DKMA identified
the following peak hours / busy day as required for regulatory purposes:
• Domestic peak hour passengers arrival;
• Domestic peak hour passengers departure;
• Domestic peak hour passengers total;
• International peak hour passengers arrivals;
• International peak hour passengers departure;
• International peak hour passengers total;
• Busy day movements; and
• Peak hour movements.
The passenger peak hour is defined as the clock hour with the 30
th
highest ranked number of
passengers during FY2019. The clock hour refers to the scheduled time. The passenger busy hours
must be calculated on local (non-transit and transfer) passengers.
Busy day selection
For planning purposes a historical busy day must also be selected. When determining the peak hour
and busy day, DKMA considered that in November 2019, Jetstar exited the domestic regional market
which had been operated by leased Dash 8 300s. Given that the historical busy day needed to
represent, as fully as possible, the hourly operation at Auckland Airport it became important to select a
day after Jetstar’s exit. Therefore, the analysis was based on December 2019.
DKMA observed that according to IATA and other industry experts, selecting a busy day within a peak
month is a reasonable practice. In the case of Auckland Airport, December 2019 was the peak month
for total passenger traffic. In addition, it was the second busiest month for international traffic (very close
to the peak month of January) and it was the 4th busiest month for domestic activities.
For these reasons, a busy day in December 2019 was identified. Since December 2019 is not part of
fiscal year 2019 (which ended in June 2019), DKMA decided to construct the monthly profile for the
calendar year 2019 rather than the fiscal year 2019. The DKMA selected busy day was 6 December
2019, which was selected on the basis of DKMA's three-step methodology:
• Step One: For each day in December calculate the peak hours and select only the days which are
reasonably close to the peak hours identified in the regulatory process. From Step One, DKMA
retained seven days in December 2019 to further analyse in Step Two.
• Step Two: Further analyse the days selected in Step One based on the following criteria:
- The mix between domestic and international traffic needed to be as close to a typical pattern
(i.e., the average mix for the year).
- Day of week: some days have weaker demand than others (e.g., Saturdays) and are less
representative. Also, if a day is a public holiday (or very close to one) it is also considered less
representative.
85
- The aircraft mix by ICAO category needed to be as close to the typical pattern of average
aircraft mix for the year.
- The hourly profile of passenger flows was analysed to ascertain that nothing unusual happened
that day.
- The difference in passenger volumes between the 30th hour of the year and the peak hour for
each day. The busy day peak hour has to be as close as possible to the 30th hour value.
- The difference in the number of flights between the peak hour movements during the busy day
versus the 30th hour movements. Since the planning process requires the assessment of
terminal usage as well as runway utilisation, it was important that movements during the peak
hour be as close as possible to those during the 30th hour.
- Total daily aircraft movements relative to the 18th busiest day where the closer the number of
movements was to the 18
th
day the better was the fit.
• Step Three: DKMA defined seven criteria to select the busy day:
- Deviation of peak hour from the 30th hour (Step One);
- Route area mix (Step Two);
- Day of week (Step Two);
- Aircraft mix (Step Two);
- Hourly profile (Step Two);
- Peak hour movements versus 30th hour peak hour movements (Step Two); and
- Daily movements versus the 18th busiest hour (Step Two)
A points-based model was used to calculate a score based on this criteria, and the day with the highest
score (6 December 2019) was chosen as the busy day.
Once this day was selected, DKMA constructed the busy day schedule by reconciling each aircraft
arrival with its corresponding departure, using the aircraft tail number as a reference. This was done to
determine the ground time for each aircraft turn. This in turn was used to make sure that, when adding
flights during the subsequent forecast years, consistency remained with respect to the minimum
acceptable turn time for each aircraft category.
5.2.2. Determining baseline for runway busy day aircraft movements
The definition of the runway busy day is the 18th highest number of daily aircraft movements for the
airport in FY2019 and the definition of the runway busy hour is the hour with the 30
th
highest number of
hourly aircraft movements for that airport (based on clock hour) in FY2019. There is no disclosure
requirement to split busy hour and busy day movements between international and domestic
movements or by direction. Finally, the movements must be based on total airport activity (i.e.,
commercial and non-commercial combined).
In terms of busy day movements, in FY2019 the 18th day occurred November 2nd, 2018 with 570
movements and the busy hour had 45 movements.
5.2.3. Methodology for forecasting busy hour and busy day
The forecast methodology for projecting busy day activities was a combination of bottom-up and top-
down as DKMA wanted to ensure consistency between growth in annual traffic and growth in busy day
traffic. This had to hold true for passenger traffic, aircraft movements and the average aircraft size/mix.
The forecast methodology assumed that no major changes will take place in an airline’s strategy during
the forecast period an example of which would be the introduction of new connecting banks. DKMA
therefore retained the current hourly operations pattern as a baseline and added more flights to it to
cope with the growth in demand. This involved the following steps:
• Step A: This consisted in determining the difference in growth between annual and busy day
passenger traffic. More specifically DKMA analysed historical trends to understand how busy day
86
share of annual traffic evolved and also analysed seasonal trends (peak month growth versus
annual traffic). For the future DKMA assumed a difference in growth between busy day and annual
traffic where DKMA expected busy day traffic growth to be slightly lower than annual growth as a
whole, so as to better reflect a spread in demand between peak and off-peak periods.
• Step B: This consisted in determining future passenger load factors. Specifically, DKMA assumed
an increase in load factor as a result of reasonable improvements in productivity. However, some
limits were necessary as there could otherwise be a directional imbalance in travel demand. Also,
if an aircraft change is anticipated (such as an up-gauge) the increase in load factor could be more
modest (or unchanged).
• Step C: This step consisted in determining future average aircraft size and this needed to be
consistent with projected average annual seats. Once DKMA had determined which carrier would
serve a given city pair it became necessary to ensure that the aircraft type used was part of what
was known about a carrier’s announced fleet plan. The number of additional flights was then
determined for each route area by applying the average aircraft size to total seating capacity.
• Step D: This consisted in identifying the city pairs that would support new flights. Additional
frequencies on existing routes were added and a reasonable passenger load factor applied.
• Step E: Here a specific aircraft type was assigned to the route subject to the following:
- 1) Sector distance of the route to be served.
- 2) Flight range and aircraft block times on the route (particularly important on international long-
haul routes).
- 3) An airline’s current and future fleet changes (assuming this information was available). In the
absence of such information DKMA used a logical aircraft type for each airline.
• Step F: Consisted in assigning a time for arrival and departure for each flight taking into account
the following:
- 1) For routes currently served, ensure that new flights are assigned at different times of day
than existing flights. If more than one flight to the same destination is planned within a clock
hour, ensure that a reasonable time separation exists.
- 2) Departure and arrival times for new flights are also a function of aircraft rotations and took
into account block times to and from each destination as well as the need to ensure that the
arrival time and departure time at the destination were commercially and operationally feasible.
Finally, a fine-tuning process was undertaken to ensure that the bottom up forecast of arrival and
departure times did not build unjustifiable peaks (passengers or movements).
The peak demand forecasts developed by DKMA following this process are set out in Schedule 20.
5.3. Annual demand forecasts
Annual demand forecasts are the key input into aeronautical pricing forecasts, as they indicate the
forecast total demand over which required revenues are spread. The annual demand forecasts have
been developed to match the structure of aeronautical prices to generate a consistent set of forecasts
used to inform aeronautical prices.
5.3.1. Forecast methodology and assumptions
DKMA's forecast methodology centred on top-down and bottom-up models. Long term traffic demand
is based on a top-down model centred around the economy, demographics and tourism which are the
main drivers of long-term aviation demand. In parallel, a bottom-up model based on demand-side
factors (e.g., GDP, tourism and population) and supply-side factors (e.g., route development) was
developed.
DKMA explained that long term traffic demand will be driven by these demand-side and supply-side
factors, and economic, demographic and tourism growth plays the main role in long term aviation
demand.
87
Forecast assumptions for passenger demand
DKMA observed that New Zealand’s economy has become increasingly industrialized and diversified
over the past few decades, a period marked by intensified globalization, which the country has been
able to exploit to its benefit. Population and globalisation are both widely anticipated to slow down and
as a result, New Zealand’s GDP is projected to grow by 1.8% p.a. on average, through to 2048, with
much of this driven by service industries (e.g., business & property, financial & insurance, tourism etc.).
DKMA noted that tourism forms a key component of New Zealand's economy, accounting for
approximately 14% of the country's GDP pre-pandemic. Air transport, which accounts for almost 100%
of visitor arrivals into New Zealand, is a key enabler for this sector. In 2019, 3.9 million international
tourists visited New Zealand and traditionally, New Zealand’s key source markets for tourist arrivals
have included Australia (39%), China (11%), USA (9%), UK (6%), Germany (3%) and Japan (3%).
Also, most of the country's increase in tourist arrivals over the past 10 years have come from Asia
Pacific countries, particularly China but also from other much smaller markets such as India, Indonesia
and South Korea. Between 2000 and 2019, the country had experienced strong growth in tourist arrivals
(approximately 4.1% p.a.) but the pace of growth was particularly robust between 2014 and 2019,
averaging 6.2% per annum. The pandemic induced border closures depressed tourist arrivals (52,690
in 2021) and created uncertainty in the industry. However, with the re-opening of borders the tourism
industry is anticipated to recover by 2026 and from then on grow at 3.5% p.a. (2026-2048).
In terms of New Zealand's demographic trends, the nation's population is forecast to slowly expand by
0.7% p.a. to reach 6.0 million by 2048, with Auckland and its surrounding area rising at a faster pace
(0.9% p.a.) to reach 3.6 million. As such, Auckland’s share of the nation’s population, which currently
stands at approximately 58%, is projected to rise to roughly 61% by FY2048.
DKMA noted that in the coming years, some of the key trends impacting the global demand-side for air
travel will include:
• recovering from the Covid-19 pandemic;
• slowing economic growth in mature economies;
• environmental pressure; and
• the rise in international tourism, particularly to/ from the previously less-developed countries.
DKMA noted that these factors mean that trends which were evident pre-pandemic, namely GDP growth
rates below 3% in the mature markets and GDP rates higher than 4% in the less mature markets, are
likely to continue in the future.
On the supply side, DKMA expect Air New Zealand to be Auckland Airport’s main airline. In November
2019 Jetstar ceased all turboprop activities in New Zealand so DKMA assumed that moving forward
that Air New Zealand will only face competition from Jetstar on domestic trunk routes and have a
monopoly (or near monopoly) on domestic regional routes. In the short and medium term, as the
industry recovers from the pandemic, DKMA expected that both carriers are unlikely to compete as
vigorously with each other, focusing more on profitability and rebuilding their finances than competing
for market share from each other. Since the pandemic had a dramatic impact on the carriers’ balance
sheets and cash flows, DKMA assumed that both Air New Zealand and Jetstar will work to maximise
profitability.
Aircraft Movements and MCTOW forecasts
DKMA's forecasts also projected total international cargo volumes and aircraft movements, split by
route area, carrier group, MCTOW and ICAO size category.
Domestic cargo was excluded from DKMA's study as Auckland Airport could not provide a historical
time series for domestic cargo volumes. As the nature of the statistics for air cargo differs greatly from
those for passenger traffic, DKMA's methodology was somewhat different. The historical timeseries for
cargo covered was shorter (2003 onward) and several computerized regression analyses were tested,
and none provided good results. DKMA said the poor results could be attributed to one main factor:
between 2003 and 2019 the economy in New Zealand had grown every year except in 2008 but during
the same period cargo declined during half of the years.
88
Because the regression results were not conclusive, DKMA based the international cargo forecast on
the following:
• trend analyses and extrapolations;
• judgment forecast; and
• benchmarks with industry forecasts.
DKMA explained that the projection of commercial aircraft movements required the construction of links
between annual passenger traffic and aircraft movements. The first link was between historical
passenger traffic and available seating capacity. From this, DKMA derived historical passenger load
factors and average aircraft size. Assumptions were made regarding future load factors and average
aircraft size to derive projected seats and aircraft movements.
DKMA explained that for non-commercial activities the movements were added based on past trends,
the team’s experience/ judgement and stake-holders information.
DKMA considered that although passengers are set to double
from FY2019 to FY2048, this is not the
case for total aircraft movements, which will average an annual growth rate of 1.5% between FY2019
and FY2048 (4.7% p.a. between FY2022 and FY2048). Three main factors explain this less rapid
development:
• international demand is anticipated to be the fastest growing market at the Airport;
• over time carriers are anticipated to deploy larger aircraft. For example, Air New Zealand’s
domestic fleet development is modest, and the carrier has indicated that it would take additional jet
aircraft but no additional turboprops. As a result, this will increase the average aircraft size.
• passenger load factors will continue to increase. However, in the case of load factors, a ‘natural’
limit has to be respected since, while it is mathematically possible to reach a 100% passenger load
factor, in reality it is impossible to achieve this on a consistent basis without spilling passengers
and turning away passenger demand.
DKMA explained that passenger aircraft movements will continue to represent the vast majority of
activities at the Airport and between FY2019 and FY2048. They are expected to increase annually by
1.5% (compared to 2.5% p.a. for passengers).
5.3.2. Auckland Airport's adjustments to DKMA's forecasts
Having considered the feedback received from airlines as well as DKMA's review of the forecast and
airline feedback, Auckland Airport then made some adjustments to the DKMA unconstrained forecasts.
These included updates to reflect the latest available outlook for passenger demand, removing non-
billable passengers from the forecast for price setting, and adjustments to reflect price elasticity of
demand impacts from changes in aeronautical charges.
5.3.2.1. Updates to reflect latest available outlook
Auckland Airport adjusted the DKMA forecast for FY23 to reflect estimated actuals for the year – this
approach was in-line with the price freeze proposal supported by airlines, ie that estimated actuals for
FY23 would be adopted in determining aeronautical prices. Updates were also flowed through for FY24
to reflect the latest Auckland Airport FY24 Budget view. Relative to the DKMA forecast, the adjustments
resulted in a small reduction in domestic passengers, offset by a larger increase in international
passengers. This resulted in a higher passenger forecast overall and therefore slightly lower average
aeronautical prices. The adjustments to the DKMA forecast for FY24 are outlined in the chart below.
89
Figure 14: Adjustments to DKMA’s FY24 passenger forecast
5.3.2.2. Adjustments to reflect price elasticity of demand
During the consultation process, airlines raised the issue of the price elasticity of demand, citing the
potential impacts that increases in airport charges could have on airfares and passenger demand.
Auckland Airport was already considering this issue and commissioned aviation industry economics
experts InterVISTAS to undertake analysis on the potential impacts on future demand of Auckland
Airport’s forecast aeronautical charges, assuming airlines passed these charges on through higher
airfares.
InterVISTAS are considered experts on this topic, having undertaken analysis for both airlines and
airports over an extended period of time. Its previous Demand Elasticities report undertaken for IATA
is widely cited in the aviation industry.
The InterVISTAS analysis presented the impacts based on 60% and 100% range of pass-through of
forecast aeronautical charges into higher airfares. To elasticity-adjust DKMA’s unconstrained demand
forecast, Auckland Airport adopted the 80% mid-point of this range. The impacts on demand from this
adjustment are presented for PSE4 in the below table by traveller segment.
Table 34: Elasticity impacts adopted for forecast adjustment
Passenger segment FY24 FY25 FY26 FY27
Domestic - Trunk
-0.7% -1.0% -1.3% -1.8%
Domestic - Regional
-0.4% -0.6% -0.9% -1.3%
International - Short-haul
-0.2% -0.5% -0.9% -1.3%
International - Long-haul
-0.1% -0.2% -0.4% -0.5%
These impacts on demand were also flowed through to forecast aircraft movements. The demand
forecasts presented in Schedule 20 reflect the above adjustments.
Airlines also submitted a separate study into demand impacts. Having carefully considered the findings
of both studies, Auckland Airport considers that the approach adopted in the InterVISTAS study was
highly robust, and that the study provided by airlines overstated the likely reduction in demand from
changes in airport charges. Therefore the findings of the InterVISTAS study were adopted in adjusting
the demand forecast for PSE4.
5.3.2.3. Other adjustments for pricing forecast
For determining aeronautical prices, the total demand forecast is also adjusted for billable passengers.
This reflects that Auckland Airport does not charge airlines for some passengers using the airport, such
as children under two years of age, airline repositioning crew, and departing transit passengers (transits
-7%
+12%
-6%
90
are only charged on arrival). The adjustments adopted for non-billable passengers are set out below.
But the removal of non-billable passengers for pricing purposes is not reflected in the demand forecasts
presented in Schedule 20 which instead show total forecast passenger numbers.
Table 35: Share of non-billable passengers by segment
Segment Non-billable share
Domestic 1.6%
International 1.2%
Transit (International) 1.0%
5.3.3. Consultation with Substantial Customers on demand forecasts
Auckland Airport consulted with airlines on a number of iterations of passenger and air traffic forecasts.
The process for developing the final forecast that was used to set PSE4 aeronautical process was a
follows:
• In 2021 during the middle of the pandemic, Auckland Airport consulted with airlines to develop an
appropriate medium-term demand forecast to be used for capital planning purposes. Following
significant input from airlines through this process, an unconstrained base case forecast was
developed. This forecast was re-presented to airlines for further feedback in July 2022 as part of
the PSE4 aeronautical pricing consultation process.
