Auckland International Airport Limited (AIA) Earnings Call Transcript & Summary

[Foreign Language]. Welcome, and good morning to everyone joining on the call. I am joined today by Chief Financial Officer, Phil Neutze. Now in June, you might recall that we announced our price setting event 4 outcomes, which spans the 2023 to 2027 financial years, in line with setting charges, which happens once every 5 years in accordance with the Airport Authorities Act. That pricing announcement was a result of 24 months of extensive consultation with major airlines regarding the aeronautical investment in Auckland Airport over PSE4 to support their business operations as well as consultation over the airport's wider 10-year development road map. Auckland Airport today released disclosure documents to the Commerce Commission for PSE4. These documents outline a period of transformative change for New Zealand's key gateway airport with a $5 billion investment in aeronautical infrastructure of which $2.6 billion will be commissioned between now and the end of 2027 financial year and is reflected in the new airline charges for that pricing period. Over the PSE4 period, Auckland Airport is forecasting a total of 102 million arriving and departing travelers and the investment program ahead is key to supporting the long-term needs of the New Zealand economy and providing a customer experience that we are all proud of. Now I'm sure you're keen to get into the detail before we then move into Q&A. So let's jump into Slide 4 to kick things off. Now the strong recovery in aviation has reinforced the need for Auckland Airport to once again move up on its long-term road map for upgrading New Zealand's Gateway Airport. PSE4 forecasts over 848,000 aircraft movements, and we know that Auckland Airport is the first and last touch point that New Zealand -- in New Zealand that Kiwis and visitors alike experience. This makes it incredibly important to have a resilient and fit-for-purpose infrastructure to meet that future demand. Our focus is on our customers and the interest of all of our stakeholders, that's the traveling public, airline customers, partners, tenants and the community and providing the infrastructure and services they need. We are investing in the future with a master plan that takes us to 2044 and beyond. Airports play an outsized role in the health of the economy, and it's a role we take seriously. The capacity, resilience and quality of our infrastructure has a direct impact on travelers, airlines and tourism and trade operators. Our investment in PSE4 is focused on integrating our terminals to not only build capacity but also enhance the customer journey alongside the necessary upgrades to the existing facilities to ensure airport resilience and in the case of the current domestic terminal as we continue to use it until the new integrated terminal is opened. Now total aeronautical returns in PSE4 will be 7.79% with a target return of 8.73%, the difference driven by shared assets and some allocations to non-priced activities such as airline offices and lounges. We're always very conscious when setting aeronautical charges to balance returns and at the same time, create the right incentives for investment, growth, innovation and efficiency. Now if you move to Slide 5, Phil will talk through the detail of pricing in a little while, but at a glance, some of the key numbers for PSE4 and 5 include PAX numbers that are forecast to lift to $23.9 million by FY '27. Now that's up 50% from 15.9 billion passengers in the 2023 financial year and up 13% on the 21.1 million passengers pre COVID in the 2019 financial year. And then it's going to lift again by a further 3.8 million to 27.7 million by the end of PSE5 in FY '32. Total regulated commission CapEx in the PSE4 period is $3.1 billion. That is assets commissioned and in use in PSE4. For the PSE4 and 5 period, this figure is $6.7 billion. Aircraft runway movements are forecast to grow from the 145,000 we saw in FY '23 to 191,000 by the end of PSE4 and 210,000 by the end of PSE5. Regulated revenue during PSE4 will be $2.8 billion. Moving to Slide 6. Now our purpose is to revitalize and inspire as we connect people in place. And our disciplined approach to our infrastructure program is focused on adding the necessary capacity and resilience as well as upgrades to the existing assets to deliver to that purpose and what a gateway airport needs. We know that the customer experience hasn't always been what we expect it to be as we have ramped up activity throughout the recovery. We are investing significant effort in addressing this with our partners across the ecosystem. And while we are seeing some tangible improvements, there is more work to be done, and we will be sticking at it until it is where it needs to be. Moving to Slide 7. Now the 10-year road map lays out the transformation journey of the aviation system at Auckland. And you'll notice much of it is largely in line with what was announced and underway pre-pandemic but needed to be paused until the recovery profile was clear. We also took the opportunity during that pause to reassess and validate projects. Now the key projects include the integrated terminal announced in March to replace the domestic terminal, domestic airfield expansion to support the new terminal, a contingent runway, a refresh of the current domestic terminal of future regional solution, upgraded roads and transport system, the transport hub, Stage 1 arrivals hall upgrade, the new cargo precinct and the Northern stands and storm water upgrades. Now the international arrivals expansion Stage 2 in the Northern Runway remain on hold at this stage and are not in the road map. We all know 