RE: EVIDENCE REGARDING THE APPROPRIATE WEIGHTED AVERAGE COST OF CAPITAL PERCENTILE THAT SHOULD BE USED UNDER THE COST OF CAPITAL IMs

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1 PO Box Auckland Airport Manukau 2150 New Zealand 05 May 2014 Auckland International Airport PO Box Manukau 2150 AUCKLAND Brett Woods Senior Analyst, Regulation Branch Commerce Commission Level 6, The Terrace PO Box 2351 WELLINGTON 6011 BY Dear Mr Woods RE: EVIDENCE REGARDING THE APPROPRIATE WEIGHTED AVERAGE COST OF CAPITAL PERCENTILE THAT SHOULD BE USED UNDER THE COST OF CAPITAL IMs 1. Auckland Airport is a party to the submission of the New Zealand Airports Association ("NZ Airports") on the Commission's call for evidence in support of the use of the 75 th percentile. The NZ Airports submission addresses the key issues and concerns on behalf of the three airports that are regulated under the Act. Auckland Airport's submission should be read in conjunction with that submission. 2. In this submission, we explain that the Commission should recognise that seeking to use models and formula to justify a choice of percentile estimate remains a theoretical exercise that is characterised by assumptions and the possibility for error and false precision. Figuring out how to incorporate empirical evidence into that exercise will prove to be challenging, and it may not be possible to do so in the way contemplated by the Court. In this context, it is vitally important that theoretical welfare loss or other cost/benefit models do not disguise or fail to take into account the considerable real world economic costs that may be at stake. 3. Although we think the task the Commission is proposing to undertake is challenging and may not produce clear outcomes on points of detail, one thing is abundantly clear to Auckland Airport. Given the available evidence, the potential costs to the economy of airports not optimally investing in capacity and quality services far outweigh any potential cost to consumers from paying "excess" prices. The Commission's approach of setting WACC at the 75 th percentile to reduce risks to the economy is not only fully justified it could be conservative. 4. For example, there is clear empirical evidence that airports are critical contributors to New Zealand's economic welfare. In our view, it would be detrimental to the long-term interests of consumers and New Zealanders more generally for this contribution to be put at risk. We therefore urge the Commission to consider, and as a responsible regulator we believe it must consider, the risk that a hasty amendment to the regulatory WACC and the resulting regulatory uncertainty could incur extensive real world economic costs that cannot be fully captured within a theoretical model carried out today.

2 2 5. In our view, the evidence of the benefits delivered by airports and investment in airport infrastructure (at the qualitative and quantitative level of evidence provided in this submission) supports the position of the Commission's expert during consultation on the WACC IM, that the 75 th percentile estimate may be the lower bound of a loss function analysis, and there could be justification for "easily" choosing a point "well above" that percentile. 1 However, we also place a high value on regulatory certainty. As such, Auckland Airport does not consider that change is currently required (and certainly does not consider that there is sufficient rationale for doing so outside of the scheduled seven-year review of the IMs). 6. In this submission, Auckland Airport also discusses the following points (supported by evidence where currently available): (d) Auckland Airport has worked hard to ensure it is delivering outcomes that are consistent with Part 4 of the Act and promote the long-term interest of consumers of airport services. Airports are a critical input to other sectors of the economy, regionally and nationally. Airports play a vital role in the economic productivity of New Zealand. Auckland Airport, as New Zealand s largest airport and our main gateway to the world, is of key significance. In 2013, 155,000 flights carried more than 14 million passengers and moved more than $13 billion of freight. Conservative evidence, limited to the impact on the localised airport complex only, suggests that Auckland Airport makes a significant contribution to regional GDP, provides employment for thousands of people and generates many millions of dollars in regional income. 2 In addition, the airport plays a critical role in facilitating international tourism and trade and also provides a range of strategic benefits, particularly by strengthening connectivity and enabling international engagement. For these reasons, Insight Economics recently concluded that Auckland Airport is arguably New Zealand s most important strategic infrastructure asset. 3 In our view, the considerable economic benefits delivered by Auckland Airport are directly and highly relevant to considering any question of asymmetric social costs. A proposed change in the Commission's approach to WACC now will add regulatory risk, and threaten the considerable benefits that Auckland Airport is delivering for consumers and the economy. This is very concerning given that the proposed change is in response to the Commission questioning its own well-established reasoning, rather than any evidence that current settings are causing problems. In these circumstances, there is a real danger that hasty changes to the percentile estimate in the WACC IM Part 4 regulation may detrimentally affect the interests of the travelling public and New Zealand. 7. In addition, Auckland Airport emphasises that: The Commission's approach to the 75 th percentile needs to be considered alongside other WACC elements, and should not be addressed in isolation. Importantly, parameter error is likely to exist, particularly in relation to asset beta. For example, both Auckland Airport and Air New Zealand have previously Commerce Commission Cost of capital workshop transcript (day 2), 13 November 2009 at page 225 (Martin Lally). Insight Economics Estimating the Regional Economic Importance of Auckland Airport, 27 February 2014 ("Insight Economics Report") at pages The full report is included as Appendix 1 to this submission. This study reports on the economic impacts for the Auckland Region. On the basis of this evidence, the importance of Auckland Airport is clearly very significant as an input to other sectors of the economy. The corresponding national impact of Auckland Airport is expected to be at least as great as the Auckland Regional impacts (if not greater). In this respect the evidence provided, if incorporated in a cost-benefit analysis or loss function, would provide a conservative estimate of the true social costs associated with distorting investment incentives in the airport sector and would therefore need to be supplemented by additional evidence of the national impact in order to consider the full picture of potential social costs.