• Auckland Airport then commissioned DKMA as an independent aviation forecasting specialist to
prepare unconstrained passenger and air traffic forecasts to inform the Draft Pricing Proposal. The
purpose of having an independent forecaster prepare these forecasts is to ensure that they are
objective, fair and balanced. DKMA's unconstrained forecasts reflected the expected recovery of
aviation demand from the pandemic, and other industry and economic factors.
• In developing its forecasts, DKMA was provided with and considered the airline feedback on the
2021 forecast and the expected recovery profile as aviation demand emerged from the pandemic.
• DKMA forecasted a recovery of domestic traffic to pre-pandemic levels in FY25, with a slower
recovery in international traffic, reaching pre pandemic volumes by FY26. Those forecasts were
then presented to airlines for further feedback.
• Feedback from airlines raised concerns with potential price elasticity of demand impacts that rising
aeronautical charges would have on airfares and demand and, as described above, Auckland
Airport commissioned InterVISTAS to undertake a price elasticity of demand study.
• The DPP sought further airline feedback, ie on DKMA’s unconstrained passenger forecasts, on
InterVISTAS’ price elasticity study, and on the price elasticity of demand adjustments that Auckland
Airport applied to DKMA’s unconstrained forecasts.
• Airline feedback on the unconstrained demand forecasts was provided to DKMA to consider
whether it warranted any adjustments to its latest forecast. DKMA considered that no significant
concerns with the forecast methodology and assumptions were raised in the feedback.
• Airline feedback on the price elasticity of demand analysis was provided to InterVISTAS.
InterVISTAS considered that its approach and findings remained valid.
• Auckland Airport also considered the feedback received on price elasticity of demand, including an
alternative elasticity study submitted by airlines during consultation. Having considered the airlines’
study and its key assumptions, Auckland Airport considered that key assumptions of the study were
inconsistent with real world revenue management practices of airlines (which spread airport costs
across different fare brackets proportionately) and that the InterVISTAS study provided a more
robust estimate of potential price elasticity of demand impacts. InterVISTAS’ estimated elasticity of
demand impacts – albeit still materially higher than are actually being observed today in the market
– were also more closely aligned to the real-world examples of (minimal) price elasticity of demand
responses to the very large air fare increases enjoyed by airlines post-pandemic.
Having completed this thorough consultation process, the final demand forecasts were confirmed, as
set out above.
91
6. Reference tables
6.1. List of figures
Figure 1: Constrained long-run pricing passenger forecast .................................................................... 9
Figure 2: Operating cost per passenger for PSE4 ................................................................................ 11
Figure 3: Nominal and inflation adjusted RPP price paths, PSE4 ........................................................ 14
Figure 4: Airport charges benchmarks, real $NZD .............................................................................. 16
Figure 5: Building blocks to forecast required revenue ......................................................................... 20
Figure 6: 2014 Master Plan airport layout ............................................................................................. 31
Figure 7: Domestic Terminal options considered in 2017 ..................................................................... 31
Figure 8: New Zealand Treasury forecasts, 2023 Budget .................................................................... 46
Figure 9: Jacobs Airport Performance indicators 2022, operating costs per passenger ...................... 47
Figure 10: Priced operating cost per passenger for PSE4 ................................................................... 48
Figure 11: Nominal and inflation adjusted RPP price paths, PSE4 ...................................................... 73
Figure 12: Airport charges benchmarks, real NZD ............................................................................... 74
Figure 13: PSE4 forecast annual return on invested capital and target return ..................................... 76
Figure 14: Adjustments to DKMA’s FY24 passenger forecast .............................................................. 89
92
6.2. List of tables
Table 1: Table of disclosure requirements .............................................................................................. 5
Table 2: Assets commissioned forecast for PSE4 pricing, and indicative for PSE5 ............................. 10
Table 3: Prices for key charges, PSE4 ................................................................................................. 15
Table 4: Reconciliation of PSE4 opening RAB (total regulated activities) ............................................ 21
Table 5: Allocation of total asset base to priced asset base ................................................................. 22
Table 6: Summary of forecast capital expenditure ............................................................................... 25
Table 7: Capital investment projects in high capital investment scenario, assets commissioned
forecast in PSE5 ................................................................................................................................... 26
Table 8: Assets commissioned forecast for PSE4 ................................................................................ 38
Table 9: RRI adjustment final reconciliation .......................................................................................... 40
Table 10: Post-pricing decision adjustments ........................................................................................ 40
Table 11: Depreciation forecast for PSE4 ............................................................................................. 42
Table 12: Revaluations forecast for PSE4 ............................................................................................ 43
Table 13: AHFU forecast for PSE4 ....................................................................................................... 44
Table 14: Forecast cost drivers for PSE4 ............................................................................................. 46
Table 15: Forecast operating costs PSE4 ............................................................................................ 48
Table 16: Priced operational cost forecasts by category ...................................................................... 49
Table 17: PSE4 operating expenditure allocation percentages for key indirect allocation rules .......... 50
Table 18: 2022 information disclosure operating expenditure allocation percentages for key indirect
allocation rules ...................................................................................................................................... 50
Table 19: Incentives forecast for PSE4 ................................................................................................. 51
Table 20: Forecast tax related to the total revenue requirement .......................................................... 51
Table 21: Comparison of post-tax WACC estimates ............................................................................ 53
Table 22: Commerce Commission cost of capital determination, August 2022 ................................... 58
Table 23: Final WACC input parameters for PSE4 target return .......................................................... 59
Table 24: Aircraft and freight revenue ................................................................................................... 60
Table 25: Other passenger terminal services total revenue ................................................................. 61
Table 26: Forecast pricing asset base revenue requirements for PSE4 .............................................. 62
Table 27: Forecast Total Regulated Activities asset base revenue requirements for PSE4 ................ 62
Table 28: Charged services for Aeronautical Pricing Activities ............................................................ 68
Table 29: Prices for key charges, PSE4 ............................................................................................... 73
Table 30: Impact of price freeze on revenue in FY23 ........................................................................... 76
Table 31: PSE4 pricing decision – Schedule of Charges ..................................................................... 77
Table 32: PSE4 pricing decision – volumes forecast ............................................................................ 78
Table 33: PSE4 pricing decision – revenue forecast ............................................................................ 79
Table 34: Elasticity impacts adopted for forecast adjustment ............................................................... 89
Table 35: Share of non-billable passengers by segment ...................................................................... 90
93
6.3. List of appendices
The appendices attached to this pricing disclosure are as follows:
Appendix A: Summary of Capital Investment Programme consistent with pricing
decision
Appendix B: Auckland Airport’s schedule of Standard Charges effective 1 July 2023
---
Commerce Commission Information Disclosure Template
Specified Airport Services Information Disclosure Requirements
Information Templates
for
Schedules 18–20
Company Name
Auckland International Airport Limited
Disclosure Date
17 August 2023
Pricing Period Starting Year (year ended)
30 June 2023
30 June 2022
Templates for Schedules 18–20 (Disclosure Following a Price Setting Event)
Version 4.0. Prepared 13 June 2019
Disclosure year of most recent annual
disclosure (year ended) ¹
PSE4-Price-Setting-Disclosure-SchedulesPricing CoverSheet
Commerce Commission Information Disclosure Template
Table of Contents
Schedule
Description
18REPORT ON THE FORECAST TOTAL ASSET BASE REVENUE REQUIREMENTS
19REPORT ON THE FORECAST PRICING ASSET BASE REVENUE REQUIREMENTS
20REPORT ON DEMAND FORECASTS
PSE4-Price-Setting-Disclosure-SchedulesTOC
Commerce Commission Information Disclosure Template
Disclosure Template Guidelines for Information Entry
Templates
The templates contained in this workbook are intended to reflect the specified airport disclosure requirements set out in Schedules 18–19 of Commerce Commission
decision 715 (Commerce Act (Specified Airport Services Information Disclosure) Determination 2010).
Data entry cells and calculated cells
Data entered into this workbook may be entered only into the data entry cells. Data entry cells are the bordered, unshaded areas in each template. Under no
circumstances should data be entered into the workbook outside a data entry cell.
In some cases, where the information for disclosure is able to be ascertained from disclosures elsewhere in the workbook, such information is disclosed in a calculated
cell. Under no circumstances should the formulas in a calculated cell be overwritten. All cells that are not data entry cells may be locked using worksheet protection to
ensure they are not overwritten.
Validation settings on data entry cells
To maintain a consistency of format and to guard against errors in data entry, some data entry cells test entries for validity and accept only a limited range of values. For
example, entries may be limited to a list of category names or to values between 0% and 100%.
Data entry cells for text entries
Data input cells that display the data validation input message "Short text entry cell" have a maximum text length of 253 characters. Because of page layout constraints,
this text length is unlikely to be approached . The amount of text that may be entered in the comment boxes is restricted only by the capacity of the spreadsheet program
and page layout constraints. Should a comment box within a template be inadequate to fully present the disclosed comments, comments may be continued outside the
template. The comment box must then contain a reference to identify where in the disclosure the comment is continued.
Row widths can be adjusted to increase the viewable size of text entries.
A paragraph feed may be inserted in an entry cell by holding down both the {alt} and the {shift} keys.
Data entry cells that contain conditional formatting
A limited number of data entry cells may change colour or disappear from view in response to data entries (including date entries) made in the workbook. This feature has
been implemented to highlight data being entered that is not internally consistent with other data currently entered, and to hide data entry cells for conditionally disclosed
information when the determination does not require the data be disclosed.
a) Internal consistency checks
To assist with data entry, the shading of the following data entry cells will change if the cell content becomes inconsistent with data elsewhere in the template:
Internal consistency checking is not applied in Schedules 18–20.
PSE4-Price-Setting-Disclosure-SchedulesGuidelines
Commerce Commission Information Disclosure Template
SCHEDULE 18: REPORT ON THE FORECAST TOTAL ASSET BASE REVENUE REQUIREMENTS
refVersion 4.0
First Day of
Pricing Period
Last Day of
Pricing Period
818(i): Forecast Internal Rate of Return
9($000)Cash flow date
1 Jul 2230 Dec 222 Feb 2331 Dec 233 Feb 2430 Dec 242 Feb 25
30 Dec 252 Feb 2630 Dec 262 Feb 2730 Jun 27
10Opening RAB1,697,890.74
11Forecast opening carry forward adjustment87,810
12Opening investment value1,610,080
13
14
plusForecast total revenue requirement284,355 480,191 556,827 682,039 831,200
15lessForecast assets commissioned245,105 452,331 1,072,231 448,808 885,378
16plusForecast cash flow from asset disposals– – – – –
17lessForecast operational expenditure 130,517 161,569 173,038 177,183 189,624
18lessForecast unlevered tax23,944 62,897 67,997 88,352 118,554
19
20
Forecast closing asset base4,151,598
21Forecast closing carry forward adjustment43,744
22Forecast closing investment value4,107,855
23
24
Forecast net cash flows(1,610,080) (399,566) 284,355 (676,797) 480,191 (1,313,266) 556,827 (714,343) 682,039 (1,193,556) 831,200 4,107,855
25
26
Forecast post-tax IRR - Pricing period 7.79%
27NPV check(0.0) OK
28
29
30
18(ii): Forecast Internal Rate of Return - Annual and Period to Date
Pricing Period
Starting Year
Pricing Period
Starting Year
+ 1
Pricing Period
Starting Year
+ 2
Pricing Period
Starting Year
+ 3
Pricing Period
Starting Year
+ 4
31($000)Year ended30 Jun 2330 Jun 2430 Jun 2530 Jun 2630 Jun 27
32
33
Forecast closing asset base1,858,645 2,214,920 3,173,816 3,450,152 4,151,598
34Forecast closing carry forward adjustment86,084 86,084 86,084 86,084 43,744
35Forecast closing investment value1,772,561 2,128,836 3,087,732 3,364,069 4,107,855
36
37
Forecast post-tax IRR - annual 2.80% 8.35% 7.96% 7.73% 10.57%
38Forecast post-tax IRR - period to date2.80% 5.66% 6.54% 6.90% 7.79%
39
4018(iii): Forecast opening carry forward adjustment
41
($000)
Forecast closing
carry forward
adjustment from
previous pricing
period
Opening carry
forward
adjustments
from current
price setting
event
Forecast
opening carry
forward
adjustment
42
Default revaluation gain/loss adjustment–
43
Risk allocation adjustment–
44
Other carry forward adjustments86,084 1,726 87,810
45Forecast opening carry forward adjustment86,084 1,726 87,810
46Provide a summary of any views expressed by substantial customers about the pricing approaches reflected in the opening carry forward adjustment
47
48
49
50
18(iv): Forecast closing carry forward adjustment
($000)
52Moratorium Adjustment86,084
53Post-pricing decision adjustments - correction of errors and omissions(42,340)
54
55
56
Total forecast closing carry forward adjustment43,744
57
58
59
60
61Page 1
Please explain each adjustment and how this has been calculated
Auckland International Airport Limited
30 June 2023
Please refer to section 3.2.5 of Price Setting Disclosure commentaries
Please refer to section 3.2.5 of Price Setting Disclosure commentaries
Please refer to section 3.2.5 of Price Setting Disclosure commentaries
Pricing Period Starting Year + 3
30 Jun 26
Pricing Period Starting Year + 4
30 Jun 2730 Jun 23
Pricing Period Starting YearPricing Period Starting Year + 1
30 Jun 24
Pricing Period Starting Year + 2
30 Jun 25
Please explain each adjustment and how this has been calculated
Explain how the closing investment value provides a good indication of the remaining capital expected to be recovered by the airport in future pricing periods and provide a summary of substantial customer views on any closing carry forward adjustments
Please refer to section 3.2.5 of Price Setting Disclosure commentaries
Please refer to section 3.2.5 of Price Setting Disclosure commentaries
PSE4-Price-Setting-Disclosure-SchedulesS18.Total revenue requirement
Commerce Commission Information Disclosure Template
Regulated Airport
Pricing Period Starting Year Ended
SCHEDULE 18: REPORT ON THE FORECAST TOTAL ASSET BASE REVENUE REQUIREMENTS (cont)
refVersion 4.0
6818(v): Cash flow timing assumptions
69
70
Year of most recent annual disclosure (year ended)30 June 2022
71First day of pricing period1 July 2022
72
Airport assumption
Default
assumption
73Cash flow timing - revenues - days from year end148 148
74
Cash flow timing - expenditure - days from year end182 182
75Explanation and evidence if airport assumption is different from default
76
77
18(vi): Total Revenue Requirement
78Overview of the methodology used to determine the revenue requirement
79
80
81
82
83
84
85
86
87
($000)
Pricing Period
Starting Year
Pricing Period
Starting Year + 1
Pricing Period
Starting Year + 2
Pricing Period
Starting Year + 3
Pricing Period
Starting Year + 4
8830 Jun 2330 Jun 2430 Jun 2530 Jun 2630 Jun 27
89Forecast revenue for services applicable to the price setting event (excluding forecast assets held for future use revenue)232,854 423,494 494,684
612,828 742,931
90plusForecast lease, rental and concession income (not applicable to the price setting event)51,501 56,696 62,143
69,212
88,269
91plusForecast other operating revenue (not applicable to the price setting event)
92Forecast total revenue requirement (excluding assets held for future use revenue)284,355 480,191 556,827 682,039 831,200
93
94
lessForecast operational expenditure 130,517
161,569 173,038
177,183 189,624
95lessForecast depreciation71,646 88,138 113,367
170,244 194,579
96lessForecast unlevered tax23,944 62,897 67,997
88,352 118,554
97plusForecast revaluations8,973 6,516 6,913
6,621
10,706
98
99Forecast regulatory profit / (loss)67,221 174,102 209,338 252,881 339,149
100
101
102
Forecast cost of capital8.73%
103Post-tax WACC at price setting event 6.98%
104WACC percentile equivalent for forecast cost of capital (optional)
105WACC percentile equivalent for the post-tax IRR (optional)
106
107
Explain the differences between the post-tax IRR and the forecast cost of capital, and the post-tax WACC at price setting event and the forecast cost of capital (including reasons)
108
109
110
111
Forecast total revenue requirement from airport charges (including assets held for future use revenue)
112Forecast total revenue requirement (excluding assets held for future use revenue)284,355 480,191 556,827 682,039 831,200
113Forecast assets held for future use revenue (3,007) (3,107) (3,388) (3,465) (3,592)
114Forecast total revenue requirement (including forecast assets held for future use revenue)281,348 477,083 553,439 678,575 827,607
115Description of any other factors that are considered in determining the forecast total revenue requirement
116
117
118
119
120
121
122
123
124Page 2
Default assumptions have been used, please refer to section 3.4.2 of Price Setting Disclosure commentaries
Please refer to section 3.4 of Price Setting Disclosure commentaries. Auckland Airport's PSE4 post tax WACC (and Target Return for priced activites - refer to schedule 19) was determined using the Commission's 2016 WACC IM, except that we updated
out of date (i.e. March 2016) comparable company input data including asset beta and leverage as at the start of Auckland AIrport's PSE4 period (i.e. 30 June 2022), we used the Commission's most recently published Post Tax Market Risk Premium
estimate of 7.5% and we discontinued the prior 5BP downwards adjustment to asset beta for the aeronautical part of the business as our empirical analysis showed there is no evidential basis for that adjustment.