10 years is a long time, so it's worth calling out that the projects in the road map are subject to change and maybe replaced, deferred or canceled. Moving to Slide 8. And really, these next 4 slides, which will round out my introduction, cover the key programs of regulated investment across PSE4 and 5, and I'm just going to touch on each of them briefly for you. On this slide, the integrated terminal is the focus. It will deliver a step change in the domestic experience and is the lion's share of the investment over the 2 periods at just over $4.1 billion. The key elements that underpin this are the enabling resilience projects. We have a multiyear program of enabling works to relocate infrastructure and prepare the site for construction of the new integrated terminal. That's from airfield capacity, such as stands and storm water upgrades as well as international arrivals upgrades, terminal roading and forecourts. The new baggage system will have greater speed, accuracy and capacity and be much better for travelers as well as the expansion of the international terminal -- sorry, international checking area to accommodate domestic passengers. Now the domestic processor itself, obviously, with domestic and jet operations integrating into the existing international terminal, it will feature a new domestic jet peer, head house and arrivals hall due to open in 2028, '29. Now this head house will see a 20% increase in gates and a 26% uplift in seat capacity as they are all A321 capable gates. And importantly, for customers, no one loves the queue. So the view of handling 44% more departing passengers per hour than the current terminal will be due to an increased space for security screening. And finally, on this slide, the transport hub. It's going to transform how travelers arrive and depart from the integrated terminal and paves the way for any future mass rapid transit to deliver passengers to the heart of the precinct with an undercovered pickup and drop off at the doorstep of our terminal. Moving to Slide 9. Now alongside the integrated terminal, there are a number of investments that are linked to it, and that totals $925 million over the 2 pricing periods. The current domestic terminal will be refreshed to extend its life for the 5 years of the integrated terminal build. There's an aeronautical capacity program, which includes upgrades to assets for the international terminal and airfield facilities, and these include things across security, fuel, amenities and airport emergency services. And the development of the contingent runway on Taxiway Alpha that is safe, reliable, meets future demand and complies with regulatory requirements. And I really can't stress enough that it is a single runway airport, ensuring future resilience through a fully operational contingent runway is critical. Moving to Slide 10. There are also a number of investment projects focused on strengthening the core with roading, utilities and airfield renewal programs totaling just over $850 million over the 2 periods. Now the roading program delivers elements of the long-term transport master plan to increase and deliver new capacity and efficiency across the network and an example of that being the new 4-lane road connecting George Bolt Memorial Drive to Nixon Road in the East. Utilities program to increase capacity of the existing utility networks and invest in new functionality and systems, really important foundational elements such as upgrades to storm water network to reduce the risk of terminal flooding and extreme weather events, upgrades to precinct fiber networks to increase overall resilience and of course, decarbonization activity in the international terminal, and we are replacing gas boilers with electric. And finally, on the slide, key airfield renewals, we've got the ongoing maintenance renewal of airfield payments and our recently acquired ground lighting assets. And finally, on Slide 11, it summarizes other renewals and ongoing repairs and maintenance over PSE4 and 5 totaling just over $860 million. The ongoing renewals are needed to ensure existing assets are fit for purpose, safe to operate and facilitate efficient operations. Specific types of activity within that program include terminal renewals such as bathrooms, airbridges, escalators as well as the renewals of existing utility and roading networks and technology and systems such as check-in kiosks and CCTV. Also here, we've highlighted the cargo precinct. We know the current facilities are old and not optimized for efficiency, and this program proposes dedicated and consolidated cargo handling facility on the northern side of the airfield. It will provide new cargo terminal operations building shell and services and allow the increase of cargo capacity and provide new airside road access to the existing airfield. And this is really important because it unlocks land currently used by the existing cargo facility to enable future airfield expansion and upgrades. Well, I realize that was somewhat of a whistle stop tour, it should give you a good sense of the scale of transformation underway at Auckland Airport with more than 400,000 square meters of airport land now under aeronautical development. It's vital we continue to invest in Auckland Airport's long-term future, so we don't create a drag on the economy and constrain Auckland and New Zealand's future prosperity. We're focused on building a resilient and competitive hub airport that keeps New Zealand directly connected to the world for trade and visitation and creates a customer experience that we're all proud of. Now I'll hand over to Phil to take us through the pricing in more detail before we open up for questions after that. Phil?

