Saturday, February 24, 2024

Professor Robert MacCulloch: Its the World Wrestling Federation.

Two Big Monopolies Slug it Out - Auckland Airport versus Air NZ.

Air NZ is complaining that Auckland Airport is a monopoly - passing on capital expenditure charges arising from its airport re-development to the airline. Not to be outdone, Auckland Airport is firing back - saying Air NZ's monopoly over domestic air travel is one of the most powerful in the world and the airline wants a small crappy airport to stop more competitors. Who's the dummy loser in this fight between two big fatties, neither of which is constrained by market discipline? You and me, of course. We're the ones paying and queueing.

Many years ago when Bill English was Finance Minister and had an "Academic Advisory Group" for awhile that I used to attend, he turned to me once and asked, "Oh, so you're from Auckland University - is that a University or a property development company?". I thought it was a hilarious line - then started thinking maybe he had a point. The reason was that a decade ago the University was doing huge property developments & the bosses were pre-occupied tearing down buildings, buying and selling land, like in Newmarket, Auckland, and building new stuff, all to enhance the on-campus experience. Not a bad aim. But that was before Covid, before students were told to go off and study online. The reason for this diversion is that we should be asking the same question about Auckland Airport - is the company actually running an Airport, or is it in the mall, parking & property development businesses, which are way more profitable than helping passengers get on and off planes?

This is no joke and is the subject of great debate in the US, where traditional malls in cities are declining due to online shopping, but where retail sales at airports are booming. Slate Magazine report, "Your Misery at the Airport Is Great for Business: Retail in terminals is booming". It rose from $4 billion in the US in 2015 to $10 billion in 2020, a 20% compound growth rate. The reason is fascinating - airports supply the greatest desire of physical retail: foot traffic. Outside them, people can go through their days without having to pass a shop window. But in airports every passenger has to walk past dozens of them. There are other ways the misery of flyers brings joy to airport retail. Delays mean more money spent in airport shops. On many flights, airlines now supply little to eat or drink. So restaurants at airports are thriving. People are stressed & anxious at airports, so spas & massage shops have become popular there too.

I'm siding with Air NZ, which I have a soft spot for - maybe Auckland Airport has secretly decided its main aim is to make money out of retail sales from travelers, and is spending a truck load of money on that kind of development whilst not helping Air NZ, nor our nation, give tourists from other countries, our biggest export earner, a good experience of the actual travelling and queueing part of their arrival in NZ. Auckland Airport is bolstering its monopoly profits whilst hurting the image of our nation.


Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.


Rob said...

Not to mention that arrivals hall delay equals parking profit with friends and family paying for an extra hour before their loved one emerges.

Anonymous said...

Many years ago, I was a representative of a small airline trying to arrange access to counter space in the Donestic Terminal. The CEO at the time remarked, certainly with tongue in cheek, ..."frankly we could operate a much better airport if we could only get rid of aeroplanes and all that goes with them. We make a heap more money from our terminal businesses and real estate."
Possibly a certain amount of truth spoken in jest?
With significant shareholding once held by city councils, AIA had a wonderful monopoly abetted by councils who were supposed to be regulators of airport activities...noise control, etc., but instead were commercially linked promoters of the airport monopoly. Small chance Auckland City will have any support for future possibilities for any competing new airports.