Thursday, June 13, 2013

Runway and roads to riches or ruin?

MICHAEL FORBES

Last updated June 14, 2013


Economic game changer or big white elephant? Only time will tell. But of all the think-big projects Wellington could be throwing its energy behind right now, adding a modest 300 metres to the city airport’s 2000m runway appears to be the popular choice.

‘‘We can’t be the coolest little capital if we’re the best-kept secret in the world,’’ Mayor Celia Wade-Brown says.

‘‘Head and shoulders, it is the No 1 priority for growing Wellington. We should build it tomorrow,’’ property developer Ian Cassels says.

‘‘Attracting long-haul flights is a major key to rebuilding the region’s economy,’’ Wellington Employers’ Chamber of Commerce chief executive Raewyn Bleakley says.

Wellington Airport certainly thinks so too and the market research to date paints a pretty picture.

An extra 35,000 overseas visitors flying into Wellington each year, injecting $44 million into the local economy, creating 372 new jobs. International students could also bring in a further $70 million a year and 1200 jobs.

All that for just one easy payment of $300 million dollars.

Wellington City Council, which owns a third of the airport, is obviously convinced. Eleven councillors voted last month to put $1m towards resource consent expenses, covering about half the cost.

So now the airport can go off and prepare its resource consent application, and in doing so, will figure out exactly how the runway extensions will be built, what the final cost will be and how it will be paid for.

There is confidence in the smile of John Howarth, the airport’s general manager of infrastructure, facilities and planning, as he gets ready to embark on this process.

‘‘If someone didn’t have the foresight to extend the runway 300 metres to the south in 1972 and we lost our connections to Australia ... then imagine where we would be now,’’ he says.

‘‘We don’t want people to look back in 30 years’ time and say, ‘What a missed opportunity’ ... you’ve got to have that foresight.’’

When asked if he thinks Wellington is a big enough market to sustain daily flights to Asia, Mr Howarth points to the 1000-plus people who now pass through the airport each day – either heading to or heading home from long-haul destinations.

It seems like plenty considering the airport will only be looking to fill about 250 to 300 seats a day.

Airport head of communications Greg Thomas shares Mr Howarth’s confidence.

‘‘We know the market is there. We’ve been talking to a number of airlines and they know what the market potential is, and we’re confident a daily long-haul flight is viable. You wouldn’t be embarking on a process like this if you weren’t in close discussions with the airlines.’’

RUNWAY TO RICHES OR RUIN?


But start talking to other industry insiders and that feeling of confidence begins to wane.

Centre for Aviation senior analyst for the South Pacific and Africa, Roeland van den Bergh, says the big issue for Wellington Airport is that it will only be flying to one hub in Asia, whereas Auckland offers the ‘‘big four’’ — Singapore, Kuala Lumpur, Bangkok and Hong Kong.

There may be 1000 long-haul passengers passing through Wellington Airport each day, but chances are they are not all heading to the same destination, he says.

‘‘Really, you’ve almost got to quarter the numbers coming out of Wellington and then they don’t look nearly as spectacular.’’

The next issue will be finding a suitable airline for Wellington.

Businessmen don’t tend to fly budget airlines, so Wellington’s options are somewhat limited to the likes of Singapore Airlines, Thai Airways, Cathay Pacific, Malaysia Airlines or Air New Zealand.

China Southern Airlines, based out of Guangzhou, about 120 kilometres northwest of Hong Kong, is also an option and has shown interest in the past.

‘They have all got services that go directly to Auckland and those services are well fed by Air New Zealand’s domestic network,’’ Mr van den Bergh says. ‘‘So why would they want to duplicate the services they already offer in Auckland, quite successfully and profitably, and take a risk moving any part of that to Wellington?

‘‘So it’s not quite as simple as ‘build it and they will come’.’’

But Mr van den Bergh points out that markets develop quite quickly in aviation and even some of the more seasoned analysts are not sure just how big Asia is going to be in the next decade.

The Chinese market is five times the size of the United States and is growing astoundingly fast. Other Asian countries like Indonesia and Vietnam are also shaping as important growth markets, he says. ‘‘So there are opportunities arising that cannot be accurately forecast, other than to say they will be much bigger than we expect.’’

Those emerging Asian markets, combined with the arrival of the Boeing 787 and the competing Airbus A350, could make smaller routes like Wellington a more attractive proposition in seven to nine years when the runway extension is complete.

‘‘It is still a risk, but there are a lot more real opportunities arising at the end of this decade which could make the extension viable,’’ Mr van den Bergh says. ‘‘It is not necessarily as prohibitive as it was a decade ago.’’

The solution to making Wellington an attractive proposition is likely to be a juicy incentive package for any long-haul airline willing to land in the capital, which could come in the form of a loss-underwrite, Mr van den Bergh says.

