An announcement today that Singapore Airlines has canned its route to Canberra is a stark admission that there is not enough demand for international flights out of Wellington, say those concerned about the ongoing spending of ratepayer and taxpayer money on the venture.

Guardians of the Bays, representing more than 600 community and ratepayer organisations and concerned individuals, is concerned that public money has been used to subsidise the route despite it being obvious for some time that it was not successful.

Guardians of the Bays Co-Chair Richard Randerson said it was no surprise that Singapore Airlines was pulling the plug on the Wellington – Canberra – Singapore route.

Despite spending at least $3 million dollars of ratepayer money to promote the route, publicly available loading data clearly shows that the route achieved less than a 50 percent passenger loading. That is great if you like lots of seats on your plane, but it isn’t great for ratepayers who have been subsidising this route for more than a year – for no discernible benefit. Canberra has a similar-sized population to Wellington, and if Canberra cannot muster a payload, it is unlikely Wellington can do anything better.

Latest figures from international monitoring sites show the much touted Capital Express – or Wellington to Canberra flights – have not been working. The latest figures from the Australian Government’s Department of Infrastructure and Regional Development show that in August 2017, the Singapore Airlines Wellington to Canberra flight had an average passenger load factor of 128 passengers per flight (based on 16 return services). That is a load factor of 48 percent.

Further figures show that international passenger traffic at Wellington Airport was up only 1.9 percent in the 12 months to September 2017, with Australian visitors actually down 2.2 percent in the same period.

Wellington Airport has tried desperately to stack up its claims that there will be an economic benefit from the proposed airport extension for Wellington without success. It has drawn down significant amounts of ratepayer funding for its Environment Court application and for the Singapore Airlines subsidy and promotion.

“There is already evidence that the proposal is likely to cost much more than the $350m originally suggested, up to $500m according to one expert.

“The proposed airport extension is not about what is good for Wellington. It is about what is good for Wellington Airport and its multi-billion dollar owner Infratil.

Co-chair Dr Sea Rotmann said it was time for the Mayor and Councillors of Wellington City to cut their losses on the proposed airport extension and move on.

In a meeting with Wellington Mayor Justin Lester, shortly after he was elected last year, he was clear that the Council’s support of the Wellington Airport extension was dependent on demand for the route.

This change of route proves that Wellington Airport and Singapore Airlines are scrambling to find a route that works economically.  It is a shame that Singapore Airlines has got caught up in this debacle as it has an excellent brand but appears to have been captured by vested interests.

“It is time for our community leaders to follow the Government’s lead and focus on spending that improves the lives of Wellingtonians and all New Zealanders, not just the few,” she said.

For immediate release 6 March 2017

Residents’ and ratepayers’ group the Guardians of the Bays have today welcomed news that Wellington International Airport has requested an interim adjournment of proceedings from the Environment Court. The request from the Airport comes in response to the Court of Appeal ruling that the Civil Aviation Authority must reconsider its decision on the length of the proposed runway safety area.

Guardians of the Bays’ Co-Chair Richard Randerson said the request showed that WIAL has not considered all the issues in enough depth. “We are pleased that the Airport is reconsidering its position. The runway extension proposal continues to face hurdles because it has not been well considered or evaluated. This serious concern around safety is just one of many examples where the numbers don’t stack up. There is already evidence that the proposal is likely to cost more than the $350m originally suggested. An extension to the runway safety area would push costs well over the half a billion dollars it is currently expected to reach and would put the project well outside the parameters of the current Environment Court application.”

Co-Chair Dr. Sea Rotmann said the burden to ratepayers and taxpayers of the proposed extension continued to be unacceptable – particularly as the suggested benefits are anything but guaranteed. “No airline has committed to flying into an extended airport and the one airline currently flying (via Canberra) is getting very low loadings, according to an independent monitor of routes around the world. The Airport has specified the limit for its own investment in the extension at $100m now. Anything above this must come from Wellington ratepayers and New Zealand taxpayers. The business case for the runway still hasn’t gone through the Treasury’s Better Business Case process to prove if it is even eligible for public funding.”

In a meeting with the Guardians last month, Mayor Justin Lester said that the extension was not likely to happen anytime soon and that Wellington City Council would not commit to providing more than $90m. “It was heartening to hear our Mayor show he is sensitive to the issues at play and that he has put a limit on more public funding to support the Airport’s case – we expect him to stand by that,” said Dr Rotmann. “The Council already gave the Airport $3m of ratepayer’s precious money to fund the creation of its reports, which are consistently being shown to be little more than ‘spin’ to support the Airport’s slant on the proposal.”

“It would be best for the Airport to withdraw its application completely, rather than further burden the hard-working individuals who are raising their own funds to be able to participate in the Environment Court Process.”
ENDS

Media contacts: Dr Sea Rotmann 021 246 9438 and Richard Randerson 04 976 6050/ 021 159 6734

By Michael Reddell, October 17, 2016. Link here.

Fairfax’s Hamish Rutherford had a substantial piece in Saturday’s Dominion-Post on the proposed Wellington airport runway extension, under the heading If we build it, will they come? (a rather similar title to my own first post on the airport last year).  It seemed like a fairly balanced article, covering many (but not all) of the key uncertainties about the project.   Most of them wouldn’t be a matter for public concern if this was to be a privately-funded project, but it isn’t –  and everyone agrees on that.

There was an interesting quote to that effect at the start of the article from airport company chair Tim Brown.

