A truly independent review of the Airport’s Cost Benefit Analysis


Ian Harrison, a highly respected  Principal economist from Tailrisk Economics, has released a truly independent (i.e. not paid for or commissioned by any Party involved in the runway extension) review of the Cost-Benefit Analysis. It really is worth a read.

To quote from his Executive Summary:

Recently, the Wellington International Airport Company released a cost benefit analysis of the airport long-haul capability extension proposal that purports to show that the economic benefits are $2,090 million, and are 6.8 times the capital cost. However, the benefits appear to be substantially overstated and are driven by projections of long-haul passenger numbers that are not credible, and favourable assumptions that boost the subsequent benefits for New Zealand. In critical markets high growth rates have been trended forward without regard to convergence to higher income country norms, and no regard has been given to the prospect of global warming policy initiatives designed to slow air traffic growth.

A more realistic assessment of the project would show much lower and possibly negative net benefits.

It appears that one of the purposes of the report is to make a case for central and local funding of the airport extension. Putting in public money to secure benefits of $2,090 million for New Zealand seems like a good deal. However, the case for a public subsidy is not made. If the airport is as successful in attracting long-haul flights as the report claims, then the extension will be a commercially viable investment. There is no need for a government or local authority subsidy.
Please read the rest of the report here.
This report, together with Michael Reddell’s (former reserve bank economist) excellent analyses here, here and here, Keith Johnson’s (transport economist) scathing blogs here and here, Brian Easton’s devastating put-down of the ‘Think Big’ mentality applied by Sapere and the NZIER peer review that we will see early in the new year, make some very compelling arguments that the proponents of the extension, especially the Mayoral candidates that keep repeating these overblown numbers as if they are fact, should read. Their credibility is seriously on the line seeing they seem hell-bent to give public hand-outs to a private company which amounts to little more than a rort.