Whenuapai Airport – Economic Cost Benefit Assessment

Prepared for

Auckland International Airport Limited

November 2004

by

Table of Contents Introduction ................................................................................................................... 1 1.1 O b j e c t i v e ................................................................................................................. 1 1.2 B a c k g r o u n d ............................................................................................................. 1 1.3 K e y I s s u e s .............................................................................................................. 2 2 Outline and Scope of Study .................................................................................... 4 2.1 S c o p e o f S t u d y ...................................................................................................... 4 2.2 I n f o r m a t i o n S o u r c e s ............................................................................................ 4 2.3 R e p o r t O u t l i n e ....................................................................................................... 5 3 Methodology and Assumptions ............................................................................. 6 3.1 C o r e C o s t B e n e f i t A p p r o a c h ............................................................................. 6 3.2 P a s s e n g e r F o r e c a s t s .......................................................................................... 7 3.3 A i r p o r t F l i g h t D a t a A n a l y s i s ............................................................................. 7 3.4 A i r T r a v e l l e r L a n d T r a n s p o r t A n a l y s i s .......................................................... 7 3.5 A i r p o r t C a p i t a l E x p e n d i t u r e C o m p a r i s o n s ................................................... 8 3.5.1 Auckland Airport Future Capital Expenditure Assumptions ................................ 8 3.5.2 Whenuapai Airport Future Capital Expenditure Assumptions ............................. 9 3.6 W h e n u a p a i O p e r a t i n g C o s t S t r u c t u r e s ....................................................... 10 3.7 A i r l i n e O p e r a t i n g C o s t s .................................................................................... 11 3.8 C e n t r a l a n d L o c a l G o v e r n m e n t A g e n c y C o s t s .......................................... 11 3.8.1 Central Government Agency Costs .................................................................. 11 3.8.2 Local Government Costs .................................................................................. 12 3.9 N o i s e C o s t s .......................................................................................................... 12 3.10 N P V A s s e s s m e n t o f C o s t A l t e r n a t i v e s .................................................... 13 4 Potential Travel and Transport Benefits from a Whenuapai Airport .... 14 4.1 S c o p e ...................................................................................................................... 14 4.2 L a n d T r a v e l A n a l y s i s ......................................................................................... 14 4.2.1 Land Travel Model Outputs............................................................................... 19 4.3 W h e n u a p a i L a n d T r a v e l S c e n a r i o s ............................................................... 20 4.4 T r a v e l A s s e s s m e n t ............................................................................................. 21 4.5 S t i m u l u s t o A i r T r a v e l D e m a n d ...................................................................... 25 5 Net Economic Cost Benefit Assessment .......................................................... 29 5.1 M o s t L i k e l y E c o n o m i c O u t c o m e – B a s e C a s e .......................................... 29 5.2 L o w a n d H i g h S c e n a r i o s .................................................................................. 31 5.3 O t h e r P o t e n t i a l E c o n o m i c B e n e f i t s .............................................................. 33 6 Conclusions ................................................................................................................ 34 APPENDIX 1: Best Case Whenuapai Scenario ...................................................... 35 APPENDIX 2: No Second Runw ay Scenario ........................................................... 37 APPENDIX 2: Peer Review – Professor Basil Sharp........................................... 39 1

1 Introduction
1.1 Objective
This paper identifies the economic cost and benefits that arise if a second commercial airport is developed on the site of the Whenuapai Airbase. Comparing the benefits that could potentially flow from a second airport with the associated costs is the appropriate way of determining, in economic terms, whether a second commercial airport for Auckland is necessary or justified. This paper draws together a wide range of economic, operating and transportation information to address this issue.

1.2 Background
The Whenuapai Airbase is due to be decommissioned by 2008, and the land will become available for alternative uses. The Airbase occupies a large site on the Auckland urban fringe, close to the existing metropolitan urban limits. The future use(s) of the site will largely determine the development pattern for the wider Whenuapai-Hobsonville-West Harbour area. Its location within the upper Waitemata Harbour catchment underlies its significance to the physical environment, while its pivotal location on the northern and western development fringes of urban Auckland underlies its economic significance. Auckland’s continuing strong growth means the region and constituent Territorial Authorities (TAs) face a number of challenges to simultaneously manage urban expansion and maintain urban sustainability, within a finite land resource. This strong growth will also lead to significant growth in demand for air travel both domestic and international. On average, forecast New Zealand outbound travel is expected to rise by 4.5% per annum over the next 7 years1. At the same time population is expected to increase by around 1% per annum. Infratil and Waitakere City Council seek to develop the existing Airbase into a fully functioning commercial airport, initially operating alongside the RNZAF, and aim to capture between 15% and 20% of Auckland air passenger volumes in the domestic main trunk and trans-Tasman markets. The proponents believe this market share can be achieved through the combined effects of greater convenience to travellers from western and northern Auckland, and by attracting a Low Cost Carrier (LCC) such as Virgin Blue to operate through Whenuapai and provide a substantial stimulus to the total air travel demand. To this end Infratil has commissioned a range of studies that examine the likely benefits that might accrue to air travellers in the form of choice and convenience, and impacts on the local and regional economies should the land be used for a second airport. These studies included assessment of the potential transport and traffic savings under a two-airport future (Mangere and Whenuapai) compared with the single-airport (Mangere) future. David Young Consulting

1

“New Zealand Outbound Tourism Forecasts, 2004 – 2010”, Tourism Research Council, August 2004 1

(DYC) was commissioned to undertake this analysis utilising the Auckland Regional Transport Model (ART Model). That study identified a potential saving to the region of around $340m in transport costs. However, in the context of the overall cost of travel within the region this represents only 0.2% - 0.5% saving across the entire network. Moreover, the benefits identified accrue to road users in general rather than to airport users specifically. The travel savings are manifest as a positive externality to all travellers on the network rather than to air travellers per se. BERL was also commissioned to report on the economic impacts of a second airport development, in terms of the effect on the Waitakere City economy of a commercial airport, and from assumed growth in inbound international trans-Tasman tourism from the existence of an LCC.

1.3 Key Issues
The key question to be addressed in this study is whether developing a second commercial airport for Auckland at Whenuapai results in a net benefit in economic terms. This question can be addressed by considering the full range of costs and benefits which would arise from the development and operation of a second commercial airport at Whenuapai. The core question has associated a range of issues, including: • the likely costs associated with the development and operation of a second commercial airport within the Auckland Region at Whenuapai, including land, capital expenditure, and airport operation the costs to airport users (airlines and passengers), including facilities and operating costs, and government agency costs the costs and potential savings from changes in land travel patterns by air passengers the costs of externalities, especially through the effects of aircraft noise on land values which markets and what passenger numbers a Whenuapai airport would serve, and which catchments would these passengers be drawn from whether the quantum of costs associated with Whenuapai would result in higher or lower costs to service the same volumes of passengers through the existing airport at Mangere. the types of commercial air traffic would Whenuapai cater for the value of the land at Whenuapai, especially in relation to potential highest and best use the operational requirements and costs associated with Civil Aviation Rules to operate Whenuapai as a commercial airport how the social and economic costs to maintain a commercial airport at Whenuapai are likely to be distributed within the Auckland economy and community
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• • •

• • • •

The trade-offs between expected transport savings, and the additional costs of a second commercial airport, especially given the loss of scale economies in airport sector operation from having two airports within the region.

Addressing these issues provides guidance on the most appropriate structure for the airport sector within the region to meet Auckland’s current and future needs. There are also more strategic issues. The establishment of a second commercial airport will provide additional capacity over and above that required for Auckland’s projected air sector demands to 2050 and beyond. The existing airport at Mangere has consent for a second runway, and would on its own provide capacity beyond 2050. The development of a second runway capacity at Whenuapai has direct implications for the timing of future expansion at Mangere, and it would substantially alter the relative economics of runway development or alternative uses. While considerable comment has been devoted to not losing the opportunity for a second airport at Whenuapai, there has been scant consideration of the equivalent opportunity cost of not developing the second runway at Mangere.

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2 Outline and Scope of Study
2.1 Scope of Study
This study covers all expected costs and benefits that arise as a result of operating a commercial airport on the Whenuapai RNZAF airbase from 2008 to 2032. These are then compared with the costs associated with the same passenger volumes processed through Auckland International Airport. This study is limited to three potential airport configurations within Auckland Region. It does not consider any other changes to the environment other than those listed in the assumptions outlined below.