As Tim Brown tells it, the first time he discussed a “back of the envelope”-type analysis of the cost to extend Wellington runway with the airport’s chief executive, Steve Sanderson, the conversation was “completely negative”.

…..Brown had just been presented an outline of a $300 million project, aiming to enable non-stop long-haul flights to the capital.

However, the  potential gains to the airport (two-thirds owned by Infratil, the rest by Wellington City Council) were likely to see a boost in profits that would only justify it investing around $100m.

Whatever the final costs of the project might be (and the estimates are unmoved in the years since), Brown was clear about the chances.

“Literally within 10 seconds I said: ‘So what? What do I care? We’re not going to do that, are we?’,” Brown recalled this week.

This isn’t a project that might need the last 10 or 20 per cent of the cost picked up by the taxpayer/ratepayer to make it viable.  Instead it only works –  even on their own numbers –  if the Crown/WCC picks up two-thirds of the capital cost (and ratepayers have already paid millions of dollars to get the proposal this far).  This is a politically-driven project at least as much (and probably more) than it is a WIAL/Infratil one.

The whole process is getting underway again now, both because the airport company (WIAL) has restarted its resource consent application, and because now that the election is past the ability of citizens and ratepayers to hold in check the big spending “boosterish” tendencies of the mayor and councillors is diminished considerably.  It is difficult to tell quite what the balance of the council now is, but the new mayor has been at the forefront of the various “booster” projects the Council is spending money on, and one councillor who was vocally opposed to the extension in the previous term is no longer on the council.  WCC’s track record –  of wanting to “do something”, spend money on big ticket initiatives, often with little or no public scrutiny (sometimes not even with scrutiny from councilors) – is pretty disquieting.

Presumably under some pressure during the election campaign, the new mayor Justin Lester modified his stance somewhat in responding to pre-election candidate surveys.

I have committed to seeking the resource consent for the airport extension project. It’s too early to say whether the project will proceed because the following three caveats will need to be satisfied before it proceeds:

1. Resource consent approval

2. Financial support from Central Government

3. Commitment from airlines to fly direct routes to Asia.

This is a 50 year project and needs careful consideration before any decision is made.

On the face of it, that looks like a fairly insurmountable set of hurdles.  It is very unlikely that any airline is going to give a commitment to fly direct long-haul routes between Asia and Wellington in advance of (multi-year) construction even starting –  they couldn’t know what would happen to fuel prices, the world/regional economy or the like in the intervening period.    That is especially so given the expressed lack of interest in flying long-haul from Wellington from the one airline that always will be flying New Zealand routes, Air New Zealand.

And, to date, central government seems to have been commendably non-encouraging about any suggestion of central government financial support.

So what –  beyond the track record of poor quality secretive spending – makes me uneasy about the Lester-led Council?  First, Lester knows very well that he won’t get commitments from airlines before the Council has to make decisions on whether to fund the runway extension –  but he might get non-binding expression of interests, which could be politically spun to sound a bit like commitments.  Second, the government has a  track record of ending up funding uneconomic infrastructure projects, including ones it initially poured cold water over.  One could think of Transmission Gully, or KiwiRail, or Northland (by-election) bridges or –  perhaps most concerningly – the City Rail Link in Auckland.   With a modest budget surplus to be subject to an electoral auction next year, is it so inconceivable that the government could change tack (government built houses and immigration last week) and throw $100 million in the direction of the runway extension?  Compared to the spending on Transmission Gully, it would be chicken feed.

And while Lester is quoted extensively in the Fairfax article, neither of the conditions in the pre-election quote above (airline commitments, central government funding) is repeated.  [UPDATE: I gather they are still part of his set of pre-conditions]

So ratepayers beware.  Citizens beware.

In the Fairfax article, Lester tries to blunt possible ratepayer concerns by suggesting the bulk of any Council funding should be raised from business rates rather than from residential ratepayers, because “the majority of the benefit would go to the business sector”.  That might sound superficially plausible (if there were material benefits at all) but the mayor seems unaware of the notion of tax incidence: that the party who writes the cheque to pay a tax or rates bill isn’t typically the party that bears the economic cost.   Much of any company tax is actually borne, over time, by workers –  because less investment occurs than otherwise, and wages are lower as a result.  Just as renters bear some/much of the incidence of rates bills paid by landlords, we should expect that the wider pool of Wellington citizens would bear much of the economic cost of higher business rates to fund an airport extension, even if no non-business ratepayer ever has to increase their direct rates bill.  This is an issue that should bother all citizens, not just business ratepayers.

A lot of the decision-making should turn on a robust cost-benefit analysis of the proposal.  WIAL and the Council have commissioned their own analysis, which suggests large positive national benefits.  Not many people who have looked carefully at the numbers have found their numbers persuasive.  Justin Lester seems to suggest this is all about self-interest

“I’m not going to have people telling me and telling Wellington and telling our council what we should be doing because of their own interests.”

If one wanted to descend to a similar level, one could ask about the incentives on and interests of councillors –  spending other people’s money on big ticket projects.  But, perhaps more importantly, advocates like Lester would do better to front up and explain why they disagree with specific points raised by critics –  whether those critics are representatives of the airline industry, or other commentators and economists.