Thanks, Carrie. So yes, we've got an incredible infrastructure transformation underway at Auckland Airport. And we have to admit it is daunting. But we're already well underway. Our current run rate on total company CapEx is over $90 million at the latest month, and that's tracking upwards. So we're on track to deliver this. Before I get into my section of this presentation, I want to remind you that we published and talk you through a far more detailed PSE4 pricing decision presentation back on 8th of June. And there's a lot of useful information in that presentation that you might like to refer back to. Things like OpEx forecast, the PSE4 tariff structures, and that includes the new demand in CapEx risk washup mechanisms, how we derive the target return and benchmarking of our FY '24 prices versus Australasian airports. So moving now to Slide 13. That's sort of the pricing decision that we announced on the 8th of June requires us under the part for the Commerce Act to then release detailed pricing disclosures. And this presentation summarizes the key financial and operational information out to PSE4, the end of PSE4. So that's June 27. That's required for the disclosure rigs. Also per the disclosure rigs, we're obliged to provide longer-term demand and CapEx forecast out to 2032. So that's also contained in this investor presentation. And on this slide, you can see what's -- it aims to explain to you the difference between priced aeronautical activities and total regulated activities. Total regulated includes aircraft and freight. So we set charges for those assets to our customers through normal arm's length lease arrangements. And so that's carved out of the aeronautical pricing process for terminal and landing charges. Aircraft and freight includes cargo handling, fuel provision hangers, premises for caterers, ground handlers and the like. And also this other nonpriced regulated activities in the terminals, things like airline offices, airline lounges, the duty-free collection points as well as Auckland Airport lounges. So that's really what's new in this presentation versus 8th of June, getting a sense of how much assets is added to the picture by those price regulated activities and what that does to returns. So over the page to Slide 14. We've talked about this before, but big picture, we expect that the passenger numbers will recover to pre-COVID levels somewhere between FY '25 and FY '26, domestic recovery of 103% versus pre-COVID FY '19 by FY '25 and international recovery of 105% of pre-COVID FY '19 by FY '26. We also, in the footnote, explained that these passenger forecasts include nonbillable passenger movements. This is what's required for the pricing disclosure, nonbillable outbound transit passengers. We only bill inbound for transit. We don't bill for children under 2 and we don't bill for airline positioning crew. So those nonbillable pax numbers are pulled out for our price setting forecast. So now on Slide 15. So over pricing setting Event 4, aeronautical charges will increase, but they'll remain competitive with comparable airports. We provided some benchmarking on 8th of June. We didn't repeat it here, but we have modified a little bit in the pricing disclosure. So if you look at Page 16, you'll see more detailed analysis. And what we've done is we've converted all the dollar numbers into real FY '23 dollars to give a like-for-like comparison. And we've shown Auckland Airport charges as at FY '24 and our forecast for FY '27, both presented in real dollars. And what you can see is that our domestic charges will be less than Wellington and Christchurch Airport throughout PSE4. And our international charges will be similar to certainly in well below Brisbane throughout PSE4, but that doesn't allow for any above inflation price increases that those other airports may well implement. Now the increase in our prices over PSE4, they're driven by a few things. One is the $2.6 billion of commission price assets to be delivered in that period, catch up of the more than $100 million revenue shortfall in FY '23 because of the price freeze that we put in place to support airlines in the early stages of the COVID recovery. As agreed with the airlines when we put that in place, that's forecast to be recovered over the remaining 4 years, and we've targeted a higher return than PSE3, 8.73%. You can refer to Page 52 of the pricing disclosure for a detailed analysis. And also, you might want to delve into the several hundred pages of submissions that were made on the Commerce Commission's cost of capital input methodology review. They are very comprehensive, very well evidenced, and we stand by them. So please take a look at that if you get a chance. How we set 8.73% was, we implied the in-force WACC input methodology at the start of our pricing period. And we updated all the key comparable company data that flows into that. And so that was updated asset beta data and leverage data. And we also used the commission's most recently published post tax market risk premium that was available at the time, and we discontinued the 5% -- sorry, 5 basis points downward adjustment asset beta based on the misconception, the aeronautical part of airport companies has loss systematic risk than the company average. We provided a lot of evidence, both to the airlines during this consultation and also to the commission and the WACC IM review that discredits that and the commission agrees with that and subsequently dropped that from its draft decision. So moving on to Slide 16. And I think this slide may well have picked some interest from endless. The first -- the left-hand side shows our individual year ROI over the 5 years for priced activities versus 8.73% target return. You can see there that we only achieved 3.3% in FY '23. And that's why over FY '24 to '27, that needs to be above 8.73% to get us that on average. This also talks about you can delve into the pricing disclosure to get the detail. But towards the end of the process, we noticed a couple of omissions and errors from the forecast that we used to see at prices. There are some [indiscernible] transfers into the RAB that we have missed as well as some asset disposals for non -- zero consideration that we have missed. And have we captured that, that would have lowered our forecast return over the period. We've chosen not to subsequently adjust -- readjust the