Singapore here we come! As long as it is subsidised…

Yesterday, the Capital’s worst-kept secret has been confirmed: Singapore Airlines is starting a 4-day a week service from Wellington to Singapore via Canberra. But there are some pretty serious questions yet to be answered about how this miracle came about.

Singapore airlines tweet

The new ‘capital express’ service will begin in September, with seats going on sale on January 25. Return flights to Canberra will start from $587 and from $1808 for return flights from Wellington to Singapore return.

Great, but right now you can book a 14h Qantas/Emirates flight from Wellington to Singapore via Sydney for NZ$1,044 return in September…

You’re going to save a minimum of at least an hour and a half for every traveller and that’s a great benefit,” Wellington’s Deputy Mayor Justin Lester said at the signing ceremony.

Yes, maybe via Auckland but not via Christchurch or Sydney…

This is effectively a direct flight [to Singapore],” [Transport Minister Simon] Bridges said. Source

Or… really not so much – it really is a Trans Tasman flight with a transit option to Singapore…

This flight will indeed make up for some of the extra time spent in Auckland (calculated as an overly pessimistic up to 4h transit time by InterVISTAS), the need of not having to change terminals and being able to go through customs and check luggage through to and from Wellington. However, it is also $800 more expensive for only half an hour time win compared to going via Sydney. It is meant to attract 90,000 extra passengers a year, which is almost half of the most optimistic total projected by InterVISTAS (note, that they did use a market catchment of 1.1m Kiwi passengers, expecting people from Nelson to take the ferry and their car and people as far North as the Hawkes Bay from driving to Wellington (and leaving their car in the hugely expensive airport car park?) which has since been reviewed by the Council’s own experts as being ‘overly optimistic’).

InterVISTAS market catchment from presentation to WCC Oct 2015

There are another couple of lines in the report that are very interesting indeed:

Singapore Airlines has been in talks with Wellington for around two years about a route to the Capital, with the airport “gaining traction” about six months ago, Wellington Airport chief executive Steve Sanderson said, when the airline appeared to become convinced by the business case to come to Wellington.

Now, how exactly did the airline become convinced of the ‘business case’? We certainly haven’t seen a proper business case for the runway extension yet…

Mak Swee Wah, Singapore Airlines executive vice president commercial, said the airline was committed to flying to Wellington. “We are committed to the route. There is no better example than the fact that we have been in Auckland for 40 years and in Christchurch for 30 years. Certainly we wouldn’t be launching a new service unless we are committed to it.” Wah would not say how much the service relied on Wellington-Canberra demand or Wellington-Singapore other than that it was “a mixture”.

It does seem to be a lower risk proposition for Singapore Airlines to fly via Canberra, ensuring additional passengers for the route. This argument also stacks up for Canberra, which has been unsuccessfully trying for years to attract a long-haul international flight after extending its runway. Even if neither Capital may have attracted the airline on their own business case merit, together – and only together – they seem to be a good enough value proposition for Singapore Airlines. Especially seeing Singapore Airlines seem to be trying to set themselves up as a main competitor to the One World/Qantas/Emirates/Dubai alliance and hub.

What this article curiously omits, however, is the important question around subsidies. Who subsidises the airline, to what extent and for how long? We can safely assume that both Canberra and Wellington Airports have offered a sweetener to seal the deal – like waving the landing charges? Who pays for that? Surely not the airports, so is it other travellers who are not using this route? We also learned that the Wellington City Council is subsidising this route by about $9 per passenger – for the next ten years! That adds up to over $8m based on the extra 90,000 passengers per year this new route is meant to attract. Apparently, this money will not be taken out of increased rates but ‘Destination Wellington’ marketing budget and no new budget is needed for it. What exactly is ‘Destination Wellington’ other than a ratepayer-funded slush fund with little oversight? Will every airline coming to Wellington be able to expect such a deal? Wouldn’t a lot of these passengers have come to Wellington anyway, but via other hubs?

This of course means that the runway extension in Wellington is now moot, despite the mad spin that the airport is trying to roll out to ensure its corporate handout by the tax- and ratepayer is still guaranteed. This surely proves that (as noted in a number of reports) taxpayer and ratepayer money would be better spent on promoting the region so that services like this are sustainable beyond the subsidised period that Wellington Airport and the Council is providing. But it also means that Wellington’s leaders should be responsible and wait to see if this route is profitable beyond the subsidised period to determine whether committing ratepayer money for a private company’s airport extension is a good idea. An extra 10 years (which, according to the airport’s own cost-benefit ‘analysis’ will reap almost exactly the same benefits as doing the extension now) would mean that we could also wait and see what happens with regards to airplane technology, aviation emissions being included in global carbon accounting (like they already are in the EU), oil price changes and other unforeseen events, both nationally and internationally. It’s simple future- and risk-proofing, really.

