Airways Corporation of New Zealand Limited Pricing for the 2019-2022 Period
Changes to operating costs (including inflation) To ensure transparency Airways separates movements in the cost base into three specific categories: base costs, inflationary adjustments and changes to the cost of capital. Base costs – Airways’ operating cost base includes labour, property leases and equipment. Airways is currently facing cost challenges from collective employment agreements and increased lease costs driven by the requirement to move from a ground lease to a full office lease at Auckland Airport. These challenges are driving an increase to base operating costs above the level of inflation. Inflationary adjustments – Airways’ operating cost base is adjusted by standard inflation rates as forecast by the New Zealand Institute of Economic Research (NZIER). Labour costs are adjusted by the Labour Cost Index (LCI). Other operating costs are adjusted for forecast changes in the Primary Producer Index (inputs) (PPI). Cost of capital – Airways received a number of submissions questioning the cost of capital. Airways has considered these submissions and recent changes in market conditions and has decided to reduce the cost of capital from 6.9% to 6.59% for the 2019-2022 pricing period. General Aviation (GA) prices Airways helps GA customers operating aircraft less than five tonnes to operate safely within controlled airspace by providing flight information. Overall, GA activity makes up approximately 53% of movements and contributes 2% of Airways’ air navigation revenue. Following the implementation of Airways’ Pricing Framework in 2012, Airways believes that GA prices contribute a fair amount to the total cost of providing services. Airways therefore proposed that GA prices are only increased by the forecast level of inflation so they remain in line with underlying operating costs. Most submissions supported this approach. Airways will increase prices by an average of 2.5% each year based on the most recent inflation forecasts.
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