aeronautical prices to pull it back up. Instead, we flow this through into a mechanism that's allowed by the regulation called a carryforward adjustment of about $42 million that will increase the closing regulatory investment value at the end of PSE4, which will affect -- carry through that era into PSE5, and then we'll consult with our customers on a potential recovery of that. There was another omission as well. We -- certain rates expenses that we had factored into priced activities will correctly relate to aeronautical land held for future use for the second runway. So we've pulled that out. And then moving to the right-hand side of this chart, you can see that our total forecast return on all regulated activities is not 8.73%, it's 7.79%, and that's because our returns on non-price activities, aircraft and freight, as I mentioned before, as well as VIP lounges, airline offices and duty-free collection is lower than our target return. And the reason for that is that the methodology -- a lot of this aeronautical CapEx gets shared across a range of segments. So it's not all just allocated 100% to airlines to be recovered through prices. In fact, very little of it is 100% allocated to that segment. There's also a healthy chunk that's allocated to these non-price activities. It's just an allocation of RAB doesn't actually change the spaces and the quality of them, so it's difficult for us to justify putting up that returns for them because there's an allocated grab overhead. Turn on to Slide 17, showing that this is cash flow. This well, it actually shows both CapEx cash flow of PSE4 and 5 for total aeronautical regulated CapEx, but also shows the commissioning profile of that. As you can see, most of the CapEx is in the PSE4, which finishes FY '27, whereas most of the commissioning or certainly majority is into PSE5 and beyond. The bullet on the left-hand side talks about $3 billion of commissioning during PSE4 and $3.5 billion in PSE5 that only adds up to $6.5 billion, which might cause the eagle eye amongst you to wonder why we're referring to $6.7 billion of commission assets over PSE4 and 5 and that's because we've carried some [ WIP ] into the start of PSE4 that gets commissioned. So just 3 slides to go now before we open up to Q&A, and we're on Slide 18. So this is self-explanatory. The titles that we've used that is down on the left-hand side are consistent with other disclosures and the price setting disclosure elsewhere in this presentation that Carrie has talked you through. And the key call out I want to make is if you look at terminal integration, domestic processor in the category called aeronautical program, you can see that there's a fair bit of CapEx in PSE4 but not much commissioning and for those, there's a lot of commissioning and PSE5, but not much CapEx. Those 2 add up to $1.6 billion of [ WIP ] that's carried over at the end of PSE4. And if you look at Schedule 18 of our pricing disclosure of the total [ WIP ] carried forward into -- at the end of PSE4 is $2.3 billion. And this is what really hits credit metrics for us towards the end of PSE4. We're not actually earning any cash return on that [ WIP ] we are compounding it at our target returns. So we're protecting value, but we're not getting cash return. And that's why we've called out previously that there's a possibility of us requiring an equity raise sometimes towards the end of PSE4 to maintain that A- credit rating. And I'll come back to that. So now on to Slide 19, regulatory time line. The commission has published its draft WACC IM decision. We expect the final decision to be announced in December this year. That draft decision includes material changes to the long-standing WACC IM methodology that frankly, the commission has very strongly insisted that airports follow for the last 13 years and has now changed its tune entirely. I also can let you know that the commission staff has confirmed that our PSE4 pricing decision that's a 2016 WACC IM that applies to that and the commission is looking for the evidence that we've provided that its own calculation of return or WACC as a start of PSE4 is not correct. And it isn't because the input data was so badly out of date and wrong. And we've provided a lot of evidence of that to the commission and to airlines in this consultation. We expect finally that the commission's review of our PSE4 aeronautical pricing decision will be published in May next year, that's likely to be a draft decision. I'm not sure exactly when the timing of the final but that will give us a good steer for where the commission sees things, and we'll consider that in due course. So then finally on to Slide 20. I've touched a bit on this already. We've done a lot of long-term forecasting, and we believe holding the A- credit rating give us the best returns to our shareholders over the next 10 years. In fact, compared with allowing a one-notch rating downgrade holding the credit rating even if it requires an equity raise is likely to result in circa 5% higher EPS over that period than taking a downgrade. And there's 2 main reasons for that, the downgrades will probably cost us about 30 basis points of higher interest expense, and that's on a big increase in borrowings over the next 10 years. So that really hits. And also, we've got a [ 4 PE ] at the moment of circa 45x. That implies a current return on equity of about 3% compare -- that's pretax, compare that with our pretax cost of debt of about 5.5%, we could actually go out today. We're not going to do it, but we could go out today and raise equity and repay debt and that would boost EPS. That's the weird environment that we're in right now, but that's just another contributing factor to why it makes good sense for us to avoid a credit rating downgrade through raising equity if we need to. Our forecast based on the 8.73% return is that we'll need and depending on the delivery rate for that aeronautical infrastructure or need somewhere between no equity raise at all and up to $1 billion based on that target return. If ultimately, we adjust that target return lower after the commission publishes that's a review of our PSE4 pricing decision, then that would increase any required equity raise. But I think as I've indicated strongly, we absolutely stand behind everything that's fed into that target return. So I think we're happy to open it up to Q&A now, Carrie.