2.2 Information Sources
This study draws on a wide range of information. Much commercially sensitive and detailed capital and operating expenditure information has been provided by Auckland International Airport (AIA) Ltd in order to develop a range of airport futures. This has been combined with expenditure data drawn from publicly available sources on other airports in New Zealand, primarily Wellington and Hamilton (that represent broadly similar operational profiles to Whenuapai). Extensive passenger volume information was also provided by AIA Ltd covering all passenger arrivals into AIAL by time and day over the past year. This allowed comprehensive checking of likely schedules and markets for Whenuapai and also provided a vital cross check of the assumptions that underlie the traffic modelling undertaken by David Young Consulting (DYC) and Sinclair Knight Mertz Ltd (SKM). SKM have produced infrastructure costs under three development scenarios at Whenuapai in a report to Auckland International Airport2. The costs identified here have been used to estimate building costs at Whenuapai. Airplan have provided information covering the relative costs associated with meeting standards set by Civil Aviation in terms of border security, Aviation Security, baggage screening and passenger screening at Whenuapai compared with AIA3. Future passenger numbers expected through Auckland International Airport have been derived from forecasts produced by Tourism Futures International in combination with the domestic and international tourism forecasts produced by Covec Ltd and Market Economics Ltd for the Ministry of Tourism. Ernst & Young’s Real Estate Group carried out a range of valuation exercises on the Whenuapai Airbase site (311ha)4. Firstly they valued the site as an operational airport
2 3

“Whenuapai: Future Use Assessment Infrastructure”, January 2004 “Whenuapai as an Airport for a Low Cost Carrier – Summary of Airplan Tasks”, 24/12/2003 4 “Scenario Based Valuation Advice RNZAF Airbase, Whenuapai”, 16/12/2003 4

requiring 145ha with the rest as a mix of commercial, industrial and residential uses. They have also valued an alternative highest and best land-use scenario developed by Boffa Miskell Ltd that excludes the airport. Associated with this is an estimation of the likely rate take for the highest and best land-use scenario. This valuation represents the opportunity cost of the airport land – it is therefore the most appropriate value to apply. Ernst & Young have also provided information regarding the likely impacts of aircraft noise on the value of affected properties located within the expected air-noise contours around Whenuapai. Other data used in this study include: • Statistics New Zealand’s Business Directory, 2003 (covering all employment activity by meshblock across Auckland Region) Market Economics Household Demand Model, 2004, locates 2004 households by type and size across Auckland Region at meshblock level Statistics New Zealand’s Population and Household Forecasts 2001 – 2021 (2001 base)

2.3 Report Outline
The following sections of this report outline the assumptions and methodologies that apply to the various analyses undertaken in Sections 3 and 4. Section 5 outlines the results of traffic and transport analysis undertaken to quantify these costs. Section 6 draws together the various components of economic cost and benefit to present a most likely net benefit outcome. Section 7 presents conclusions that can be drawn from the analysis. In order to present the extent of outcomes possible under the various scenarios, Appendix 1 contains the results of modelling the most favourable mix of parameters along with definitions of the assumptions used. Appendix 2 contains the results of the no second runway option at AIA. This can be seen as the worst possible outcome for the region and country and represents the other extreme to the positive Whenuapai scenario.

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3 Methodology and Assumptions
There is established capability and consented expansion at the existing international airport at Mangere to meet Auckland’s long-term air sector requirements. The question of the costs and benefits of meeting current and future air travel needs of Aucklanders can be addressed by comparing the net benefits of two airports for Auckland, compared with a single airport at Mangere. To this end three overall future airport configuration scenarios have been tested: • Whenuapai and Auckland both competing in the domestic main trunk and SW Pacific markets – Auckland with a second runway. The first scenario presents the most likely outcomes if Whenuapai goes ahead. Whenuapai and Auckland competing as above – however, this scenario leans all parameters to favour Whenuapai as heavily as possible. Whenuapai and Auckland do not compete – no second runway is developed at AIA. This is the highest cost future for the region and nation.

• •

3.1 Core Co st Benefit Approach
The primary objective of the study is to provide an independent assessment of these options, through evaluation of all significant potential benefits and costs. It is a relatively straightforward approach, primarily through the comparison of potential benefits and assumed costs. However, it also covers broader strategic and competitive issues. The potential benefits include: • • • • reduced ground travel time for air travellers who could use Whenuapai rather than Mangere (especially residents of northern and western Auckland); greater consumer choice between airports; potentially better access to discount air travel services (VBAs or LCCs); greater security of travel services (less likelihood of two airports being closed for any reason at the same time).

These benefits have been weighed against the potential costs, for the airport development and operation, for airport users, and those affected by airport operation, including: • • • • • • property costs for the Whenuapai land and assets at the opportunity cost of the land; capital costs of runway upgrade and airport facility development; additional operational costs for two airports operating in parallel under the three scenarios; development costs for airport users and operations; additional operational and facilities costs for airlines serving two airports impacts on land values from airport operation (especially through noise effects).

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The general approach taken to assess the net costs and benefits is to model the operation of each airport under each scenario and a given set of passenger volumes, then to discount all costs incurred over the first 25 years of operation (assumed to be 2008 to 2032). All costs are expressed in net present value terms (NPV). A discount rate of 7.5% has been used through out this study By summing the NPV values and comparing outcomes between scenarios, it is relatively easy to determine three net economic outcomes (subject to the assumptions listed above) and therefore the best result in economic terms.

3.2 Passen g er Forecasts
Passenger forecasts have been drawn from a range of sources. Tourism Futures International and Landrum and Brown have been commissioned by AIAL to produce a series of passenger movement forecasts through to 2052 as part of ongoing strategic master planning for the airport.

3 . 3 A i r p o r t F l i g h t Dat a A n a l ysi s
A full set of airport flight information from Auckland International Airport has been analysed – both domestic and international. All flights arriving and departing along with passenger numbers by day and time have been categorised and used to drive the likely land transport patterns and likely market shares. This information was not made available to the original Auckland Regional Transport modellers and highlights the severe limitations in the assumptions that underlie the ART based transportation findings.

3.4 Air Traveller Land Transport Analysis
For each scenario, analysis of the land travel implications has been undertaken using a Land Travel Model developed for the study. This provides a detailed reconciliation of AIAL passenger numbers (arrivals and departures, international and domestic, by airport of origin/destination, by time of week) against survey data which shows the structure of these travel markets. The analysis provides a strong base for assessing the potential markets which Whenuapai can service, together with the likely origin-destination patterns for their land travel within Auckland. These travel patterns have been combined with various estimates of Whenuapai passenger volumes, including market capture and stimulus across each catchment within Auckland, to identify the likely land travel outcomes. These have then been compared with the transportation modelling analysis, to identify the potential land travel cost savings most closely aligned with a Whenuapai operation.

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3.5 Airport Capital Expenditure Comparisons
In this study, where alternative futures are being compared and contrasted, it has been necessary to make a range of assumptions about capital expenditure at Auckland Airport. Where possible actual data has been used to calculate cost profiles for both Auckland International Airport’s development of a second runway and Whenuapai as a commercial airport.

3.5.1

Auckland Airport Future Capital Expenditure Assumptions

The actual response of Auckland International Airport to the potential presence of Whenuapai is not known so has been scenario modelled. AIAL have two broad development options. One is to continue with development of the second runway on the current schedule. This is riskier in commercial terms, because of the loss of passenger volumes to Whenuapai. The other is to defer (or even abandon) the second runway development, given the changed economics and potential pressure from shareholders to maximise the returns generated on existing infrastructure and divest the land banked for the second runway. To show the implications of these outcomes, two alternative scenarios have been run. Both scenarios contains a range of assumptions, as follows: Scenario I: AIAL Two-Runway Future • AIAL continue with scheduled infrastructure investment which sees investment in building a second runway commence in 2011/12 with a second round in 2015. This follows ongoing investment in taxiways, hardstands and terminal buildings. Significant road realignments are also included in the costs, including realignment of George Bolt Memorial Drive and expansion of the terminal ring road to meet up with the second runway. The runway has an expected life of 40 years. Most of the other infrastructure has lifespans of 30 years. AIAL focuses turbo-prop traffic onto the second runway in order to maximise the number of slots on the main runway for larger jet aircraft. Whenuapai establishes along with a VBA that operates solely on the main trunk routes domestically (Auckland, Wellington and Christchurch), trans-Tasman (eastern seaboard Australia) and to Fiji. Whenuapai captures between 15% and 20% of these market segments.

The costs of the second runway at Auckland are significantly higher than those at Whenuapai. This is because this runway will be built to cater for significantly higher passenger volumes. Therefore it is necessary to isolate the component attributable to Whenuapai passenger volumes. To do this, capex associated with the second runway are divided by expected

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domestic passenger volumes to estimate a capital cost per passenger. This is then multiplied by Whenuapai passenger volumes and expressed in NPV terms over 25 years. In reality it is not as simple as dividing by domestic passenger volumes, as a significant proportion of these will land on the main runway. However, the presence of the second runway frees up capacity on the main runway thereby increasing the capacity of the entire airport. Dividing through by domestic passenger volumes is the best proxy for this. Under the most likely future scenario Auckland International Airport will spend $60m over 25 years (in NPV terms) to cater for a similar passenger volume to Whenuapai.

Scenario II: AIAL One-Runway Future • AIAL decide the risks of developing a second runway are too great and divest land banked for the runway Over time AIAL increase landing charges in order to move all turbo-prop traffic off the existing runway in order to maximise the number of slots for and therefore the returns from jet aircraft. This forces Air New Zealand and other operators to relocate their non-trunk services to Whenuapai. This maximises the volume of cross-town traffic and inconvenience for air travellers – whilst maximising the returns for AIAL. This has the effect of doubling the volume of traffic travelling through Whenuapai (from 1.5m movements in 2015 to 2.97m.

There is expected to be other capital expenditure under this scenario that is not possible to model. Without a second runway, Auckland International Airport will realign itself towards the current runway, requiring a re-modelling of existing facilities. No plans have been developed that outline the expected costs involved but they are likely to be significant and would therefore add to the economic cost of the two airport, single runway at AIA scenario.

3.5.2

Whenuapai Airport Future Capital Expenditure Assumptions

SKM have produced a range of capital infrastructure scenarios that could be applied to transform Whenuapai from a military airbase to a commercial airport. The focus is around bringing the runway up to commercial standards as well as converting existing built infrastructure over to civilian purposes. The scenarios are outlined in the “Whenuapai – Future Use Assessment Infrastructure” report prepared for AIAL in January 2004. They range in cost as follows: • Option 1: Overlay Existing Runway 03/21. This involves laying asphalt over the existing runway to correct to civil aviation standards. This scenario has an initial cost of

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$37m but incurs significantly higher maintenance costs over time (these have not been modelled). • Option 2: Reconstruct Existing Runway. This involves digging up the existing runway and relaying it in concrete. This scenario has a cost of $51m excluding the refunds on clean fill that could potentially be gained. Option 3: New Parallel Runway. This involves building a new runway parallel to the existing runway. This scenario has a cost of $49m

Under the ‘Most Likely’ and the ‘Best Whenuapai Outcome’ scenarios modelled, the lowestcost runway option has been selected (Option 1). It is assumed each option has a 40-year life, therefore after 25 years of operation the runway has residual value. This has been incorporated into the NPV calculation of costs. Under the “No Second Runway at Auckland” scenario, Option 2 has been selected to reflect the additional wear generated by increased flights.