In the last few weeks, questions have begun to surface about the estimated cost of the runway extension itself.  In a private sector project, citizens wouldn’t need to worry too much.  After all, if the company proposing the development gets it wrong, its own shareholders will be the ones who lose money.  But this is a project where large amounts of ratepayers/taxpayers money will be at stake, and where it isn’t clear how well aligned incentives really are.  The construction estimates are being done for WIAL, which has already concluded that it would only be worth them putting in around $100 million.  If the project is to proceed central or local government will be on the hook for the rest.  Mightn’t the incentives at present be to keep the construction estimates to the low end of a possible range?  Doing so might (a) increase the chances of getting a resource consent (since, sadly, the Environment Court needs to do an economic appraisal) and (b) increase the chances of getting central and local government approval to proceed, with political commitment to the project, with any later cost-overruns perhaps largely falling on those parties.

My own unease has been around three main points; developed in earlier posts:

(a) the large assumed increase in long-haul visitors to New Zealand, simply because of an option to fly long-haul into Wellington (rather than Auckland or Christchurch.

(b) the very large assumed “wider economic benefits” assumed to flow from such increases in visitor numbers, even if the passenger projections were accurate, and

(c) the discount rate being used to evaluate such gains (many of them decades into the future).

I dealt with the visitor number points in this post late last year.   The WIAL cost-benefit analysis uses passenger projections which assume an increase of 200000 visitors to New Zealand (building up over time) simply because it becomes physically possible to fly long haul into Wellington.   That seems implausible.  In his own look at the passenger projections, Ian Harrison of Tailrisk Economics, noted that the numbers assumed that within 20 years 30000 more Americans a year will come to New Zealand simply because they can fly directly into Wellington.   One can imagine a few more might want to arrive via Wellington, but is it really credible that so many more will come to New Zealand as a whole?  Perhaps more startling were the assumptions for “other Asia” (ie other than China and Japan).  At present, only around 30000 people come from those countries to Wellington in a year.  The projections assume that putting in a runway allowing long-haul flights will provide a boost of an additional 105000 visitors annually within 20 years.  Were Wellington Florence, perhaps it would be a credible story.  As it is –  and even with some more marketing spending and a heavily subsidized new film museum – it just doesn’t ring true.  Long-haul passengers don’t come to New Zealand for its cities –  the cities are mostly gateways, and in the case of the lower North Island, Wellington isn’t the gateway to much.  (And yes, I can see the South Island as I type, so perhaps there is a small “gateway to the South, by slow ferry” market).

I touched on the “wider economic benefits” and the discount rates in this post. Here are some extracts from that post:

But much the biggest issues relate to the possibility of benefits to New Zealand from additional foreign tourists buying real goods and services in New Zealand.  Sapere appear to have estimated a total for the likely increase in tourist spending in New Zealand and then subtracted an estimate for the cost of providing those services.  For that they have assumed that 45.5 per cent of the expenditure is domestic value-added (ie returns to labour and capital).  That approach doesn’t seem right and generates highly implausible estimates.

The producer surplus is the gain to the provider of a good or service over and above what he or she would have been willing to provide that service at.   The cost of providing the service includes the cost of intermediate inputs (materials etc) but also the cost of the labour and the cost of capital (a normal rate of return).  If the producer sells product at that cost, there is no producer surplus. In this context, there is no net economic benefits –  economic costs have just been covered.

Over the long haul, in reasonably competitive markets, producer surpluses should be very small (in the limit zero).  For a hotel that budgeted on 80 per cent occupancy, a surprise influx of visitors for the weekend will generate a producer surplus –  the windfall arrivals add much more to revenue than they do to costs of supplying the service.  But over the long haul –  and the airport project is evaluated over the period out to 2060 –  it is fairly implausible that there will be any material producer surplus resulting from well-foreshadowed increases in visitor numbers.  Most of what tourists spend money on in New Zealand are items such as accommodation, domestic travel, and food and beverage.  In all those sectors, capacity is scalable.  One would expect new entrants just to the point where only normal costs of capital were covered.  In the long run, supply curves for most of these sorts of services/products should almost flat.

My proposition is that there are few or no producer surpluses likely to arise from a trend increase in foreign tourism as a result of extending Wellington airport.  But even if there were, any such gains would have to be offset against the loss of producer surplus for New Zealand producer (to foreign producers instead) from New Zealanders taking more holidays abroad.  It makes little difference to the hoteliers if I take my holiday in London instead of Queenstown, while at the some time someone in Manchester takes his in Queenstown instead of taking it in London.

Even if the consultants are right that there would be more additional inward visitors than outward, any producer surpluses from either set of numbers should be small.  And the net of two small offsetting numbers is even smaller.

The safest assumption, in evaluating the WIAL proposal, is to assume that the economic benefits of the proposal all accrue to users, and that there are no material net economic benefits (or costs) to the rest of the community.  Perhaps there is a small amount in the net GST flow, but it is hardly worth focusing on given the scale of the other uncertainties.

Perhaps this point will seem counterintuitive to lay readers and city councillors.  Surely “Wellington” or “New Zealand” is better off from having more foreign visitors (assuming the numbers outweigh the increased outflow of New Zealanders)?  And if so, shouldn’t we –  Councils, government –  be willing to spend money to get those benefits?   The short answer is no.    Good and services cost real resources to provide, and in a competitive market simply providing more goods and services won’t make the city or country better off –  you need to be able to sell stuff that generates more of a return than it costs to provide (including the cost of capital).  Vanilla products and services typically don’t do that.  After all, labour that is used to provide services to tourists is labour that can’t be used for something other activity.  And over a horizon of 45 years we can’t just assume there are spare resources sitting round unused.  Spending public money to generate this economic activity will come at a cost of some other economic activity being displaced (as well as the deadweight costs of taxation, which are allowed for in the cost-benefit analysis).