Yes, we are.

[Operator Instructions] Our first question is from Andy Bowley from Forsyth Barr.

A couple of questions from me. The first of which is around Slide 16 on nonpriced assets. So if I look at the 2 charts, and I try and do some simple math taking one from the other to try and work out what the IRR is for nonpriced assets. It looks pretty low. Can you talk specifically to the non-priced IRR for PSE4? What level and why so low?

So I can talk to the second part. No, we don't disclose precisely what that is, but you can back solve it. So I welcome you doing that. And the reason it's so low is almost entirely because it gets worked for the year based on the allocation process for a range of aeronautical projects, which are delivering to airlines and passengers that we price for the majority of that, but there is a shared allocation to nonpriced and there's no immediate justification for increasing the rentals to those customers because of an indirect RAB allocation.

But would you expect to increase the rentals accordingly in due course, Phil?

Well, it'll depend what happens to market rates because it's based on arm's length market rates, which will grow over the time.

Maybe you can talk about expectations about how you think the ComCom will consider those nonpriced assets in the context of its pricing review. I'm mindful that the ComCom was due to review its approach to these kind of assets during PSE3, but didn't seem to get around to it?

Yes. So during PSE3, we actually forecast returns from the segment that were well above our target return. So naturally, the Commerce Commission was quite interested in that and wanted to take a good look at it. And as I've explained, because of this allocated RAB overheads, our forecast returns in the segment is now well below our target return. So whether or not that interest of the commission any longer, I guess, remains to be same. But we -- this is a regulatory framework that's intended to give all interested parties view of the sort of returns that Auckland Airport is earning on the aeronautical monopoly part of the business. And overall, it's substantially below our target return use for pricing. So we'd expect the commission to note that and take it into consideration.

But the review from the ComCom is principally on the pricing assets?

Hasn't been previously. Previously, it's opined on both. If you look back into PSE2, definitely took a total regulatory activity approach.

The PSE3 was just on the pricing assets, wasn't it?

PSE3 acknowledged that the non-pricing increased our return as smidgen over what we're targeting for price and the commission model bothered by that smidgen.