3.6 Whenuapai Operating Cost Structures
The costs of operating a commercial airport on the Whenuapai airbase land are unknown. In order to incorporate this spend category into the model, it has been necessary to derive estimates based on known airport operating costs from similar airports in New Zealand. As the proposed airport is expected to serve primarily domestic main-trunk markets and some limited international destinations under a LCC operation model, it is important to align the operating costs as closely as possible with those of other New Zealand airports in a similar mode. To this end, publicly available cost information has been obtained covering Hamilton International Airport, Wellington International Airport and Christchurch International Airport. It is also important to isolate the airfield component of operating expenses as many airport companies are involved in general commercial business and land development. For the purposes of this report both a low-cost and a high-cost option have been utilised depending on the expected volume of air travel from Whenuapai and based on analysis of other New Zealand Airports. • The High Cost Option has been modelled where Whenuapai operates in competition with a second runway at Auckland. This sees between 1.5m and 2.0 million passenger movements annually by 2015. Under this option the net additional cost per passenger over and above Auckland is $3.16. The Low Cost Option has been modelled where Whenuapai operates without competition as Auckland’s second runway is not built. This sees almost 3.0m passenger movements annually by 2015 and the airport is focused more on serving the domestic market than in the first option (on a proportional basis). This scenario sees a saving per passenger of $0.69 compared with Auckland.

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As with other cost streams, operating expenses have been multiplied through by expected passenger volumes then expressed in NPV terms over 25 years at 7.5%. The numbers presented in Section 5 are net of Auckland costs.

3.7 Airline Operating Costs
No robust information has been produced that specifically identifies the range of net additional costs associated with airlines operating out of Whenuapai. However, there will be duplication of some infrastructure necessary, especially under the no second runway future at AIA. There are also likely to be net additional costs per passenger as the airlines will not be able to achieve the economies of scale that AIA offers – this includes any LCC that seeks to operate out of Whenuapai, although not to the same extent. For the purposes of this report a conservative $2m in duplication of infrastructure has been assumed to cover additional plant and equipment at Whenuapai. This is replaced every 10 years. In addition, a net additional operating expense of $1 per passenger has been adopted at Whenuapai over AIA. • • Under the ‘Most Likely’ scenario this translates into NPV costs of $19m over 25 years. Under the ‘Best Outcome for Whenuapai’ scenario this translates in NPV costs of $15m over 25 years. Under the “No Second Runway’ scenario this translates into NPV costs of $28m reflecting the higher passenger numbers expected.

3.8 Central and Local Government Agency Costs
3.8.1 Central Government Agency Costs

We have modelled the costs of establishing and operating an additional entry point into New Zealand (MAF and Immigration costs as well as security and Customs). This is based on information provided by Airplan5. These costs have been calculated as a net addition to processing the same volumes of air travellers through Auckland Airport. There is some uncertainty as to whether some of the costs of establishing border control measures at Whenuapai, or extending the facilities that already exist there, could be covered by directly charging airlines. Regardless of how these direct costs are met, the economic cost of duplication of infrastructure that is then under-utilised is borne by the economy as a whole. The government agency costs incorporated into this analysis include: • MAF charges at an incremental rate of $10 per arriving passenger, based on the charges MAF has, until recently, been charging at airports other than the “places of first arrival” (which are defined as Auckland, Wellington, Christchurch, Whenuapai and Ohakea).

5

“Whenuapai as an airport for a Low Cost Carrier – Summary of Airplan Tasks”, internal paper to AIAL, 2004

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Customs charges; These are expected to be between $8 - $10 per passenger net additional to the charges these same passengers would face at Auckland International Airport. Aviation Security: AvSec provides its services at international airports including screening of departing passengers and cabin baggage plus limited inspection of hold stored baggage and general security surveillance of facilities and people. This is charged at $4.00 per international passenger and $2.80 per domestic passenger. Whilst this is charged to the passenger there would be duplication of infrastructure that would not be covered by this fee. For the purposes of this report we have assumed 10% of the fees represents the over-investment in infrastructure ($0.40 per international passenger and $0.28 per domestic passenger). The CAA has also ruled that by the beginning of 2006 all hold stowed baggage will be screened for explosives. The cost of undertaking this at Whenuapai is expected to be $10 per departing passenger compared with $2 per passenger at AIA. This represents a net additional $8 per passenger using Whenuapai. There will also be an initial setup cost burden of between $2 m and $4m ($3m has been modelled over 10 years on a per passenger basis).

3.8.2

Local Government Costs

There is also some evidence that local council is offering rates relief in order to progress a second commercial airport. This represents an opportunity cost that is borne by residents and needs to be incorporated into any assessment of costs and benefits. Ernst & Young have calculated the likely rate take from the highest and best use of the Whenuapai land is around $3.3m. This subsidy is important from a second perspective. If the second commercial airport is only viable with subsidies from local councils then once these are removed, the airport may not continue to operate – or only do so with government subsidies. AIAL may then have made investment decisions in light of a second airport that prove to be sub-optimal. The end result could be a shortage of airport capacity across the region.

3.9 Noise Costs
There are likely to be significant costs associated with increased levels of noise from an increase in the number of aircraft movements at Whenuapai operating as a commercial airport – compared with the existing RNZAF operation. These costs are reflected in impacts on property values for households that reside within the various noise contours. Ernst & Young’s Real Estate Group have produced an assessment of the range of impacts across 1,278 impacted properties6. We adopt their findings for the purposes of this report. The Ernst & Young report prepares two scenarios of impact:
6

“Scenario Based Valuation Advice RNZAF Airbase, Whenuapai”, December 2003, prepared for AIAL 12

The Low Impact scenario is developed by comparing likely noise profiles with the current RNZAF noise contours. This means that the increase in noise from existing levels is lower than from a rural base. Under this scenario, the value impact quantum ranges from $18m to $53m, based on international studies into the % diminution range (between 0.75% and 2.25%). The High Impact scenario is developed by comparing expected noise profiles against typical rural/residential noise level. This reflects the underlying zoning for the site and the highest and best use for the land post airbase closure. The value impact quantum ranges from $52m to $155m.

In the absence of information to distinguish between these two options, the midpoints have been selected and weighted 60:40 in favour of the low impact scenario, with the exception of the no second runway at AIA scenario, where the higher number of flights expected at Whenuapai are reflected in the selection of the highpoints of each option. Again the weightings have been applied. This produces two noise cost inputs to the model: • • The most likely and best Whenuapai outcome scenarios carry noise costs of $62m The no second runway at AIA scenario carries noise costs of $92m.

3.10 NPV Assessment of Cost Alternatives
From the benefit and cost estimates, we have developed cost and benefit streams for each scenario, over the first 25 years of potential operation (the 2008-2032 period). We have identified the NPV of each scenario in $2004 terms. We have also identified the relevant airport costs per passenger, so that the resource consumption for each level of output is identified. These provide key measures, since they show the relative additional cost which may be carried by passengers if Auckland has additional airport capacity. We have not carried out an economic impact analysis that measures the contribution of airports to the regional economy. That type of analysis is not appropriate in this case – the larger cost structure that would occur under a two-airport future would show up as a higher level of economic activity in Auckland simply on the basis of the additional resources (land, labour and capital) required to sustain two airports. The real issue is the level of resource consumption (or costs) for the required level of activity to meet Aucklanders’ travel and freight needs. These are best met by the lowest net cost outcome.

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4 Potential Travel and Transport Benefits from a Whenuapai Airport
4.1 Scope
Two main benefits from a second airport at Whenuapai have been suggested: i. Lower land travel costs and increased travel convenience for air passengers, arising from the choice between two airports, and reduced travel distance and time for passengers living closer to Whenuapai than Mangere. Increased air travel, arising from the operation of a low cost carrier (LCC) from Whenuapai. The availability of lower air fares would see increases in domestic and outbound air travel (by New Zealand residents) and additional travel (trans-Tasman) to New Zealand by overseas visitors.

ii.

To examine these potential benefits, two detailed analyses have been undertaken. One examines the land travel patterns within Auckland by domestic and international passengers who use Mangere, and the potential for those passengers to more conveniently or cheaply access Whenuapai. The second analyses the New Zealand air travel market, with particular regard to current domestic and outbound travel rates by Auckland residents, and inbound rates by the Australian market.