Please refer to section 3.5 of Price Setting Disclosure commentaries
Auckland International Airport Limited
30 June 2023
Please refer to section 3.1 of Price Setting Disclosure commentaries
PSE4-Price-Setting-Disclosure-SchedulesS18.Total revenue requirement
Commerce Commission Information Disclosure Template
Regulated Airport
Pricing Period Starting Year Ended
SCHEDULE 18: REPORT ON THE FORECAST TOTAL ASSET BASE REVENUE REQUIREMENTS (cont 3)
refVersion 4.0
($000)
13218(vii): Opening Regulatory Asset Base
133
30 Jun 22
134Regulatory asset base as at 30 June 20221,638,341
135lessForecast depreciation–
136plusForecast revaluations–
137plusAssets commissioned–
138less Asset disposals–
139plus (less)Forecast adjustment resulting from cost allocation59,550
140Estimate of regulatory asset base at start of price setting event1,697,891
141
Pricing Period
Starting Year - 1
Pricing Period
Starting Year
Pricing Period
Starting Year + 1
Pricing Period
Starting Year + 2
Pricing Period
Starting Year + 3
Pricing Period
Starting Year + 4
142for year ended30 Jun 2230 Jun 2330 Jun 2430 Jun 2530 Jun 26
30 Jun 27
14318(viii): Forecast Asset Base
144Forecast asset base—previous year1,463,762 1,697,891 1,858,645 2,214,920 3,173,816 3,450,152
145lessForecast depreciation60,758 71,646 88,138 113,367 170,244 194,579
146
plusForecast revaluations9,054 8,973 6,516 6,913 6,621 10,706
147plusAssets commissioned220,367 245,105 452,331 1,072,231 448,808 885,378
148less Asset disposals72 21,678 14,434 6,881 8,849 59
149plus (less)Forecast adjustment resulting from cost allocation65,538
150Forecast closing asset base1,697,891 1,858,645 2,214,920 3,173,816 3,450,152 4,151,598
151
152
Description and explanation of the depreciation methodology applied
153
154
155
156
18(ix): Forecast Works Under Construction
157Works under construction—previous year330,193 348,145 595,442 1,045,555 1,240,024 1,968,417
158plusCapital expenditure238,319 492,401 902,444 1,266,700 1,177,201 1,197,403
159lessAssets commissioned220,367 245,105 452,331 1,072,231 448,808 885,378
160Works under construction348,145 595,442 1,045,555 1,240,024 1,968,417 2,280,442
161
162
18(x): Assets held for future use cost and base value
163Assets held for future use opening cost—previous year405,090 431,839 441,516 487,288 532,268 581,230
164plusForecast holding costs26,817 37,700 38,545 42,541 46,468 50,742
165lessForecast assets held for future use net revenue68 (2,165) (2,237) (2,439) (2,494) (2,586)
166plusForecast assets held for future use additions176,881 34,687 – – – –
167less
Forecast assets held for future use disposals– 42,202 9,751 – – –
168lessForecast transfers to works under construction176,881 22,673 (14,741) – – –
169
Assets held for future use closing cost431,839 441,516 487,288 532,268 581,230 634,559
170
171
Initial base value167,702
172plusOpening tracking revaluations13,218
173
Opening base value180,920 180,915 150,727 155,717 155,717 155,717
174plusForecast assets held for future use revaluations (5) – – – – –
175plusForecast assets held for future use additions176,881 34,687 – – – –
176lessForecast assets held for future use disposals– 42,202 9,751 – – –
177
lessForecast transfers to works under construction176,881 22,673 (14,741) – – –
178Closing base value180,915 150,727 155,717 155,717 155,717 155,717
179
180
Tracking revaluations13,213 13,213 13,213 13,213 13,213 13,213
181
182
Assumptions and explanations of any assets held for future use revenues
183
184
185
186Page 3
Please refer to section 3.2.8 of Price Setting Disclosure commentaries
Please refer to section 3.2 of Price Setting Disclosure commentaries
Auckland International Airport Limited
30 June 2023
PSE4-Price-Setting-Disclosure-SchedulesS18.Total revenue requirement
Commerce Commission Information Disclosure Template
Regulated Airport
Pricing Period Starting Year Ended
SCHEDULE 18: REPORT ON THE FORECAST TOTAL ASSET BASE REVENUE REQUIREMENTS (cont 4)
refVersion 4.0
19318(xi): Forecast Capital Expenditure
194($000)
Pricing Period
Starting Year
Pricing Period
Starting Year + 1
Pricing Period
Starting Year + 2
Pricing Period
Starting Year + 3
Pricing Period
Starting Year + 4
Pricing Period
Starting Year + 5
Pricing Period
Starting Year + 6
Pricing Period
Starting Year + 7
Pricing Period
Starting Year + 8
Pricing Period
Starting Year + 9Total
195for year ended30 Jun 2330 Jun 2430 Jun 2530 Jun 2630 Jun 2730 Jun 2830 Jun 29
30 Jun 3030 Jun 3130 Jun 32
196Capital Expenditure by Category
197Capacity growth362,558 750,090 1,123,527 1,043,481 1,082,586 660,931 196,518 120,158 16,910 94,679
198Asset replacement and renewal129,843 152,354 143,173 133,720 114,817 107,598 74,842 111,217 80,432 97,343
199
Total capital expenditure492,401 902,444 1,266,700 1,177,201 1,197,403 768,528 271,360 231,374 97,342 192,022
200Capital Expenditure by Key Capital Expenditure Project
201
Terminal Integration - enabling & airport resilience
203,041 411,305
515,001 267,544 115,738 69,007 36,471 23,299 – – 1,641,407
202
Terminal Integration - Domestic Processor
37,005 102,762
288,837 502,483 565,824 464,989 107,675 23,239 – – 2,092,813
203
Terminal Integration - Transport Hub
38,533 61,683
13,623 – 10,301 25,749 13,577 – – – 163,466
204
Domestic Terminal Building Upgrades
9,260 23,974
40,937 44,997 29,129 – – – – – 148,298
205
Aeronautical Programme
18,719 55,828
134,841 91,484 208,352 23,323 23,784 72,134 15,779 93,526 737,769
206
Contingent Runway
2,623 4,295
4,666 36,329 39,805 38,680 10,766 – – – 137,164
207
Roading Programme
40,570 77,584
45,793 – – – – – – – 163,947
208
Utilities Programme
12,808 9,182
10,769 9,661 14,938 16,555 4,245 1,486 1,131 1,153 81,928
209
Renewals – airfield pavement and ground lighting
33,557 59,506
71,965 68,968 50,771 69,786 45,362
80,540 47,410 56,279 584,143
210
Renewals - other
96,287 92,848
71,209 64,752 64,046 37,811 29,480
30,677 33,022 41,063 561,196
211
Cargo Precinct
– 3,475
69,060 90,983 98,498 22,628 –
– – – 284,644
212–
213–
214–
215–
216–
217–
218–
219–
220–
221–
222–
223–
224–
225–
226–
227–
228–
229–
230–
231Other capital expenditure–
232Total Capital Expenditure 492,401 902,444 1,266,700 1,177,201 1,197,403 768,528 271,360 231,374 97,342 192,022 6,596,775
233Page 4
30 June 2023
Auckland International Airport Limited
PSE4-Price-Setting-Disclosure-SchedulesS18.Total revenue requirement
Commerce Commission Information Disclosure Template
Regulated Airport
Pricing Period Starting Year Ended
SCHEDULE 18: REPORT ON THE FORECAST TOTAL ASSET BASE REVENUE REQUIREMENTS (cont 5)
refVersion 4.0
240Basis for Cost Allocation
241
242
243
244
245
246
247
248
249
250
251
252
253
254
255
Key Capital Expenditure Projects—Consumer Demands Assessment
256
257
258
259
260
261
262
263
264
265
266
267
268
269
270
18(xii) Forecast operational expenditure
271($000)
Pricing Period
Starting Year
Pricing Period
Starting Year + 1
Pricing Period
Starting Year + 2
Pricing Period
Starting Year + 3
Pricing Period
Starting Year + 4
27230 Jun 2330 Jun 2430 Jun 2530 Jun 2630 Jun 27
273Corporate overheads42,597 52,731 56,474 57,827 61,887
274Asset management and airport operations40,683 50,363 53,938 55,230 59,108
275Asset maintenance47,237 58,475 62,626 64,126 68,629
276Forecast operational expenditure130,517 161,569 173,038 177,183 189,624
278Page 5
Auckland International Airport Limited
30 June 2023
Please refer to section 3.2.8 and section 4.2.3 of Price Setting Disclosure commentaries
An explanation of where and why disclosures differ from the cost-allocation Input Methodology and/or, where costs are shared between regulated and non-regulated assets, an explanation of the basis for that allocation.
Please refer to section 3.2.3 and Appendix A of Price Setting Disclosure commentaries
An explanation of how consumer demands have been assessed and incorporated for each reported project and the degree to which consumers agree with project scope, timing and cost.
PSE4-Price-Setting-Disclosure-SchedulesS18.Total revenue requirement
Commerce Commission Information Disclosure Template
Regulated Airport
Pricing Period Starting Year Ended
SCHEDULE 18: REPORT ON THE FORECAST TOTAL ASSET BASE REVENUE REQUIREMENTS (cont 6)
refVersion 4.0
28518(xiii) Forecast financial incentives
286($000)
Pricing Period
Starting Year
Pricing Period
Starting Year + 1
Pricing Period
Starting Year + 2
Pricing Period
Starting Year + 3
Pricing Period
Starting Year + 4
28730 Jun 2330 Jun 2430 Jun 2530 Jun 2630 Jun 27
288Forecast pricing incentives8,318 7,523 9,741 10,833 10,410
289Forecast other incentives1,117 1,187 386 – –
290Forecast total financial incentives9,434 8,709 10,127 10,833 10,410
291
292
18(xiv) Forecast revaluations
293
Pricing Period
Starting Year - 1
Pricing Period
Starting Year
Pricing Period
Starting Year + 1
Pricing Period
Starting Year + 2
Pricing Period
Starting Year + 3
Pricing Period
Starting Year + 4
29430 Jun 2230 Jun 2330 Jun 2430 Jun 2530 Jun 2630 Jun 27
295Forecast CPI used to set prices
296Forecast pricing CPI (%)7.20% 6.20% 3.30% 2.60% 2.30% 2.10%
297Asset category revaluation rates (%)
298Land 7.20% 6.20% 3.30% 2.60% 2.30% 2.10%
299Sealed Surfaces7.20% 6.20% 3.30% 2.60% 2.30% 2.10%
300
Infrastructure and buildings 7.20% 6.20% 3.30% 2.60% 2.30% 2.10%
301Vehicles, plant and equipment7.20% 6.20% 3.30% 2.60% 2.30% 2.10%
302
Revaluations ($000s)
303
Land 2,017 1,981 1,120 911 827 772
304Sealed Surfaces– – – – – –
305Infrastructure and buildings 7,029 6,961 5,382 5,991 5,787 9,925
306Vehicles, plant and equipment8 31 14 10 7 9
307Total forecast revaluations9,054 8,973 6,516 6,913 6,621 10,706
308
309
Value of any forecast revaluations not consistent with IMs– – – –
– –
31018(xv) Alternative methodologies with equivalent effect
311
312
313
314
315
316
317
318
319
Page 6
Auckland International Airport Limited
No methodologies with equivalent effect have been applied
30 June 2023
Description of and explanation for any alternative methodologies with equivalent effect that have been applied and which components they have been applied to (including evidence to support that
it is likely to have equivalent effect)
PSE4-Price-Setting-Disclosure-SchedulesS18.Total revenue requirement
Commerce Commission Information Disclosure Template
SCHEDULE 19: REPORT ON THE FORECAST PRICING ASSET BASE REVENUE REQUIREMENTS
ref
Version 4.0
First Day of
Pricing Period
Last Day of
Pricing Period
819(i): Forecast Internal Rate of Return
9($000)Cash flow date
1 Jul 2230 Dec 222 Feb 2331 Dec 233 Feb 24
30 Dec 242 Feb 2530 Dec 252 Feb 2630 Dec 262 Feb 2730 Jun 27
10Opening asset base (applicable to price setting)1,315,588
11Forecast opening carry forward adjustment87,810
12Opening investment value1,227,778
13
14
plusForecast revenue for services applicable to price setting event232,854 423,494 494,684 612,828 742,931
15lessForecast assets commissioned223,460 351,746 934,904 410,639 654,483
16plusForecast cash flow from asset disposals– – – – –
17lessForecast operational expenditure 116,426 144,585 154,955 158,680 169,910
18lessForecast unlevered tax15,116 54,640 60,621 81,501 108,474
19
20Forecast closing asset base3,331,059
21Forecast closing carry forward adjustment43,744
22Forecast closing investment value3,287,315
23
24
Forecast net cash flows(1,227,778) (355,002) 232,854 (550,971) 423,494 (1,150,480) 494,684 (650,820) 612,828 (932,866) 742,931 3,287,315
25
26Forcast post-tax IRR as at 01 July 20228.73%
27NPV check0.0 OK
2819(ii): Opening carry forward adjustment
29($000)
Forecast closing
carry forward
from previous
price setting
event
Opening carry
forward
adjustments
from current
price setting
event
Total opening
carry forward
adjustments
30Default revaluation gain/loss adjustment–
31Risk allocation adjustment–
32Other carry forward adjustments86,0841,72687,810
33
Forecast opening carry forward adjustment86,084 1,726 87,810
34Provide a summary of any views expressed by substantial customers about the pricing approaches reflected in the opening carry forward adjustment
35
36
37
38
19(iii): Forecast closing carry forward adjustment
($000)
40Moratorium Adjustment86,084
41
Post-pricing decision adjustments - correction of errors and omissions
-42,340
42
43
44Total forecast closing carry forward adjustment43,744
45
46
47
48
49
19(iv): Cash flow timing assumptions
50
51
Year of most recent annual disclosure (year ended)30 June 2022
52First day of pricing period1 July 2022
53
Airport
assumption
Default
assumption
Cash flow timing - revenues - days from year end148 148
55Cash flow timing - expenditure - days from year end182 182
56Explanation and evidence if airport assumption is different from default
57
58Page 7
Please refer to section 3.2.5 of Price Setting Disclosure commentaries
Pricing Period Starting YearPricing Period Starting Year + 1Pricing Period Starting Year + 2Pricing Period Starting Year + 3Pricing Period Starting Year + 4
30 Jun 2330 Jun 2430 Jun 2530 Jun 2630 Jun 27
Auckland International Airport Limited
30 June 2023
Please explain each adjustment and how this has been
calculated
Please refer to section 3.2.5 of Price Setting Disclosure commentaries
Please refer to section 3.2.5 of Price Setting Disclosure commentaries
Please refer to section 3.2.5 of Price Setting Disclosure commentaries
Default assumptions have been used, please refer to section 3.4.2 of Price Setting Disclosure commentaries
Explain how the closing investment value provides a good indication of the remaining capital expected to be recovered by the airport in future pricing periods and provide a summary of substantial customer views on any closing carry forward adjustments
Please explain each adjustment and how this has been calculated
Please refer to section 3.2.5 of Price Setting Disclosure commentaries
PSE4-Price-Setting-Disclosure-SchedulesS19 Pricing Asset Revenue
Commerce Commission Information Disclosure Template
Regulated Airport
Pricing Period Starting Year Ended
SCHEDULE 19: REPORT ON THE FORECAST PRICING ASSET BASE REVENUE REQUIREMENTS (cont 2)
ref
Version 4.0
6519(v): Total Revenue Requirement for Pricing Assets
66Overview of the methodology used to determine the revenue requirement for pricing assets
67
68
69
70
71
72
73
74
75
($000)
Pricing Period
Starting Year
Pricing Period
Starting Year + 1
Pricing Period
Starting Year + 2
Pricing Period
Starting Year + 3
Pricing Period
Starting Year + 4
76
30 Jun 2330 Jun 2430 Jun 2530 Jun 2630 Jun 27
77Forecast revenue from airport activity charges applicable to the price setting event228,120 418,618
489,662 607,655 737,603
78Forecast lease, rental and concession income (applicable to the price setting event)4,734
4,876
5,022 5,173 5,328
79plusForecast other operating revenue (applicable to the price setting event)
80Forecast pricing revenue for services applicable to the price setting event pricing revenue requirement (excluding assets held for future use revenue)232,854 423,494 494,684
612,828 742,931
81
82lessForecast operational expenditure 116,426
144,585
154,955 158,680 169,910
83lessForecast depreciation
58,319 73,062 92,846
137,217
157,427
84lessForecast unlevered tax15,116 54,640 60,621
81,501 108,474
85plusForecast revaluations– – – – –
86
87
Forecast regulatory profit / (loss)42,993 151,208 186,263
235,431
307,120
88
89Forecast cost of capital8.73%
90
91Explain any difference between the post-tax IRR on the pricing asset base and the post-tax IRR on the regulated asset base
92
93
94
95Forecast pricing revenue requirement from airport charges (including assets held for future use charges)
96Forecast pricing revenue requirement (excluding forecast revenue from assets held for future use revenues)228,120 418,618 489,662 607,655 737,603
97Forecast revenues from assets held for future use charges – – – – –
98Forecast pricing revenue requirement from airport charges (including forecast revenue from assets held for future use charges)228,120 418,618 489,662 607,655 737,603
99Description of any other factors that are considered in determining the forecast total revenue requirement
100
101
102
103
104
105
106
107
108
Page 8
30 June 2023
Please refer to section 4 of Price Setting Disclosure commentaries
Please refer to section 3.5 of Price Setting Disclosure commentaries
Please refer to section 3.4 of Price Setting Disclosure commentaries. Auckland Airport's PSE4 post tax WACC and Target Return for priced activites was determined using the Commission's 2016 WACC IM, except that we updated out of date (i.e. March 2016) comparable
company input data including asset beta and leverage as at the start of Auckland AIrport's PSE4 period (i.e. 30 June 2022), we used the Commission's most recently published Post Tax Market Risk Premium estimate of 7.5% and we discontinued the prior 5BP downwards
adjustment to asset beta for the aeronautical part of the business as our empirical analysis showed there is no evidential basis for that adjustment.