3 3 questioned the Commission's approach to asset beta, where it made an arbitrary downward adjustment (without evidence) on the assumption that airports' aeronautical businesses are relatively less risky than the remainder of the business. Auckland Airport does not consider this assumption to be valid. A significant portion (by value weight) of Auckland Airport's non-aeronautical assets is the value of property assets subject to long-term lease agreements. The beta for these long-term rental property assets very likely has lower systematic risk than Auckland Airport's aeronautical activities. This suggests that any downward adjustment is actually not justified at all. (d) When market evidence is examined as a cross check, there is no reason to suggest that the 75 th percentile estimate is currently "too high". If anything, market evidence (as well as demonstrating that there are a range of views about the appropriate WACC estimate for any particular purpose) tends to suggest that the 75 th percentile WACC is more reflective of the commercial reality for Auckland Airport than the 50 th percentile would be. 4 We are concerned from a process perspective that the timetable for considering whether an amendment may be required is unnecessarily hurried, and is unlikely to result in a robust analysis of the issues involved. In particular, the timeframes for providing evidence are inappropriately short. Given that the Court emphasised the importance of robust analysis, one month is inadequate (notably that timeframe contained a number of statutory holidays over the Easter and ANZAC day period). This process has limited the analysis and evidence gathering that Auckland Airport has been able to undertake. For example, we have yet to explore available evidence on asymmetric risks in a detailed manner. For this reason, it will be important that the Commission remains open to accepting new evidence throughout the course of consultation. Auckland Airport is currently delivering outcomes in the long-term benefit of consumers 8. In its recent section 56G review, the Commission found that the current investment levels at Auckland Airport were delivering value for consumers, including high quality services, appropriate levels of both airport and airline-led innovation, and charges that are based on an efficient methodology and consistent with its range of acceptable returns. 9. The Commission also concluded that Auckland Airport's current investment plan over the present pricing period was appropriate, prudent and efficient in light of the circumstances that existed at the time of pricing. These desirable regulatory outcomes were the result of a pricing consultation informed by the Commission's current approach to the 75 th percentile estimate of WACC (as well as the range of commercial and consumer factors that feed into airport price setting). 5 As noted by the Commission, airlines generally agreed that the level and timing of investment planned for PSE2 was efficient based on the circumstances at the time of pricing As the Commission has previously acknowledged on a number of occasions, the performance areas set out in the Part 4 purpose statement are intrinsically linked, and As discussed above, we consider that these market estimates are a good proxy for Auckland Airport's aeronautical WACC. As discussed above, a significant portion of Auckland Airport's non-aeronautical assets are property assets with low systematic risk (where Auckland Airport is essentially a landlord). This suggests that there is no reason to think Auckland Airport's aeronautical and non-aeronautical WACC estimates are significantly different. We note that, overall, the Commission considered that it was too early to conclude whether information disclosure regulation was effectively promoting efficient investment at Auckland Airport in the absence of actual investment information for PSE2. Commerce Commission Final report to the Minister of Commerce and Transport on how effectively information disclosure regulation is promoting the purpose of Part 4 for Auckland Airport, 31 July 2013 at paragraph H4.1.

