Stuff Business Opinion: Flight of fancy or city’s saviour?

OPINION: Chalkie was reminded recently of an episode of The Simpsons where the people of Springfield support a civic monorail simply because its huckster proponent suggests it might be “more of a Shelbyville idea”, thus raising the prospect of a win for the town’s neighbouring rival.

Perfectly captured was the cargo cult mentality that can overtake a town with a big infrastructure project between its teeth.

With that in mind, and a re-elected green mayor in harness, what to make of the $350 million Wellington airport runway extension plan?

In the last few months, this glint in local property developers’ eyes has risen to star billing as the big idea to prevent Wellington from “dying”, as Prime Minister John Key infamously put it.

Of six mildly inspiring initiatives uncovered by The Dominion Post in discussion with the city’s movers and shakers, extending the airport runway was head and shoulders top of the list.

Had John Morrison taken last weekend’s mayoral election, he might well have been the project’s biggest fan. Newly-re-elected Mayor Celia Wade-Brown already supports it. Her problem is she lacks heft in the Beehive to make anything happen.

That will probably change in 2016, when the next new mayor is likely to head an amalgamated Wellington “super-city”.

A financially and institutionally stronger Wellington might melt current central government scepticism about the runway project, Chalkie hears.

In the meantime, its supporters are pushing it forward, with a $2m resource consent scoping study paid for by the airport company and its 33 per cent shareholder, Wellington City Council.

The other two-thirds belongs to infrastructure investor, Infratil, which has made a good fist of making Wellington International Airport funky, profitable, and growing.

The rationale for the project is that Wellington is becoming an isolated regional city where long-haul air travel goes through global hubs to improve efficiencies in the consistently dreadful economics of global airline operation.

For New Zealand, that means Auckland or Sydney for connections to the rest of the world. While Christchurch maintains an international airport, it is underused.

In this world, Wellington just gets with the programme and accepts its second tier fate.

That’s because two broad alignments are in play, each tied to rival airlines of the United Arab Emirates, Emirates from Dubai and Etihad from Abu Dhabi.

Etihad is partnering with Air New Zealand, Singapore International Airlines and Virgin against a competitor group involving Emirates, Qantas, and Jetstar.

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None of these is thinking about hubbing out of Wellington, where the only opportunity could be trans-Tasman services by Jetstar. But Australia is not a long-haul Asian destination, so wouldn’t require a runway extension.

While Singapore and Hong Kong may appear logical long-haul destinations from Wellington, such services are less likely than before Air NZ and Singapore Airlines buddied up.

Further afield, but still good for growing links with China, there’s Shanghai or even Beijing. But while Chinese government-owned airlines might commit to Wellington long-haul, they might also hub out of odd places.

China Southern Air, for example, already runs direct flights to Auckland with payloads which looked barely viable when Chalkie got a quick glance at some numbers a couple of months ago.

But China Southern hubs out of Guangzhou, a mega-city of limited charms, inland from Hong Kong and an hour and a half by plane from Shanghai. It’s not an obvious destination for the Wellington traveller, even if the surrounding catchment of Chinese tourists and foreign students is enormous.

Too negative? Let’s suppose there are long-haul routes that could make sense. Rubbery numbers provided by the project’s boosters put the regional benefit of the extension at around $43m a year.

But to get this boost, local and central government need to kick in the lion’s share of the $350m cost of the runway extension.

Not only that, but the WCC would have to pay an airline to land long-haul flights in the capital for an unspecified period of time, in the not unreasonable expectation that it would become profitable eventually, that more travellers would come out of the woodwork to support increased services, and that it would all eventually make sense.

Right now, however, long-haul passenger numbers out of Wellington are so small they would support only about $1m of revenue for the airport annually – perhaps one long-haul flight a day in and out. That’s a drop in the bucket for the airport, which turned over $106m last year for a $16.2m tax-paid profit, and no justification for a $350m spend.

WCC’s newly appointed chief executive and runway extension supporter, Kevin Lavery, is aware of the potential for the voodoo economics tag.

To discourage fly-by-nighters, as it were, he would be looking to a long-haul partner airline actually investing in the extension itself. Again, given how scarce airline capital is, this sounds like a job for a Chinese state airline, influenced by political as well as commercial considerations.

Certainly, Air New Zealand’s not interested, seeing the extension as unnecessary for domestic and trans-Tasman services, and a competitive threat to its Auckland hub from a monopoly service provider.

It fears the airport would charge travellers and airlines a semi-regulated rate of return on a $350m asset that no current users wanted.

Wellington’s already expensive enough as it is, at around double the cost per passenger of using Auckland airport, it says.

Likewise, Lavery won’t recommend the proposal if a more detailed business case, currently under preparation by PwC, doesn’t stack up.

In the meantime, however, he’s backing the “no-brainer” proposal to study the extension in response to a clear message from the Wellington business community that it wants long-haul flights.

Among these are property developer Ian Cassells and the Wellington Employers’ Chamber of Commerce run by Raewyn Bleakley, supported publicly by education providers seeking international student growth, Victoria University and a private girls’ secondary school, Samuel Marsden Collegiate.

Airport passenger numbers already show international students are a large, fast-growing source of traffic for Wellington. They should grow as the Government pursues doubling revenues from international education to $5 billion a year.

The PwC report is one part of the wider project to prepare a resource consent application for the runway extension, which could be fast-tracked through a board of inquiry appointed by the Environmental Protection Authority if it can be shown to be of nationally significant economic benefit.

Even with fast-tracking, consent may not be straightforward. An extra 300 metres of runway will poke into the sea to the north or the south, or both.

There will be objectors. However, council documents assure us that modern avionics mean large aircraft using the longer runway will miss nearby hills, which would have been a problem in an earlier era.

The airport can see itself committing between $50m to $60m of the overall cost.

WIAL chief executive Steve Sanderson’s attitude is that if one or more airlines can grow a new market for direct long-haul flights from Wellington with local and central government help, the airport’s happy to be involved. It just won’t bear all the risk.

Not that such joint investments are uncommon. Something similar lies behind the deals between SkyCity and the Government for the $402m Auckland convention centre development and with Chorus for the ultra-fast broadband rollout.

It was the fact that the airport company isn’t going to build the whole thing that got Chalkie going in the first place. What do taxpayers and ratepayers have to believe if public money is to be flung at it, he thought?

So far, the answer isn’t clear enough, but it is the key to public support for the plan.

– This week’s Chalkie column is written by Pattrick Smellie from BusinessDesk.

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