This article originally appeared in the NZ Herald.

The clear winner of 2017’s first brickbat is Auckland International Airport.

The company fully deserves this honour because of the chaos in and around its terminals during the holiday period and because of a media release stating that it was “excited” by the arrival of yet another inaugural flight from China, when it is struggling to cope with existing arrivals.

In addition, the latest global punctuality figures show that Auckland Airport now ranks at the bottom of the 10 largest Australasian airports.

This chaos and poor punctuality reflects inadequate long-term planning at board and management levels. The same criticism can be directed at Auckland City Council, which is the airport’s largest shareholder with a 22.4 per cent stake.

The first point to note is the huge increase in international passenger numbers since 1998, when Auckland International Airport listed on the NZX.

The figures in the accompanying table include all international arrivals and departures by New Zealanders, as well as non-New Zealanders.

Total NZ international air passenger numbers have increased from 5.4 million to 12.3m since 1998 and from 3.9m to 9.2m for Auckland Airport.

The growth has been due to a number of factors including the adoption of an open skies policy by New Zealand and a number of other countries in December 2001, lower airfares and the international tourism boom.

Prior to December 2001, most international air routes were subject to agreements between governments and this restricted the ability of airline companies and airports to grow their businesses.

There has been a massive growth in international flights since government-to-government agreements have been largely abolished and airline companies now make decisions on the basis of economic, rather than political, considerations.

The surge in Auckland Airport’s international passenger numbers continues to accelerate as the company experienced a 335,700 increase in international passengers in 2014, a 580,600 rise in 2015 and a massive 756,500 increase in the latest 12 month period.

Auckland Airport - international passengers vs NZ

In addition, Auckland had 8.3 million domestic passenger movements in the latest 12 month period. This represents an annual total of 17.5 million international and domestic passenger movements, excluding 0.6m of international transits.

One of Auckland Airport’s main objectives since the introduction of the open skies policy is to convince international carriers to fly to New Zealand and, once they are established here, to increase the number of flights.

It has been highly successful in this regard and in 2015 and 2016 the company issued more than 20 media releases announcing the arrival of a new carrier, an increase in the number of flights by an existing operator or the establishment of new routes from Auckland to foreign destinations by a carrier already flying into Auckland.

The new carriers over the past two years have been: Philippine Airlines, United Airlines, American Airlines, AirAsia X, Qatar Airways, Hong Kong Airlines, Tianjin Airlines and Hainan Airlines.

On December 23, a day of severe congestion around and in the airport, the company announced that it had welcomed its 29th international carrier earlier that day, with the arrival of the inaugural Tianjin Airlines flight from Chinese cities Tianjin and Chongqing. These were the airport’s 47th and 48th international destinations.

Scott Tasker, Auckland Airport’s acting general manager – aeronautical commercial, was quoted as saying “We’re delighted to welcome Tianjin Airlines to Auckland Airport and New Zealand, and excited that they’ve chosen Auckland for their first Australasian services”.

Tasker may have been excited, but this sentiment was not shared by motorists who were taking between 45 and 60 minutes to travel the final 2km to the international terminal.

Why has there been so much chaos and congestion at the airport and why did the board and management not anticipate the massive increase in passenger numbers, particularly when they were aggressively trying to attract new international carriers to Auckland? How much infrastructure investment did Auckland Airport undertake in anticipation of the increase in passenger numbers that it was endeavouring to attract to NZ?

In the 12 years to June 2016, the company paid $2.052 billion to shareholders in the form of dividends and capital repayments while its short-term and long-term debt surged from $563m to $1.887b.

The company’s cash flow statement revealed that it made total investments of $1.562b over the same 12 year period but $195m of this was used to purchase minority stakes in Queenstown Airport and airports in Northern Queensland. In addition, a significant proportion of the remaining $1.367b was invested in property assets that are unrelated to the areas in and around the domestic and international terminals.

It is easy to argue from these figures that the Auckland Airport board placed a stronger emphasis on maximising short-term profitability, and making huge distributions to shareholders, instead of investing in infrastructure that would accommodate the massive increase in passenger numbers.

One of the consequences of Auckland Airport’s problems is its poor punctuality compared with other Australasian airports.

According to OAG, which undertakes comprehensive surveys of more than 1000 airports, Auckland ranks last of the 10 major Australian and New Zealand airports in 2016 with a punctuality rate of 78.7 per cent. Brisbane was first with 86.7 per cent, then Perth (85.8 per cent) and Adelaide (84.9 per cent). The two other major New Zealand airports, Christchurch and Wellington, recorded punctuality rates of 82.0 per cent and 78.9 per cent respectively in 2016.

Auckland Airport’s problems are a New Zealand issue, rather than just a specific airport issue. The country has massive infrastructure problems, particularly Auckland, because of focus on short-term issues instead of long-term planning.

Most major airports have a train link to the city centre or a motorway that can accommodate a substantial number of vehicles. Why hasn’t Auckland Airport been able to develop an effective transport plan with Auckland City Council, particularly when the Council is its largest shareholder?

We should be demanding far more insightful long-term planning from our largest local council and one of the country’s largest listed companies.

Honours system flawed

One of the more curious features of New Zealand’s honours system is that former Brierley Investments’ directors and management continue to be honoured even though the company’s shareholders suffered massive losses.

The following directors and management have received the highest honour: Sir Ron Brierley, Sir Selwyn Cushing, Sir Paul Collins, Governor-General Dame Patsy Reddy, Sir Roger Douglas and in the latest New Year Honours List, Dame Fran Wilde.

A number of these have been rewarded for their achievements outside Brierley Investments, but it raises the issue of why people who are the driving forces behind many high achieving businesses outside Wellington don’t get the same recognition.

For example, Fisher & Paykel Healthcare, Mainfreight and Ryman Healthcare have had only three knights on their boards. Sir Don Rowlands, a former Fisher & Paykel Healthcare chief executive, was on the company’s board, as was Sir Colin Maiden. Sir Don was also on the Mainfreight board but no Ryman Healthcare director has been granted our highest honour.

The honours system is flawed because it has a bias towards individuals in the inner Wellington circle, particularly former politicians. Individuals associated with Fisher & Paykel Healthcare, Mainfreight, Ryman Healthcare and other successful long-term orientated businesses deserve just as much recognition as individuals associated with Brierley Investments.

Brian Gaynor

Portfolio Manager

Disclosure of interest: Milford Funds Ltd holds shares in Auckland Airport on behalf of clients. 

Disclaimer: This article originally appeared in the NZ Herald and is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so should not be viewed as investment or financial advice. Ifyou require financial advice we recommend that you speak to an Authorised Financial Adviser.