4 4 the relationships between these limbs must be considered. In our view, if the Commission were to consider that the use of the 75 th percentile estimate is "too high" for information disclosure purposes (including assessing airport profitability), it would need to have clear evidence that there is a current problem that needs to be fixed, and that the benefits which are currently being delivered for consumers would not be affected by this decision. 11. In our view, no analysis currently exists that would support this conclusion. Indeed, we are disappointed that the Commission has proceeded so quickly to considering an amendment based on an assumption (not evidence) that the Court decision has caused uncertainty for regulated suppliers, instead of considering the more fundamental question of whether there was evidence of a problem with the existing IM that justifies imposing a great deal of irreversible regulatory uncertainty on the regulated supplier. 12. Instead, the fact that Auckland Airport is current delivering high quality service and innovation levels, as well as an investment plan over the current pricing period supported by airlines at the time of pricing, suggests that the current approach to the 75 th percentile is helping to incentivise the desired regulatory outcomes under Part 4 of the Act (and, therefore, promoting the long-term benefit of consumers). Auckland Airport is delivering critically important inputs to other sectors of the economy 13. Auckland Airport believes that the risk of asymmetric social consequences is particularly important to recognise in the airport sector. The economic benefits of investment to the broader economy far outweigh any potential cost from the possibility of paying "too much", assuming that it could be clearly shown too much were being paid, and that there was a straight line relationship between airport charges and the prices ultimately paid by customers (bearing in mind that airport charges equate to approximately $5.80 for a domestic passenger and $27 for an international passenger at Auckland Airport). 14. Airports play a vital role in the economic productivity of New Zealand. 7 Appropriate investment in airport infrastructure drives competition among airlines and resulting increases in seat capacity. This, in turn, promotes reduced airfares for passengers, increased choice of destinations, and improved quality of airport and airline services in order to attract consumers and continue to promote growth in passenger numbers. That growth will flow through to all sectors of the regional and national economy that rely on travel and tourism. 15. Auckland Airport is a critical part of this economic contribution, as New Zealand s largest airport and our main gateway to the world. In 2013, 155,000 flights carried more than 14 million passengers and moved more than $13 billion of freight. 8 We discuss the particular contribution of Auckland Airport in more detail below. Direct economic effects and regional flow-on effects 16. In 2013, Auckland Airport directly contributed $322 million in regional value added (GDP), 330 fulltime equivalent jobs and $36 million in household incomes. 9 Including flow-on effects (which arise from the interrelated nature of business supply chains), Auckland Airport's economic contribution was $415 million in regional GDP, 1,730 fulltime equivalent jobs and $92 million in household incomes Further, the wider Auckland Airport complex (including both the general airport precinct and a range of nearby industrial activities, but excluding the economic impacts of Insight Economics Report at page 36. Insight Economics Report at page 6. Insight Economics Report at page Insight Economics Report at page 14.

5 5 Auckland Airport noted above) was estimated to contribute $3.1 billion to regional GDP, 31,400 jobs and $1.8 billion in household incomes in These figures are shown in tables 1 and 2 below. 12 Table 1: Estimated Economic Impacts of AIAL in 2013 Impact Measures Direct Flow On Total Value Added ($m) $322 $93 $415 Employment (FTEs) 330 1,400 1,730 Household Incomes ($m) $36 $56 $92 Table 2: Estimated Impacts of the Wider Airport in 2013 (excl. AIAL) Impact Measures Direct Flow On Total Value Added ($m) $1,430 $1,670 $3,100 Employment (FTEs) 12,200 19,200 31,400 Household Incomes ($m) $920 $880 $1, Taken together, these figures suggest that the overall operation of Auckland Airport and associated activities contributed $3.5 billion in value added (GDP), 33,100 jobs, and $1.9 billion in household incomes to Auckland's economy in Tourism and trade 20. In addition, Insight Economics found that Auckland Airport delivers significant wider economic benefits as a critical component of New Zealand's tourism and trade supply chains, for both the regional and national economies. For instance, in 2013: 2.7 million international visitors travelled to New Zealand, up from 1.7 million in Tourism contributed almost 9% to national GDP, and 172,100 people were employed directly or indirectly in tourism-related sectors, accounting for 8.8% of national employment % of all international visitors arrived at Auckland Airport. 15 Wellington, Christchurch and Queenstown Airports are also key enablers of international tourism. As we discuss further below, the significance of Auckland Airport's role in New Zealand's tourism industry is likely to become even more important in the future. (d) (e) Air-freighted goods were worth around 50 times more per kilogram than seafreighted goods. 16 As noted by Insight Economics, this is because airports play a key role in the export of just-in-time and perishable goods that achieve a much higher return than their sea-freight counterparts. In addition, air freight is critical to the movement of goods that are low in weight but high in value. 17 Auckland Airport moved 92% of airborne imports and 81% of airborne exports by weight. By value, it carried 94% of air imports and 72% of air exports. 18 Imports and exports via Auckland Airport were both dominated by industrial parts and machinery (by value). These accounted for 23% of all exports and Insight Economics Report at page 24. Insight Economics Report at page 2. Insight Economics Report at page 28. Insight Economics Report at page Insight Economics Report at page 30. Insight Economics Report at page 33. Insight Economics Report at page 33. Insight Economics Report at page 33.