4.2 Land Travel Analysis
The land travel analysis is a detailed examination of air travel by each key market segment into and out of Auckland. The purpose is to identify those markets which Whenuapai can potentially serve, and to understand the likely origins and destinations within Auckland of those travellers who visit Auckland, and Auckland residents travelling by air to other parts of New Zealand or overseas. A Land Travel Model has been developed, with capability to show the within-Auckland origins and destinations for each market, by time of week (relating to peak traffic flows) and according to future air travel growth. This model shows the land travel implications of air travellers using Mangere and Whenuapai, under different assumptions of market capture and travel stimulus. The key sections of the Land Travel Model are: i. Passenger and Flight Statistics: AIAL domestic and international passenger arrival and departure numbers, showing origins and destinations of flights, and time of departure and arrival. This provides a complete picture of current commercial air travel to and from Auckland. While it does not provide detail on the nature of air travellers (for example, distinguishing between business and non-business travel, or between New Zealand residents and international visitors travelling on domestic services), this data provides the base against which survey data can be reconciled. AIAL domestic and international flight numbers and capacity, by time and airport of origin or destination. The domestic origin and destination information is critical to identify the potential for routes to be serviced simultaneously from two airports in

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Auckland, since there need to be enough daily flights (and passengers) to sustain two parallel services. Similarly, international travel origin and destination data is critical to distinguish demand and capacity from routes which can feasibly be serviced by 737 aircraft from Whenuapai (Sydney, Brisbane, Melbourne, Canberra, Coolangatta, Fiji), from those which cannot (the balance). The passenger and flight statistics by time of day are an essential indicator of times at which domestic and international arrivals are likely to exit the airport, and when departing travellers are likely to leave for the airport. In relation to traffic analysis, these equate to the time of trip start. ii. Air Travel Survey Statistics: customised data was obtained from the International Visitor Survey (IVS) 2000-2003 and Domestic Travel Survey (DTS) 1999-2001 to identify the annual numbers of : a. Domestic Travellers from Auckland on overnight trips, for • • • • • • Business travellers Non-Business travellers (Holiday, VFR and Other purposes) By destination (main axis vs other) Business travellers Non-Business travellers (Holiday, VFR and Other purposes) By destination (main axis vs other)

b. Domestic Travellers from Auckland on day trips, for

c. Domestic Travellers to Auckland (from elsewhere in NZ) on overnight trips. This is again based on DTS data, by purpose and origin. d. Domestic Travellers to Auckland on day trips. This is based on DTS data, by purpose and origin. e. International Visitors to New Zealand travelling to Auckland on domestic air services. This is based on IVS data, with the same detail as above. f. International Visitors to New Zealand travelling from Auckland on domestic air services. IVS data .

g. International Travel by Auckland residents. This is based on IVA data by purpose and main destination (Australia vs Other), and allows for departures and returns. h. International Travel by New Zealanders from elsewhere in the country. IVA data by purpose and main destination (Australia vs Other). i. j. International Arrivals to Auckland by purpose and market. purpose and main origin (Australia vs Other). IVA data by

International Departures from Auckland by purpose and market. IVA data by purpose and main destination (Australia vs Other).

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This data was compared and reconciled with the AIAL arrival and departure statistics, to estimate the structure of each major air passenger flow (inbound and outbound, domestic and international, main axis and other) by time of week, in terms of each market, and purpose and duration of travel. Overall, some 64 specific market and origin-destination combinations were identified and matched with aggregate flows to and from AIAL. Because the data on market structure is derived from surveys (IVS, DTS, IVA) and weighted up to produce total figures, there is not a direct match between the surveyed totals and the AIAL actual passenger number counts. To reconcile the totals, the AIAL counts were adopted as the actual numbers, and the IVS, DTS and IVA data used to estimate the percentage shares of each flow which can be attributed to each market segment. The market segment analysis is critical, because each market has different characteristics in terms of their origins and destinations within Auckland. iii. Passenger Time of Arrival/Departure Analysis. It is also necessary to understand the likely distribution of air passenger travel across the week, for each market. This is because each market has different origin-destination characteristics within Auckland, so passenger arrival and departure times have different implications for road travel within the region. The requirement to identify time of arrival or departure applies especially to domestic travel. The longer duration of international travel means that it is appropriate to allocate arrival and departure times for each market pro rata with the average for all markets (eg to allow for the weekly pattern of business travel to Australia to have the same distribution across the week as all travel to Australia). There are no statistics available from the IVS or DTS on the time of domestic travel, and estimates have been derived according to the nature of travel, and its required or likely duration. The estimation involved weighting the arrival and departure distributions of each market to reflect these characteristics, while at the same time ensuring that the aggregate effect of the estimates across all market remained consistent with the actual arrival and departure counts at AIAL (for weekday morning peak, middle of day, afternoon peak, evening, and weekend). The key adjustments were: a. Domestic Travellers on Day Trips: Day trip departures from Auckland were weighted toward travel early in the day (and return flights correspondingly later in the day), and toward weekday travel for business travellers. This reflects the purpose and cost of air travel (travellers can maximise the time able to be spent at the destination by early departure/late return), and the simple logistics of travel time (eg 90 minutes flight time to Christchurch, airport turnaround and 2-3 hours of business makes for a minimum 6-7 hour return trip duration, which pushes departure times toward morning peak or mid morning and return times toward afternoon or evening peak).

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The same logic applies for day visitors to Auckland, whose arrivals are weighted more heavily to the morning peak and subsequent departure (returning home) to the late afternoon peak or evening. Non-business travellers were assumed to have similar departure and return characteristics as business travellers, driven mainly by the time logistics of undertaking day return air travel, though with a higher weighting toward evening travel and weekend travel to reflect the higher flexibility of non-business travellers, and their greater sensitivity to travel costs (lower fares are generally available for later evening and weekend travel). b. Domestic Travellers on Overnight Trips: Overnight trip departures from Auckland were also weighted toward early in the day (and return flights later in the day), although the weighting adjustment was less than for day travellers. This is because overnight travellers have greater time flexibility, and so will show a distribution of travel time which is closer to the all passenger average. As with day travellers, business travel was weighted more toward weekdays, away from weekends, while non-business travel was correspondingly weighted toward weekends. c. International Visitors on Domestic Air Services: The time distribution of international visitors on domestic services was weighted to correspond with the overnight travel arrival and departure patterns (for business and non-business). The principal output from the analysis and reconciliation of the AIAL and travel survey data is a set of estimates for the 2003 (June) base year which shows for each market segment the numbers of passengers arriving and departing, and the proportions of those passengers arriving or departing in each main time period (weekday morning peak, middle of day, afternoon peak, evening and weekend). The totals across all market segments correspond with the AIAL passenger counts, in total and for each time period across the week. This data set has been applied to the base analysis (2003) and to the projected passenger numbers for 2008, 2011, 2015, 2020 and 2025 (see below, passenger projections). iv. Passenger Origins and Destinations within Auckland. The origin and destination characteristics of travellers to and from Auckland will vary according to the nature of the market segment, the purpose of travel and the time of travel, as well as the direction (visitors to Auckland will have different destinations within the region from Auckland travellers returning). There is very limited data available on origins and destinations within Auckland, since the survey sources do not offer reliable details on individual trips. Nevertheless, knowledge of the purpose and timing of travel provides a reasonable guide as to likely origins and destinations.

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The main influences on non-business domestic travel origins and destinations are the place of residence (Aucklanders outbound, other travellers inbound staying with friends and relatives), and the distribution of commercial accommodation (especially hotels and motels) within the region. The distribution of business activity (especially retail) is recognised as a minor influence on non-business travel. The main influences on business travel origins and destinations are the distribution of business activity (business visitors to Auckland, and business travellers from Auckland), commercial accommodation (hotel and motel for visitors to Auckland) and resident households (a minor influence for visitors to Auckland, though a major determinant of the departure point for Aucklanders flying). The main influence on international visitors’ origins and destinations are the distribution of commercial accommodation (hotels and motels), the resident population (especially for VFR and other non-business visitors staying in the homes of friends and relatives), and business activity (for business travellers). The relative importance of each driver varies according to the time of travel, especially for business travellers leaving from home (early flights) or place of work (later flights), and returning to Auckland (home or to the place of business). The distributions of business, accommodation and resident population were identified for each area unit (CAU) and each ART model zone within Auckland, as follows: Business Activity – identified from the Business Directory (Statistics NZ 2003) which shows numbers of business and employment (FTEs) in each location. However, it is recognised that the amount of air travel per person employed varies considerably among sectors of the economy. Data from the Statistics NZ Inter-Industry tables (2001) was analysed to show the scale of purchases from the air transport sector by each other sector. Although this data is generalised, and the purchases show air freight as well as passenger flows (especially for the manufacturing and wholesale sectors), it provides a reasonable indication of the relative propensity of different sectors to use air travel services. The Inter-Industry tables show relatively high purchases in the communication, property and business services and finance sectors, and relatively low use of air services in the trade sector, government and household services, health and education. These weightings were used to estimate a weighted distribution of employment as a generator/attractor of air travel. The effect of applying the weighting is to accentuate the CBD and other areas where commercial business activity is concentrated, and to correspondingly reduce the importance of other areas. Overall, the weighting shows a higher generation/attraction by businesses in Auckland City, reflecting the structure of economic activity there, and lower generation/attraction in other TA areas of the region. Commercial Accommodation Capacity – this is also identified from the Business Directory, with data on numbers of business and employment (FTEs) in each location. For international visitors and business travellers, the distribution is according to hotel and motel accommodation only, with the % share in each CAU/ART zone of total regional employment. For domestic visitors, the distribution is according to employment in all types of commercial accommodation. However, there is very little difference in

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the two distributions, given the dominance of the hotel and motel sub-sectors (83% of total accommodation sector employment). Resident Households – household numbers have been identified from Census 2001, and updated to 2003 according to ARC projections (2003). However, allowance is also made for observed differences in outbound air travel by Auckland residents between local authority areas within Auckland. This was identified from the Domestic Travel Survey (1999 to 2001), which showed that outbound travel rates for business day and overnight travel are higher among Auckland City residents (some 30% above the regional average), and relatively high for North Shore and Manukau residents compared with travel by Waitakere, Rodney, Papakura and Franklin residents. Similarly, travel rates for overnight non-business air travel are higher for Auckland City, North Shore City and Papakura residents than for residents of Waitakere, Rodney, Manukau and Franklin. The data on day-return non-business travel is not comprehensive enough to show within-region differences. These weightings were used to reflect differences in travel volumes per household originating in each local authority area, though factored down by 50% to allow for expected shifts in the last 18 months following the re-positioning of Air New Zealand and the resulting increase in domestic air travel volumes. Passenger Projections Passenger growth projections for the ‘Base Case’ situation have been applied as follows: Air Travel Annual Growth Rates 2003-2025

2003-11 Domestic NZ Outbound International 4.4% 4.2% 6.7%

2011-25 2.4% 2.4% 3.7%

4.2.1

Land Travel Model Outputs

The principal outputs from the Land Travel Model are estimates of passenger numbers for each market segment and time of week, for each ART zone. Identified separately are passengers leaving to travel to the airport (outbound travel and visitors leaving for return flights) and from the airport (inbound travel, and Auckland travellers returning home). These outputs represent the “Base Case” situation of air travel, where Auckland is serviced by the AIAL airport at Mangere. The core outputs have been applied using a simulation process to identify passenger numbers from each segment who would use Whenuapai, according to different assumptions about market capture, and the stimulation of additional air travel, for each catchment area.