If, to a first approximation, there are no “net incremental economic benefits” for the “rest of the community” then even if the WIAL/Sapere passenger number estimates are totally robust, the net benefits of the project drop from $2090 million to $954 million.

It is not as if the new visitors – even if they eventuate –  are likely to be top-end exclusive customers.  Business and government travel –  a significant part of the Wellington market –  is unlikely to be much affected, and any boost to overall visitor numbers seems likely to be mostly tourists, consuming fairly vanilla, easily replicable, goods and services.

And what of the discount rate?

It is very unlikely that any private company (or shareholder) would evaluate such a risky project using anything as low as a 7 per cent real cost of capital.  On the WIAL/Sapere numbers, even raising the discount rate to 10 per cent –  a fairly typical cost of capital for Australian companies according to a relatively recent survey by the RBA –  roughly halves the value of any net benefits from the project (even if all the other assumptions about passengers numbers, and “wider economic benefits” are in fact well-founded).  But this runway extension seems much riskier than the typical investment project –  it is location-specific, not usable for anything else, and relies on assumptions that involve transforming the nature of the business (ie there is no long haul capacity at present, and no one can know with any confidence how much demand there might be for the service).  It would be enlightening if Infratil/WIAL told us what cost of capital/discount rate assumptions they would use in evaluating such a project if all the risk were on them?  I’m sure, for such a hard-nosed bunch of operators, if would prudently be more than 10 per cent real.

The Fairfax article picks up a number of other points, including some comments from me. In some of those comments, I probably wasn’t as clear as I might have been.

A few weeks ago, Singapore Airlines –  assisted by a non-transparent Wellington City Council subsidy –  began flying several times a week between Singapore and Wellington, with a stopover in (of all places) Canberra.  No one know whether those flights will succeed (SIA reportedly wants to move to daily), and become viable without ongoing Council subsidies.  That uncertainty is reflected in the article.  Tim Brown from WIAL seems to believe that if the route succeeds, and attracts a larger proportion of foreign passengers, it would tend to support the case for the runway extension.  Justin Lester seems a bit nervous

Like the airport company, Lester also appears to concede that if the Singapore Airlines flights do not show the demand its supporters hope, it would be bad news for the runway extension.

“People are getting on and off these planes four times a week and if the demand doesn’t go up to seven times a week, you know, we won’t need to do it,” he said, quickly adding that this would be a “strong indicator” rather than proof the runway extension was not worthwhile.

I was quoted along similar lines

Would strong success of Singapore Airlines’ new route, with a high proportion of visitors, help prove the case of the missing passengers?

For a man who freely admits he is naturally sceptical about most public infrastructure projects, Reddell is surprisingly open to the idea.

“If they can make that route viable without larger public subsidies than they’ve got then I think that would be interesting”, especially given that passengers face being “stuck in Canberra for a couple of hours”.

But with several caveats.  First, even if the Wellington-Canberra-Singapore route proves viable, it only offers any insight on the long-haul issue if a material proportion of the passengers in and out of Wellington are not just Wellington-Canberra passengers (although it seems unlikely that a daily 777 flight just Wellington/Canberra would be economic).

Second, if such flights prove viable with the current runway, that is great. All involved are likely to gain.  But that is different proposition than spending  (an irreversible) $300 million on a new runway.  As I noted

However, Reddell adds, this may only prove Brown is right about the problem being a lack of marketing, without proving the airport extension itself was needed.

“I would open up the argument, [of] let’s subsidise some more flights, and if they don’t work we can shut them down, whereas with the $300m runway extension, it’s a sunk cost,” Reddell said.

“The great thing about marketing is you can shut it off. You can’t do much with a runway extension” that doesn’t work out.

In the cost-benefit analysis, one of the options they looked at was a big increase in marketing expenditure.  It produced net benefits not that much smaller than those purportedly on offer from the runway extension, and could be re-evaluated constantly, rather than being irreversible.

If central and local government do go ahead and fund the extension, it wouldn’t surprise me if 10 years hence there were a few long haul flights in and out of Wellington.  But, of itself, that would prove nothing about the economics of the project.  The financial contribution of central or local government would, no doubt, be treated as a bygone –  with no direct financial returns, and arguable and uncertain indirect ones –  and with a runway in place, and only its own capital contribution to cover, perhaps WIAL could attract a few flights.  That might leave today’s councilors feeling better, as they show the extension to their grandchildren, but is no reason to think that Wellington citizens and ratepayers will have been made better off as a result.

I’ve not touched at all on issues like the possibility that future carbon charges make long haul travel less attractive than it is today, or that rising sea levels might raise questions about Wellington airport more generally.  But they all should bring us back to Justin Lester’s point

This is a 50 year project

and

His “gut instinct” was that the case would eventually be proven, but it could be soon, or it could be decades away.

The costs of waiting simply aren’t that large.  If the proponents are right, the case will look that much more compelling  –  and less risky –  10 years from now.  If they are wrong, (lots of) real resources will have been irreversibly wasted –  and that burden will be felt not just by Wellington businesses, but by all citizens and ratepayers of Wellington.   I’d urge the incoming Council to reflect on that choice, and to take seriously what decisionmaking under uncertainty should mean.

