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Wellington Airport extension would dent domestic volumes

Wellington Airport extension would dent domestic volumes, attract more international visitors

By Jonathan Underhill

Nov. 25 (BusinessDesk) - Wellington International Airport would attract an additional 6.1 million passengers in the next 45 years if allowed to extend its runway by 355 metres into Lyall Bay, according to a cost-benefit analysis for the airport by Sapere Research Group.

The report identifies net economic benefits of $2 billion for New Zealand in today's dollars over that period, or $7 for every $1 spent lengthening the runway, the report says.The Wellington region's share would be between $500 million and $1.5 billion, on a low and high-scenario basis, based on a 31 percent share of total tourist spending.

The Sapere report highlights why airlines have been underwhelmed and raised concerns about increased charges as a result of capital expenditure by the airport. In the report's preferred option, the extension begins in mid-2017 (option 1) and the incremental benefit to airlines is put at $6 million, or just $3 million if the project start date is delayed until mid-2027 (option 2). For the airport, a net cost of $51 million is assumed, based on starting in 2017, or a cost of $81 million to start in 2027.

The biggest beneficiaries would be users such as passengers able to buy cheaper tickets as a result of increased competition and direct international flights, put at about $1 billion for option 1 and $443 million for option 2. The biggest benefit, to other sections of the community including educational institutes, tourism businesses and hotels, was put at $1.1 billion for option 1 and $488 million for option 2.

Sapere relied on InterVISTAS, a specialist aviation consultancy, to forecast air traffic volumes. Under its business-as-usual, or base-case scenario, passenger traffic would grow at an annual average 2.3 percent through until 2060, rising to 9.3 million total passengers in 2035 and 15.4 million in 2060, from 5.5 million this year. That's a slower pace of growth than the 2.5 percent average between 1997 and 2015, Sapere said.

Extending the runway would add 1.16 million international passengers by 2060, lifting the total to 4.34 million, as more airlines added direct flights to southeast Asia and the US West Coast, the report said. However, that would be offset by a drop of 460,000 domestic passengers to 11.8 million, as fewer people flew domestic to, say, Auckland and Christchurch to link up with an international flight or return from one.

Option 3 in the Sapere report is to set up a fund, to the same value as the $2.96 billion in costs estimated for starting the expansion in 2017, which could be used to promote Wellington Airport as a tourist and airfreight hub between 2020 and 2060, for a net benefit of about $1.2 billion, based on that activity stimulating demand.

Actual costs of pushing the runway out into the bay have been estimated at $1 million per metre, or $300 million. That would lengthen the runway by 15 percent and allow services by long-haul aircraft including the Boeing 787 Dreamliner and the Airbus A350, which can reach Singapore, south China and the US West Coast. Economic benefits of allowing wide-bodied aircraft included increased passenger and freight loads at lower cost, it said.

Wellington Airport is 66 percent-owned by listed infrastructure investor Infratil, with the balance held by the Wellington City Council, and has $75 million of listed bonds paying annual interest of 6.25 percent. the airport is rated BBB+ by Standard & Poor's.

Funding for the project is being sought primarily from central and local government, with the WCC committing up to $90 million to the project, if it gets a resource consent. Hearings for the necessary consents will begin next year, with public consultations now occurring.


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