Economics Question

[allblack]

Afternoon.

You may or may not have heard of late that as Auckland Airport has increased the value of it's assets, Airlines are worried that costs such as landing charges etc will increase...

It seems natural that one follows the other.

Why? Can someone please explain to me using words of one syllable or less why an airport increasing the value of it's assets leads to an increase in charges to it's customers (airlines/leaseholders)?

I presume that the increase in charges in not something that happens naturally, Akl Airport must decide that this gives them an excuse to do so....

Cheers
Tim

[SurferJoe46]

The way I see it...if you..say...have a car and it's got rust and fender cancer and it gets totalled...then you get a severly reduced insurance payback.

If you take the same car and have the body repaired and a fresh paint job and the interior all dolled up and the same thing happens...you get it totalled...then you get a larger amount of insurance payback....OK?

So...get your airport all repaved and new chairs that the customers cannot lie down on and candy machines that don't make correct change and people running security x-ray machines and selling the prints on an X-rated site...and you get more money if some airplane stuffs itself into the new macadam....see?

[FoxyMX]

Good question Tim, I was wondering that as well and hope someone with a bit of nous in this field will be able to explain it.

My own theory, which is probably totally wrong, is that it is a bit like house valuations. When a house valuation goes up so does the rates, insurance, etc costs. I'm sure this will also apply to Auckland Airport and to fund these cost increases they will have to increase their charges to users, which are the airlines. Ultimately it is the travellers who will end up pay more.

[Graham L]

It's all part of the "idea" that the only thing which matters is the return to the shareholders. Even worse is the "idea" that a monotonically increasing share price is the only measure of performance for managers.

The assets: land, buildings, equipment, have a value. If that amount of money was invested in some other way it would give some return. The "justification" for increased charges is that they should cover that "opportunity" cost. If it doesn't, why shouldn't the airport company demolish its buildings, sell its equipment, and go into the property development business? Or why shouldn't some speculator buy the company and do this. It's called asset stripping.

[SurferJoe46]

We just got a news flash that the Alaska oilfields and pipeline are going to be shut down for revamping. This will deplete the stockpile and production of fuel by 8-10% in the US.

The oilfields are owned by ARCO (Atlantic Richfield Corp), and they stated that they need to charge a little "extra" for the upgrades necesssary to meet newer....stricter environmental laws and regs.

They have noted that they are going to increase the charge for gasoline/petrol to the consumer by about 40-55% at the pumps to facilitate the repairs and upgrades.

We are to "expect" increases to about $6.00/gallon soon.

Now...on the econimics stage, this is junk science. The cost of doing business is factored into the general business expenditures..right?

Improvements should not be costed out to the consumer..right?

Maybe they should charge on a curve...the tree-huggers get to pay more and the poor schmucks get a break.

I am going out to my mailbox and awaiting the refund check from them. It won't be long.

[Metla]

Now...on the econimics stage, this is junk science. The cost of doing business is factored into the general business expenditures..right?

Improvements should not be costed out to the consumer..right?

Meh, This is exactly how Telecom justify their prices, and plenty of Smegheads around here defend em for it.

Perhaps we could implement it at our work, Lets see, New 40t excavator....$300 grand, Price for next job....hmm.....lets make it $300 grand.....

[SurferJoe46]

..and all I want is a new Bobcat.....

[pctek]

Perhaps we could implement it at our work, Lets see, New 40t excavator....$300 grand, Price for next job....hmm.....lets make it $300 grand.....

Well no, Metla, cause you charge it out in little bits over the next 100 or 1000 customers, not just one of them.

Or another way, the boss claims it as an expense there fore he receives a GST refund or pays less GST and also pays less tax than before which means the govt gets less which means they put something else up to suck it back off us in general in the end anyway.

[Metla]

Yes, I realise that its taken care in the total of all the jobs, or not as the case maybe. It was taking a dig at Telecom reaping billions in profit and then saying they had to charge like a bull due to investments in upgrades.

Anyhow, Our macheneriry is termed as an asset and tax is charged on it the same as if the exact amount was sitting in the bank as profit.

Lmao, No matter how you try and slice it the Government always gets more, not less.

Sure, you can try for less but you need a shoddy accountant and a good lawyer.

[allblack]

Thanks Graham L - that kind of makes sense.....

It's a bit tough to discuss given we don't appear to have an aviation-centric expert here.

I would love to be a fly on the wall when the meeting between Akl Airport and Air NZ goes ahead.

As long as this hippy-led Government stays the hell out of it....

Cheers
Tim