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4.3 Whenuapai Land Travel Scenarios
The focus of the land travel assessment is the origins and destinations within Auckland of air travellers using Whenuapai in the future. Within the time frame of this study, alternative travel modelling using the ART model with a revised set of airport travel inputs was not feasible. Instead, the focus is on which of the ART travel modelling results already available reflects most accurately the likely outcome from an airport at Whenuapai. The Land Travel Model analysis has been applied to identify the land travel patterns which will reflect the most likely patronage outcome for Whenuapai, for comparison with the ART inputs.

4.3.1 Background The travel and traffic implications of potential passenger flows within Auckland were previously analysed using the Auckland Regional Council’s ART model, by David Young Consulting (DYC) during 2003 and Sinclair Knight Mertz (SKM) in early 2004. Those analyses applied the airport trip generation and origin-destination information contained in the ART model. Concerns were raised in the SKM study regarding the accuracy of the travel time and distance savings from the ART model analysis. This was particularly because most of the travel cost savings (which were equated with travel benefits) derived from reduced travel time rather than travel distance, and because the travel reductions were in the order of 0.2%-0.5% across the network. The average travel time and distance savings per trip for airport users were very small. This meant that the magnitude of potential travel benefits was driven primarily by: • • the number of air travellers using Whenuapai their origin and destination points across Auckland (for travel to and from the airport).

The DYC and SKM analyses both confirmed this through the substantial differences in the amount of travel benefit. The DYC study estimated benefits of $12m to $304m (expressed in NPV terms over 25 years), with the differences arising primarily from the assumptions about the origins and destinations of travellers. The DYC study estimated that if users of Whenuapai were distributed pro rata (per capita of population, and per FTE of employment) across Auckland, then the travel savings were around $12m over the period. For the higher level of travel benefits to be achieved, the origins and distributions of travellers had to be strongly weighted toward the Waitakere City, North Shore and Rodney catchments. This meant that Whenuapai would have to serve a very high share of the demand from these catchments (48-49%), with minimal levels of cross town travel by air travellers from central and southern Auckland. The SKM study expressed concerns about that assumed distribution of travel, particularly because around two thirds of the passenger numbers through Whenuapai were assumed to be new demand, arising from the presence of an LCC there. Since the main driver of this additional demand would be the lower price of air travel, there was little likelihood of all the extra demand arising simply in the Waitakere, North Shore and Rodney catchments, with none generated from the larger population bases in Auckland City, Manukau City, Papakura and

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Franklin, or areas south of Auckland. Rather, the additional travel stimulated by a lower price threshold would be more likely to apply to the population at large, and so the associated travel would be spread more or less pro rata across Auckland. Further, since the ART model analysis was based on redistribution of existing airport-related trips, it was not able to make allowance for additional vehicle trips arising from the additional air travel. Accordingly, the travel benefits are assumed to arise from redistribution of the same volume of airport-related travel, rather than redistribution of around 6% of existing travel, and the addition of 11-12% of such travel. Finally, the ART model analysis is based on travel in the weekday morning peak, an average for the weekday inter-peak, and the evening peak period, with estimates for travel during the balance of the week (evening and weekends). As a consequence, the estimates of travel benefits are sensitive to assumptions about the time of airport related travel, especially the shares of this travel which occur in the morning and evening peaks. In the various analyses by DYC and SKM, these periods account for 35-62% of the total travel benefits. 4.3.2 Land Travel Model The more detailed analysis undertaken for this study reflected the concerns about the underlying assumptions and trip distributions contained in the ART modelling. While the ART model is effective for its prime purpose as a regional transportation and travel model, its application to assess the siting of specific infrastructure, such as an airport, places higher demands on the accuracy of base data (trips, origins, destinations and timing) and consistency with other information (passenger numbers, travel rates, and the geographical distribution of the origin and destination drivers.

4 . 4 T ra ve l A s s e s s me n t
4.4.1 Whenuapai Operation 1. Domestic main trunk travel (to and from Wellington and Christchurch). Travel on the main trunk represents about 70% of total domestic air travel to and from Auckland. The level of inbound and outbound demand on other domestic routes is not sufficient to sustain parallel services operating from two airports – either from the same airlines operating from both, or competing airlines each operating exclusively through Mangere or through Whenuapai. These regional services will therefore continue to serve the wider Auckland market, and it is very unlikely that they would completely relocate to Whenuapai, for four reasons: a. the major share of travel demand arises from areas closer to Mangere than to Whenuapai (making the latter less convenient) b. additional time and cost in making flight connections to other domestic or international flights through Mangere

A commercial airport at Whenuapai would be potentially be able to service:

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c. the loss of airline scale economies from operating main trunk and regional services from different airports in the same destination d. the LCC orientation to large passenger volumes means that the low-volume regional routes offer little return. 2. International trans-Tasman air services (to the east coast cities of Australia, and Fiji). This is because the Whenuapai runway would be able to service 737 aircraft, but not larger 747s or 767s and the like. The operational range of 737s means that direct flights would be possible trans-Tasman to and from Australia (Sydney, Brisbane, Melbourne, Coolangatta) and Fiji. Other destinations are also within range (especially other Pacific Islands), but do not offer large enough passenger volumes to be attractive to LCC operation. The main international market would be Australia, together with Aucklanders and other New Zealand residents travelling to and from Australia. In broad terms, Whenuapai could potentially serve a maximum of around 32% of international travel (Australians) and around 49% of New Zealand outbound travel.

4.4.2 Whenuapai Travel Scenarios The numbers of passengers using Whenuapai and their origins and destinations by ART zone within Auckland have been estimated for three scenarios. In each, the passenger numbers using Whenuapai are estimated to reach 1,500,000 by 2015 (at 15% market capture) and 2,000,000 (at 20% capture). Of these, 33% (500,000 or 667,000) are assumed to be attracted from Mangere, and the balance of 67% (1,000,000 or 1,330,000) represents market growth stimulated by an LCC. The 1,500,000 passengers by 2015 equates with 15% of the total market (including the assumed stimulation from the LCC) and thereafter passenger numbers would grow in line with overall demand growth, to around 1,900,000 by 2025 and 2,300,000 by 2035. Among passengers attracted from Mangere, the assumed split is 20% business and 80% nonbusiness, reflecting the greater price sensitivity of non-business travellers. Among the extra demand assumed to be stimulated by the LCC-Whenuapai combination, the split is 10% business and 90% non-business. The scenarios are as follows: Origin-Destination Pattern 1 – travellers through Whenuapai are distributed pro rata across Auckland, for both those captured/attracted from Mangere, and for growth in demand stimulated by an LCC. Origin-Destination Pattern 2 – travellers through Whenuapai are not distributed pro rata across Auckland. Some 50% of those captured/attracted from Mangere are from areas closer to Whenuapai (compared with 27% for passengers overall), so that the capture rate in these areas is around 2.5 times than in areas closer to Mangere. The demand stimulus effect is stronger by one third in areas closer to Whenuapai. Origin-Destination Pattern 3 – travellers through Whenuapai are not distributed pro rata across Auckland. Some 75% of those captured/attracted from Mangere are from areas closer to Whenuapai (around three times the average of 27% for passengers overall), so
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that the capture rate in these areas is around 7-9 times than in areas closer to Mangere. The demand stimulus effect is stronger by one third in areas closer to Whenuapai. These passenger travel outcomes (origins and destinations) were compared with the ART model assumptions used in the DYC and SKM analysis. The comparison is shown in Figure 4.1, which portrays the shares of passenger numbers (Land Travel Model) and vehicle trips (ART Model) to/from each TA. Pattern 1 is reasonably close to the pro rata estimate used in the DYC study (Option 1) though with higher shares from Auckland City according to the Land Travel Model, and lower shares for other TAs. That pattern identified travel savings of around $12m (based on subsequent adjustments by the SKM analysis). Figure 4.1 : Air Passenger & Trip Origins-Destinations within Auckland – Land Travel and ART Model Comparison 2011
60%

50%

SHARE OF PAX / TRIPS (%)