‘‘Is Wellington Airport ever going to earn enough landing charges from that one daily flight to pay $300m worth of development? I suspect that answer is no and that’s where the ratepayer or taxpayer funding comes in.’’

Mr Thomas says it is no surprise that airport landing charges alone will not pay for the runway. ‘‘Which is why we’re talking about both public and private spending, because there’s ... a hugely significant economic benefit for the region.’’

In terms of what incentives might be offered, Mr Thomas says any discussions the airport has along those lines with airlines is  commercially sensitive. But it is standard policy for the airport to waive its landing charges for any new  long-haul carrier for the first three years, he says.

John Beckett, executive director of the Board of Airline Representatives New Zealand, says that is a cause for concern if you are an airline already operating in New Zealand, and it should be a concern for regular flyers in and out of the capital.

According to Mr Beckett’s calculations, which he bases on Wellington Airport’s pricing formula, the airport will need a 20 per cent return on capital per annum, or $50 million a year, after the runway extension is built. That $50m is likely to come from airlines already using the airport through landing and terminal charges.

From there, the natural next step is for that cost to creep into the price of their airfares in and out of the capital. The end game is that airlines may start cutting back services they cannot fill, Mr Beckett says. ‘‘Which is counter-productive to what I think this whole thing is about, which is stimulating Wellington.’’

Mr Thomas says it is a bit too early to be talking about how its charges will be affected by the runway extension.

But he points out they form a ‘‘very small’’ component of airfares and any changes would be consulted on and assessed by the Commerce Commission.

MIDDLE OF MIDDLE EARTH A DRAWBACK? 

 
Another issue the airport will have to deal with is the disadvantage of  being located in the middle of the country.

Wellington is not a natural start or end point for people visiting this country.

Tourists prefer to start in Auckland and make their way down to Queenstown before flying out of Christchurch, or vice versa.

That is why Singapore Airlines was able to make long-haul flights out of Christchurch viable when budget airline Air Asia X could not, Mr Beckett says.

This is because Singapore Airlines can fly tourists into the country at one end and out at the other.

Wellington may have a lot of events worth seeing, but if you cannot convince tourists to start or end their journey in the capital then you have a problem, he says. You only have to look at the international-standard runways in Hamilton, Rotorua and Invercargill to get a feel for how it can all go wrong.

‘‘Wellington [Airport] needs to weigh up just what the benefits of a runway extension would be if the proposal went ahead, compared to what would happen if the frequency of its connecting services to Auckland, Sydney and Melbourne were improved.

‘‘Wellington needs a lot, and has got a lot going for it, but it doesn’t need an investment that is going to be poorly utilised.’’

Again, the airport does not see its location in the grander scheme of things as a big problem. Mr Howarth has plenty of faith in the pulling potential of Wellington,which has been growing for years now at home and abroad.

And who is to say that any long-haul flight into the capital will not be brimming with business people when it touches down?

After all, Wellington is an affluent city full of people who travel a lot. It has the highest GDP per capita, higher wages than much of the country and the highest proportion of business travellers in the country.

It is also the capital city, which does not hurt if you want to do business in this country.

A plane full of suits is the ideal scenario from an economic point of view and the main reason for pushing ahead with the runway development, Wellington businessman Ian Cassels says.

"You don't really want a plane full of tourists coming in if you've only got one plane a day from Singapore. You want a plane full of chief executives, people with ideas and the potential to set up offices.

"An office worker is worth 250 tourists. The tourists only stay for a day and a bit. The office workers are here all year."

Auckland's "office" is about the same size as Wellington's, he says. "They need to connect to Singapore and Hong Kong, and so do we. It's preposterous that we can't.

"The airport, the way it is at the moment, is almost like a door that's nailed shut."

Mr Cassels does not see the predicted cost of the runway becoming a burden on the city.

It is possible that Wellington's value could increase by 20 per cent if it can develop good, strong international links with Asia, making it a $15 billion to $20b rateable value city, he says.

In a perfect world, the extension would pay for itself through the rise in value of Wellington.

"It's not as simple or as magical as that, necessarily. But what happens is, you become more attractive [as a city] and you attract more business. The business [community] rents more space, rents go up a little bit, the ability of the city to pay rates goes up a little bit and the recovery just occurs."

Mr Cassels says the runway extension to date has been sitting on the "missed opportunity" pile.

"We should have done it 10 years ago. Then we wouldn't be having any difficulty at all. We would be leading the country.

"You can make the case for the airport on international students alone. We get very few international students in Wellington, because it's too hard for them to get here.

"We wouldn't be taking them from Christchurch and Auckland; we would just be getting more people. New Zealand would be getting more people.

"A city with an office population like ours and an intelligent population like ours, and a creative sector that's adding quite significantly to all sorts of endeavour, must connect.

"It's almost idiotic that we haven't done it already."

ROADS TO NOWHERE OR EVERYWHERE?