Auckland International Airport Limited
PSE4-Price-Setting-Disclosure-SchedulesS19 Pricing Asset Revenue
Commerce Commission Information Disclosure Template
Regulated Airport
Pricing Period Starting Year Ended
SCHEDULE 19: REPORT ON THE FORECAST PRICING ASSET BASE REVENUE REQUIREMENTS (cont 3)
ref
Version 4.0
($000)
11619(vi): Opening Regulated Asset Base (applicable to price setting)
117
30 Jun 22
118Regulated asset base (applicable to price setting) as at 30 June 20221,290,732
119
lessForecast depreciation–
120plusForecast revaluations–
121plusAssets commissioned–
122less Asset disposals–
123plus (less)Forecast adjustment resulting from cost allocation24,856
124
Estimate of regulated asset base (applicable to price setting) at start of price setting event1,315,588
125
Pricing Period
Starting Year - 1
Pricing Period
Starting Year
Pricing Period
Starting Year + 1
Pricing Period
Starting Year + 2
Pricing Period
Starting Year + 3
Pricing Period
Starting Year + 4
126for year ended
30 Jun 2230 Jun 2330 Jun 2430 Jun 2530 Jun 2630 Jun 27
12719(vii): Forecast Asset Base (applicable to price setting)
128
Forecast pricing asset base—previous year1,186,047 1,315,588 1,464,013 1,730,180 2,567,089 2,834,062
129lessForecast depreciation49,457 58,319 73,062 92,846 137,217 157,427
130plusForecast revaluations– – – – – –
131
plusAssets commissioned154,214 223,460 351,746 934,904 410,639 654,483
132less Asset disposals72 16,715 12,518 5,150 6,449 59
133plus (less)Forecast adjustment resulting from cost allocation24,856 – – – – –
134Forecast pricing asset base1,315,588 1,464,013 1,730,180 2,567,089 2,834,062 3,331,059
135
136Description of and explanation for the depreciation methodology applied
137
138
139
140
Page 9
Please refer to section 3.2 of Price Setting Disclosure commentaries
Auckland International Airport Limited
30 June 2023
PSE4-Price-Setting-Disclosure-SchedulesS19 Pricing Asset Revenue
Commerce Commission Information Disclosure Template
Regulated Airport
Pricing Period Starting Year Ended
SCHEDULE 20: REPORT ON DEMAND FORECASTS
refVersion 4.0
620a: Passenger terminal demand
7(000)
Pricing
Period
Starting Year
Pricing
Period
Starting Year
+ 1
Pricing
Period
Starting Year
+ 2
Pricing
Period
Starting Year
+ 3
Pricing
Period
Starting Year
+ 4
Pricing
Period
Starting Year
+ 5
Pricing
Period
Starting Year
+ 6
Pricing
Period
Starting Year
+ 7
Pricing
Period
Starting Year
+ 8
Pricing
Period
Starting Year
+ 9
8for year ended
30 Jun 2330 Jun 2430 Jun 2530 Jun 2630 Jun 2730 Jun 2830 Jun 2930 Jun 3030 Jun 3130 Jun 32
9Domestic1,278 1,421 1,516 1,610 1,697 1,758 1,785 1,807 1,828 1,847
10
International1,370 1,669 1,890 2,104 2,276 2,388 2,473 2,554 2,634 2,715
11Combined *2,649 3,090 3,406 3,714 3,973 4,146 4,258 4,362 4,462 4,562
12
13
Domestic1,236 1,376 1,469 1,561 1,647 1,708 1,736 1,760 1,781 1,802
14International1,199 1,462 1,657 1,847 2,000 2,100 2,175 2,246 2,316 2,387
15Combined *2,435 2,838 3,126 3,408 3,647 3,808 3,911 4,006 4,098 4,189
16
* No disclosure of combined terminal forecasts is required for airports with no shared passenger terminal functional components.
17
Domestic4,051 4,244 4,866 5,159 5,428 5,400 5,540 5,672 5,798 5,924
18International3,596 4,866 4,928 5,487 5,935 6,226 6,475 6,718 6,958 7,202
19Total7,647 9,110 9,794 10,647 11,362 11,626 12,015 12,390 12,756 13,127
20
21
Domestic4,069 4,265 4,889 5,183 5,452 5,423 5,562 5,693 5,819 5,944
22
International3,611 4,890 4,952 5,513 5,961 6,252 6,501 6,743 6,983 7,227
23Total7,680 9,156 9,841 10,696 11,412 11,674 12,063 12,436 12,802 13,171
24
25
International transit and transfer passengers
†
580 841 991 1,082
1,159 1,212 1,256 1,297
1,338 1,379
26
†
NB. Forecasts of international transit and transfer passenger numbers relate only to airports with extant or planned international transit and transfer facilities
27Page 10
Inbound passengers
Outbound passengers
Number of passengers
during year
Auckland International Airport Limited
30 June 2023
Busy hour passenger
numbers
Inbound passengers
Outbound passengers
PSE4-Price-Setting-Disclosure-SchedulesS20.Demand Forecast
Commerce Commission Information Disclosure Template
Regulated Airport
Pricing Period Starting Year Ended
SCHEDULE 20: REPORT ON DEMAND FORECASTS (cont)
refVersion 4.0
3420b: Aircraft Runway Movements
35(000)
Pricing
Period
Starting Year
Pricing
Period
Starting Year
+ 1
Pricing
Period
Starting Year
+ 2
Pricing
Period
Starting Year
+ 3
Pricing
Period
Starting Year
+ 4
Pricing
Period
Starting Year
+ 5
Pricing
Period
Starting Year
+ 6
Pricing
Period
Starting Year
+ 7
Pricing
Period
Starting Year
+ 8
Pricing
Period
Starting Year
+ 9
36for year ended
30 Jun 2330 Jun 2430 Jun 2530 Jun 2630 Jun 2730 Jun 2830 Jun 2930 Jun 3030 Jun 3130 Jun 32
37During the runway busy hour36 39 42 44 46 46 47 47 48 48
38During the runway busy day458 505 541 575 603 602 615 627 638 650
39
40
Aircraft 30 tonnes MCTOW or more41,986 49,523 50,544 54,384 57,542 60,469 62,256 63,940 65,591 67,245
41Aircraft 3 tonnes or more but less than 30 tonnes MCTOW30,314 31,358 35,262 36,766 38,069 33,382 33,845 34,260 34,644 35,010
42Aircraft less than 3 tonnes MCTOW80 94 100 103 105 101 101 100 100 99
43
Total
72,381 80,975 85,906 91,252 95,715 93,952 96,201 98,300
100,334 102,355
44
45
Aircraft 30 tonnes MCTOW or more5,642,632 6,971,995 7,273,920 7,989,632 8,568,521 8,949,560 9,257,854 9,553,511 9,844,963 10,139,469
46Aircraft 3 tonnes or more but less than 30 tonnes MCTOW504,143 520,568 585,756 613,620 638,258 573,059 582,777 591,548 599,736 607,667
47Aircraft less than 3 tonnes MCTOW153 178 191 198 204 199 201 203 204 206
48
Total
6,146,929 7,492,742 7,859,867 8,603,450
9,206,983 9,522,819 9,840,832 10,145,262 10,444,903 10,747,341
49
50
Air passenger services—international19,367 25,686 25,706 28,277 30,299 31,612 32,728 33,803 34,860 35,925
51Air passenger services—domestic46,345 47,161 53,328 55,798 57,990 54,437 55,418 56,326 57,194 58,042
52
Other aircraft6,500 6,475 6,808 7,117 7,371 7,346 7,452 7,547 7,636 7,722
53
54
Air passenger services—international3,702,267 5,125,705 5,219,683 5,823,599 6,302,355 6,605,065 6,860,300 7,106,954 7,350,826 7,598,162
55Air passenger services—domestic1,935,072 1,994,211 2,271,991 2,394,656 2,505,521 2,525,661 2,581,172 2,632,404 2,681,922 2,730,875
56
Other aircraft509,712 375,554 369,991 388,186 403,512 403,609 410,926 417,676 424,118 430,461
57Description of the basis for forecasts, and/or assumptions made in forecasting
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72Page 11
Auckland International Airport Limited
Landings during year
(total number of
aircraft)
Landings during year
(total MCTOW in
tonnes)
Landings during year
(total number of
aircraft)
Please refer to section 5 of Price Setting Disclosure commentaries
30 June 2023
Movements during
busy period (total
number of aircraft)
Landings during year
(total MCTOW in
tonnes)
PSE4-Price-Setting-Disclosure-SchedulesS20.Demand Forecast
SCHEDULE 22 Certification for Forecast Total Revenue
Requirements and Pricing Disclosures
Clause 2.7(2)
We, Dr Patrick Strange and Dean Hamilton, being directors of Auckland
International Airport Limited certify that, having made all reasonable enquiry, to the
best of our knowledge, the attached Report on Forecast Total Revenue
Requirements and Report on Demand Forecasts and the following attached
information of Auckland International Airport Limited prepared for the purposes of
clause 2.5 of the Airport Services Information Disclosure Determination 2010 in all
material respects complies with that determination.
17 August 2023
_____________________________ _______________________________
Dr Patrick Strange, Director Date
17 August 2023
_______________________________ _______________________________
Dean Hamilton, Director Date
---
A-1
Price Setting Disclosure – Summary of Capital
Investment Programme consistent with pricing decision
In accordance with clause 2.5 of the Airport Services
Information Disclosure Determination 2010
17 August 2023
A-2
IMPORTANT NOTICE
This document has been prepared for the sole purpose of complying with the Airport Services Information
Disclosure Determination 2010 (the “Determination”). As required by the Determination, this document
contains forward looking statements, forecasts and comments about future events, including our expectations
about the performance of Auckland Airport's business. Forward looking statements and forecasts involve
inherent risks and uncertainties, both general and specific, such that there is a risk that such forward looking
statements or forecasts will not be achieved.
In particular, aeronautical demand forecasts are inherently uncertain and should not be relied on or viewed as
market guidance.
Factors that could cause Auckland Airport's actual results to differ materially from the forecasts include matters
outside of our control, such as the inherent risk that forecast aircraft and passenger demand (which is based on
third party information) departs from actual demand due to material events beyond the control of Auckland
Airport. For matters over which we have greater control, such as capital and operational expenditure, the
forecast periods in this disclosure are long-dated, running in some instances to ten years. It is very likely that
the assumptions informing the forecasts, and therefore the forecasts themselves, will change during the forecast
period.
As such, the information in this document must be interpreted with care. It must not be relied on for any purpose
other than to assess whether Auckland Airport is meeting the purpose of regulation under Part 4 of the
Commerce Act. The information in this document will be subject to a review by the Commerce Commission,
who will publish a summary and analysis report in accordance with the Commerce Act 1986.
Neither Auckland Airport nor any of its directors, employees, advisers nor any other person gives any warranties
or representations (express or implied) as to the accuracy or completeness of this information. To the maximum
extent permitted by law, none of Auckland Airport, its directors, employees, advisers or any other person shall
have any liability whatsoever to any person for any loss (including, without limitation, arising from any fault or
negligence) arising from this presentation or any information supplied in connection with it.
All currency amounts are expressed in New Zealand dollars unless otherwise stated and figures, including
percentage movements, are subject to rounding.
A-3
1. Introduction
This Appendix provides an overview of the aeronautical and aeronautical-related capital expenditure aims and
objectives, including cost estimates out to financial year 2032.
This addresses the following disclosure requirements for key capital expenditure projects, as set out in
Clause 2.5(1) of the Airport Services Information Disclosure Determination 2010:
m) description of each key capital expenditure project including an explanation of;
(i) the process by which the need for the project was determined, including any assessment
criteria;
(ii) any consumer engagement undertaken
(iii) any alternative expenditure projects considered, and the rationale for excluding those
alternative projects
(iv) the extent to which the key capital expenditure project is reflected in pricing; and
(v) any constraints or other factors on which successful completion of the key capital expenditure
project is contingent.
It should be read in conjunction with the capital investment section (section 3.2.3) of the Price Setting Disclosure
commentaries for PSE4 which sets out further information and detail to address the disclosure requirements
under Clause 2.5 (1) (l-m).
A-4
1.1. Structure of this appendix
This document provides descriptive background on the programmes that together contribute to either one output
or a set of broadly overlapping outputs and key projects. Within each programme, a description of the
programme and the projects within the programme are included, including explanations of the process for
determining the need for the programme, the consumer engagement undertaken in developing the programme,
alternatives considered and any constraints or other factors on which the programme is contingent.
The capital investment programmes included in this appendix, is set out below. The extent to which projects are
included in aeronautical pricing is set out in the capital investment section at the end of this appendix.
1.
Introduction ......................................................................................................................................... 3
2. Terminal Integration – enabling & airport resilience ...................................................................... 7
3. Terminal Integration - Domestic Processor ................................................................................... 12
4. Terminal Integration - Transport Hub ............................................................................................. 15
5. Domestic Terminal Building Upgrades .......................................................................................... 18
6. Aeronautical Programme ................................................................................................................. 20
7. Contingent Runway .......................................................................................................................... 23
8. Roading Programme ........................................................................................................................ 25
9. Utilities Programme ......................................................................................................................... 28
10. Renewals – airfield pavement and ground lighting ...................................................................... 30
11. Renewals - other ............................................................................................................................... 32
12. Cargo Precinct .................................................................................................................................. 36
13. Capital investment forecasts .......................................................................................................... 38
A-5
1.2. Overview of airport development
This diagram gives an overview of the major projects or programmes of work that are being undertaken at
Auckland Airport and their locations. This diagram is not exhaustive, but indicates the locations of key projects
will be delivered across the airport precinct. These projects are described further throughout this appendix.
A-6
A-7
2. Terminal Integration – enabling & airport resilience
Aims and
objectives /
description
The Terminal Integration – enabling & airport resilience programme facilitates the projects to prepare the
Auckland Airport precinct for delivery of the Integrated Domestic Terminal (“IDT”), or Domestic Processor,
integrated with the existing international terminal. This programme involves a number of key projects that deal
with existing legacy infrastructure, prepare the existing terminal for integration, as well as the development of
the new terminal facilities. Elements of the programme have other benefits, such as upgrading airport resilience
such as stormwater upgrades. Many of these projects would be required regardless of whether the Terminal
Integration Programme was being developed.
The aims of this programme are to deliver a programme of projects that:
• prepare the existing international terminal for integration – projects prepare the existing international
terminal building for integration of domestic terminal services, including expanded check-in facilities and
baggage systems to service both domestic and international passengers;
• relocate services at the both ends (east and west) of the international terminal – to take advantage
of the time limited opportunity to relocate these services to other locations that enable the terminal
integration pathway;
• undertake works in a lower traffic environment – taking the opportunity the pandemic has presented
with lower traffic volumes reduces costs and customer disruption by undertaking works while volumes are
lower than pre-pandemic levels, such as works in the forecourt of the International Terminal building to
enable terminal integration including the Transport Hub development
• manage construction impacts and constraints – in addition to providing for demand growth, meeting
regulatory requirements and improving efficiency, certain projects provide a key role in reducing
operational impact and/or managing the constraints of programme construction. They do this by providing
headroom for operations displaced by construction, by providing logistics corridors, or by enabling the
staged deployment of projects which would otherwise be highly disruptive to execute in an operational
environment
• provide enduring infrastructure efficiently – maximise the opportunities to deliver infrastructure
efficiently that meets needs over multiple time horizons – for example, efficiencies have been generated
by expanding international arrivals and relocating the truck dock at the same time (reducing overall cost),
while remote stands needed to meet demand during construction will meet forecast future international
capacity requirements;
• decarbonisation – decarbonises the major plant within the existing core of the terminal replacing gas
boilers with electrical heat pump technology;
• improve airport resilience – the Terminal Integration Programme will build resilience into the airport
system by addressing key points of resilience. Many of the works in the programme address problems
that would require investment in any case. A critical resilience factor is the new contingent runway that
will be able to be stood up within an operationally effective timeframe. Airport resilience is also supported
by responding to climate change including storm water upgrades in a number of key projects in the
programme
• Enable for the planned opening of the IDT in 2028-29 - a new integrated domestic terminal provides
enhanced service and facilities for domestic jet passengers as well as the domestic jet stands required to
enable effective operation of the Contingent Runway when main runway upgrades are required in circa
2028-29, and unlocks long-run growth of the Master Plan.