40%

30%

20%

10%

0%
RDC NSC WCC ACC MCC PDC FDC RDC NSC WCC ACC MCC PDC FDC RDC NSC WCC ACC MCC PDC FDC

PRO RATA SPREAD

MEDIUM REGIONAL FOCUS

STRONG REGIONAL FOCUS

AIAL

ART

Pattern 2 reflects the medium regional focus from the Land Travel Model, but differs substantially from the DYC medium pattern. In the Land Travel Model, the shares of passengers to/from the northern and western catchments (40%) are still well below those in the ART analysis (53%). Pattern 3 from the Land Travel Model has the strongest regional focus toward Waitakere, North Shore and Rodney, with around 51% of passengers to or from these catchments. However, this differs considerably from the DYC analysis Option 2, which has 100% of trips to/from these catchments, and none from other areas. Rather, the strongest regional focus from the Land Travel Model corresponds most closely with the DYC study’s Option 3 (moderate regional focus). This is shown in Figure 4.2, where Pattern 3 is compared with DYC Option 3. Even then, the shares of Whenuapai air travel arising from the Waitakere, North Shore and Rodney catchments in Pattern 3 are lower (51%) than those applied in the DYC’s ‘moderate’ regional focus (53%).
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Figure 4.2 : Air Passenger & Trip Origins-Destinations within Auckland – LTM (Pattern 1 & 3) and ART Model (Option 1 and 3) 2011
60%

50%

SHARE OF PAX / TRIPS (%)

40%

30%

20%

10%

0%
RDC NSC WCC ACC MCC PDC FDC RDC NSC WCC ACC MCC PDC FDC

PRO RATA SPREAD

L.T.M. STRONG vs ART MEDIUM REGIONAL FOCUS

AIAL

ART

In other words, the strongest geographical focus from the Land Travel Model implies a slightly more even spread across the region even than the DYC medium modelling, with its associated travel savings of $79m (as previously, based on subsequent adjustments in the SKM analysis). The key implication is that the detailed market analysis and catchment estimates using the Land Travel Model indicate that the likely land travel savings lie between the two lower estimates from the DYC study – in other words, the potential travel savings lie between $12m and $79m in NPV terms. The DYC study’s Option 2 (strong regional focus, where all demand for Whenuapai is from Waitakere, North Shore and Rodney) was acknowledged as an extreme outcome. The research in developing the Land Travel Model suggests such an outcome is unrealistic, since the market shares which Whenuapai would have to attract are very high, and it is simply inconsistent to assume very high attractiveness to certain markets at the same time as very low attractiveness to similar markets nearby.

The Whenuapai passenger travel patterns have also been analysed by time of week. As noted, between 33% and 62% of the travel savings arise from the peak period (morning and evening peak). The analysis of air passenger travel timing shows that 10-12% of airport related travel starts during these peak times. This suggests that the potential travel savings may be overstated if a disproportionately high share of trips is assumed to be in the peak periods, when the savings from travel time reduction tend to be greatest.

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4.4.3 Implications for Land Travel Costs The Land Travel Model analysis, of both catchments and time of day of airport related travel, indicates clearly that the potential travel benefits from Whenuapai lie within the $12m - $79m range. The time of day analysis further indicates that the travel cost savings are closer to the lower end of that range than the upper end. However, these conclusions need to be confirmed through comparable ART model analysis, when appropriate.

4.5 Stimulus to Air Travel Demand
The second major benefit suggested for a second airport is a stimulus to air travel demand, generated primarily by the presence of an LCC at Whenuapai. Growth in demand would mean benefits to Auckland consumers if they are able to fly to more destinations, and to the national economy in the form of foreign exchange earnings if more international visitors travel to New Zealand. The key issues are the scale of such benefits, and whether they are attributable to the presence of a second airport.

4.5.1

LCC vs Second Airport

The stimulus to air travel demand would be driven primarily by the presence of an LCC at Whenuapai. The price differential (lower air fares) would result in more domestic and outbound travel by Aucklanders, and more international travel from the eastern seaboard of Australia. There would be a secondary, but very small, stimulus from the closer proximity of services for residents of northern and western Auckland. This means, however, that the stimulus would arise from the LCC operation, not the existence of a second airport per se. The link with a second airport is predicated on the assumption that an LCC would only operate through Auckland if Whenuapai were developed, and would not operate through Mangere. In other markets, LCC operations are not dependent on the presence of secondary airports. In Australia, for example, LCC operators use the ‘main’ airports in Sydney, Melbourne, Brisbane, Perth and elsewhere. Further, there is capacity for LCC operations at Mangere, and the planned expansion of international and domestic facilities there will provide for such capacity in the long term. Accordingly, any stimulus to travel demand from an LCC, and associated benefits, cannot reasonably be attributed to establishment of a second airport.

4.5.2

Potential Stimulus to Air Travel Demand

The second issue is the scale of any demand stimulus. In previous reports, various scenarios were publicised of passenger numbers through Whenuapai, based on one third from market capture and two thirds from demand stimulus, and assumed market shares of 15% and 20%

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for Whenuapai, from among the segments served – domestic main trunk, NZ outbound and international inbound (and vice versa) trans-Tasman. We have examined the implied market shares and demand stimulus implicit in these numbers, using base growth passenger forecasts, for 2015 as a base year. • In 2015, total passenger numbers through Auckland would be around 18.1m, including 6.9m domestic, 3.5m NZ outbound, and 7.7m international. Of these, around 8.9m would be domestic main trunk, or trans-Tasman. If one third of Whenuapai passengers are drawn from the existing base market, this would mean 0.5m (out of 1.5m total) drawn from the 8.9m base market. This is a ‘capture’ rate of some 5.6%. The balance of 1.0m would represent the demand stimulus. While this would vary across the domestic and trans-Tasman market, it would mean an overall stimulus of around 11.3% (an extra 1.0m passengers from a base demand of 8.9m). Any stimulus effect is expected to be stronger for the domestic and NZ outbound markets than for Australians inbound. If 75% of the demand is from these markets, then this would represent a stimulus effect of around 11.5%. If the overall passenger throughput were 2.0m by 2015, then the capture rate would be 7.3%, and the market stimulus effect 15% (and 15.5% for New Zealand resident travel).

• • •

These figures imply strong market shifts in response to air fares, primarily from the Auckland market. Several factors are relevant: i. There is already considerable low-cost capacity both domestically and trans-Tasman. The availability of low fares from existing airlines across all domestic routes including the main trunk (for example, Air New Zealand’s express service) means that a specialised LCC would be competing within an existing market structure, rather than establishing an entirely new niche. ii. The domestic market has already responded to these fare structures, with substantial increases in domestic travel – domestic passengers through Mangere in the year to June 2004 were 14.4% up on the 2003 year. Similarly, the numbers of New Zealanders travelling to Australia during 2003 increased by 9.8% over the 2002 level, after annual growth of around 1.4% over the previous 4 years. iii. The domestic and trans-Tasman markets are of limited size in international terms. This suggests there will be less scope for the very low cost fares – which are usually available on a portion of route capacity overseas – to be widely available. iv. Similarly, the fact of route distances – with a 2,000km haul trans-Tasman – limits airlines’ capability to make cost savings and offer low fares, since a relatively high share of costs arise from aircraft operation. v. As a consequence, the price differential between LCC operation and the fares available from existing carriers will be limited.

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These factors together indicate that the potential for a significant market shift in response to lower air fares from an LCC will be similarly limited, especially on top of the recent observed shifts in response to lower fare structures. This is especially so for the Auckland air travel market, which would generate the bulk of New Zealand demand through Whenuapai. The air travel rates by Auckland residents (travel per capita) are already nearly double those for New Zealand as a whole. They are substantially higher than travel rates from the catchments already served by LCC operations. Figure 4.3 shows outbound travel rates for 2003 (trips per 1000 resident population), by region. The Auckland rate is substantially higher than for other markets, at 487 per 1000 (compared with the national average of 265 per 1000). The major metropolitan markets (Auckland, Wellington and Canterbury) which are served by international airports have travel rates higher than other regions. Waikato, Manawatu and Otago (all served by LCC transTasman services from their regional airports) have travel rates similar to other regions not directly served.

Figure 4.3 : Outbound Air Travel Rates by Region 2003
600

Annual Departures per 1,000 population

500

400

300

200

100

0

Bay of Plenty

Hawke's Bay

Canterbury

Northland

Otago

Marlborough

Gisborne

Manawatu-Wanganui

Tasman / Nelson

REGION

Figure 4.4 shows outbound travel rates for Auckland region compared with the rest of New Zealand, over the period 1991-2003. The Aucklanders’ outbound travel rate has remained substantially higher than for other markets, growing at an annual rate of 3% since 1991 (though only 1.4% since 1996). As well as showing the established differential in travel rates, the long term growth rate of 1.4% helps set the effect of the assumed demand stimulus (of 11-15%) in context.

West Coast

Wellington

Southland

Auckland

Taranaki

Waikato

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Figure 4.4 : Auckland vs Other Outbound Air Travel Rates 1991-2003

600 Annual Departures per 1000 population

500

400

300

200

100
Auckland All Other

0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

4.5.3

Other Issues

The various assumptions relating to the Whenuapai market structure – in terms of growth vs market stimulus – also require further consideration. In particular, there is a prima facie inconsistency in the notion that lower fare structures would generate an increase of 11-15% in travel demand, but have only half that effect in terms of attracting existing travellers. We note also that the assumptions about the structure of Whenuapai passenger numbers are very important for an economic assessment. In particular, if the split were not heavily weighted toward demand stimulus rather than market capture, then this would mean a greater level of diversion from Mangere to Whenuapai – and correspondingly greater impact on travel costs per air traveller.

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5 Net Economic Cost Benefit Assessment
The net economic benefits of a second airport at Whenuapai are assessed by comparing the NPV costs associated with meeting the travel needs of those passengers likely to be attracted to Whenuapai, either at Whenuapai or at AIA.

