Warning over effects of new passenger levy

Auckland Airport warned yesterday the Government's decision to implement a passenger levy of $22 for a return international trip could impact on New Zealand's competitiveness as a tourist destination.

It would particularly hurt those travellers who were price-sensitive, spokesman Simon Lambourne said yesterday.

''It is regrettable the implementation of this new tax happens at a time when the tourism industry is starting to experience solid growth following many years of average performance.''

Auckland Airport had been working closely with the Government to remove barriers to tourism and travel so the announcement was disappointing, he said.

The airport would continue to work with Customs and the Ministry for Primary Industries to find process efficiencies, and to improve productivity, which would deliver cost savings to the Government.

It was essential any revenue from the new levy was used for initiatives to protect New Zealand's borders and improve the experience of the travellers paying for it, Mr Lambourne said.

Forsyth Barr broker Suzanne Kinnaird said the border clearance levy would negatively affect both airlines and airports.

She expected the levy to be included within the ticket price for passengers. Airlines would have a choice of either passing it on to passengers or absorbing it. Aviation history suggested a combination of the two was likely.

If the levy was totally passed on by airlines, ticket prices would rise, she said.

Price elasticity of demand meant volumes would fall - leisure travellers were more elastic than business travellers. Lower-priced short-haul sectors, such as transtasman flights and the Pacific Islands, would be the most affected. International passenger numbers at Auckland Airport would be hit.

If the price was fully absorbed, airline costs would rise and profits would fall, Ms Kinnaird said.

Route viability might be affected, which could ultimately have a detrimental effect on seat capacity. The financial outcome for new entrants would be affected negatively.

The additional cost to Air New Zealand on an annualised basis, based on passenger numbers, was about $54 million. The profit impact would depend on how the company and its competitors responded with their respective pricing strategies.

The elastic nature of air travel, particularly for short-haul leisure customers, meant even if Air New Zealand did pass on the full cost, it would probably face lower passenger numbers, she said.

''In light of the current fuel price backdrop, which has had little impact on fare prices to date, the profit outlook for Air New Zealand remains positive, despite the additional border clearance levy cost burden.''

The secondary impact on Auckland Airport was dependent on the behaviour of airlines. Fare increases to pass on the additional cost would likely have an immediate effect on passenger demand, Ms Kinnaird said.

Conversely, if airlines absorbed the incremental cost, their willingness to add new capacity might be compromised.

Rating agency Standard and Poor's said its ratings on Auckland Airport were unchanged by the announcement the Government was planning the levy.

Although Auckland Airport was more exposed to international traffic compared with its New Zealand peers - Wellington Airport and Christchurch Airport - S&P believed the additional charge, which was expected to be passed on to passengers, would represent only a small increase on a ticket price that would generally be more than $500.

''Given domestic traffic is the key earnings driver for Wellington and Christchurch airports, we view this announcement as immaterial for the ratings on these two entities.''

 


 

At a glance

Budget 2015 includes a new border clearance levy which will cover the current taxpayer-funded cost of protecting New Zealand's borders. The levy is expected to take effect from January 1, 2016 and will be about $16 for arriving passengers and $6 for departing passengers. Because the Government will now undertake public consultation, the timing and exact levy amounts may change. 


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