Process for
determining need
The following factors were assessed and considered in determining the need for this programme:
• the 2014 Master Plan identified the pathway to long-run capacity growth at Auckland Airport, including
the optimal long-term location for domestic services in the south, after the closure of the existing Domestic
Terminal Building to enable the delivery of long-run capacity
• legacy infrastructure constraints to terminal integration were identified, this required development of
solutions to address these constraints while delivering the Integrated East terminal integration pathway;
• deliverability and disruption impacts of constructing infrastructure in a live operating environment while
passengers are using the airport were considered in the timing, sequence and approach of delivering the
Terminal Integration Programme against counterfactual options, namely “Paheko West” and the pre-2020
Domestic Jet Hub programme.
• forecasts of future demand inform the design and capacity of a number of the projects in the
programme, including baggage systems, and check-in facilities to ensure these are sufficient to meet
future demand for both international and domestic passengers
• cost and scope optimisation – was carried out to provide solutions which meet capacity requirements
in accordance with conventional IATA levels of service and benchmark rates for new infrastructure.
A-8
Consumer
Engagement
Engagement with substantial airline customers on the Terminal Integration Programme includes extensive
consultation and engagement with airlines including (but not limited to):
• 2014: Master Plan
• 2017: Terminal Development Plan
• 2018-20: Domestic Jet Facility
• 2021: Paheko Consultation to identify Integrated East Terminal Pathway
• 2022-23: Capital Plan consultation
This engagement with airline customers, including how airline feedback was considered and assessed
throughout this process over many years is set out in further detail in section 3.2.3 of the disclosure
commentaries. The feedback receieved from Substantial Customers was considered in the context of the
needs identified, alternatives considered, and the constraints or contingency factors that exist.
Alternatives
considered
A number of alternatives to the Terminal Integration Programme have been considered in detail. These
include:
• Alternative options for different levels of integration with existing infrastructure
• Alternative locations for the domestic terminal infrastructure
• Delaying the programme and remaining in the existing Domestic Terminal Building for longer
• Using the existing International Terminal for domestic overflow
Further detail on the alternatives that have been considered is outlined in section 3.2.3 of the disclosure
commentaries.
Constraints or
contingency
factors
• Location of new domestic terminal facility: the location of the domestic terminal facility was determined
through subsequent rounds of consultation and analysis, this governs the works required from this
programme to ensure the airport can continue to operate while delivering the integrated terminal solution
• Legacy infrastructure – the Terminal Integration Programme deals with existing legacy infrastructure
that is not consistent with the location of the future Domestic Processor – these projects replace existing
facilities in new locations that are compatible with the TIP and the Master Plan
• Live operating environment – many of the projects within the Terminal Integration Programme will be
delivered in a live operating environment and can cause significant disruption. The timing and sequence
of the programme has been developed to minimise disruption and cost of delivering this brownfields
infrastructure programme.
• Contingent Runway operations and pavement renewals of main runway – future renewals of a
significant number of main runway slabs will require closure of the main runway. These renewals are
currently expected to be delivered in 2028-29. Contingent Runway operations will be necessary during
this period, the capacity of these operations is maximised with the opening of the new Domestic
Processor, as the existing Domestic Terminal Building is a constraint on Contingent Runway capacity.
Having a permanent contingent runway also adds essential resilience to the airport system for a single
runway airport.
The projects included within the Programme, including their aims and objectives are outlined in the table
below:
Projects
10 year
forecast ($m)
Details
Automated Bag Drops
(ABD's)
24.2
Upgrades of technology in the international check-in area will facilitate more
efficient use of space and enhanced customer experience. This will involve the
replacement of check-in desks with kiosks and Automated Bag Drops (“ABD”),
generally as common use. This is inclusive of check-in Zones B to E. ABDs are
scheduled to be phased into operations from 2024, with the works to be completed
in PSE5.
Baggage Enabling Project 58.8
The Baggage Handling System (“BHS”) Enabling project will provide a substantial
upgrade to international terminal baggage system and prepare for integration of
the upgraded system with the new Individual Carrier System (“ICS”) to be installed
as part of the Domestic Processor project. The existing international baggage
system based around the Western Baggage Hall will provide the primary means of
international baggage processing through to the Domestic Processor opening in
2028 - 2029. Elements of this system will be required to operate beyond that date
until at least 2037. This project will deliver approximately 6km of new baggage
conveyor in addition to the electrical and building upgrades.
A-9
Projects
10 year
forecast ($m)
Details
Façade and Check-in
Extension
248.5
The integrated terminal will include an integrated check-in area that services both
international and domestic passengers. The current space and facilities in the ITB
are not sufficient to service both international and domestic passengers, requiring
further investment to create the required capacity when the IDT opens in 2028 -
2029.
The area will be required to facilitate all check-in processes as well as ensuring
that travellers, farewellers, meeters and greeters and staff have safe, easy to
navigate journeys in, out and within the terminal. The façade extension and
upgrades to vertical circulation will allow sufficient space for passengers to circulate
in the check-in hall with increased activity from both domestic and international
passengers.
High Street Reconfiguration
to accommodate customs
after security
6.3
This project will be triggered by domestic integration and involves reconfiguration
of the existing recompose and retail area to allow for the relocation of outbound
Customs processing to after AVSEC.
Taxiway Mike and Pier B
North Stands
420.9
This project will deliver additional international stand capacity that facilitates
international growth and provides flexibility to manage additional passenger (via
bus), freight and layover services. Remote stands will be delivered in their final
positions allowing connection to Pier B at a future date.
Six additional international MARS stands are forecast as required by 2025 due to
the return of international traffic and disruption to existing stands because of
Domestic Processor construction. The project will deliver a total of six Code F
MARS stands in 2025 (5x serviced, 1x un-serviced) in response.
The project will also reduce flood risk to the international terminal by diverting runoff
to a new stormwater network and outfall upstream of the terminal precinct.
Treatment ponds will be sized to meet drainage consent requirements for the
Pier B north apron development, the terminal precinct, future cargo development
and north-western remote stands.
Operations Control Centre 9.7
To enable workstreams associated with Terminal Integration Enabling, PC11 must
be demolished early in calendar year 2023. The OCC consists of the Landside
Operations Centre, the Emergency Operations Centre and associated Network &
Comms room which are critical components of the Airport Operation. The new
facility will be relocated to the western end of the ITB within a reconfigured space
on level 1 with access to the ITB and the Western Forecourt.
Programme Logistics 27.1
Provides logistics coordination, scheduling and overall site planning for not only the
Terminal Integration Projects, but also the Domestic Processor, Transport Hub,
and other proposed developments within the precinct. Areas of focus include
Construction staging plans, Vehicle and pedestrian traffic routes, planning and
modelling, Journey management, Contractor laydowns and temporary facilities and
Delivery scheduling.
DJF Eastern Approach 32.7
This is a roading project connects Laurence Stevens Drive with the eastern
forecourt of the Domestic Processor for commercial vehicles including coaches,
shuttles, ride share etc. The road also provides a resilience alternative in the
event of an incident on Cyril Kay Road - Cyril Kay is the primary route for access
to the airfield, AVSEC office and the Domestic Processor truck dock. The project
also carries HV electrical, sewage and other services to and from the Domestic
Processor.
East Terminal Enabling 309.6
To enable the development of the future integrated terminal and baggage handling
system, several core operational and utilities functions are required to be relocated.
The relocation of and delivery of operational and utilities facilities will allow for the
construction of the Domestic Processor and associated infrastructure to deliver the
IDT. The project is being designed for relocated plant and facilities to be delivered
in their final form (inclusive of terminal decarbonisation) and location rather than
having to be moved again in the future.
The delivery of this programme includes the redesign of the Eastern Bag Hall and
adjacent floors to extend the terminal to accommodate the Domestic Processor
and Pier A1. This project demolishes a series of disjointed and end-of-life
structures at the southeast end of the existing international terminal and replaces
them with permanent infrastructure ready to connect directly to the new Domestic
Processor.
A-10
Projects
10 year
forecast ($m)
Details
East Airfield Relocations 46.9
Relocation of several core airfield and operational functions away from the
Domestic Processor footprint prior is required to enable its construction. This
project will deliver the relocation of key airfield functions and core utilities, generally
to long term locations and provide
improved facility amenity, efficiency and
performance for those relocated functions. The specific deliverables include but
are not limited to construction of a new Checkpoint Charlie, new waste and
livestock facilities, and diversion of existing utilities and the construction of new
underground services, and construction of hard standing for both Domestic and
International Unit Load Devices (“ULD”) storage.
West Terminal Enabling 214.3
This project addresses the need to expand International Arrivals processing which
is expected to reach capacity in 2025. In addition, the current eastern truck dock
footprint sits within the pathway for enabling works and the final placement of the
IDT. It requires relocation to the western end of the terminal to ensure that a truck
dock facility remains operational through construction of the IDT and Domestic
Processor.
Included within this project are several initiatives that for the purposes of efficient
delivery and minimisation of disruption, will be undertaken at the same time as the
relocation of the truck dock. These works, primarily relate to the expansion and
reconfiguration of space in and around the arrivals area. Specifically, these works
include:
• International Bag Hall - modernisation of ceilings and floor finishes to areas
surrounding Carousels 3, 4, 6 and 7 (refit to match existing Carousels 1, 2
and 5);
• Arrivals Airside - Expansion of the existing Joint Border Agency (“JBA”) hall
west with the addition of screening lanes, risk assessment, search bench and
queue areas, and refurbished Joint Border Agency (JBA) back of house areas
and
• Arrivals Landside - reconfiguration and refurbishment of existing spaces and
functions including meet and greet areas; new and existing retail offerings;
reprovision of relocated Baggage Tracing Unit functions; and upgrading of
undercroft space.
Whilst these works are required to enable the delivery of the IDT, they would still
be required regardless of IDT timing. The truck dock needs to be relocated, while
the arrivals initiatives address needs of JBAs that existed prior to the pandemic.
Western Forecourt Pump
Station
8.0
This project will deliver a new pumping station which services the terminal and is
to be located at the western end of the current ITB. The project will consolidate
and upgrade water infrastructure servicing the ITB and include the replacement of
aged existing pumps and pipe-works. This project was initially planned to be
delivered at a later date, but has been brought forward to realise delivery
efficiencies with concurrent works on the Inner Terminal Road East and Combined
Services Trenches.
Inner Terminal Road East &
West and Common Service
Trench
125.1
The Inner Terminal Road (“ITR”) East & West and Common Services Trench
(“CST”) project will enable roading access to the Domestic Processor, the
Transport Hub, the check-in and façade expansion and other associated projects
by relocating the current inner terminal road to the north and providing both diverted
and new underground utilities. In addition, the project will also provide for the
relocation of commercial transport operators (shuttles, pre-charter taxis, valet etc.)
and operational parking displaced by other development projects. This project will
be delivered in two separate phases, with the East element delivered first and the
West element delivered second.
The Combined Services Trenches elements of the project will provide for the
required utilities to be installed including communications, low and high voltage
electrical, gas, potable water, stormwater, and sanitary sewer services.
Western Forecourt Stage 2 106.4
This project reconfigures and extends the western forecourt area established under
the West Terminal Enabling project in order to facilitate an expansion of airside and
landside arrivals capacity in 2030. The form of both arrivals expansion in 2030,
and the Western Forecourt Stage 2 project is currently under development.
Disaster Recovery Centre
(OCC + EOC)
40.3
The current back ups for the OCC and the Emergency Operations Centre (“EOC”)
are located in the Security & Emergency Services precinct on Walsh Brother Place
opposite the Airport Fire Station. This precinct is flagged for demolition around
2027-28 to enable airside capacity expansion for regional services and therefore
the disaster recovery facilities located there will need to be relocated and the
deliverables of this project are the development of a fit for purpose and compliant
facility.
A-11
Projects
10 year
forecast ($m)
Details
Other Terminal Integration
projects < $5m
7.6
Other minor projects as part of the Terminal Integration Programme
Total Programme 1,641.4
A-12
3. Terminal Integration - Domestic Processor
Aims and
objectives /
description
The objective of integrating domestic jet and international operations in a single terminal has been a core part
of Auckland Airport’s masterplan since 2012.
Delivery of the Domestic Processor will deliver an enhanced customer experience for domestic travel (while
also avoiding a degradation in the existing experience), provide additional capacity above the existing
Domestic Terminal, which is capacity constrained, and unlock expansion pathways to enable long-run growth
at Auckland Airport.
The Domestic Processor project will deliver:
• a new full service jet pier including all fixed links for 12 Code C stands (3 of which are MARS E), gate
lounges and bus lounge capable of servicing 2 Code C aircraft;
• a new Individual Carrier System (“ICS”) baggage processor providing primary sortation, screening, early
bag storage and make up for both domestic and international growth;
• a new domestic baggage arrivals hall comprising space for three reclaim carousels of which two will be
provided on opening;
• a new domestic headhouse providing dwell and circulation, amenities, food and beverage, and retail;
• fit out of floor space provided by the East Terminal Enabling project for headhouse facilities as well as
expansion of domestic and international security;
• a dedicated domestic to international transfer facility;
• a new domestic lounge facility;
• a new truck dock;
• an eastern forecourt for coaches, domestic commercial pick-up (ride-share, shuttle etc) and transfer to
regional services; and
•
all vertical circulation, back of house areas, Joint Border Agency (“JBA”) areas, plant and building
se rvices associated with the above.
Delivery of the Domestic Processor will meet the following objectives:
• a new domestic terminal facility with capacity to meet the IATA Optimum Level of Service through to 2033,
• expansion pathways for future domestic terminal capacity beyond the 2044 masterplan horizon;
• improved customer experience for domestic and international passengers
• significant reduction of minimum connect times between domestic and international services
• International and domestic BHS capacity through to 2033. All day check-in via automated Early Bag
Storage and significantly improved all round BHS performance, resilience and expandability;
• maximising capacity of contingent runway operations, enabling main runway pavement repairs.
• improved operational efficiency by having optimal airfield layout (aircraft push-backs no longer onto
taxiways), Code E MARS capable stands providing more operational flexibility for airlines, infrastructure
will enable contactless passenger journeys, more efficient baggage systems including all-day check-in,
efficiencies generated through integrated facilities for airlines, government agencies, and ground handlers
• enable contingent runway operations that provide resilience and facilitate renewals of main runway
pavements
• unlocks capacity expansion pathways required to meet long-run demand
A-13
Process for
determining need
The following factors were assessed and considered in determining the need for this programme:
• Location: The position of the new Domestic Processor is anchored by the need to maintain processing
in the south of Auckland’s future dual runway airfield (to best match flight paths), and to orientate piers in
a north south direction (to allow long-run growth via additional piers to the east). Connection to the
existing international terminal to provide efficient connections completes the three principal anchors for
the project. These anchors support the needs of long-run operational efficiency and airport capacity.
• Future demand: forecast demand has informed future capacity requirements which has informed the
design. The current design has been developed to provide conventional IATA levels of service for new
infrastructure at 2032 forecast demand levels. The existing domestic terminal acts as a constraint on long-
run capacity, relocating domestic services unlocks this constraint.
• Value of integration: integration was highly valued by airport users as it increases operational efficiency,
reduces minimum connect times, allows the use of shared infrastructure (e.g. baggage), and improves
the competitive hub proposition for Auckland
• Scope and cost: a number of exercises have been undertaken to refine scope to minimise cost, including
design reviews and value engineering exercises, benchmarking the scope of the design against that of
comparable airport terminals, IATA standards and alternative proposals presented. Cost forecasts are
based on advice from external cost estimators, with the cost of the development benchmarked against
(and shown to be in-line) with other comparable airport developments recently delivered or currently in
development globally.
Consumer
Engagement
Engagement with substantial airline customers on the Domestic Processor includes extensive consultation and
engagement with airlines including (but not limited to):
• 2014: Master Plan
• 2017: Terminal Development Plan
• 2018-20: Domestic Jet Facility
• 2021: Paheko Consultation to identify Integrated East Terminal Pathway
• 2022-23: Capital Plan consultation
This engagement with airline customers, including how airline feedback was considered and assessed
throughout this process over many years is set out in further detail in section 3.2.3 of the disclosure
commentaries. The feedback receieved from Substantial Customers was considered in the context of the
needs identified, alternatives considered, and the constraints or contingency factors that exist.
Alternatives
considered
Further detail on the process to consider alternatives is summarised in section 3.2.3 of the disclosure
commentaries.. Specific alternative approaches considered included:
• Deferral – The Domestic Processor is a large project with a lead in time of some 6 years. Although the
DTB Upgrade and Regional Pathway projects are expected to provide time limited coverage for domestic
operations through to 2030 (expected Domestic Processor commissioning date is 2028 - 2029), further
capacity increases for the existing domestic terminal are not practicable. Furthermore, the DTB Upgrade
will only partially address core domestic operational needs such as equalisation of D-I and I-D transfer
time with peers. Finally, and notwithstanding the above, maintenance works within centre sections of
Auckland’s single runway are required by 2028 - 2029 and this is not possible without operation of the
planned contingent runway, a project which is not operationally compatible with that of the existing
domestic terminal. Deferral beyond the planned start date for the Domestic Processor will therefore lead
to continued degradation of reliability, guest experience and other key metrics, a restriction of domestic
and regional airline growth, and significant risk to runway operations beyond 2029.
• Staging – The proposed Domestic Processor integrates closely with international terminal infrastructure
and will be built within an operational environment. Staging to deliver operational elements ahead of full
delivery is complex in this environment and inevitably leads to greater final cost. While some staging of
airfield elements (early commissioning of some stands) is anticipated, staging of terminal facilities is more
problematic and carries a greater risk of time and cost over-run.