5.1 Most Likel y Eco n omic Outcome – Base Case
The Base Case Scenario is the one that is most likely to occur should Whenuapai be developed as a second commercial airport for Auckland. The scenario has the following characteristics: • Whenuapai is developed to operate alongside the RNZAF for the initial years with commercial flights starting in 2008. A low-cost carrier is established at Whenuapai beginning services on the main trunk routes (Auckland Wellington and Christchurch) and the SW Pacific (eastern Australia and Fiji). By 2015 the Whenuapai airport has reached its maximum market penetration of 20% of target routes (11% overall market share). This translates to around 2m passenger movements in 2015. Passenger volumes through Whenuapai then grow at the rate of overall Auckland market air travel growth into the future. The airport is developed by overlaying the existing runway with asphaltic concrete and a deep asphalt overlay (SKM’s Infrastructure Option 1). This option has high maintenance costs but low capital costs up front. It is believed this will be the approach taken. Note also that no allowance has been made for the higher maintenance costs which this option incurs. By assuming low capital costs up front, the figures presented are a very conservative cost estimate. The capital expenditure costs associated with the second runway at AIA have been isolated from the total capital expenditure programme over the next 15 years on a pro rata basis, in order to standardise the costs for appropriate comparison between the two airports. AIA costs have been divided by the volumes of domestic passenger movements over the next 25 years to derive a cost per passenger through AIA, then multiplied by the numbers of passenger movements expected at Whenuapai to estimate the share of AIA costs which would be attributable to that volume of passengers. This is to ensure that like-for-like capital cost comparisons can be made. The proposed Whenuapai airport is likely to have operational characteristics which are very similar to Hamilton airport (with a similar flight offer both domestically and internationally), therefore very similar airport operating expenditure profiles are expected. Given this assumption, the proposed airport at Whenuapai is likely to operate at a higher cost per passenger movement than at Auckland. It is unlikely that any airport operating on the passenger volumes expected at Whenuapai can match the
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economies of scale and therefore the low average cost curve on which AIA is able to operate. The figures presented in Table 5.1 represent the net additional airport operating costs associated with Whenuapai over and above those at AIA. • Costs associated with increased noise are based on the midpoint of the Ernst & Young 2003 study findings, which assessed the likely effects on property values. The EY study identified two alternative noise impact measures – one based on the miliary base activities (with higher implied noise tolerance and lower impacts on value), the other based on the underlying zoning for rural activities (which has lower noise tolerance and therefore higher impacts on value). The difference between low and high noise impacts is considerable (a factor of 3) and for the Base Case (given uncertainty about future surrounding land uses) a weighting of 60:40 towards the lower military noise contours has been applied. Border security, Customs and aviation security costs are based on the net figures provided by Airplan. They are net of the costs associated with processing those same passengers through AIA. Additional airline land side operating costs have been estimated at $1 per passenger plus a small component for duplication of infrastructure. These costs are additional to those associated with processing the same passenger volumes through AIA, and reflect the costs of duplication and the loss of scale economies. Land required for the airport operation has been valued at the opportunity cost associated with the highest and best alternative use. In Whenuapai’s case this is based on the Ernst & Young estimates of value associated with Boffa Miskell’s alternative vision for the site as “A satellite community that is economically, socially and environmentally sustainable and planned to meet the needs of the community today, as well as having long term viability for the future.”7 In the AIA case, this is based on the current value of the land required for the second runway. However, that second runway is intended to service significantly more passengers than estimated for Whenuapai. As with the AIA capital cost allocation, the land value has been pro rated per passenger, and weighted according to the number of movements expected at Whenuapai. This ensures the “consumption” of land by a comparable passenger volume is included only. Again, the opportunity cost of nextbest use has been applied rather than simply applying the existing land valuation. • The travel savings are based on the lowest assessment carried out by SKM. These numbers are comparable with SKM Option 1 – “No regional bias”. As described above, there are significant issues involved with the current assessment of transport impacts, primarily because the ART model may not be an appropriate tool to assess impacts that are significantly less than 1%, therefore are likely to fall well within the margins of error of the model.

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“Whenuapai Air Force Base – Environmental and Urban Design Contextual Analysis and Vision” November 2003, p5 30

Given this set of most likely assumptions, Table 5.1 presents the net economic outcome. It shows that over the 25 years from 2008, the presence of Whenuapai as a second commercial airport in Auckland will cost the country $238m in current dollar terms (2004). In every aspect other than in the costs of construction and, by a very small margin, the land transport costs, it indicates an advantage in economic terms from concentrating Auckland air traffic out of Auckland International Airport rather than splitting it across two airports. Table 5.1: Base Case Net Economic Costs of Whenuapai as Auckland’s Second Commercial Airport
Major Expenditure Category Runway - Capex Buildings - Capex Noise Airport Operating Costs (net) Border Security and Immigration Measures (net) Airline Operating Costs Opportunity Cost of Land Sub Total Travel Savings - negative impact for Mangere Whenuapai $ $ $ $ $ $ $ $ 14.7 4.7 62.2 49.4 149.6 18.7 15.6 314.8 Mangere $ $ $ $ $ $ $ $ 27.0 33.5 2.5 63.1 Net Additional Cost of Whenuapai -$ -$ $ $ $ $ $ $ -$ 12.4 28.8 62.2 49.4 149.6 18.7 13.0 251.7 13.8

Net Total

$

237.9

5.2 Low and High Scenarios
It is important to place the most likely outcome within the context of the range of possibilities (Table 5.2 and Table 5.3). This requires two additional scenarios, as follows • Best Outcome for Whenuapai Scenario: This scenario, detailed in Appendix 1, presents the lowest cost options for Whenuapai compared with the highest alternative costs at Auckland. It is associated with a lower market share capture and therefore raises doubts about the ongoing viability of the airport at these levels. No Second AIA Runway Scenario: This scenario, detailed in Appendix 2, presents the situation where AIAL shareholders deem the risks of developing a second runway are too great and choose to divest land banked for this purpose. This results in approximately twice the passenger numbers being forced to use Whenuapai as in the most likely scenario.

Under the best outcome scenario (in net economic terms) for Whenuapai, the airport generates an overall economic cost of $63m in current terms to the national economy, over the first 25 years of operation. The increases in land transport costs are not enough to overcome the $142m additional airport-related costs of Whenuapai (Table 5.2). The worst outcome for the region and the nation occurs if Auckland International Airport Ltd decides against developing a second runway. Under these assumptions the economic cost of processing significant volumes of additional air traffic through Whenuapai increase to over $343m (in current terms over 25 years). This is likely to be compounded by an additional

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transport cost as significant numbers of air travellers would need to travel between two airports each specialising in different sets of services and routes. Table 5.2: Best Outcome for Whenuapai Scenario – Net Economic Costs of Whenuapai as Auckland’s Second Commercial Airport
Major Expenditure Category Runway - Capex Buildings - Capex Noise Airport Operating Costs (net) Border Security and Immigration Measures (net) Airline Operating Costs Opportunity Cost of Land Sub Total Travel Savings - negative impact for Mangere Whenuapai $ $ $ -$ $ $ $ $ 14.7 4.7 35.0 8.1 112.6 14.8 15.6 189.3 Mangere $ $ $ $ $ $ $ $ 20.3 25.2 1.9 47.3 Net Additional Cost of Whenuapai -$ -$ $ -$ $ $ $ $ -$ 5.6 20.5 35.0 8.1 112.6 14.8 13.7 141.9 78.9

Net Total

$

63.0

Given limitations in the ART modelling, this scenario has not been tested. However, it is expected to be in favour of Mangere given that a majority of the region’s air travellers reside or work in closer proximity to Mangere than to Whenuapai. To avoid debate, it has been set to zero – therefore the figures here are conservative. In addition, the significant levels of construction activity that would otherwise have occurred at AIA to develop the second runway would no longer occur. Depending on AIAL’s use of the funds freed up by the decision to no longer develop the runway, the net effect of this noninvestment could see Auckland’s future economy smaller than it would otherwise be. Construction activity has a high multiplier effect throughout the economy due to its use of materials and expertise from a wide cross-section of the economy. If the monies were invested elsewhere, used to repay debt or even invested offshore, the multiplier effect in the regional economy could be lower than from construction.

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Table 5.3: No Second AIA Runway Scenario – Net Economic Costs of Whenuapai as Auckland’s Second Commercial Airport
Major Expenditure Category Runway - Capex Buildings - Capex Noise Airport Operating Costs (net) Border Security and Immigration Measures (net) Airline Operating Costs Opportunity Cost of Land Sub Total Travel Savings - negative impact for Mangere Whenuapai $ $ $ -$ $ $ $ $ 27.4 5.9 93.8 17.0 189.2 27.7 15.6 342.6 Mangere $ $ $ $ $ $ $ $ Net Additional Cost of Whenuapai $ $ $ -$ $ $ $ $ $ 27.4 5.9 93.8 17.0 189.2 27.7 15.6 342.6 -

Net Total

$

342.6

5.3 Other Potential Economic Benefits
Under a normal economic impact analysis a wider range of benefits are considered along with the effects they are likely to have across the wider economy. They include construction costs and often the stimulus effect that a particular development could potentially have on the economy in question. It is important to note that these aspects are not relevant for the purposes of this assessment, as they are constant across both scenarios, especially if viewed from a regional or national perspective. At the territorial authority level they are simply a transfer from one TA to another, as construction and development around either airport could potentially occur.