 
Another reason to forge ahead with the airport runway extension, may well be the roading equivalent of a red carpet that is about to be rolled out in front of it.

If the economic projections are to be believed, the suite of major roading projects it has planned between the airport and Levin, otherwise known as the Wellington Northern Corridor, will be an economic boon.

Some of the region's most talked about and contentious infrastructure projects - think Transmission Gully and the Basin Reserve flyover - are part of the package that is one of the Government's seven roads of national significance (RONS).

The Northern Corridor alone is predicted to generate $900m of economic growth for the Wellington region in the 30 to 40 years after completion, through improved distribution links.

Wellington should also prosper from the $300 million it will save each year in reduced travel costs and fewer deaths on our roads.

Construction will create thousands of jobs and improving access to employment hubs such as Paraparaumu Airport, Lincolnshire Farm, Miramar and the Seaview/Gracefield area, which is where half of the region's available industrial and commercial space is, will create thousands more.

Mr Howarth is one of those who cannot wait to see the northern corridor built.

"There's no point in us growing unless that connectivity can grow as well, because it just strangles that advantage," he says. "That's why we're, as a company, really keen on the RONS. If you're going to come into Wellington and spend an hour in traffic then you might as well do business in Auckland, because that's the same as going from Auckland Airport to the centre of the city."

The roads of national significance program is not universally popular, however. There are some - opposition political parties included - who feel that splashing $11 billion on new highways and expressways up and down the country is overkill, especially with KiwiRail in all sorts of financial bother.

Then there are those - members of Wellington City Council included - who cannot reconcile it with the visual impact these new roads will have.

The Government says the roads are key to this country unlocking its economic potential, principally through the speedier movement of freight. But it is worth keeping in mind that the Wellington region is no economic powerhouse when it comes to generating large amounts of freight, nor is it predicted to be in the next few decades.

So are Transmission Gully, the Kapiti expressway, the Basin Reserve flyover and all the other parts of the northern corridor going to be good for Wellington or just good for promoting business between Auckland and Christchurch?

Road Transport Forum chief executive Ken Shirley, who is based in the capital, says the answer is both.

"Yes, Wellington is doing it for the greater good, but also for its survival."

Businesses in the region are being "throttled" by the lack of a fast passage between Wellington Airport, CentrePort and the rest of the region, he says.

"It's becoming a nightmare, especially if you're trying to get logs to the port. That's why they start work at 3am up in the forestry country around the Wairarapa. Because no-one wants to be on the roads after 3pm."

Mr Shirley acknowledges that a big part of why the Government is sinking money into the Northern Corridor, is because it will provide a smoother link between Christchurch and Auckland. But he maintains there is also economic value for the Wellington region, even if it is not necessarily as a result of freight movements.

"If we are going to establish manufacturing or hi-tech nodes in the Wellington and Hutt Valley region, they will be increasingly dependent on good connectivity to the rest of the country."

In a funny sort of way, Wellington's lack of freight production is actually attracting some businesses to the region already, because there is more chance of getting cheaper freight rates on trucks returning to the top of the country, Mr Shirley says.

Jenny Chetwynd, the NZ Transport Agency's central region director, says Wellingtonians should not simply focus on the dollars and cents when searching for the benefit of this major infrastructure project.

Recent studies led by Greater Wellington Regional Council, have predicted a major earthquake would sever State Highways 1 and 2. This would leave most of the region without gas and wastewater for nearly three months, without power and water for anywhere between three weeks and two months, and without phones for 10 days.

Having a second road out of Wellington in the form of Transmission Gully, could prove quite handy in that scenario.

There is also the flow-on effect the Northern Corridor is predicted to have on Wellington's public transport.

For the capital, separating state highway traffic from local traffic has been identified by several studies as the key to solving congestion around the Basin Reserve, and in turn, the city's public transport "spine" between the CBD railway station and the hospital in Newtown.

Next week, the transport agency, in conjunction with the Wellington City Council and Greater Wellington Regional Council, will reveal detailed business cases for three shortlisted public transport modes of transport to service that spine for the coming decades.

A light rail system is still in the mix, alongside a bus-priority system (better bus lanes) or a bus rapid-transit system (better bus lanes and bigger buses).

Alongside the potential runway extension, the public transport spine will be the next major target of taxpayer and ratepayer infrastructure dollars in Wellington.

It also shows the region has not been forced out of the limelight by Auckland and Christchurch, Ms Chetwynd says.

"There has been a lot of money gone into the thinking behind that - a million dollars into the study around what our public transport spine will look like," she says.

"For the next 10 to 15 years that will translate into investment in infrastructure and services that will take Wellington's public transport into the next phase.

"There's a whole lot of investment on Wellington's doorstep right now, that's about to come on stream for Wellington. It's an exciting time," Ms Chetwynd says.

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