• Scope reduction – The core scope of the Domestic Processor is fixed by the three principal anchors
described above – south location, north-south alignment, and integration to international. The current
design has been subject to numerous revisions and scope optimisation exercises since 2017. Further
significant reduction is not considered practical without changing fundamental requirements such as those
for a resilient and future proofed baggage system. Scope reduction opportunities were considered, and
some adopted, as part of workshops held with airlines in November 2022.
• Operational enhancement – The current domestic jet terminal has already been subject to significant
multi-party operational optimisation – this alternative is considered already in place.
• Do nothing – Do nothing will result in increasingly constrained airline growth and continued degradation
of processing times, guest experience, reliability, crown compliance and other key domestic operation
metrics. Furthermore through lack of a clear pathway to operation of the contingent runway, do nothing
also risks significantly compromising both domestic and international operations through an inability to
maintain central parts of Auckland’s single runway, undermining airport resilience. It would also limit
expansion pathways needed to deliver long-run capacity.
A-14
Constraints or
contingency
factors
• Contingent Runway Operations: The existing domestic terminal building position on the airfield, with
push back onto Taxiway Bravo, hinders the efficient operation of the airfield and prevents the effective
implementation of the contingent runway needed to maintain Auckland’s single runway (required by 2028
- 2029). Moving domestic jet operations to the domestic processor would unlock this constraint on efficient
contingent runway operations.
• Existing infrastructure: airfield requirements including necessary distance between operational piers
sets out the footprint of the integrated facility, the existing international terminal and landside access
network introducing hard constraints into the design process of the integrated facility.
The projects included within the Programme, including their aims and objectives are outlined in the table
below:
Projects
10 year
forecast
($m)
Details
Domestic
Processor –
Pier
674.7
A new full-service jet pier including all fixed link airbridges for 12 Code C stands (3 of which are
MARS E), gate lounges designed for 50% occupancy and bus lounge capable of servicing 2 Code
C aircraft. Space is also provided for airline operational facilities including offices and crew facilities.
Domestic
Processor –
Headhouse
1,030.2
The Domestic Processor Headhouse includes terminal space for passenger dwell and circulation,
amenities, food and beverage, and retail, a new domestic baggage arrivals hall comprising space
for three reclaim carousels of which two will be provided on opening, a dedicated domestic to
international transfer facility, a new domestic lounge facility, a new Individual Carrier System (“ICS”)
baggage processor providing primary sortation, screening, early bag storage and make up for both
domestic and international growth, and the necessary plant and equipment, and back of house
facilities required by airport stakeholders.
Domestic
Processor –
Apron (Airfield)
387.9
The Domestic Processor Apron delivers the 12 Code C stands (3 of which are MARS E), dual
mixed taxi-lanes on both sides of the new Domestic Pier, apron areas and associated apron
infrastructure such as aircraft docking systems, Ground Power Units, Ground Support Equipment
staging areas and charging points.
Total
Programme
2,092.8
A-15
4. Terminal Integration - Transport Hub
Aims and
objectives /
description
As part of the wider integration initiaitve the Terminal Integration – Transport Hub programme will deliver a
new multi-storey Transport Hub to service the integrated domestic and international terminal. While this project
will serve primarily as a commercial car park and as such be predominantly allocated to non-regulated assets,
the ground floor of the structure provides the primary public Public Pick Up Drop Off (“PUDO”) lanes and
associated pedestrian infrastructure. T
he elements of the project related to PUDO and pedestrian
infrastructure represent ~14% of the gross floor area of the Transport Hub and are fully allocated to regulated
activity.
In addition to the Transport Hub structure and PUDO other associated elements will be delivered through this
programme such as entry and exits roads to the facility, a pedestrian bridge between the Transport Hub and
the Integrated Terminal, office facilities for aeronautical related tenants and a dedicated area to house the
Airport Operations Centre (“APOC”).
The Transport Hub delivers:
• Capacity – This project will accommodate the long-term capacity needed for pick up / drop off volumes
resulting from domestic and international integration. The facility will have the redundancy and flexibility
to minimise congestion delays during peak periods or at times of incidents, and meet peak hour demands
while achieving a good level of service beyond 2033.
• Security - Including the PUDO in the Transport Hub unlocks additional capacity on the current inner
forecourt road for increased bus and taxi services will meet security offset objectives for unregistered
vehicles being at least 30 metres away from the terminal façade.
• Customer Experience - This project will result in an improved customer experience through a high
quality, covered environment adjacent to the terminal, improved wayfinding and direction with separate
lanes for drop off and pick up as well as digital wayfinding solutions, a more efficient design with pick up
and drop routes consisting of 3 lanes (a parking, browsing and drive through to improve efficiency). The
ultimate design includes a direct bridge connection for passengers in the transport hub into level 1 of the
international terminal, reducing travel time and improving customer safety by reducing risk of injury and
incident.
In addition, the Transport Hub structure will be used as the foundation for the construction of an office building
which will also house a purpose-built APOC. This will include a co-located Emergency Operations Centre
(“EOC”) and dedicated lettable office facilities. The offices reflect regualted activities as they are expected to
be tenanted by airline and other existing aeronautical tenants, allowing for existing tenancies in the terminal to
be relocated into the Transport Hub offices, and enabling the future upgrade and expansion of the existing
check-in area.
The delivery of the APOC will bring together the main airport partners, providing both a platform and location
for coordination. The project will also involve the fit-out of the APOC and EOC with relevant equipment including
real-
time monitoring systems to provide a fully integrated management of landside and airside airport
processes. Locating the APOC and EOC within the Transport Hub will provide a resilient location that
minimises any disruption in the event of a significant incident.
The primary drivers of the development of the APOC facility are to provide:
• common sharing of relevant operational data in a timely manner with appropriate prioritisation;
• a collaborative approach to operational management of the airport and risk assessment;
• consistent processes across all stakeholders delivering increased accountability;
• ability to continuously improve the airport operations; and
• identify the best solution to deliver these outcomes;
A-16
Process for
determining need
Similar to the assessments made for the Domestic Processor and wider Terminal Integration programme the
following factors were assessed and considered in determining the need for this programme:
• the 2014 Master Plan identified the pathway to long-run capacity growth at Auckland Airport, including
the optimal long-term location for domestic services in the south, after the closure of the existing Domestic
Terminal Building to enable the delivery of long-run capacity
• legacy infrastructure constraints to terminal integration were identified, this required development of
solutions to address these constraints while delivering the Integrated East terminal integration pathway;
• deliverability and disruption impacts of constructing infrastructure in a live operating environment while
passengers are using the airport were considered in the timing, sequence and approach of delivering the
holistic Terminal Integration Programme – the timing of the construction of the Transport Hub was brought
forward to minimise traveller disruption during a heavy period of construction.
• forecasts of future demand inform the design and capacity of the design of the Transport Hub including
pick-up drop-off (“PUDO”) areas.
• cost and scope optimisation – efficiencies have been delivered by integrating pick-up drop-off facilities
into the car park building and structure, it streamlines passenger journey pathways, and reduces the land
costs allocated to aeronautical activities as the land use is shared with the non-regulated activities
included in the Transport Hub.
Consumer
Engagement
Engagement with substantial airline customers on the Terminal Integration Programme includes extensive
consultation and engagement with airlines including (but not limited to):
• 2014: Master Plan
• 2017: Terminal Development Plan
• 2018-20: Domestic Jet Facility
• 2021: Paheko Consultation to identify Integrated East Terminal Pathway
• 2022-23: Capital Plan consultation
While the Transport Hub will not have been specifically consulted on throughout this process, the Terminal
Integration Programme which triggers the need for the Transport Hub has been. This engagement with airline
customers, including how airline feedback was considered and assessed throughout this process over many
years is set out in further detail in section section 3.2.3 of the disclosure commentaries.
Specific engagement on the Transport Hub has also been undertaken with airline customers through bilaterial
consultation, and the MACPAC consultation forum, and most recently the Capital Plan consultation over 2022
and 2023. The feedback receieved from Substantial Customers was considered in the context of the needs
identified, alternatives considered, and the constraints or contingency factors that exist.
Alternatives
considered
• The location of the Transport Hub was largely determined by the selected direction and timeline for the
development of the new integrated Domestic Processor, however alternatives for the actual design, layout
and how the Transport Hub would interface with the integrated terminal were considered. Security
considerations in the Airport design parameters call for a 30 metre security offset zone from the PUDO to
the front face of the terminal, based on International best practice as reaffirmed by the independent
security specialist who completed Auckland Airport’s recent Security Principals Peer review.
• Retaining the PUDO in its current location was considered but not adopted. The current curb length
for PUDO at the International Terminal is currently 170 metres, insufficient to provide for future growth in
international passengers, or for domestic passengers when the integrat
ed terminal is operational.
Expansion of PUDO in the current location would limit future expansion options for the terminal. The
Transport Hub provides for better passenger flows as well as improved pedestrian safety.
• Other locations at the back or the front of the Transport Hub were also considered but discounted.
Including PUDO inside the transport hub was considered to provide the best level of customer experience
relative to the cost of delivery, and allows for the most efficient use of scarce land proximate to the
terminal.
Constraints or
contingency
factors
• Location of new domestic terminal facility: the location of the domestic terminal facility was determined
through subsequent rounds of consultation and analysis and determined the location of the Transport
Hub
• Live operating environment – many of the projects within the holistic Terminal Integration Programme
will be delivered in a live operating environment and can cause significant disruption. The timing and
se quence of the programme has been developed to minimise disruption and cost of delivering this
brownfields infrastructure programme.
The total cost of the Transport Hub project is forecast to be $337 million in total, including non-regulated investment. Non-regulated
investment is not reflected in this document.
A-17
The projects included within the Programme, including their aims and objectives are outlined in the table
below:
Projects
10 year
forecast ($m)
Details
Transport Hub PUDO 53.21
The primary PUDO facility will be located under the core structure of the Transport
Hub and provide a weather-protected and well-lit environment for private and
commercial vehicles. A second PUDO will also be provided to the west of the
building, partially covered by pedestrian canopies. Only the PUDO components
of the Transport Hub project will be recovered through aeronautical charges.
This project will accommodate the long-term capacity needed for pick up / drop
off volumes resulting from domestic and international integration. The facility will
have the redundancy and flexibility to minimise congestion delays during peak
periods or at times of incidents, and meet peak hour demands while achieving a
good level of service beyond 2033.
Transport Hub - APOC &
Office 7 APOC Fitout
53.2
The Transport Hub structure will be used as the foundation for the construction of
a purpose-built Airport Operations Centre (“APOC”) including a co-located
Emergency Operations Centre (“EOC
”) and dedicated lettable office facilities.
The office facilities are non-priced and are expected to be tenanted by airline and
other existing tenants allowing for existing tenancies in the terminal to be relocated
into the Transport Hub offices and enabling the future upgrade and expansion of
the existing check-in area.
The delivery of the APOC will bring together the main airport partners, providing
both a platform and location for coordination. The project will also involve the fit-
out of the APOC and EOC with relevant equipment including real-time monitoring
systems to provide a fully integrated management of landside and airside airport
processes. Locating the APOC and EOC within the Transport Hub will provide a
resilient location that minimises any disruption in the event of a significant incident.
Transport Hub - Bridge West 17.1
This project delivers a pedestrian bridge joining level 1 of the Transport Hub with
the front face of the integrated terminal. This will provide a direct route to terminal
without need to cross inner terminal road for guest segments using upper levels
of transport hub. Both Level 1 and Level 2 will have direct access onto the bridge,
Level 2 via internal travelator down onto Level 1. Future-
proofed to service
potential future mass rapid transit located adjacent to the Transport Hub site.
Disaster Recovery Centre
(OCC + EOC)
40.3
The purpose of this project is to develop a specilist Disaster Recovery (‘DR’)
facility in the Transport Hub to provide a back-up Operationas Control Centre
(‘OCC’) and Emergency Operations Centre (‘EOC’) to provide overall resilence to
Operations in the event of an incident. This is primarily a PSE5 initiavie and the
project not fully scoped or costed at this stage.
Total Programme 163.5
A-18
5. Domestic Terminal Building Upgrades
Aims and
objectives /
description
The Domestic Terminal Building (“DTB”) is now a 50-year-old building, in operation since 1966, which has
been progressively expanded over time creating an amalgamation of different structures. The existing domestic
terminal building was consistently operating significantly over-capacity in 2019 and is expected to do so again
during 2024.
Prior to the pandemic, a new domestic terminal facility was forecast to be completed, open and operating in
2023. Now that timeframe has been deferred to 2028-29, meaning that the DTB will need to service all domestic
passengers for longer than was previously envisaged. The DTB Upgrade project will provide some renewal
and expansion necessary during the time taken to build the new Domestic Processor.
In order to operate all domestic services in the DTB over this time period, many of the building systems will
require renewal and/or upgrade to modern standards to remain in service through to this time. In addition key
guest facing parts of the building such as bathrooms and helpdesks are dated and no longer fit for purpose.
Furthermore, certain elements of the DTB will reach their technical capacity before 2028-29, that will result in
a deterioration of the customer experience if not addressed. These include the current Pick-up and Drop off
(“PUDO”), as well airfield stands. The DTB upgrades programme will:
• upgrade key building systems that are end of life such as fire, vertical transportation, HVAC, electrical
and water are able to accommodate operations and maintain building code compliance through to 2030,
to maintain a resilient and safe terminal operation;
• refresh critical guest facing areas are to a modern standard;
• where required, upgrade capacity of DTB PUDO so it is able accommodate forecast traffic through to
2030;
• ensure sufficient airfield capacity (aircraft stands) exists to manage growth and disruption due to airport
campus construction.
Process for
determining need
The following factors were assessed and considered in determining the need for this programme:
• Medium-term capacity: As a result of the delays due to the pandemic, the new Domestic Processor is
not scheduled to open until 2028-29, meaning the DTB will need to remain operational for longer. Based
on demand forecasts, pick-up and drop off, landside and airside dwell, check-in, baggage processing and
reclaim will be at or beyond current capacity.
Crown domestic and regional security upgrade
requirements, expected to come into force before 2028 will significantly exacerbate the capacity issues.
Constrained airport capacity would risk significant increases in airfares paid for by passengers.
• Long-run capacity: The Auckland Airport Master Plan envisages future airfield in the current location of
the Domestic Terminal Building, meaning its current location acts as a constraint on long-run growth. The
upgrades reflect this by targeting medium-term needs only, and where possible making investments that
provide enduring long-run value. Constrained airport capacity would risk significant increases in airfares
paid for by passengers.
• Compliance: The core of the domestic terminal building is 57 years old, well beyond its design life and
increasingly uneconomic to maintain. The works will upgrade key building systems such as fire, vertical
transportation, HVAC, electrical and water are able to accommodate operations and maintain building
code compliance through to 2030.
• Customer experience: Key guest facing parts of the building such as bathrooms and helpdesks are
dated and no longer fit for purpose. This has been reflected in feedback direct from passengers.
• Cost and scope: the scope of the works has been determined to provide at a minimum, a safe and
compliant facility sufficient to meet the expected needs until the Domestic Processor is due to open, while
addressing key customer experience feedback on the existing facilities
Consumer
Engagement
The engagement with airline customers on Auckland Airport’s capital plan has been extensive, and is set out
in further detail in section section 3.2.3 of the disclosure commentaries. Specifically for the DTB Upgrades
programme, these works have been included in the 2022-23: Capital Plan consultation process. Airline
feedback received through this consultation process was considered in finalising the capital plan. The
feedback receieved from Substantial Customers was considered in the context of the needs identified,
alternatives considered, and the constraints or contingency factors that exist.
A-19
Alternatives
considered
• Deferral: Deferral will mean that elements of the building become unable to accommodate passengers
and/or no longer meet building code requirements, that guest experience and travel time predictability
continue to deteriorate, and that domestic and regional capacity is constrained or at worst reduced from
the mid 2020’s
• Staging: The DTB Upgrade project has been staged to minimise operational disruption. This alternative
is considered in place.
• Operational enhancement: The DTB has already been subject to significant multi-party operational
optimisation. This alternative is therefore considered to be in place;
• Do nothing: do nothing will result in a significant deterioration of guest experience, and compromise both
domestic and regional capacity and building code compliance.
Constraints or
contingency
factors
• Contingent Runway Operations: Building position on the airfield, with push back onto Taxiway Bravo,
hinders the efficient operation of the airfield and prevents the effective implementation of the contingent
runway needed to maintain Auckland’s single runway (required by 2028 - 2029). The current situation
with the domestic terminal means that sustained terminal and airfield expansion is no longer practicable.
• Domestic Processor Construction: Without the construction of a new Domestic Processor, domestic
airline growth will continue to be restricted and reliability, guest experience and other key metrics
negatively impacted. However for many of the factors described above, this will provide a time limited
solution which only partially addresses the core need.
• Construction in operational environment: the DTB upgrades programme will be delivered while the
DTB remains in operation and servicing passengers, sequencing and staging of the works has been
developed to minimise disruption for passengers, and all airport users including staff, while works are
underway. Undertaking these works in a facility that is close to full capacity further compounds these
challenges.