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6 Conclusions
In conclusion, it is clear from the assessment presented above that the development of a second commercial airport at Whenuapai carries with it significant costs to the regional and national economies that are not paid by those reaping the benefits of developing the airport. It is also apparent that the transport modelling analysis undertaken in support of the proposal has considerable limitations, particularly in regard to the origins and destinations of passengers, and the inherent limitations of applying a regional transport analysis tool to examine specific locations for key non-road infrastructure. The detailed analysis of passenger flows and markets carried out for this study shows significant differences in likely travel patterns within Auckland, and consequent use of the roading network. These, together with the nature of demand associated with Whenuapai (especially the assumed market-wide stimulus to air travel), mean that two airports would be much more likely to draw close to pro rata across the Auckland catchment. For this reason, the very high travel cost savings indicated in earlier studies should not be taken as accurate, since they do not reflect the market structure and associated traffic implications of a two-airport future compared with a single-airport future. The lowest of the scenarios modelled using the ART model has been adopted for the purposes of this paper, as its core assumptions best reflect the likely actual travel patterns. Taking that into consideration, the most likely outcome of developing a second commercial airport at Whenuapai carries a cost to the nation of almost $238m over the first 25 years of operation (2008 – 2032). In the best outcome scenario that includes a second airport at Whenuapai the cost to the national economy is $63m over the first 25 years of operation. In the worst outcome, that is, where Auckland International Airport Ltd decides not to develop the second runway, the second airport carries a national economic cost of $343m for the first 25 years of operation.

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APPENDIX 1: Best Case Whenuapai Scenario
Assumptions • Whenuapai is developed to operate alongside the RNZAF for the initial years with flights starting in 2008. A low cost carrier is established at Whenuapai beginning services on the main trunk routes (Auckland Wellington and Christchurch) and the SW Pacific (eastern Australia and Fiji). By 2015 the airport has reached its maximum market penetration of 15% of target routes (8% overall market share). This translates to around 1.5m passenger movements in 2015. Passenger volumes then grow at the rate of overall Auckland market air travel growth into the future. The airport is developed by overlaying the existing runway with asphaltic concrete and a deep asphalt overlay (SKM’s Infrastructure Option 1). This option has high maintenance costs but low capital costs up front. The capital expenditure costs associated with the second runway at AIA have been isolated from the total capital expenditure programme over the next 15 years. Average capex per pax is multiplied by Whenuapai pax to ensure that the appropriate comparisons can be made. The airport has operational characteristics very similar to Hamilton airport (similar flight offer both domestically and internationally) therefore very similar operating expenditure profiles. Given this assumption the proposed airport at Whenuapai is likely to operate at a higher cost per passenger movement than at Auckland. Costs associated with increased noise are based on the midpoint of the Ernst & Young assessments. They have been weighted 100% towards the military base noise contours which are the existing noise contours. Border security, Customs and aviation security costs are based on the net figures provided by Airplan. They are net of the costs associated with processing those same passengers through AIA. Airline operating costs have been estimated at $1 per passenger plus a small component for duplication of infrastructure. Again these costs are net of those associated with processing the same passenger volumes through AIA. Land required for the airport operation has been valued at the opportunity cost associated with the highest and best alternative use. The value has been divided by total domestic passenger movements then multiplied by the number of movements expected at Whenuapai. This ensures the “consumption” of land by a comparable passenger volume is included only.

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The travel savings are based on the medium assessment carried out by SKM. These numbers are comparable with SKM Option 2 – “medium regional bias”. As described above, there are significant issues involved with the current assessment of transport impacts, primarily because the ART model may not be an appropriate tool to assess impacts that are significantly less than 1%, therefore are likely to fall well within the margins of error of the model.

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APPENDIX 2: No Second Runway Scenario
Assumptions • Whenuapai is developed to operate alongside the RNZAF for the initial years with flights starting in 2008. A low cost carrier is established at Whenuapai beginning services on the main trunk routes (Auckland Wellington and Christchurch) and the SW Pacific (eastern Australia and Fiji). Auckland does not develop a second runway at Mangere and seeks to price all turboprop traffic from its main runway in order to maximise the number of slots available for jet aircraft. This has the effect of forcing Air New Zealand and others to utilise Whenuapai to service all non main trunk destinations within New Zealand. Passenger volumes at Whenuapai are therefore made up of the Low Cost Carrier traffic to the SW Pacific plus all non main trunk domestic travel, which has been estimated as 31% of all domestic air travel (based on analysis of all passenger movements and flights over the past year out of Auckland Airport). This sees volumes grow from 1.4m in 2008 to almost 4.9m by 2035. The airport is developed using a concrete runway rather than overlaying asphalt, as this is the best option given the increased flights expected under this scenario (SKM Infrastructure Option 2). It is also assumed that due to the increased passenger volumes, and the move away from a pure discount operation, overall capital expenditure at Whenuapai will be 25% higher than in the base case scenario. It has been assumed that there are no capital expenditure cost implications other than a reduction at AIA. However, it is noted that if this scenario comes to pass there will be significant ongoing restructuring of the existing infrastructure along the existing runway as the airport refocuses itself in an eastward direction rather than to the north where the second runway will be developed. The airport has operational characteristics very similar to Wellington airport given the similarity in passenger numbers and destinations, therefore very similar operating expenditure profiles. Given this assumption the proposed airport at Whenuapai is likely to operate at a lower cost per passenger movement than at Auckland. Costs associated with increased noise are based on the high end of the Ernst & Young assessments. As with the base case, they have been weighted towards the military base noise contours which are the existing noise contours. A weighting of 60:40 towards the lower military contours has been applied. Border security, Customs and aviation security costs are based on the net figures provided by Airplan. They are net of the costs associated with processing those same passengers through AIA.

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Airline operating costs have been estimated at $1 per passenger plus a component for duplication of infrastructure ($2m every 10 years). Again these costs are net of those associated with processing the same passenger volumes through AIA. Land required for the airport operation has been valued at the opportunity cost associated with the highest and best alternative use. The travel savings are set to zero as there are likely to be costs overall that haven’t been able to be modelled using the ART model.

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APPENDIX 2: Peer Review – Professor Basil Sharp
8th November 2004 Greg Akehurst Doug Fairgray Market Economics Ltd

Whenuapai Airport Economic Cost Benefit Assessment I have reviewed the above assessment. My report comments on components of the cost-benefit assessment as follows. 1. Project objectives: the report clearly establishes that the objective is to estimate the economic costs and benefits of a proposal to establish a second commercial airport at Whenuapai Airbase. 2. Assumptions: Key assumptions are clearly identified. Two scenarios are identified: #1. AIA Ltd Two Runway Future, and #2. AIAL One Runway Future. Under #1, Mangere develops a second runway for smaller aircraft (turboprop), allocating the existing runway to larger jet traffic. Whenuapai enters the market and captures 15-20% of the (main trunk, eastern Australian, Fiji) market. Under #2, Whenuapai enters the competition and AIA Ltd divests land banked for the second runway, large carriers relocate non trunk services to Whenuapai. On the matter of costs, it is assumed that the average cost of Whenuapai per passenger unit exceeds the average cost of Mangere per passenger unit. Moreover, there is an allowance for increasing the volume of traffic at Whenuapai under scenario #2; which raises average costs at Mangere. Costs have been obtained from AIA and airports of similar size to Whenuapai (such as Hamilton and Wellington), this approach is satisfactory. Assumptions underpinning the two scenarios are clearly presented in the appendices. 3. Base Case Scenario: clearly identified as AIA Ltd Two Runway scenario. Importantly, this is taken as a best case for Mangere in the absence of Whenuapai. 4. Investment Alternatives: The investment alternatives flow out of the scenarios given above. 5. Evaluation Period: Whenuapai is due to be decommissioned in 2008 and the evaluation spans year 2008 through 2032, a 25-year period. There are no hard and fast rules here; I would suggest that the period is adequate for a project of this scale. 6. Appropriate Level of Effort: The project team appear to have used the best available information considering the project constraints. 7. Identification and Quantification of Benefits and Costs: a. Benefits: Savings in land travel time provide the principal source of economic benefit arising out of the development of Whenuapai. In addition, the report examines the case for induced demand arising from low cost carriers operating out of Whenuapai. Estimates of passenger numbers under the above scenarios are based on a model using data from AIA Ltd, Air Travel Survey Statistics, passenger origins and destinations, and air travel growth rate projections. As expected, the number of passengers using Whenuapai, and their origin and destination, are key determinants of total benefits. The report clearly describes how passenger numbers and flows are pro-rated as well as differences with the Auckland Regional Transport model. Other benefits: such as

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possible induced demand arising from the entry of a low cost carrier, reduced delays, consumer choice and convenience, are noted but not quantified. b. Costs: The principle of opportunity cost has been applied where possible. The timing of capital expenditure is transparent as are operating costs over the life of the project. The report accepts the timing of development as given and does not consider the optimal timing of the runway extension at Mangere or the optimal timing of Whenuapai development. All inputs are priced at their opportunity cost. In the case of land, the value of land is included at its market price which is appropriate. The value of land is expected to rise over the 25-year period and this enhanced real value is accounted for at the end of the project. Handling salvage has been simplified by using a straight line depreciation formula. Importantly, the analysis does not double count costs such as annual depreciation, interest and principal charges. The impact of noise associated with the development of Whenuapai has been appropriately recognised as a cost. 8. Comparison of Costs and Benefits: Table 5.1 shows the net economic cost of the base case (Whenuapai over Mangere) is NPV(7.5%) = $237.9 m. 9. Sensitivity Analysis: Two additional scenarios are undertaken: lowest cost Whenuapai and highest cost at Mangere (Table 5.2) yields a NPV(7.5%) = $63 million; no second runway at Mangere (Table 5.3) results in NPV (7.5%) = $342.6 m million. 10. Recommendations: The cost-benefit assessment points to a large national cost associated with developing a second airport at Whenuapai. On the benefit side, the report is careful to point out discrepancies over results derived from the Auckland Regional Transport model. The net cost to the economy is found to endure even under the optimistic scenario. In conclusion, I have reviewed the final outcome and can report that the analytical framework and overall approach satisfy best practice methods.

Basil M.H. Sharp Department of Economics The University of Auckland

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