Link here.

The Regional Council last week released a 165-page staff report analysing Wellington Airport’s application for permission to extend its runway.

The report, on the airport’s resource consent application, confirms that of the 776 submissions received, 527 were against the runway extension, 227 were in support of it (either in full or in part), and there were 18 neutral submissions and four conditional.

The airport is seeking permission for reclamation work to be carried out seven days a week, 24 hours a day. The proposed construction programme indicates that reclamation filling could take between 5 and 18 months depending on the source of material. The entire project will take up to four years.

The report refers to 310 trucks per day taking loads from quarries to the reclamation site:

Traffic emissions during construction will arise from trucks transporting fill material to the construction zones at the airport and construction vehicles at the airport construction site…The applicant considers that it is unlikely that there will be any measurable changes in vehicle related combustion emissions from 310 trucks per day…. [An expert] has advised that the covering of loads is “best practice and will satisfactorily mitigate potential fugitive dust over the haul route.”

Though no final decision seems to have yet been made on the use of barges, the airport is expecting that:

between 15 – 25 barges (i.e. 30 – 50 two way movements) will be required to operate each day (over an 18 hour period) over a 5 – 18 month period.

Barges transporting fill material to the construction site will follow the existing shipping route within Wellington Harbour to a point opposite Pencarrow Head. From there, barges will travel across the harbour entrance and around to the construction zone. It is intended that this route on the east side of the bay entrance will minimise disruption to recreational activities in the bay such as surfing, kiteboarding and stand-up paddle boarding.

Among concerns raised in the staff report is the effect of runway reclamation on the city’s wastewater outfall:

The Moa Point wastewater treatment plant coastal outfall passes through the area of the proposed reclamation. In the early phases of the work it is proposed to construct a protection structure over the outfall pipe to avoid damage due to the placement of the dyke and reclamation fill.

And here are the concerns:

The construction of a protection structure over the MOP has the potential for adverse effects on the environment should the works result in damage to the MOP, specifically the discharge of treated wastewater into the CMA at the works location. Further, the runway extension construction works could impact the interceptor main and sludge pipeline.

The application states that the effects of the reclamation construction on the MOP include loading stress on the pipeline and settlement of sediment/gravels under the pipeline. However, the application does not outline the consequences of damage to the pipeline and potential pollution of Lyall Bay of wastewater should this occur. Nor does the applicant recognise the potential for adverse effects on other infrastructure, specifically the interceptor main nd sludge pipeline.

Concerns from the Wellington City Council are described:

Construction activities … could affect the sludge pipeline (which carries sludge to the Southern Landfill) that generally follows Moa Point Road and the wastewater interceptor main under the southern end of the existing
runway that carries sewage to the WWTP. The sludge pipeline is a high
pressure pipeline and any damage or breach of it will result in significant adverse effects on the environment.

In their submission, WCC seek the protection of the pipeline, inceptor main and sludge pipeline in both their physical extents and their operational and maintenance capabilities. The submitter (WCC) states that any damage to the outfall or restriction in being able to maintain and operate the outfall has the potential to cause significant costs to the community in both monetary and environment…

[The city council is] not convinced that ‘burying’ the MOP under the runway reclamation is an acceptable result. A more detailed outline of the process to agree the mitigation and timing of its implementation is considered to be required in the consent conditions.

The airport’s view:

… the MOP will either be protected in place or realigned so that it will not be impacted by the reclamation. It will be up to the form of contract and the final construction programme whether moving (which will require additional consents) or protecting the outfall takes place prior to or concurrent with marine based reclamation works.

The report uses diplomatic words in its summaries. Here’s one of the summaries.

The proposed runway extension and SWFS will likely result in minor
effects in relation to physical disturbance and loss of habitat;

Construction noise, vibration and light will likely result in minor effects on
mammals and fish;

Sediment discharges during ground improvement work, placement of the
rock dyke, earthworks to remove the hillock and as a result of dewatering will likely result in minor effects;

Adverse effects from the proposal on the Taputeranga Reserve are likely to be less than minor.

Over 200 submissions raised concern about construction and operational noise. The report identifies the effect of the construction work on recreational users in the Lyall Bay area. They

… will be exposed to construction and haul route noise. Recreational users on Moa Point Road and beach and the breakwater will experience the highest level of construction noise (up to 60 dB) and haul route noise (61 dB).

But not to worry.

In summary, provided the applicant complies with the recommended conditions of consent, we consider the effects of construction noise on recreational users of the CMA in Lyall Bay will be less than minor.

However,

Effects on recreational users of the CMA at Moa Point is likely to be more than minor given its close proximity to the construction site. Albeit temporary (up to 48 months) construction noise will likely impact recreational amenity in this area

Other effects are identified, including fishing:

The temporary exclusion zone around the proposed runway extension construction site will restrict access to approximately half of the area used for gathering seafood between Moa Point and Hue-te-taha Peninsula during construction (3-4 years).

and surfing:

Access to the surf break Airport Rights will be lost permanently from commencement of the proposed runway construction.

Expert advice from Dr Michael Steven states:

I consider short term effects on water-based recreational activities, such as surfing and gathering kai moana to be more than minor within the areas of the exclusion zones. For some recreationists, such as surfers, adverse effects from the SWFS exclusion zone may be unacceptably adverse in the short term, and unable to be mitigated.
and:
For expert surfers, the loss of the Airport Rights break may be regarded as an unacceptable outcome, and an outcome that is beyond the potential of the SWFS to mitigate.
In summary, we consider the effects on surfing amenity as a result of the proposed runway extension will be more than minor because the Airport Rights surf break will be completely lost and the three other surf spots in Lyall Bay could have a reduction in characteristic surf rides of between 14-29%.