The projects included within the Programme, including their aims and objectives are outlined in the table
below:
Projects
10 year
forecast ($m)
Details
Existing DTB works 60.0
Given its age, ongoing use of the DTB requires capital works to ensure
capacity, resilience and code compliance of the building. Works include
roof replacement, fire, HVAC and electrical systems, as well as upgrading
of DTB roading and transportation.
In addition, there are a number of areas where passenger experience will
be improved including upgraded toilets, wayfinding and dwell areas, and
more variety of F&B and retail offerings (non-regulated investment).
DTB PUDO 17.9
Expansion of existing DTB pick-up drop-off (“PUDO”) to meet demand
through to Domestic Processor opening, improve safety, and to manage
disruption from stands and airfield project including re-grading of ground
contours, and realignment of existing service utilities. Final scope of
project to be determined.
DTB Stands and airfield 65.3
Additional airfield capacity for turboprop or jet aircraft to meet forecast
demand during construction of the Terminal Itnegration Programme. This
capacity will have long-run enduring value, by being aligned to service
the future position of Pier A3. This will provide capacity for an additional
3 Code C jets or 4 turboprop aircraft.
Other DTB upgrades < $5m 5.1 Other minor projects as part of the DTB Upgrades programme
Total Programme 148.3
A-20
6. Aeronautical Programme
Aims and
objectives /
description
The aims of the aeronautical programme are to deliver specific projects that meet a varied number of needs
required by the aeronautical business, to ensure that aeronautical operations at Auckland Airport meets
operational, capacity, customer experience and compliance requirements.
Process for
determining need
Projects within the aeronautical programme have been developed based on needs that vary from project to
project, these include:
Compliance: identifying the infrastructure required to meet compliance requirements is particularly important
given the significant changes that are taking place at the airport. Compliance examples include new airfield
infrastructure that is being delivered driving the need for a new AES station so response times can be met,
and so remote apron control tower can service these new facilities. Pier A reconfiguration also meets Avsec
compliance CT requirements for the screening of transit passengers.
Sustainability targets: the Pier A Reconfiguration project decarbonises major gas plant servicing Pier A.
Operational efficiency: the reconfiguration of Pier A will better balance capacity for passengers and staff
within the existing space, increasing operational efficiency without expanding the building envelope. The fuel
project will allow fuel line maintenance without the need to close multiple aircraft stands.
Demand: Fuel capacity is being increased, and facilities for ground support equipment GSE are being
developed to meet the needs the airport infrastructure as it evolves. Fuel projects are matched to phases of
airport capacity expansion. The Pier A reconfiguration will better meet growing demand for space in the
international terminal, as well as providing a necessary increase in transit passenger processing capacity.
Resilience: All projects provide more resilient infrastructure with the fuel projects in particular providing a
significant uplift through the removal of dead end lines which can only be supplied from one end.
Cost and scope: scope and cost have been based on the minimum requirements to provide required
benefits. For example the Pier A Reconfiguration project provides expanded transit capacity, and a level of
uplift in efficiency and customer experience bounded by the existing building footprint, thus avoiding costly
building envelope extensions.
Consumer
Engagement
The engagement with airline customers on Auckland Airport’s capital plan has been extensive, and is set out
in further detail in section section 3.2.3 of the disclosure commentaries.
Specifically for the Aeronautical Programme, projects in this programme that are recovered through
aeroanutical prices have been included in the 2022-23: Capital Plan consultation process. Airline feedback
was received through this consultation process at a number of different stages, and was considered in finalising
the capital plan. Consultation on some projects has commenced and will continue, including the options for the
Regional Solution. The feedback receieved from Substantial Customers was considered in the context of the
needs identified, alternatives considered, and the constraints or contingency factors that exist.
Alternatives
considered
Do nothing: projects such as the expansion of transit capacity, the remote apron control tower, the fuel ring
mains and decarbonisation are essential compliance / resilience requirements for which do nothing is not a
credible alternative.
Operational solutions: Operational solutions are already considered in place for the operation of Pier A,
which is recognised as undersized infrastructure for the volume of passengers that it carries. Operational
alternatives to fuel lines are not feasible for the ring main projects where these service Code E aircraft.
Where they service Code C aircraft, operational solutions such as tankers contribute to airfield congestion
and less reliable aircraft turn around times.
Staging: The fuel projects are staged to meet only the demand derived from new airfield infrastructure.
Likewise for the AES and Remote Tower facilities. Pier A Reconfiguration is staged to deliver essential
services (i.e. transit compliance) requirements first.
Constraints or
contingency
factors
Construction in operational environment: the Pier A Reconfiguration and fuel projects will be built within a
live operational environment and sequencing and staging of the works has been developed to minimise
disruption for passengers and aircraft while works are underway.
Building envelope: the extent of the Pier A Reconfiguration project has been constrained by the limits of the
existing building envelope as expansion beyond would exponentially increase the cost without a similarly
large increase in benefit.
A-21
The projects included within the Programme, including their aims and objectives are outlined in the table
below:
Projects
10 year
forecast ($m)
Details
Pier A Reconfiguration 63.4
The Pier A reconfiguration project seeks to meet changes to mandated Avsec security
requirements, and to provide upgrades to the current Pier A layout to address several
known issues.
Avsec requires new screening equipment to be in place in the international transfer
security screening area. Facility for contactless technology will be installed and the
upgrades will provide enhanced amenity for travellers with refreshed finishes and
sufficient capacity for international transfer screening to FY28.
The Pier A upgrades will deliver an enhanced passenger experience through more
balanced use of existing floorplan. This will better optimise standing, seating,
throughfare, wayfinding and queue management within the current internal area. This
will provide a better balance of space usage and is targeted to meet 50% seating call-
to-gate area requirements. It will also deliver better air circulation and decarbonised
heating supply saving ~500 tonnes of carbon per year (10% of total scope 1 & 2
emissions).
Remote Apron Control
Tower
12.1
Adaptations to the Remote Apron Control Tower are proposed to address several
capacity related needs associated with the expansion of Pier B stands and Taxiway
Mike. The specific scope of this project will be developed in conjunction with the
design for the northern remote stand and Pier B expansion. The targeted outcome of
this project will be driven by meeting compliance requirements in regard to the safe
operational management of aprons.
New AES Facility 35.8
The proposed Stage 1 airfield developments in the vicinity of Pier B triggers the
requirement to develop a new AES facility in a more centralised airfield location from
which response compliance times can be met with final specifications dependent on
the ultimate airfield layout and targeted response times.
Additional AES Appliances
& Equipment for new
Station
8.0
This project is for the fit-out of the new AES station that is triggered by the additional
Pier B stands.
Regional Solution 357.8
This project reflects an allowance for investment in new facilities to service regional
passengers. The need, scope, and timing of this project remains subject to further
development and consultation with airline customers.
Fuel Compliance Stage 4
(2022-2024)
8.4
The Fuel Network is operated under a certificate of fitness (“COF”). This project is
the final stage of a multi-year programme Auckland Airport has undertaken maintain
system integrity and meet these ongoing certification requirements for the airports fuel
network, and the integrity of fuel pipelines.
Jet Fuel Ring Main Phase
1 (2024 to 2028)
34.9
Ring Main Phase 1 is an enabler for the Domestic Processor and Taxiway Mike and
Pier B North Stands projects, providing fuel mains to hydrants associated with these
projects. The project also creates a closed ring to existing hydrants served by dead
end legs, hence significantly improving system resilience and maintainability.
Jet Fuel Ring Main Phase
2 (2031 to 2033)
17.0
Ring Main Phase 2 provides fuel mains to the future Northern Runway, Pier C and
the eventual expansion of International dwell between Pier A and B. As such the
majority of cost sits beyond PSE5.
Jet Fuel Ring Main Phase
3 (2032 to 2035)
37.7
Ring Main 3 provides fuel mains to future regional piers, as well as creating part
connection to the future relocation of JUHI, currently planned east of the airfield. A
significant component of this cost sits beyond PSE5.
Jet Fuel Ring Main Phase
4 (2032 to 2035)
112.9
Ring Main 4 provides a dual fuel main connection from future regional piers to the
future JUHI. Although the majority of this work sits beyond PSE5, some costs are
forecast within PSE4 in order to place sections of the main which will lie beneath the
widened Taxiway Bravo (widening of TWY Bravo is necessary to operate the
Contingent Runway.
New GSE Maintenance
Facility
20.4
The new Ground Support Equipment (“GSE”) maintenance facility project is
triggered by terminal development activity and requires the relocation of GSE
maintenance services to new facilities and this project will deliver the new dedicated
GSE facilities. While this is a regulated activity, it is not recovered through priced
regulated passenger or aircraft charges.
A-22
Projects
10 year
forecast ($m)
Details
Second Runway -
preparing for long-term
demand
22.1
Spend over the next decade forecast reflects planning and meeting current consent
requirements for the potential future second runway. This spend safeguards for the
Master Plan envisaged runway, as further work is undertaken to determine the need
and likely required timing of a second runway. Pre-
pandemic, the project was
expected to be required by 2032. Post-pandemic timing is subject to more detailed
analysis and consultation.
Other aeronautical
projects < $5m
7.1 Other minor projects as part of the aeronautical programme
Total Programme 737.8
7. Contingent Runway
Aims and
objectives /
description
Auckland Airport is a single runway airport. For the airport to operate, a contingent runway is necessary where
the main runway is unavailable for any reason. Having an operational contingent runway at Auckland Airport
would:
• allow the airport to remain open while major work (including asset renewals) is completed on the main
runway. These renewals are critical for resilience and for the runway to continue to be operated safely.
Renewals will be required on the centre of the runway which are not possible to complete while it is in
operation;
• provides emergency resilience for main runway operations;
• upgrades infrastructure to improve safety and meet current regulatory requirements e.g. runway lighting
for night operations, Runway End Safety Areas (“RESA”) and stop bars to prevent runway incursion.
This project involves a staged approach to re-establishing a contingent runway on Taxiway Alpha which is
safe, reliable and fit for purpose. The Contingent Runway project will deliver:
• a joint industry safety case for infrastructure and contingent runway development and operations concept,
reviewed by the Civil Aviation Authority (“CAA”);
• Contingent RESA construction and upgrade,
• full replacement of contingent runway edge, approach lighting and Precision Approach Path Indicator
(“PAPI”);
• new signage and contingent runway marking plans, stop bars and equipment;
• approach procedure design and publication;
• realignment of sections of Taxiway Bravo to enable more capacity and improved traffic flow during
contingent runway operations; and
• realignment of the perimeter road adjacent to the realigned section of Taxiway Bravo.
Process for
determining need
The following factors were assessed and considered in determining the need for this programme:
• Airport resilience: a fully compliant and operational contingent runway will provide emergency resilience
if main runway operations are impacted – airport resilience is highly valued and integral to operating the
airport.
• Compliance: The assets associated with the existing continent runway do not meet current regulations
and investment is required to re-establish a functional contingent runway. Since 2006, there have been
changes to procedures for the use of a contingent runway and permittable movements have increased
from 30 in 2006 to 40 per hour and simultaneous movement of Code E aircraft on taxiway and contingent
runway is now allowed.
• Main runway renewals: Because the runway is concrete, renewal work requires shutdown for significant
periods (in the order of months), compared to more common asphalt runways where works can be
undertaken overnight. A contingent runway was last operated for main runway renewals in 2006. The
latest assessment indicates further renewals will be needed by 2028. These renewals will ensure that
runway pavements remain operational and safe for use over the long-term.
Consumer
Engagement
The engagement with airline customers on Auckland Airport’s capital plan has been extensive, and is set out
in further detail in section section 3.2.3 of the disclosure commentaries.
Specifically for the Contingent Runway, this project has been included in the 2022-23: Capital Plan consultation
process. Airline feedback was received through this consultation process at a number of different stages, and
was considered in finalising the capital plan.
The feedback receieved was considered in the context of the needs identified, alternatives considered, and
the constraints or contingency factors that exist.
A-24
Alternatives
considered
• Deferral: The proposed commissioning of the contingent runway in 2028 is driven by pavement condition
and the forecast need for renewal of infrastructure on the centre sections of the main runway, as well as
the need to mitigate the risk of runway closure due to an incident. Deferral carries an unacceptable level
of risk of unplanned runway closure.
• Rapid set concrete: use of rapid set has been investigated as a solution to main runway renewals on
several occasions. When considered, the technology remains unproven for the context in this situation,
for a large-scale replacement of pavement on a main runway. It has been prone to cracking and early
removal, and its design life remains unquantified and unproven. For these reasons rapid set concrete is
not considered to be a viable option for the main runway upgrades required at Auckland.
• Operational enhancement: There are no effective operational solutions which would not severely restrict
airport operation by reducing operational capacity through either number of aircraft, or type of aircraft (or
both) that can use the airport. A displaced threshold is incompatible with the location of the required main
runway renewals.
• Second runway: The delivery of the Second Runway would avoid the need to deliver an operating
contingent runway, however timing and delivery of the second runway remains uncertain. To avoid
investment in the Contingent Runway the Second Runway project would need to be activated and
delivered as soon as possible.
• Do nothing: Given that Auckland has a single runway and the uncertainty of when a second runway
would be available at Auckland Airport, taking no action to re-activate the contingent runway presents an
unacceptable risk.
Constraints or
contingency
factors
• Main runway renewals: The proposed timing (commissioning in 2028) is driven by current pavement
condition assessments (which will continue to be reviewed), and the expected need for future renewal of
infrastructure on the centre sections of the main runway Deferral carries a high risk of unplanned runway
closure due to asset deterioration, and associated safety risks.
• Increased traffic volumes: Since 2006 the volume of aircraft has increased materially since the
Contingent Runway was last operated, and aircraft have gotten larger. Previous contingent runway
operations would significantly reduce the available capacity airfield capacity without the realignment of
taxiway bravo. Constrained airport capacity would risk significant increases in airfares paid for by
passengers.
• Domestic Terminal Building: current location of the DTB significantly impacts on the capacity of
contingent runway operations – contingent runway capacity is maximised when domestic jets are no
longer operating from the DTB. Constrained airport capacity would risk significant increases in airfares
paid for by passengers.
• Limits to ‘shutdown’ periods: A key constraint is that Auckland Airport operates with limited runway
shut down periods during the week which constrain the amount of work that can be performed.
The projects included within the Programme, including their aims and objectives are outlined in the table
below:
Projects
10 year
forecast ($m)
Details
Contingent Runway 137.2
Auckland Airport is a single runway airport, and requires a contingent runway when
the main runway is not available to continue operations. This project involves a staged
approach to re-establishing a contingent runway on Taxiway Alpha which is safe,
reliable and fit for purpose.
A-25
8. Roading Programme
Aims and
objectives /
description
There are two major roading programmes within the overall Auckland Airport roading programme, the
South-Eastern Access Programme, and the Eastern Ring Route Programme.
South-Eastern Access Programme:
The South-eastern Access Programme addresses the need to accommodate forecast traffic growth utilising
southern access routes to the airport. The programme also addresses the need to support the use of public
transport, high occupancy vehicle (HOV) usage, mass rapid transit and pedestrian, cycling, and recreational
activities. The programme also mitigates traffic congestion and construction disruption through the provision
of a direct connection from remote parking located at Park and Ride South.
The programme addresses the need through projects staged to economically maintain acceptable road user
levels of service and to interface with other development works.
Eastern Ring Route Programme:
The Eastern Ring Route (“ERR”) Programme addresses the need to accommodate forecast traffic growth
utilising both northern and southern access routes to the airport. The programme also addresses the need to
support the use of public transport, mass rapid transit and other means of land transport.
The programme addresses the need through projects staged to economically maintain acceptable road user
levels of service and to interface with other development works. These projects are Master Plan aligned, and
hold enduring value to ensure the roading network remains fit for purpose, including future-proofing for impacts
of a potential future second runway on the airport roading access network.
Process for
determining need
• Forecast demand and resulting travel time: Projections of future travel times into and out of the airport
is made based on forecast growth, projects are developed so these parameters remain within acceptable
thresholds for all transport modes.
• Modal shift: Public transport, HOV usage, mass rapid transit and shared user activities are supported in
the development of the airport roading network in alignment with the New Zealand Government Policy
Statement on land transport. Remote parking, to reduce pressure on the traffic network, is encouraged
through effective connections.
• Resilience: Road user safety and network resilience is improved by increasing capacity that provides
alternative routes and means of transport for airport users
• Disruption: Traffic disruption associated with the full airport development programme is considered in
the development programme, and is minimised.
• Long-term value: Roading projects are developed to ensure that they are aligned to the Master Plan,
and aligned to its land use. Programmes are also aligned to the Auckland Airport 2018 Integrated Concept
Transport Masterplan. Core underground
utility corridors needed to support future development are also
provisioned in these projects.
• Cost: the cost of roading developments is considered to ensure projects provide value for money,
programmes are broken up into stages of different projects so they can be delivered progressively, and
staged over time. Auckland Airport’s transport network is a complex system and modelling is ongoing to
refine the timing, scope and operational parameters of these roading development programmes.
Consumer
Engagement
The engagement with airline customers on Auckland Airport’s capital plan has been extensive, and is set out
in further detail in section section 3.2.3 of the disclosure commentaries.
Specifically for the Roading Programme, this project has been included in the 2022-23: Capital Plan
consultation process. Airline feedback was received through this consultation process at a number of different
stages, and was considered in finalising the capital plan.
The feedback receieved was considered in the context of the needs identified, alternatives considered, and
the constraints or contingency factors that exist.
