Auckland Airport unveils $3.9 billion redevelopment project

Auckland Airport has unveiled a $3.9 billion redevelopment project, which will see it combine its domestic and international terminals prompting warnings that it will force up airfares.

The airport said the project would reaplce the 57-year-old domestic terminal, at a cost of $2.2b and it was set to open between 2028 and 2029.

The rest of the cost ($1.7b) is for other projects associated with the integration, and includes forecast increases in construction costs and holding costs.

The airport planned 12 new domestic aircraft gates, up 20 percent from current levels, with electric charging and all catered for future aircraft.

It said the combined terminal would see a five-minute transfer between the domestic and international areas.

It would also have additional retail and rest areas, a new "state-of-the-art" check-in area, and a smart baggage system, using 50 percent less power to process each bag compared to a conventional conveyor-based system.

Auckland Airport chair Patrick Strange said it was a major investment for the airport, many years in the making.

"The domestic terminal is almost 60 years old and needs replacing. It's nearing capacity and it's no longer fit for purpose and hasn't been for some time. If it wasn't for the pandemic, we would already be well underway with its replacement," Strange said.

The airport has consulted with its major airline customers on a replacement terminal since 2011.

"We have worked with major airlines for over a decade on this. We've considered all feedback, including potential alternative locations and even further delays to infrastructure development," Strange said.

"All of this has been carefully thought through and we have made changes where appropriate, but now we need to get on with it," he said.

Renovations won't do

Construction would take place over the next five to six years.

Auckland Airport chief executive Carrie Hurihanganui said the project was about building the gateway Auckland and New Zealand needed.

"A new domestic terminal integrated into the international terminal will make Auckland Airport fit for the future, providing a much-improved experience for travellers - something they've clearly and repeatedly told us they want," she said.

Renovations would "not cut it anymore", she said.

But airlines using the airport were quick to complain they had not been consulted and travellers would bear the ultimate cost in higher fares.

Board of Airlines Representatives executive director Cath O'Brien said the cost of the project got pushed onto airlines in the form of airport fees, and that would flow on to ticket prices.

"Airlines want to make sure people can afford to fly around New Zealand, and that international carriers are attracted to operating here. This will seriously challenge both," O'Brien said.

The redevelopment would employ 2000 additional customers at the height of construction.

The airport is currently consulting with airlines on new aeronautical charges between July 2022 and June 2027.

It said the terminal integration programme was a major part of its 10-year capital programme, which informed overall airport pricing.

Meanwhile, airlines are warning that Auckland Airport's upgrade will cut the number of cheap fares on offer.

O'Brien said the cost of the project got pushed onto airlines in the form of airport fees, and that would flow on to ticket prices.

"Airlines are frustrated by the airport's action," O'Brien said.

"Airlines want to make sure people can afford to fly around New Zealand, and that international carriers are attracted to operating here. This will seriously challenge both."

Hurihanganui said she was surprised at the complaints because the airport had been talking about the redevelopment for a decade.

Meanwhile, an aviation sector analyst, Andy Bowley of Forsyth Barr, said he expected a big rise in airport fees, which would be reset in the middle of the year.

The airport company's finances would need to be strengthened to cope with the redevelopment plans, he said.

"Higher capex (capital expenditure) and higher interest rates question AIA's balance sheet and ability to fund the programme from debt over the medium term. We now see scope for potential additional equity capital to support the capex programme," Bowley said.

O'Brien said increased costs from the airport's spend would add to the challenges the sector was already facing as it began to recover from the impacts of Covid, burgeoning costs across the sector, and fewer flights coming to the country.

In other countries, airports had completed upgrades at a much lower cost than what Auckland was proposing, she said.

"Investment of such significance should be something we negotiate with the airport company, and something we make sure not only travellers, but also the New Zealand economy can afford."

'Airlines are frustrated' - Board of Airline Representatives

The Board of Airline Representatives says the $3.9b spend on infrastructure would price some travellers out of domestic flights.

O'Brien said the airport was still in consultation with the airlines on pricing decisions and final submissions were not due until next week.

The airport was required to make a pricing decision by the end of June, before it would be checked by the Commerce Comission, she said.

"Investment of such significance should be something we negotiate with the airport company, and something we make sure not only travellers, but also the New Zealand economy can afford," O'Brien said.

"Instead, Auckland Airport is pressing ahead with capex [capital expenditure] decisions, ignoring airline concerns and the required process. Airlines consider this is both unwise and unjust."

O'Brien said the cost of the upgrades would increase airline prices.

"This $3.9bn spend gets pushed on to airlines in fees that end up in ticket prices.

"Airlines are frustrated by the airport's action."

The board would raise the issue with the Commerce Commission and the Minister of Transport, Michael Wood, she said.