For years now, Wellington International Airport and it’s pet monkey the Wellington City Council have been pushing for an airport extension. And for years now, it hasn’t stacked up. No small wonder when the New Zealand Institute of Economic Research (NZIER) and the Board of Airlines Representatives of New Zealand (BARNZ) slammed the business case that the Pollyanna Team had put together in support of the extension.
The WCC has poured millions after millions into this project paying for reports that have been slammed every time they are produced. This airport extension does not stack up, for anyone, other than Infratil.
Key Finding: the central scenario BCR of 1.7 is significantly over-stated.
The reason that it stacks up for Infratil is that they, being in a monopoly position, can take profit based on square meterage. This is governed by the Commerce Commission. The more land they have the more profit they can take. It is no small wonder then that attempting to secure thousands of extra square meters, with the public paying far more than their fair share, is attractive.
There are numerous gaps in the draft analysis.
But the Council continues to support the extension despite the evidence showing that it is not economically viable. Why?
The value of these benefits is overstated by $610 – 730 million through not properly accounting for the opportunity cost of labour, plant and machinery.
Having worked for Infratil (get the HR records out, boys) and knowing the WCC particularly well, both, in my opinion, suffer from the Pollyanna Principle and the Overconfidence effect.
People suffering from the Pollyanna Principle are simply not capable of seeing the bad. Generally, people focus consciously on the positive, while sub-consciously on the negative. Those suffering from Pollyannaism subconsciously focus on the positive.
The forecasts of additional passenger volumes (1.25 million) are too high by a factor that may be up to 5. More conservative, and we believe more reasonable, estimates would see around 250,000 additional passengers coming into Wellington.
The Overconfidence Effect is characterised by three symptoms. First, thinking that you are cleverer than everyone else. Second, overestimating your performance. Third, the excessive certainty that you are right.
Sound like two organisations we all know and love?
We are also only too well aware that Wellington Airport is free to set prices as it sees fit. Even if it complies with the Commerce Commission’s guidelines, it can set its total aeronautical revenue to provide a return of about 8.5% after tax on an investment in an extension of the runway. With little additional revenue from airlines needing the extension, the revenue would be obtained by lifting charges on all other services — narrow bodied international, domestic trunk and regional services.
“But what of the Councillors and Mayor?” you ask, “Surely they can see this is a gigantic lemon?”
Well, yes. But to date, only two of them have asked any hard questions on the extension: David Lee and Helene Ritchie. The fanboys number the Mayor, the Deputy Mayor, Jo Coughlan, and Simon Marsh. All who appear to be suffering from Pollyannaism.
BARNZ is therefore concerned that the airport could invest in a wasteful project, knowing that it can use its monopoly power to increase prices on all services into Wellington and derive profits from retailing, car-parking and taxis to make a handsome return on a socially uneconomic project. BARNZ therefore advises the airport that, with no known airline demand for a longer runway, the project is highly speculative and should not proceed.
Let’s get something else straight here. BARNZ represents twenty-two long-haul airlines and has said before, that even if the extension is built, they won’t use it. This is not about competition, Air New Zealand, Qantas, Singapore Airlines and Jetstar are all members.
It’s about BARNZ figuring out if this is a good deal for their members. If it was, then they would support it, if it wasn’t. Well. Read the report.
The NZIER is a well-respected company.
Are we saying that both have some conspiratorial end-game they are trying to push? Are the WIAL and WCC saying both are liars?
Neither is this about NIMBYs, unless you consider every ratepayer in Wellington to be one.
Hong Kong, which would not have enough connecting traffic to the west if there were already a direct long haul route to Singapore. Los Angeles, which the Inter VISTAS report says would only be viable for half the year, which would render it not viable. Dubai via Melbourne, which does not need an extension of the runway because Melbourne is already reached by narrow bodied aircraft from Wellington. Kuala Lumpur, which would not be viable if there is already a direct long haul route established to Singapore. It would be unlikely that there would be sufficient traffic for both hubs. Bangkok, which would not be viable for the same reason as Kuala Lumpur. Adelaide, which can already be reached without the runway extension.
It is clearly time that the Mayor and Councillors walked away from this shambles. We have poured millions into this project and the answer is really simple.
It doesn’t stack up.
BARNZ is calling on the airport’s shareholders to stop pursuing public subsidies and instead concentrate on providing efficient airport services for Wellington, enabling the city to be well connected at a reasonable cost to travellers.
The airport and fanboys have displayed a total unwillingness to answer any of these questions nor any of the previous ones. The rap sheet against the extension is now pages long.
The only question in my mind is if that Pollyannaism and Overconfidence Effect is going to cause the ratepayers to stump up hundreds of millions for a private company on a white elephant.
It’s possible. Look at the Island Bay cycleway.
These two organisations aren’t exactly rocket scientists are they? Why would we trust them with hundreds of millions of our cash?
If this was such a fantastic idea, why don’t Infratil stump up with the cash themselves?
Because it doesn’t stack up. And it never will.