Dr Steven has also advised:

The proposed runway extension will result in highly adverse effects on the biophysical landscape/seascape in Lyall Bay east/Moa Point embayment (compared to the moderate rating applied by the applicant) given the proposal involves a total loss of 10.8ha of marine environment and its replacement with a terrestrial form.

For residents on Moa Point Road and the beach at Moa Point, I consider the effects on views from this area to be extreme, and unable to be remedied or mitigated. As such, I regard these effects as significant and unacceptably adverse.

Another expert considers the effects of the proposal on coastal bird habitat and says these will be more than minor and the potential effects on regional bird populations as a result of increased birdstrike could be significant.

The report however contains no analysis or criticism of the economic benefits being claimed for the longer runway:

With construction costs excluded, the economic wellbeing of the Wellington region has been assessed to improve by $1billion on the most likely scenario, even if that community were to fund the entire cost of the project through local and central taxes. The applicant acknowledges that how the runway extension would be funded is still to be determined.

The Regional Council’s report, in full, is here.

By Michael Reddell

Link

At about 3pm, the first Singapore Airlines flight to Wellington, via Canberra of all places, lands at Wellington Airport.  Wellington-boosters, well represented on the Council and the Chamber of Commerce, talk up the first “long-haul” flight to and from Wellington.  All of which would be more impressive if it were not for the ratepayers’ money being (secretly – no information on the amounts or terms of these sweetheart deals, no robust cost-benefit analysis etc) used to make it all possible.    Were the flights financially self-supporting that would be the best evidence of them being “a good thing”.  But they aren’t.  That means (a) a presumption against them being “a good thing”, and (b) a likelihood that they won’t survive for long, at least without some permanent subsidy from the long-suffering ratepayers of Wellington. It probably isn’t a subsidy to the giant Singapore Airlines –  they’ll probably just manage a normal return on capital –  but by quite which canons of social justice ratepayers should be subsidizing government departments (probably the main purchasers of tickets on the Wellington-Canberra leg, and one of the larger sources of international passengers from Wellington) is beyond me.

But at least these sorts of subsidy deals can usually be terminated with not too much notice.  Other cities have tried this sort of thing, and the arrangements have typically fallen over before too long.  There isn’t much irreversibility about them.  The same can’t be said for the proposed Wellington Airport runway extension.  If it goes ahead, very large amounts of money will be irreversibly lost.

There was a very nice, accessible, article out a few weeks ago in City Journal by leading US economist Ed Glaeser.  In “If you build it…..” Glaeser tackles some of the “myths and realities about America’s infrastructure spending”.  There is a lot enthusiasm around, especially in centre-left circles, for more – much more –  infrastructure spending, to “take advantage” of the current very low global interest rates.  Enthusiasts, of course, rarely stop to ask why interest rates are so low, and expected to remain low, but set that caveat to one side for now.   Glaeser reports on a variety of studies on just how underwhelming most government-led infrastructure actually is: too often in regions that are declining rather than ones that are growing, all too often with low payoffs (and massive cost over-runs) at the best of times, and so on.  There are plenty of specific differences between the US situation and our own – we don’t have the Senate, steering funds to lightly-populated states, but then we have by-election promises to build bridges to anywhere –  but I don’t think we have anything to be complacent about.  His penultimate paragraph is relevant pretty much anywhere

Economics teaches two basic truths: people make wise choices when they are forced to weigh benefits against costs; and competition produces good results. Large-scale federal involvement in transportation means that the people who benefit aren’t the people who pay the costs. The result is too many white-elephant projects and too little innovation and maintenance.

Just last week we heard of the latest large cost-escalation in the hugely-expensive questionable Auckland inner-city rail loop.  “Who cares” seems to be the reaction of central (National) and local government (Labour) politicians –  ratepayers and taxpayers will pay.   In Wellington the largest regional roading projects for generations (probably ever) is underway at Transmission Gully.  The economics of the project are simply shocking, but that doesn’t seem to bother our National or Labour politicians.

And then there is the airport extension proposal.  Now, on paper, it might look like a project that might pass some of Glaeser’s tests.  After all, Wellington Airport isn’t owned by central or local government –  although Wellington City has a minority stake –  but by a company majority-owned by some fairly hard-headed infrastructure investors/operators, Infratil.

There are plenty of people around –  including commenters here on previous airport posts –  who will attack Infratil.  I’m not one of them.  Infratil is a private sector business, no doubt pursuing (as it should) the best interests of its shareholders.  And Infratil has been quite unambiguiously clear that the airport extension project simply does not stack up on commercial grounds.  In a comment on this blog six months ago, the chairman of the airport company Tim Brown put it this way:

The Airport extension is forecast to cost $300m. If airport users who get no value from it (people on smaller aircraft, people buying coffee, parking cars, etc) don’t pay anything towards it, then the estimated present value to the airport company from those who do benefit from the extension and do help pay for it may be about $100m. So on purely commercial grounds and avoiding cross subsidies the shareholders are expected to contribute that sum.
Clearly that makes it a dead duck on a purely commercial basis. Who would hand over $300m for something “worth” $100m?