6 6 25% of all imports, with over $10 billion of these products moved via Auckland Airport between 2010 and Wider strategic and economic benefits 21. Insight Economics also identified and presented evidence about a range of other strategic/economic benefits provided by Auckland Airport. These benefits include: (d) (e) Fostering and Maintaining Business Relationships: 20 While new technologies such as videoconferencing can be useful, many companies still consider faceto-face contact important for winning business. As one might expect, Auckland airport accounts for a significant share of business related international (and domestic) travel. In fact, in 2013 Auckland Airport accounted for 76% of international business arrivals, and 82% of international business departures. Other Benefits of Increased Connectivity: 21 In addition to fostering business relationships and enabling tourism and trade, increased connectivity provides a range of other benefits by raising business productivity. These productivity impacts manifest through two main channels: (i) through the effects on domestic firms of increased access to foreign markets and increased foreign competition in the home market; and (ii) through the freer movement of investment capital and workers between countries. In addition, improved connectivity can make it easier for firms to invest overseas, thereby further boosting economic performance. The Airport as a Major Growth Node: 22 Since 1999, the Mangere South census area unit (which encapsulates the Airport) experienced the highest nonresidential floorspace growth of all census area units in New Zealand (and was 48 times the national average). This rampant growth is expected to continue with the airport having up to 400 hectares of land available for commercial development, and with it adopting a place-based strategy to capitalise on this major opportunity. As a result, the airport is likely to be a significant node of future economic growth and development. Direct Customer Benefits: 23 One of the key benefits provided by the aviation sector are those accruing to its customers. In economics, these customer benefits are measured by the associated consumer surplus. Put simply, this equals the difference between what a consumer would have been willing to pay for a good or service, and what they actually pay. According to a recent study by Oxford Economics, the consumer surplus for aviation is about a third of the airfare. Since New Zealanders (including businesses and Government) spent around $3 billion on airfares last year, total consumer benefits may be around $1 billion per annum. Economic Impacts of Future Capital Expenditures: 24 Auckland Airport recently announced our 30 year vision for the growth of the airport. This could involve the spend of around $2.4 billion on core infrastructure over the next 30 years. Using multiplier analysis, Insight Economics estimated that this could boost regional: GDP by $2 billion, employment by 27,800 full time jobs, and household incomes by $1.4 billion. It is also worth noting that these capital expenditures are unlikely to feature much (if any) public funding. Thus, not only will future capital works provide significant economic benefits, but they will also not create any significant fiscal strain on the Government Insight Economics Report at page 34. Insight Economics Report at page 35. Insight Economics Report at page 36. Insight Economics Report at page 37. Insight Economics Report at page 37. Insight Economics Report at page 39.