We ask Wellington Airport and the Council to be up front with how much of a subsidy they are providing Singapore Airlines to fly this route. For example:

  • How much subsidy, in terms of forgone landing fees and marketing budget, has been given to Singapore Airlines by the airport to secure this service, and how long will the subsidies last?
  • Who ultimately pays for the airport providing Singapore Airlines with ‘support on using its facilities’?
  • How much support – in total – is provided by the Council, for how long and why? Will other international airlines also be able to expect similar Council sweeteners and how large is the pot in ‘Destination Wellington’ exactly in terms of giving handouts to promote for airlines?
  • How many passengers will be required to make the service viable in the longer term, as the subsidies wear off and the global aviation fuel price returns to normal?
  • How long will it be before we know if the service is going to be successful, and the assumptions around passenger demand are indeed realistic?
  • Is there an actual basis for pressing forward with the runway extension in the meantime seeing all major risks are borne by the public?
  • Given Singapore Airline’s stated position against the Wellington runway extension and ruling out direct services between the two cities, has the airport yet identified any airline that has indicated interest in using an extended runway for a direct long-haul service, let alone one willing to pay to use it without ‘bribes’ that are paid for by the public?
  • How much would such a ticket be without subsidies and how competitive is it really seeing it is STILL $800 more expensive than flying with One World via Sydney?
  • Why would the Council (or Singapore Airlines) want to attract another long-haul airline which would be in direct competition with this – publicly subsidised – service? Unless Destination Wellington is really bottomless…

We truly are happy there will now be (almost) direct flights to Singapore from Wellington. We may even use them – if they don’t stay $800 more expensive than the alternative! If the service proves to be a success – without subsidies – we can make more realistic projections about the likelihood of attracting actual long-haul airlines that would need to use a runway extension. This is by no means a reason for Wellington Airport to crow that it ‘proves a direct service to Asia is commercially viable’. As it stands, it still includes extra passengers from Canberra, and is reliant on Council and Airport subsidies. This miracle new route thus won’t have proven its viability until these subsidies are removed in ten years’ time. Which, for the time being, is why we shouldn’t risk any more public money on proceeding with the extension.

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8 thoughts on “Singapore here we come! As long as it is subsidised…

  1. There is another possible thread to this move by Singapore Airlines. Air New Zealand (our flag carrier and a fellow Star Alliance member), have made it more than clear that they neither support the runway extension, nor will they consider wide body/longhaul ops into or out of Wellington, even if the extension proceeds. The last thing Air NZ will want to see is long haul competition from the likes of One World out of Wellington, because such services would impact on their international business out of Auckland and the domestic connection spin off, which is quite important too. By operating this service, Singapore airlines (who have also voiced opposition to the extension), are in effect providing a very good case for the extension not to proceed. I do wonder if there is a very clever strategy at play here, with Singpore Airlines doing Air NZs dirty work for them. The reality is both of these carriers have more to gain from keeping their international long haul operations centralised in Auckland. We may find that this service only operates long enough to reinforce the case against the runway, and then we won’t see Singapore airlines for dust.

    1. Hi John – very good point indeed. It seems that Singapore Airlines and Star Alliance are setting themselves up against their major competitor in the Region – One World (Qantas and Emirates) and Dubai instead of Singapore as major hub. This connection would indeed help their case (if they can actually match the ticket prices which would benefit all of us in the future), same with Air NZ and it does indeed undermine the case for the runway extension. However, they still seem to have gotten some significant sweeteners by the Council and the Airport to start this route – and I am pretty sure the public will pay for most of it.

      1. Agree, but sweeteners, subsidies, rebates whatever you want to call them, are nothing unusual in this game. Virgin Blue negotiated rebates when it first operated into Wellington several years ago and I know Jetstar was asking for handouts too when it was originally sniffing around Wellington. WCC is a 34% shareholder so the ratepayer is always going to cop a proportion of any payments made to airline operators, but they also benefit from the airports profits and the appreciation of the asset, which has been substantial since 1999 when Infratil bought in. If Singapore Airlines passenger projections show that this route is marginal or will operate at a loss, they would be silly not to ask for cash rebates to at least break even. If they are getting similar rebates from Canberra (which is privately owned), they could even make money on what has to be a marginal route.