Since Infratil owns 66 per cent of the airport company (WIAL) that would involve them putting up around $66m and the minority shareholder putting up $34 million.

So when people attack the idea of council or government handing over (lots of) additional money to get the project going (in addition to the millions the Council has already spent) as “corporate welfare”, they are simply wrong, at least as regards Infratil.   This project seems to be driven by the Council “boosters”, presumably why they’ve been so ready to spending large amounts of ratepayers’ money on it already.  If some branch(es) of government in fact do stump up hundreds of millions of dollars beyond what is commercially justifiable, some of it will certainly benefit some local businesses, but most of it will simply be money down the drain; spent on real resources to build an extension that simply has almost no economic value.  Other than the exercise commissioned by the airport company itself –  funded by the Council –  no one who has taken a hard look at the numbers regards the claims of large scale economic benefits as stacking up.  Of course, there are plenty of “boosters”, and others who think of (real) long-haul flights from Wellington as a nice idea, but the numbers simply don’t stack up.

Fortunately, it is local body election time.  If it weren’t, I fear the project might be rammed through with as little serious scrutiny as the cosy subsidy deal to fund a movie museum/convention centre in Wellington recently was.  (The movie industry, of course, surviving on large scale taxpayer subsidies).  At present, WIAL has a resource consent application underway.  (Of course, if the project can’t get a resource consent, the economics is irrelevant.)  Somewhat curiously, WIAL recently temporarily put the resource application on ice. This was, ostensibly, to allow them to take account of points raised in the numerous public submissions. I’m a bit skeptical of that story –  surely the submissions can’t have been much of a surprise –  and wonder if it isn’t a convenient way to minimize coverage of the issue during the local body election season.  Perhaps not, but the timing is certainly convenient.

A year ago, I assumed that the Wellington City Council – which hardly ever turns down an opportunity to waste money, and which is in the thrall of an “economic development” mindset –  would simply write the cheque, shifting large amount of ratepayers’ money into a project which  –  while fundamentally uneconomic –  it would not even secure a much-increased ownership interest in.

But as the election season has gone on, I’ve begun to be a little more hopeful that perhaps hard-headed analysis might actually play some role in the eventual decision on Council funding (or indeed, central government funding, where there is little sign of much greater discipline around capital spending).   Our mayoral race is hotly contested, and so there have been plenty of surveys asking candidates for their views on the airport extension.  Here I’m drawing mostly from a survey done by my local residents’ association.

Somewhat encouragingly, of the eight mayoral candidates not one is now unambiguously in support of spending lots of ratepayers’ money on the runway extension.

One of the mainstream candidates –  centre-right councillor Nicola Young –  is outright opposed

 Opposed. Initially I thought it should funded in line with its ownership (Infratil 66%, WCC 34%) but now I believe it would be a $300million folly. Subsidising international airlines is very costly, as Christchurch Airport discovered when it paid Air Asia X millions to get direct flights to Asia; the flights were cancelled after nine months

Another sitting councillor, this time from the left, Helene Ritchie, is also opposed

I have repeatedly opposed it and any funding towards it-including Council using rates to support an application by the Company for a  resource consent.

She further offends the elites by suggesting that voters should get to make the final decision on such an expensive proposal

The Environment Court should throw it out. If it is not thrown out, then as mayor I will call for a referendum/poll of the people, on this proposed rates funded $350 million (probably likely $500million) Airport Extension, asking residents, “Do you want to pay for the proposed airport extension? Should rates be spent on “corporate welfare”-an unnecessary airport extension?”

Another candidate –  left-wing economist Keith Johnson, campaigning (I suspect) against waste rather than to be elected –  is also clearly opposed

I am opposed to the project and have submitted a substantial paper detailing my objections to the Environment Court, covering safety, environmental, budgetary and business-case concerns.
I am absolutely opposed to the allocation of $90 million from Wellington City Council to the project, as the proposal essentially constitutes corporate welfare funded from the pockets of ratepayers.

A final minor candidate is also clearly opposed.

Unfortunately, most of the more likely candidates are somewhat more positive.

Sitting councilor Andy Foster probably isn’t going to be mayor, but despite being a typical “booster” most times when it comes to council spending, on this one he has clearly been having second thoughts.

It will depend on whether it can get over some very tough hurdles: consent, demonstrated airline commitment, robust economic case and obtain funding.  If it can, I will support it. If it doesn’t I won’t.  I suspect it won’t.

The election seems set to come down to a race between the current Labour Deputy Mayor (endorsed by the Greens) Justin Lester, the current Labour mayor of Porirua Nick Leggett, and the centrist councillor Jo Coughlan.  All three have a track record of supporting spending (lots of) public money on “economic development” projects, but I am mildly encouraged by how cautious they now seem to have become.

Here is Coughlan

I support the runway extension subject to it getting a resource consent, a business case that stacks up and appropriate funding. If the city does contribute, it should be reflected in our ownership skate. It should not be a donation

On that basis, the Council would end up owning a very large share of WIAL.  It is a middle of the road line, but it is important for Wellington voters to remember that the project is fundamentally uneconomic, and whether any money was contributed as an equity stake or as a “donation” doesn’t change that.  Central government had lots of equity stakes in Think Big projects in the 1980s.  They were all financial and economic disasters.

Here is Leggett, current mayor of Porirua

I support the idea of the runway extension. Wellington has to open itself outwards and create better connections internationally to grow jobs and investment.   I don’t support the council funding the extension beyond its 33% shareholding and if the Resource Consent is not successful – or the Government refuses to offer funding – then the project won’t proceed.