7 (f) (g) (h) 7 Contribution to Taxes and Council Rates: 25 The airport company is a major contributor to both local and central Government finances via its rates and tax payments. For example, during the financial year ended 30 June 2013, the airport paid over $58 million in corporate income tax and a further $5 million or so in Council rates. Convenience and Social Inclusion: 26 Large international airports like Auckland Airport provide direct convenience benefits by reducing the length of surface commutes required to access air services. In doing so, they improve connectivity and improve quality of life. Without air services, remote areas (such as NZ) would be denied easy and continued participation in the modern world, and hence reduce social inclusion. Further, the scale of Auckland Airport also supports the business case for regional transport initiatives, without which the amenity provided would be considerably reduced. 22. Finally, Auckland Airport plays an important role in contributing to the South Auckland community, through employment and social benefits. The social and employment issues in this region are an important priority for both Auckland Council and central government, and the future development of the airport has the potential to be the engine room in the development of the region. 23. In Auckland Airport's view, the considerable benefits discussed above demonstrate the value provided by current investment in the airport sector. As such, it is important that these benefits be factored in to any analysis of asymmetric social costs, if the Commission decides to conduct that analysis. At the current stage of consultation, it is not possible to precisely quantify all of the above effects, or to suggest a model that allows these factors to be taken into account. We think it will be a challenge for the Commission to set out a clear and robust framework to assess these diverse and extensive economic impacts. In any event, we question whether that level of analysis is required to justify the current approach, given the benefits to the economy from airport investment (and therefore costs if investment is sub-optimal), far outweigh any benefits that would arise from lower prices (or costs if prices were too high). However, if the Commission decides to continue with a process of seeking to "quantify" asymmetric costs, then it must set out its proposed framework in advance of making any decisions on potential amendments. 24. More importantly, the Part 4 regulatory framework must allow these important economic effects to continue. For this reason, the impact of changes to the WACC IM on these benefits is directly and highly relevant. In this way, thinking about changes to the WACC IM will involve considering how to ensure that the direct economic contribution of airports, the crucial role of airports in tourism and trade, and the wider strategic and economic benefits provided by airports will continue to deliver value for consumers and New Zealand. The importance of future investment in Auckland Airport 25. Going forward, Auckland Airport has a clear vision to create an airport of the future that Aucklanders and New Zealanders can be proud of. This vision involves developing the efficient airport that exists today in a way that will cater for the significant increases in passenger numbers and flights that will occur as growth continues and New Zealand's international connections continue to strengthen. 26. The recent release of Auckland Airport's 30 year vision demonstrates that we are committed to creating an efficient, world-class airport that delivers key benefits for our direct consumers (the travelling public, airlines and freight forwarders), as well as for the South Auckland region, the wider Auckland region, and all New Zealanders Insight Economics Report at page 39. Insight Economics Report at page 39.

8 8 27. Insight Economics has recently considered the potential future regional economic importance of Auckland Airport under this 30 year growth vision. According to their analysis, by 2044 Auckland Airport could contribute more than $1.1 billion to Auckland's GDP (including the flow-on impacts of the wider airport area and the airport's role in facilitating tourism and trade) As noted above, while Auckland Airport clearly already plays a significant role in our tourism industry, it will become even more important in the future because it is the main arrival port for tourists from China New Zealand's fastest-growing and highest-yielding international market. Indeed, 92% of all visitors from China landed at Auckland Airport last year, and the number of these visitors has more than doubled since Further, according to official tourism forecasts, Chinese visitors will spend over $1.2 billion in New Zealand by 2019, or about $2,700 per person. 29 This is more than double the forecast average spend of visitors from New Zealand's current biggest market (Australia) In our view, it is critical to the long-term benefit of consumers, Aucklanders and New Zealanders that the regulatory regime under Part 4 recognises and supports the key benefits that investment in growth at Auckland Airport will deliver for consumers and economies. This means that the regulatory approach should encourage efficient investment that meets the needs of the current and future users of the airport, but is also delivered in a way that: creates network and industry efficiencies; allows and encourages airports to be proactive seekers of growth, and to invest in the capacity required to stimulate airline competition and drive key beneficial outcomes for passengers and other ultimate consumers; and best facilitates the international connections required to support and grow international trade and tourism. 30. Auckland Airport considers the use of (at least) the 75 th percentile WACC is an appropriate way to reflect these critical value drivers. As we discuss in the following section, we have concerns that a move away from that approach may introduce significant risks for investment in the airport sector. There are significant risks if the Commission gets it wrong 31. Auckland Airport has a number of emerging constraints in capacity, which are broadly provided for in the current Airport of the Future Masterplan (Appendix 2). This document sets out a long term vision to 2044 of how the airport considers land uses should be optimally allocated. Auckland Airport is committed to providing infrastructure in a staged and affordable manner. However, the exact nature of future investment requires more detailed analysis, and the investment that is actually incurred will ultimately be influenced by a number of factors including forecast levels of service to airlines and consumers, stakeholder priorities, investor expectations, the ability to finance investment, and the willingness of consumers to pay for that investment. 32. Auckland Airport is concerned that using a reference point in the WACC range below the 75 th percentile estimate for information disclosure purposes will increase the probability that the regulated WACC for regulated assets will be below the airports' true WACC. 33. If the output of the WACC IM reduces as a result of any change in the percentile range, Auckland Airport will be under considerable pressure (both from its substantial Insight Economics Report at page 17. Insight Economics Report at page 3. Insight Economics Report at page 31. See for example: MBIE, Key Tourism Statistics (17 January 2014) and Statistics New Zealand, 2013 Tourism Satellite Account; both discussed in the Insight Economics Report at Sections 6.2 and 6.3.

