Dunedin International Airport Ltd was among a total of 30 government-owned entities sent letters of expectations from State Owned Enterprises Minister Simeon Brown in March, which were released publicly at the end of May.
In a letter addressed to airport chairman Chris Hopkins, Mr Brown said he was writing to outline how the airport’s board could support the delivery of the government’s priorities and its governance expectations.
New Zealand was in “a tight fiscal environment” and getting the books back in order would require a sustained and collective effort, Mr Brown said.
“It is critical that all organisations, including Dunedin Airport as a company 50% owned by the Crown, play their part and maintain a culture of fiscal discipline.”
The government expected the airport to outline its plans to improve value and return to shareholders.
It was also expected the airport’s board make investments “only that will increase the long-term commercial value of the airport”, and Mr Brown singled out “international route developments”.
“For existing international services, we expect your board to set and use metrics to assess route performance against the business case and to act on the results against these to protect the commercial value of the airport and returns to shareholders.”
These metrics should be reported to shareholders quarterly and at a minimum include total passengers, load factor, revenue, expenditure and net profit after tax.
The location passengers were travelling from or the number of tickets bought outside of New Zealand should also be reported “to better assess the wider economic impact of international services”, Mr Brown said.
Jetstar is due to launch its new thrice-weekly Dunedin-Gold Coast service later this month.
The airport is also 50% owned by Dunedin City Holdings Ltd (DCHL) — an organisation that oversees eight companies it owns on behalf of the Dunedin City Council.
DCHL chairman Tim Loan said it had “no concerns” about the government’s letter and it was standard practice.
It also expected good financial controls and discipline from all the companies in its portfolio.
The airport was no exception, Mr Loan said.
“International flights is obviously one of the focuses for Dunedin Airport at the moment in terms of business opportunities and I assume that’s why it has been singled out.”
Shareholders had been communicated with extensively about the Jetstar service and reporting to date showed it was “meeting all expectations and should be successful”, he said.
Any further opportunities relating to international route development would be subject to extensive business cases, just as the Jetstar service had been.
DCHL was enthusiastic to see such opportunities fully explored in the future, and the success of the Dunedin-Gold Coast service would be key to the development of future international opportunities at the airport, Mr Loan said.
Mr Hopkins said the focus of the airport’s board and management was on driving long-term value, and the support from the Crown to remain focused on longer-term thinking was welcomed.
“Facilitating the return of international services is a key long-term investment that is front of mind for shareholders, management and many within the wider community that we serve.
“Both shareholders have been well informed with the business case for international services and have provided input and their support to the decisions taken.
“The value of international services is recognised by both shareholders.”
Mr Brown’s expectations were “not unusual nor unexpected”, Mr Hopkins said.
The airport viewed expectations, from both of its shareholders, as helpful in guiding it to achieve the best outcomes for all without limiting future development.
“Strong business cases are a key tool we use to ensure sound decision-making and this includes for the Dunedin-Gold Coast service.”
Mr Brown said on Friday his letter made clear the government expected the airport to run a profitable business that set ambitious targets and performance measures and emphasised its distributions to shareholders.
“Over the long run they will need to generate returns that meet or exceed their cost of capital.”
A Jetstar spokesperson said early demand for its service had been strong and it expected this to continue.