A-26
Alternatives
considered
• Deferral: Can reduce road user level of service to unacceptable levels, increase travel time and
decreased reliability of transport to the airport. Parts of the roading network are already congested during
peak times. These impacts have been weighed against other considerations including cost in developing
the programme.
• Staging: Opportunities have been considered and where appropriate adopted, for example the staged
delivery to achieve enhanced traffic capacity to the terminals via widening of Lawrence Stevens Drive
and Tom Pearce South by 2024 under the Lawrence Stevens Stage 1 project, ahead of potential
subsequent stages that may be required over the medium-term.
• Operational enhancement: Auckland Airport maintains continuous coordination with the Auckland
Transport Operations Centre (“ATOC”
) to jointly identify and actively manage the network using
operational means. Likewise, the South-eastern Access programme facilitates Park and Ride which will
operationally reduce demand on the network. Finally, the programme seeks to facilitate mode shift to
mass transit with the provision of dedicated lanes and corridors. This alternative is therefore considered
to be in place.
• Do nothing: Results in an unacceptable level of service and travel time to and from the airport for road
users.
Constraints or
contingency
factors
• Disruption: Roading upgrades need to be delivered while the airport remains in operation and this
influences the shape of the roading programme. For example by requiring capacity uplifts on minor
alternative routes, before disruptive working on major arterials commences.
• Master Plan: the Auckland Airport Master Plan sets out future land use, this sets out the constraints to
which the roading network is to be developed, as to not compromise future airport development, or deliver
projects that do not optimise long-run value. For example, second runway, future mass rapid transit.
• Through-traffic: Auckland Airport’s roading network forms part of the broader Auckland road network,
which includes servicing through traffic not using the airport directly, that adds to demand and required
capacity which needs to be delivered
A-27
The projects included within the Programme, including their aims and objectives are outlined in the table
below:
Projects
10 year
forecast ($m)
Details
South-Eastern Access
Lawrence Stevens Drive
Stage 1
44.4
This project widens sections of Puhinui Road and Lawrence Stevens Drive from the
western abutment of Pukaki Bridge to the Carpark M entrance near the Domestic
Terminal Building. This provides a high occupancy vehicle (“HOV
”) lane in the
westbound direction, as well as signalising the intersection at Hape Drive/ Puhinui
Road/Tom Pearce.
Rehabilitation to existing pavement and provision of utility
infrastructure is also included. This will increase roading capacity to the airport
through additional lanes and more efficient intersections.
South-Eastern Access
Lawrence Stevens Drive
Stage 2
62.5
This project re-aligns the current western end of Lawrence Stevens Drive to a new
signalised intersection with Ogilvie Cres and George Bolt Memorial Drive and, the
widening of George Bolt Memorial Drive at the intersection of the new Lawrence
Stevens Drive. The realignment of Lawrence Stevens Drive is future-proofed for future
aeronautical development of domestic and regional capacity. This increases capacity
of the roading network that provides access to the existing terminals, including the
future intergrated terminal, and resilience for other roads that carry airfield traffic.
Eastern Ring Road
Te Kapua Drive extension
1.4
This project will allow for the closure of the intersection of Ihumatao Road with George
Bolt Memorial Drive (“GBMD”) to enable the safe operation of the Public Transport
improvements (high occupancy vehicle and bus lanes) delivered as part of the
Northern Network upgrades along GBMD.
The relevant area of land is within the Airport designation and specifically the area
required for the second runway. An alternative and safer connection between
Ihumātao Road and GBMD is to be created via the Te Kapua Drive extension. Once
completed, this connection would enable traffic to be diverted onto Te Kapua Drive to
access Ihumatao Road enabling full median closure on GBMD and future full closure
of the eastern extent of Ihumatao Road once the landing intersection is upgraded. A
traffic impact assessment to the Landing Drive intersection will be key in confirming
the viability of this option.
Eastern Ring Road
Te Ara Korako (“TAK”) 2
Lane
20.3
Formerly a component of the ‘Northern Network’ project completed in 2022, this
element of roading was placed on hold as a result of Covid. The TAK project will
complete the first stage of a critical east-west link which will alleviate traffic on core
roads accessing the terminals, add resilience to the entire airport road network, and
allow time to develop the larger and more complex ERR North project. This project
will deliver a new four-lane road connecting GBMD to Nixon Road in the east and two
new signalised intersections.
Eastern Ring Road
Auckland Airport Surface
Access Network Design
31.0
The purpose of this project is to deliver the holistic design of the Auckland Airport
Surface Access Network including the Eastern Ring Road, Public Transport Corridors
and Southeastern Access including preliminary design of a new Puhinui Bridge.
Given the interdependencies with the wider Auckland transport network and
interfaces with overall development of the Auckland Airport campus a holistic design
of the transport network is required to be undertaken which is the purpose of this
project.
Other roading projects <
$5m
4.3
These costs relate to final project costs for the Northern Network transport project
which delivered upgrades to George Bolt Memorial Drive and the new Terminal Exit
Road. This project was primarily completed in PSE3 and PSE4 costs only relate to
minor activity involved in winding down the project.
Total Programme 163.9
A-28
9. Utilities Programme
Aims and
objectives /
description
The purpose of the Utilities Development programme is to either increase the capacity of existing utility
networks such as electricity or water or to introduce new functionality to existing networks such as airside
electric vehicle charging facilities or wastewater recovery systems across the airport precinct.
This programme will play in important role in decarbonisation across the airport precinct, safeguard aginst
climate change with greater resilience by investing in stormwater infrastructure, and meet the needs of utility
users across the airport precinct.
Process for
determining need
The needs of the utilities programme are based on a variety of factors including:
User demand and service provision: forecast demand requirements and resilience of existing
infrastructure across the airport precinct for utilities infrastructure including fibre, business technology, and
electricity.
Contribution to decarbonisation: projects have been identified that can reduce carbon emissions (e.g.
replacing gas in the international terminal building) in order to meet Auckland Airport’s net zero target by
2030.
Climate change resilience: The recent flood event at Auckland Airport has underlined the need to ensure
that airport operations are resilient to climate change – projects have been identified to increase stormwater
capacity address this need.
Cost optimisation: Opportunities to avoid operational costs through investment have informed the
development the water recovery development project, to avoid increased charges from Watercare.
Consumer
Engagement
The engagement with airline customers on Auckland Airport’s capital plan has been extensive, and is set out
in further detail in section section 3.2.3 of the disclosure commentaries.
Specifically for the Utilities Programme, this project has been included in the 2022-23: Capital Plan consultation
process. Airline feedback was received through this consultation process at a number of different stages, and
was considered in finalising the capital plan.
The feedback receieved was considered in the context of the needs identified, alternatives considered, and
the constraints or contingency factors that exist.
Alternatives
considered
Reduce scope: the need and scope of each individual project is informed by a number of factors including
need. In some cases, projects have been deferred or amended through this process, which has resulted in a
reduction of the previously planned scope of this programme. This alternative is already reflected in the
programme.
Do nothing: the utilities programme addresses a number of identified needs across the airport, service levels
would decline, airport resilience would deteriorate, and sustainability objectives would not be met.
Constraints or
contingency
factors
Existing infrastructure: the utilities programme is developed in response to the existing infrastructure
capacity on airport – the programme has been developed within that context.
A-29
The projects included within the Programme, including their aims and objectives are outlined in the table
below:
Projects
10 year
forecast ($m)
Details
Decarbonisation ITB
HVAC and Water Heating
6.3
The replacement of gas as a source for terminal heating is required to meet the
airport’s commitment to net zero carbon emissions by 2030. This project will deliver
the partial retirement of gas boilers feeding Pier B leading to a circa 500 tonne
reduction in annual carbon emissions. Specifically this project will install a 500 kW ‘4
pipe’ Air Source Heat Pump adjacent to Plant Room 3A.
Campus Fibre
Diversification
8.4
The core objective of the programme is to provide diverse and resilient fibre
connections to the existing International Terminal Building and the wider airport
campus. Fibre connections are critical for communications and operations. Improved
diversity, resilience, and security of Auckland Airport’s fibre connections will reduce
the risk of campus wide outages, such as occurred in January 2019. Other key
benefits include:
• Modernising Auckland Airport infrastructure for growth and expansion for current
and future demand as technology becomes a larger and even more critical
component of operations and experience;
• Minimisi ng fibre network outages/disruption and meeting business recovery and
continuity objectives, especially relating to the business continuity plan;
• Providing Auckland Airport and tenants with faster fibre bandwidth; and
• Enabling future Internet of Things, automation, and self-service platforms to
support efficiency, sustainability and guest experience.
ITB Flood Alleviation
Secondary SW Trunk
11.4
The purpose of this project is to provide additional stormwater discharge capacity
(with shorter distance to coast) downstream of the ITB and DTB, to alleviate flooding
of the upstream network.
Storm Water Capacity
Development
11.0
The purpose of this allowance is to fund discrete projects that increase the capacity
or reach of the existing stormwater network which are below the threshold for
specific disclosure. Examples of the types of projects it covers include development
of new sub-catchments to reduce demand on the primary stormwater network,
provision of increased attenuation capacity and upgrades to force diversion of flows
from the ITB forecourt to the western coast.
Water Recovery
Development
12.1
Development of a wastewater recovery facility on the Northern end of the old Cargo
Central site to allow the waste from the adjacent pumping station to be captured and
processed. The recycled water would be returned to the terminal via the recycled
water network already provisioned within the utility service trenches and be used for
WC flushing. The requirement for this project is avoid infrastructure growth charges
from Watercare to cater for increased water and waste from the development of new
facilities.
Business Technology
(“BT”) Capacity
Development
14.6
This allowance will primarily be used to fund the replacement of the Core and Edge
network switch infrastructure which will reach end of life and without intervention
become unsupported. This infr
astructure underpins the operation of Auckland
Airport’s digital networks which are used by the company, its tenants and passengers
and ensuring the resilience and security of these systems is considered paramount.
Due to the age of the current infrastructure maintaining the core and edge switches is
becoming increasingly challenging with repeated upgrades required to address
security vulnerabilities.
Electricity Network
Development
6.3
The purpose of this allowance is to fund discrete projects that increase the capacity
or reach of the existing electricity network which are below the threshold for specific
disclosure. Examples of the types of projects it covers include the full replacement of
the 11kV switchgear in Power Centre 21.
PC Intake 3rd Transformer 6.3
The installation of a third transformer at the primary airport power centre (PC Intake
A) to increase the available electrical power capacity to campus and involves the
installation of a third transformer via a third 33 kV cable giving a total of 50MVA
capacity. The requirement for this project is to enable future demand growth in power
consumption across the campus.
Other utilities projects <
$5m
5.5
Total Programme 81.9
A-30
10. Renewals – airfield pavement and ground lighting
Aims and
objectives /
description
There are two major elements to the Renewals – airfield pavement and ground lighting programme. Airfield
pavement renewals reflect an ongoing programme of pavement renewals, whilst airfield and gruond lighting
renewals are for assets recently acquired by Auckland Airport from Airways.
Pavement Renewals
Concrete pavements typically have a circa 30-year life and asphalt a 15-year life. With over 23,000 concreate
slabs and 600,000 m
2
of asphalt on the airfield, a continuous program of renewals is required to maintain
pavement integrity.
The aims and objectives of the pavement renewals programme include:
• improved reliability of airfield pavements, reducing interruptions caused by pavement defects;
• reduced maintenance costs resulting from renewals;
• capture of opportunities to improve underground services, airfield ground lighting etc. within works areas;
• make the most of opportunities that are presented while renewal works are undertaken, for example to
progressively realign Taxiway Bravo to Contingent Runway alignment where relevant to work area, or to
enhance taxiway capability for larger aircraft types and optimise network where relevant to work area;
• ensure that the airfield continues to be operated safely by ensuring essential infrastructure is resilient and
safe.
Airfield Ground Lighting
For several decades, Airfield Ground Lighting (“AGL”) had a mixed ownership model, where in simple terms,
Airways has owned own the runway lighting and separately, Auckland Airport owned the apron and taxiway
lighting.
Recently, Auckland Airport has now acquired the AGL assets. Taking ownership of the AGL assets allows
Auckland Airport to have better control over the maintenance of the airfield system and ensures that capital
planning is aligned and planned with other project interfaces such as pavement renewals. The purchase of the
existing AGL equipment from Airways NZ is excluded from this programme.
Activity in this programme primarily involves renewal activity of existing AGL equipment and supporting
infrastructure, to ensure it is compliant, resilient, and remains fit for purpose. As an airport operator AIAL is
required to provide AGL which complies with CAA regulations and therefore renewal activity is required.
Renewals works will ensure ICAO/CAA compliance requirements related to cable condition are met, and that
renewal of light fittings and other equipment keeps the equipment up to date and provides better system
resilience.
Process for
determining need
Pavement renewals
The program of airfield pavement renewal works is based on:
• the advice of external experts;
• reducing unplanned closures and pavement defects;
• the output of annual inspections; and
• expert computer analysis using forecast aircraft loading.
These processes and data analysis track and forecast deterioration, ultimately informing priorities for pavement
renewal.
Airfield Ground Lighting
The AGL renewals investment has been determined based on the following factors:
• condition assessment to determine where assets are uneconomic to maintain and require renewal.
• photometric and torque measuring equipment will be used for monitoring of airfield visual assets and
ensure they are operated above CAA regulations.
• when assessing individual AGL renewals the implications of potential solutions are considered with regard
to lifecycle cost, risk reduction, and any opportunity to align delivery to other projects in similar areas of
the airfield to minimise disruption
A-31
Consumer
Engagement
The engagement with airline customers on Auckland Airport’s capital plan has been extensive, and is set out
in further detail in section section 3.2.3 of the disclosure commentaries.
Specifically for the Contingent Runway, this project has been included in the 2022-23: Capital Plan consultation
process. Airline feedback was received through this consultation process at a number of different stages, and
was considered in finalising the capital plan.
The feedback recieved was considered in the context of the needs identified, alternatives considered, and the
constraints or contingency factors that exist.
Alternatives
considered
Pavement Renewals
• Deferral: deferral of pavement renewal is sometimes considered, especially where it makes sense to
align with other interfacing projects, and the renewal can be deferred safely. Although this can increase
maintenance opex, construction costs can be reduced and operational impacts can also be minimised.
• Operational solutions: An operational solution has been applied for the last 15 years, where Airways
has agreed to limit Code E (heavy) aircraft from using Taxiway B. This limitation for Code E aircraft has
extended the life of Taxiway B significantly (where slabs to be replaced were constructed as far back as
1964). Generally, exemptions have only been applied for short durations when there is work in progress
on Taxiway A and there is no alternative.
Airfield Ground Lighting
• Do nothing: this is not considered a viable alternative, AGL assets are essential for airport operations,
and compliance requirements necessitates the renewal of these assets.
• Deferral: Auckland Airport has carried out extensive due diligence on AGL assets transferred from
Airways. The programme of work reflects the necessary renewals to maintain a reliable and compliant
asset. Deferral carries an unacceptably high risk unplanned closure of the airfield.
Constraints or
contingency
factors
Airfield Pavement
• Pavement age: some pavements on the airfield are original, dating back to when the airport was originally
built.
• Airfield construction: there is significant amounts of construction activity planned across the airport
precinct, including on the operational airfield. The renewals programme is being sequenced to make the
most of opportunities where works may already be occurring, and minimising disruption on the operational
airfield.
Airfield Ground Lighting
• Recent acquisition: Auckland Airport has only recently acquired the AGL assets, it has not been able to
manage or invest in these assets previously. This has now changed.
The projects included within the Programme, including their aims and objectives are outlined in the table
below:
Projects
10 year
forecast ($m)
Details
INFRA - Annual Airfield
Pavement Renewal Works
493.7
The overarching purpose of this programme is to ensure the continued safe and
compliant operation of the runway, taxiways and aprons. Pavement condition is the
key driver of the pavement renewals programme. Pavement age is a key factor, with
planned replacement of large areas which were constructed the 1970’s.
Pavement has generally experienced greater point loading than was originally
envisaged, due to the evolution of larger and heavier aircraft. Greater than forecast
traffic volumes and heavier aircraft have in some cases shortened the service life of
pavement, accelerating the need for renewals. Recent condition assessments of
pavement assets have identified several key areas of the airfield requiring remediation
in the coming years.
ES - AGL Infrastructure
Renewals
90.5
Activity in this programme primarily involves renewal activity of existing AGL
equipment and supporting infrastructure, to ensure it is compliant, resilient, and
remains fit for purpose. As an airport operator AIAL is required to provide AGL which
complies with CAA regulations and therefore renewal activity is required. Renewals
works will ensure ICAO/CAA compliance requirements related to cable condition are
met, and that renewal of light fittings and other equipment keeps the equipment up to
date and provides better system resilience.
Total Programme 584.1
A-32
11. Renewals - other
Aims and
objectives /
description
The primary aim of the this programme is to ensure that Auckland Airport’s existing assets are fit for purpose,
safe to operate and enable the efficient day to day operation of the business. This programme covers Terminal
Renewals, Enterprise Technology, Dedicated Operations Technology and Systems , Utility Networks, Roading,
Airport Emergency Services,. The PSE4-5 renewals programme includes a catch-up on renewal activity which
was deferred due to capex reductions across 2020-22 caused by the financial impacts of the pandemic.
The pri
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