9 9 customers, and based on its understanding of how its forecast returns will be assessed by the Commission) to apply this WACC estimate to its pricing and investment decisions. 34. In these circumstances, there is a real danger that Part 4 regulation may distort Auckland Airport's incentives to invest in a way that is the most efficient and stimulates the greatest value for the travelling public and for New Zealand. For example, increasing the probability of under-estimating the true WACC also risks: limiting opportunities to access capital markets; de-prioritising aeronautical investment in favour of other investment where appropriate returns can be earned; and dis-incentivising investment in the short term (a risk which is exacerbated for large scale infrastructure investments in long-life assets, as required for airports). 35. Further, as we noted in the section 56G review, Auckland Airport is concerned that a WACC estimate that proves to be too low in practice (as we consider would be the case if the 75 th percentile reference point was amended, and pressure was applied for this approach to flow through to airports' pricing decisions) creates a risk that airports will not be incentivised to invest in regulated assets beyond minimum requirements. 36. In other words, if changes to the current approach push the airports towards earning returns that are too low, Auckland Airport may face incentives to spend the least money possible when investing in infrastructure and capacity expansion, even where this might result in a potentially less efficient operating environment for airlines, and potentially less beneficial outcomes for consumers in the long term. 37. In particular, it is important to note that in some circumstances the lowest cost investment for an airport may not be the highest value input for the industry, and may not be the most efficient long-term outcome. In our view, it is important for the current analysis to recognise that airport investment is often designed to meet the commercial interests of airlines. Airports operate as nodes in networks for airlines. Accordingly, there can be real value for airlines in how airports develop and operate within the network, and in particular, real long-term value for all consumers can be achieved when airports invest more, rather than less, in developing capacity to facilitate the operation of these networks. 38. For example, when Auckland Airport began consultation on its investment plan for PSE2, the capital expenditure forecasts in Auckland Airport's pricing decision were based on the assumptions that existed at that time, including assumptions about the potential location of future terminal development (which, at that time, was assumed to be a northern-based option). In response to airline advocacy for a southern-based expansion, which would contribute to greater efficiencies for airlines, the terminal development was excluded from Auckland Airport's pricing decision so that these factors could be further explored in the appropriate masterplanning processes, and a broad solution was developed that ultimately adopted significant elements of the airlines' proposed approach and is therefore likely to contribute to considerable network and industry efficiencies. Conclusion 39. In this submission, we have provided evidence that Auckland Airport is currently delivering outcomes consistent with workably competitive markets, and of the significant economic impact of airports on regional and national economies, considering both the direct and flow-on impacts of airport activity and investment in that activity.

10 We have not had sufficient time to attempt to precisely quantify each of the factors discussed in this submission (and, in our view, some of these factors may be difficult or impossible to express in numerical or monetary terms, such that they may then be able to be included in some type of overall calculation or model). 41. We reiterate our concern that attempting to consider such factors in the timeline proposed by the Commission would be very difficult, and risks turning the Court's recommended review into a superficial analysis that may be equally susceptible to challenge. Rather, in our view: It is not necessary to do so at the current time. In our view, the considerable current and forecast future benefits discussed in this submission, the risks of getting the WACC estimate wrong, and the lack of evidence of a problem with the current approach for the airport sector provide a compelling justification for maintaining the current IM (including the way that IM has been applied for assessing airport profitability). Auckland Airport recommends that the Commission undertake the necessary inquiry at a time that it can carefully analyse and assess all relevant considerations. Doing so may very well result in an outcome where, having regard to all relevant factors, a percentile estimate higher than the 75 th percentile is justified for airport services. 42. If you have any queries in relation to any of the matters raised in this letter, please contact either myself or our Regulatory Affairs Manager, Adrienne Darling on Yours sincerely Simon Robertson Chief Financial Officer simon.robertson@aucklandairport.co.nz