Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
4. Changes to operating costs To ensure transparency, Airways separates movements in operating costs into three categories – base costs, inflationary adjustments and changes to the cost of the capital. The final changes to operating costs are summarised in figure 17.
CONSULTATION PROCESS
EXECUTIVE SUMMARY
Figure 17 – Drivers of the operating cost increase
$ Revenue change
% change
PART A AIRLINES
Operating cost drivers
FY20 FY21
FY22 Total
FY20 FY21
FY22 Total 5
6.4
3.4%
A. Base operating costs
7.9 (2.9)
1.4
4.0% (1.1%) 0.7%
14.3
7.5%
B. Inflationary adjustments
6.3
4.1
3.9
3.3% 1.9% 1.6%
PART B GENERAL AVIATION
(1.6)
(0.6%) (0.1%) (0.1%) (0.9%)
C. Cost of capital
(1.4)
(0.1)
(0.1)
Total change in operating costs
12.8
1.1
5.2 19.1
6.7% 0.7% 2.2% 10.0%
5. Total % column includes the compounding effect of the changes.
APPENDIX 1 PRICING TABLES AND EXAMPLES
This section summarises the drivers of the operating cost changes and Airways’ response to submissions.
APPENDIX 2 SUPPORTING INFORMATION
4.A. Base operating costs
AIRWAYS PROPOSED
Operating costs are the largest of Airways’ building blocks, contributing approximately 65% of target revenue. Operating costs include labour, property leases and equipment maintenance. Currently, Airways is working in a challenging industrial environment. Like others in the aviation industry Airways has faced challenges with collective employment negotiations, and lease costs driven by the requirement to move from a ground lease to a full office lease at Auckland Airport. Based on these pressures Airways proposed an increase in base operating costs of $6.9m p.a. SUMMARY OF SUBMISSIONS Air NZ submitted that the cost increases seemed reasonable in the context of the environment in which Airways’ operates, but reiterated the importance of the business transformation programme in delivering future cost efficiencies. The Qantas Group questioned whether an increase in base costs is needed to maintain safe and efficient services. They look forward to considering initiatives that will improve the safety and efficiency of operations aligned with industry best practice. BARNZ expressed disappointment that cost growth was now exceeding inflation, and stated their expectation that the business transformation programme will keep future costs at, or below, the level of inflation in future periods. BARNZ also mentioned that they supported Airways’ efforts to reduce staff leave balances in the coming years.
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