  2. Hi John, also agree with you there. What irks me is that the sweeteners weren’t clarified in the reporting – and that this is being used by the airport to say it proves that the runway extension is needed. No, it is the opposite in fact – it proves that with some smart thinking, (geo)politicking and quite a few sweeteners to seal the deal – we can get a flight from Wellington and Canberra to Singapore that we otherwise would never have gotten (even with a longer runway). We got what we said we needed the extension for – without spending $300m and filling in the South Coast. However, this has not proven to be viable route yet. Until we see what the actual passenger numbers are – especially INCREASED passenger numbers – we shouldn’t do anything more about the extension especially seeing there is so much doubt thrown by independent economists on the demand projections being way too optimistic and the passenger catchment being ridiculously overblown. Don’t forget that the Council is also subsidising the airport runway extension case with millions – by paying half of everything yet only ever being able to expect 1/3 of the benefits (not just because they are 1/3 shareholders but because the Airport’s own cost-benefit analysis says 2/3 of the benefits will go to NZ Inc not the Region). There is a lot of public subsidising of the airport and airlines going on here and the least they can do is being honest and transparent about it.

    1. Agree with you there. I have never understood the 50.50 cost model when Infratil own 66% and stand to make 66% of any profits/captial gain. As I have said previously, I also have very serious doubts about the 300 million capital cost for this project. I am sure that number is way too conservative. If you go back to 1991 or 92 when WIAL was first corporatised, the figure for a Southern extension was costed at 1 million a metre and thats on record. So they are saying costs have remained static for 23 years. I just don’t get it. If after detailed planning is completed and the cost does blow out, I wonder what will happen.

  3. I think what will happen is that the public will be asked to keep on giving – as you surely can’t stop a project like this halfway through filling in Lyall Bay? That is why the Central Govt and Steven Joyce are so wary of these unfounded claims which are blindly backed by the Council without questioning them – they have seen too many Councils come up with great ideas for ‘economic development’ that ended up being massive white elephants leading to generational debt on rate- and tax-payers. Re the costing – if you read the engineering report by AECOM it becomes very clear that the Airport told them to ‘cap’ the cost at the $300m mark. When I talked to the engineer during the open consultation, he admitted that and that the design was just preliminary as, until they had chosen which international contractor would come here with which specific equipment and reclamation technology, a lot of this was still a question mark. Including the fact that they couldn’t undertake the seismic testing ‘because the weather was too bad in the Cook Strait’ and so ended up with only one (!) bore hole to determine the geomorphology of the bedrock in Lyall Bay…

    1. I guess they could make it shorter. Haha. The point you make around the sea conditions is particularly relevant. In all likelihood the contractor will be forced to factor upto 20 or even 30% down time in its costings just for bad weather. Thats a lot of dollars in the toilet. I suspect some contractors might even shy away from taking the work on because the risks are very high. If they are forced to go down the fixed price contract route which is highly likely if WIAL is true to form, they will have to build in so much fiscal headroom that they will struggle to be competitive. The risk here of course is a contractor could go in low and fail to complete, or even go under mid project.

  4. I wish they’d build it elsewhere so Wellington gets an actually safe, international runway that is future-proof. This one is an accident waiting to happen, hence the Pilots’ Association decision to fight it in the High Court. The engineering report factors in 26% down time due to the Cook Strait conditions, which is indeed a lot. And the risks are indeed massive – almost none of the sampling for the resource consent reports could be completed in the allotted 6-week period in August-Sept 2014. Then of course there is the minor fact of the fault line, it being reclaimed land, tsunami risks, rising sea levels, increased and more extreme storm events and the fact that they’d have to safely build this in the Cook Strait WHILST ensuring safe continued airport operations. All whilst enduring public protests for bringing traffic to a halt and taking noisy, polluting trucks down SH1 – one truck every minute, ten hours every day! And they’d have to bring their huge equipment from Singapore, China, Japan, Australia (?)… via sea, in one of the most unforgiving oceans – and every time one of our Cook Strait storms rolls up – they’ll have to take their massive equipment and bring it to safety in Evans Bay! And then it is meant to be capped at NZD$300m which would include huge exchange rate risks for an international contractor. I mean, you’d have to be mad to take on that job, really!

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