Okay. The other question I've got here is around just the IM review. So if I read your submission to the draft ComCom report, you appear kind of happy with the draft review outcome, particularly for asset beta. So if we assume for one moment that the ComCom retains that kind of level of asset beta for the final report in December, can you talk about how that then may influence your investment decisions outlined in the CapEx today?

Well, it depends what we seek to do about that. So you may be aware that there's a merits review mechanism in the regulation by which any party, airlines or airlines can challenge changes to input methodologies.

So I guess what I'm saying, that kind of process would take time. And CapEx is being spent in the meantime. So there would be no change to any of the investment decisions you've made today in relation to what would be an ongoing process?

It's -- yes, there would likely be impacts. We would, of course, be very disappointed as the draft determination is finalized as is and it will seriously challenge business cases for a number of projects. However, I think it's fair to say that we're well underway on terminal integration. And as we announced back in June of our $6.7 billion program, about $4 billion of that is terminal integration related. So really, it's the balance that would be up for grabs.

[Operator Instructions] Our next question, we have from Wade Gardiner from Craigs Investment Partners.

Look, the CapEx that you've outlined today, sort of circa $1 billion more than what you outlined in June, and that's fine. I mean it includes other assets. But what we haven't really talked about is, I guess, the nonregulated CapEx in property, in expansions to retail area, car parks, that sort of thing over this period. Are you able to sort of outline the magnitude of what we should be expecting there?

Yes. In [indiscernible] we've previously talked about that being circa between $100 million and $200 million per annum. It's more likely to be at the $200 million end on average over that period.

And that includes an investment property?

Yes.

Our next question is from [ Grant Ler ] from [indiscernible].

A couple of questions for me. Just you called out the -- on Slide 16 around the adjustments which were made after the initial price setting disclosure and you talked about the $42 billion adjustment to the investment value. Just in terms of the 8.73%, what -- sort of what sort of quantum did that drop by without that $42 million adjustment?

Dropped to around $8.5 million net of those 3 items.

Yes. Okay. Right. So the $42 million effectively, that brings that back at 8.73%. Okay. And just I wanted to be clear. I appreciate Andy raised the question around the focus on the 8.73% or the 7.79%. But just given how different that is this time around, what do you think the Commerce Commission's focus is going to be on like the -- obviously, the 8.73% is quite a bit higher than what was implied at the draft decision at least? Do you think that the total return gets a bit more focused this time around, just given the size of that delta?

I would say it should because that $1 billion of extra CapEx that showed up this time around is all going into that segment. So it's significant that is genuine aeronautical activity and the commission is concerned about all aeronautical customers and all elements of the aeronautical business. So I would expect the commission to be equally concerned about both of those, well, both segments and the overall picture.

Yes. Okay. Is there any sort of -- I appreciate some of this comes down to -- some of the total will be down to allocation and whatnot, which is ultimately subject to exercise with much math behind it. But in terms of -- do you think there's a risk around questions along the lines of cross subsidization with the 8.73% just given the delta between those 2? And obviously, the 8.73% is the price activities, which consumers directly. Do you think that that's an argument for some potential cross subsidization in there?

No. So it has no influence on what we charge for those other regulated activities. The revenues we get from landing charges and passenger charges has no influence and never will. It's all based on our assessment of the market rentals on those spaces. And that's not cross subsidization because 8.73% is the correct target return to get any current return.

Next, we have Marcus Curley from UBS.

Phil, I just wanted a couple of things. First, obviously, the Commerce Commission, you know that it's going to be based on PSE3, was there any extra color in terms of how that's thinking about that? Or is it sort of -- it was a relatively blend sort of response that you got with regard to the application of PSE3?

The response was that the 2016 WACC IM was in force and the commission will be very interested in the evidence that we provided that results in a different calculated WACC to its own estimate.

Okay. And secondly, your description of the equity capital raise range. I think you said nearly between $0 and $1 billion based off current pricing. I -- just quite a wide range for something you're talking about in maybe a couple of years' time. Maybe you can talk to what you think possibly changes in the next sort of 12 months that sort of determines where in that range you may sit.

Yes. So that's -- that range is based on probably a feasible range in capital expenditure delivery. It's a range between 75% and 100% of the forecast.

Okay. Okay. So if you only achieve 75% of CapEx, you don't need to raise money, but based on your current base case pricing?

