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NZIER savages Wellington runway extension in report for airlines

The $300 million project "would be a wasteful investment and a drain on the national economy," NZIER concludes.

Pattrick Smellie
Mon, 15 Feb 2016

Analysis backing the proposed Wellington airport runway extension "grossly overstates" the benefits, understates the costs and is based on passenger projections that may be five times too high, according to two reports by the independent economic consultancy, the New Zealand Institute for Economic Research, commissioned by the body representing airlines flying in New Zealand.

The $300 million project, which the airport's owners want largely funded by taxpayers and Wellington ratepayers, "would be a wasteful investment and a drain on the national economy," NZIER concludes.

The Board of Airline Representatives of New Zealand released the report as part of its submission on the proposal to extend Wellington's airport runway by 350 metres to allow long-haul flights between the city's capital and global aviation centres including Dubai, Singapore, Kuala Lumpur, Bangkok, Hong Kong and Los Angeles.

Of those five routes, NZIER suggests only one – Singapore to Wellington – might be commercially viable, and points out that it is already being achieved through a new Singapore Airlines service through Canberra, launching in September. Services to Malaysia, Thailand and Hong Kong would be ruled out by a Singapore connection competing with them while Dubai is already serviced through Melbourne using jets that land at Wellington's existing runway.

Singapore Airlines has recently announced a new Wellington-Canberra service four days a week from September, connecting to Singapore in the first direct long-haul service between the Australian capital and any international hub airport. Infratil-controlled Wellington International Airport and its 33% shareholder, Wellington City Council, have hailed the Canberra stopover route as proof that long-haul services to Asia from Wellington can be viable.

Likewise, there was no need to extend the runway for services to Adelaide, as the scheme's backers have argued, because it too could be serviced using the existing runway, NZIER says.

Reports released by WIAL and WCC put a cost-benefit analysis ratio of a longer runway at 1.7:1, based on an annual discount rate of 7% and the pair are currently preparing a full business case for the proposal, which has yet to win government backing, but gained overwhelming support from a self-selecting survey of Wellington Chamber of Commerce members.

NZIER's analysis suggests not only is 1.7:1 a relatively low rate of benefit for what it deems a "risky" investment, but also that the 7% discount rate is too low, leaving aside its own analysis that wipes out those gains and calculates the extension could be, on balance, negative for New Zealand.

None of the airline members of BARNZ publicly support the initiative, with opposition led by Air New Zealand, which has invested in making Auckland International Airport the national airline's hub for global operations, competing directly with Sydney for long haul connections in this part of the world.

NZIER questioned analysis by international aviation consultancy INTERVISTAS on its assumptions about the potential growth of tourist and other travellers from China and Southeast Asia, saying  growth from China, in particular, was overstated.

"The forecasts for China and other Asia grossly overstate likely visitor arrivals by understating the maturity of these markets will occur well before 2060, 2050, 2040 or even 2030," the NZIER report says. "The forecasts are too bullish relative to the rates of population and income growth in China that will wane as the population ages. Aligning visitor growth to GDP (economic) growth cuts the expected number of visitors from China in half," NZIER says.

"When the forecasts are corrected by the elimination of routes that are unlikely to be viable and routes that do not need the extension, and corrected by reductions in the growth rates assumed for China and other Asian countries, the volumes reduce by a factor of about five," BARNZ executive director John Beckett says in a covering letter to WIAL.

NZIER criticised one of the airport's economic consultants, Sapere, for leaving out the cost to New Zealand of more Kiwis taking overseas holidays if Wellington offered long haul connections and, therefore, spending less at home and says it may have overstated the value of shorter journeys "by between $230 million and $720 million."

BARNZ also faulted WIAL for not so far giving any "contractual" assurance that the extra cost of the runway extension wouldn't be passed on to users of the existing runway.

It said the gains to the airport were clear if a largely publicly funded longer runway led to increased revenue from retail, carparking and other services while the additional value of the runway could be included in the asset base used to calculate the airport's regulated monopoly fees to airlines.


Pattrick Smellie
Mon, 15 Feb 2016
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NZIER savages Wellington runway extension in report for airlines