IATA, the international aviation body, predicts total profits for the global industry of US$29.3 billion in 2015. Sure, that sounds like a big number, but it represents a return on capital of just 4 per cent – only slightly better than the feeble returns offered by bank deposits.
Averaged across every airline, the average profit sums out at a measly US$8.27 per passenger, according to IATA director general Tony Tyler.
That’s the trouble with impressive-sounding numbers. They can seem less impressive once you break them down. A good local example: the $2b benefit New Zealand might expect from extending the Wellington airport runway.
That’s a $2 billion benefit over 40 years, or an average annual benefit of $50 million. That’s not to be sneezed at, but it’s a more meaningful figure against which to place the many risks of a $300 million investment, most of which the airport would like ratepayers and taxpayers to bear.
However, the latest swag of reports setting out Wellington International Airport’s case for extending the runway does undeniably coincide with an upswing in global air travel.
According to Airbus forecasts, global aviation demand between now and 2034 will drive a 145 per cent increase in revenue passenger kilometres, a 106 per cent increase in the number of planes in the air, and delivery of a total of 32,585 new passenger aircraft.
*$58m extension for Wellington Airport
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*Wellington Airport’s runway extension could pump $2b into the economy
Meanwhile, in New Zealand, long inward term migration is running at record levels and tourism is blowing its head off too. Both trends are sources of demand for more air services. It’s not unreasonable to expect sustained growth in demand for both domestic and international air travel.
Meanwhile, Air AsiaX, which briefly ran direct flights between Christchurch and its base in Malaysia in 2011/12, is expected to start a Gold Coast-Auckland route early next year and Philippine Airlines is planning to fly direct between Manila and Auckland soon.
he expansion of flights between China, New Zealand and South America represents a new route to Latin America that avoids US border control overkill.
Not unreasonably, Wellington International Airport is arguing that Wellington would be nuts not to attract a share of this burgeoning long-haul action and that a longer runway could help revive the city’s relative stagnation.
Wellington civic and business leaders, some of whom would never be seen dead seeking state subsidies for anything else, are very supportive.
Critics have been labelled variously “obnoxious”, “lacking grandeur” and most insulting of all – “Aucklanders” – for questioning a scheme heavily predicated on the occasional needs of a small elite who find flying an hour to Auckland to connect with an international flight a bit of a chore.
Yes, more competition might make long-haul flights more affordable for lower income New Zealanders, as the report from the airport’s economic consultants suggests. There would also be savings from an estimated 460,000 fewer domestic sectors flown each year as Wellingtonians avoided connecting flights through Auckland and Christchurch.
No wonder Air New Zealand’s not a fan, since its domestic routes are more reliably profitable than long-haul flying.
However, the national carrier’s objections run deeper than that and align with almost every other airline flying to New Zealand – they’re not interested in adding Wellington as a long-haul destination when their schedules are based around the efficient use of global hubs.
The two hubs in this region are Auckland and Sydney. Melbourne and Christchurch are also-rans. Wellington isn’t even the size of Adelaide.
Wellington International Airport is relying on competitive instincts over-riding hub logic, which is reasonable, but which also risks more speculative, less committed services being trialled and continuing only if they work. Note too that because of the way the airport’s cost-benefit analysis works, it effectively counts the planes as “free”, which of course they’re not.
That analysis also suggests there is almost no loss of estimated benefits by waiting a decade to start construction. On that basis, there’s no need to rush public money into the project.
And while there may be 679 long-haul passengers leaving and arriving in Wellington every day already – enough to fill nearly three planes – how many are heading to the same long-haul destinations?
The optimistic world maps produced by the airport see services as far afield as Dubai – via Australia, a short-haul destination already served by Wellington – and to destinations as close together as Kuala Lumpur and Singapore, to three cities in China, and to the US west coast.
Even if every one of those routes is served, it will be years – if ever – before every one of them is served daily. When it comes to business travellers, which is more likely to win – a one hour connecting flight to Auckland or waiting a day or two for the direct service?
The discounting and re-routing caused by long-haul from Wellington would draw business away from Auckland International Airport, which is booming and could easily weather the competition. Whether Christchurch International Airport, which struggles to justify the scale of its existing facilities, would fare so well is highly debatable.
Yet if the country’s second gateway airport, on the doorstep of New Zealand’s most enticing tourist offerings, can’t find long-haul airlines to fully use its facilities now, it’s only fair to question why Wellington will do better.
The argument from the boosters runs that direct flights from Wellington would make the city infinitely more attractive as a business, international education, and tourism venue.
It probably would.
But it’s a big price tag that the private owner largely wants to avoid by using public money instead. Despite hundreds of pages of new analysis, the runway extension is still struggling to pass the sniff test.