Yes.

But at the moment, you talked about a run rate. So with that run rate that you're seeing in terms of CapEx at the moment be consistent with the plan? Or is that -- how would you describe that?

It's great progress. It's well on the way, but it needs to keep ramping up.

And then finally, I was...

Sorry, Marcus, it's Carrie. And I would just add, we've seen for the last 6 months a month-on-month consistent growth in that delivery run rate. So we're not at our optimal run rate pace, yes, but we are making very good progress in that direction, as Phil highlighted. So we're confident at this stage.

Okay. And then finally, I was sort of surprised to see very little second runway CapEx in the 10-year program. There's a footnote in there suggesting that the timing is under review. Could you talk a little bit about what you're thinking on the second runway at this stage?

I'll kick off and Phil can add on that. I mean, really, it comes down just to the level of uncertainty at this point in time. We -- at this point, we're saying international is back to FY '19 levels, 2026 -- FY '26, sorry. And so the element of that, it certainly has shifted from where it was pre-COVID, but the element of the uncertainty and recovery as well as we look more broadly in conversations around decarbonization of the industry and otherwise. So those are some of the drivers we just don't have clarity in that piece, which is why we don't see it featuring significantly in these 2 periods. But Phil, anything you want to add?

No, that covers that. Thanks, Carrie.

But just to be clear, when you -- you're about to embark on the runway pre-COVID based off a capacity view of the airport. Has the capacity view of the airport changed or if the aircraft requirements get back to where they were expected to be the second runway would then be triggered?

Yes, I can jump in there. Thanks for clarifying the question. So we did a lot of work just before COVID on timing of the second runway, and we intend to that exercise or the starting hypothesis of requiring the second runway in 2028. And we -- through the detailed analysis we did and planned productivity improvements for the main runway. We got that out to 2032. The feedback from the airlines was we would like to work together to implement other measures that would take that to 2035, and we were committed to doing that. And then if you compare where we're at now, we're basically saying that we expect to be back at pre-COVID levels by somewhere between FY '25 and FY '26. So that means our demand -- that's versus FY '29 means our demand curve has slipped to the right by 6 years. So all things being equal, you have another 6 years to that.

Okay. And so potentially, second runway needed to be operational in 2041?

Yes. But certainly, to be confirmed.

[Operator Instructions] Next, we have Amit Watia from Jefferies.

Just got a question on, again, hopping back on Slide 16. I mean you're saying 8.73% return on the aeronautical CapEx and 7.79%, including non-priced assets. And when I think about your CapEx on the non-priced assets, that's kind of significant around $1 billion for the next 10 years versus your $5.5 billion, $5.6 billion spend on the priced activity. I think you're referring that the commission might have a look at -- might have some regard to your total returns, which I think would be lower in PSE5 as well, aero versus total. So why commission would have some regard because this is a meaningful spend, which is in the non-priced? Shouldn't commission then look at your total return rather than the aero return?

Yes. And the commission typically does that. The commission noted last time around that our forecast returns from the non-priced activities were higher than our target return for priced activities and indicated they wanted to spend some time on that. But it was clearly comfortable with the overall return. I think it added 10 basis points or so to our total regulated return versus targeted for pricing and the commission was comfortable with that. But we certainly expect the commission to take a [indiscernible] business view. That's its job.

Sure. Maybe -- I mean, you talked to the size of equity raise of between $0 and $1 billion. I think from the memory that's the same size you talked to in June, but today, you're highlighting more CapEx, $500 for the next 5 years. So what's changed?

Nothing. So we were well aware of that additional CapEx that we'll be disclosing as part of this pricing disclosure.

Right. And this doesn't have any impact on your A- credit rating because obviously, your total returns are lower than -- of 7.79%. So you're saying you were aware of your total returns back then. Okay.

Yes. Yes.

Thanks you. I will now hand back for closing remarks.

[Foreign Language], thanks, everyone. Really appreciate you joining us on the call today. As I'm sure has -- is very clear and evident in today's presentation, we're certainly focused on building the competitive hub that we need going forward for New Zealand. And in short, we're getting on with it. Certainly welcome any further questions you have offline between Phil and Stuart and the team, please do reach out if you have any subsequent questions, but I appreciate you taking the time this morning, and best of luck.