Ah yes, the “idea” sounds good.  But if it were such a good idea, users would pay for it.  That is the market test, usually a pretty sound one.  One gets the impression he doesn’t actually think the project will pass a proper cost-benefit analysis for the Council –  and $200m is a lot of money.  Leggett seems to be looking to central government –  and as he must drive past the Transmission Gully works each day on the way to the office, perhaps that is no wonder.  Wasteful capex is just par for the course –  especially when it could be dressed up in current fashionable rhetoric about advancing (with subsidies) export education and tourism.

And what of the Labour (and Greens –  even though as a party they ostensibly oppose the runway extension) candidate, Justin Lester?  He has been a strong advocate of the project, and was apparently the key figure in securing subsidies for the Singapore Airlines flights to Canberra. But now….

I have committed to seeking the resource consent for the airport extension project. It’s too early to say whether the project will proceed because the following three caveats will need to be satisfied before it proceeds: 1. Resource consent approval 2. Financial support from Central Government 3. Commitment from airlines to fly direct routes to Asia.
This is a 50 year project and needs careful consideration before any decision is made.

So even for Lester this is too big for the Council.  It can only proceed with central government funding.

Perhaps the most encouraging bit is his final sentence.  It is a long-lived project, and the option to delay must be a real one.  Perhaps in five or ten years time we will have a more secure feel for, for example, the viability of the new Singapore flights.  And –  for those more environmentally inclined than I am –  there is always the question of sea-level rise to consider, for a very low-lying airport.  Perhaps we could have another look in 20 years time?  Who knows, by then the benefits might be so overwhelming the users might even pay for the project?

In our council system, even mayors have only one vote.  Whichever of these candidates gets elected the project might still get significant additional council funding, or not.  And as central government has a terrible record of pouring money down sinkholes –  Transmission Gully, KiwiRail, probably the Auckland CRL etc – it might get funding from there even if the Council isn’t willing to stump up much.  But it is at least slightly encouraging that the mayoral candidates, reading the tea leaves of voter attitudes, have all either come out opposed to the Council paying for the project, or hedging support around with some tests that will be very hard to pass.

I’m not usually a single issue voter –  and the debacle of the Island Bay cycleway still concentrates the mind in other directions at times –  but this time I am.  There is simply too much money at stake, to allow boosters with the public cheque book to pursue their field of dreams vision for Wellington airport.

Original article

Wellington’s parking and transport are bigger challenges to Wellington businesses than lack of international capacity via Wellington International Airport, according to the Wellington City Council’s 2016 Survey of Wellington Businesses.

Richard Randerson, co-chair of broad-based residents’ group Guardians of the Bays, says the survey is further evidence that Wellington Airport’s proposed runway extension is not the silver bullet Wellingtonians have been promised.

“The Airport and the City Council have been promising ratepayers that long-haul flights into Wellington will create more business opportunities for local companies, but this survey shows that businesses are wise to the real issues – and accessibility within the city is a much bigger concern.

“The survey also shows that over 90 percent of business do not feel disadvantaged by a lack of business opportunities or the size of the local market.”

Mr Randerson added that the City Council had been quick to give the Airport Company $3million of ratepayer money last year to help scope its resource consent application even though their own 2014 research showed just 10 percent of local businesses thought more international flights into the capital would provide advantages.

“We are now looking to the next generation Council and we are seeing the majority of mayoral candidates ignoring the red flags and maintaining that the return on a $90 million investment in the runway extension will be beneficial for the city.

“This report shows businesses don’t feel the need for it; 525 of 776 public submissions opposed the Airport’s resource consent application last month and Infratil, the Airport’s majority shareholder, isn’t prepared to put forward funds in line with its shareholding. These are warning signs that the business case will not be robust and they are being ignored.”

The report also shows the costs of being a Wellington business are forcing some companies to consider relocating or closing down.

“Wellington businesses already pay 46 percent of rates despite only occupying 21 percent of rentable property.[1] A number of the mayoral candidates are building their campaigns on the promises of costly white-elephant projects, like the runway extension, and not properly addressing the follow-on impact on rates for businesses and residents.”

City Council’s “on track” spin on survey

Original article on scoop.co.nz

By Pattrick Smellie

Aug. 15 (BusinessDesk) – Wellington’s airport runway extension initiative fails on the grounds that lower North Island and South Island travellers are already flying to long-haul destinations through Auckland or Christchurch and the region is not a magnet for tourists, who are more likely to favour Auckland and Queenstown as an arrival point.

That’s the conclusion of a study commissioned by the lobby group for international airlines, including Air New Zealand, lodged in opposition to Wellington International Airport’s application for a resource consent to lengthen the capital city’s runway by 350 metres.

The new study, by Australian-based Ailevon Pacific Aviation Consultants for the Board of Airline Representatives in New Zealand, said the likelihood of airlines establishing new long-haul services to the capital is “extremely remote, implausible at best”.

It contests the findings of a study by rival aviation industry consultants, InterVistas, which APAC said has over-estimated demand for long-haul services to and from Wellington, which it said has not benefitted from the boom in international tourism that has boosted arrivals, particularly to Auckland and Queenstown, in recent years.

“Visitor demand growth from long-haul markets to Wellington has lagged not only the New Zealand average but also other airports in New Zealand without long haul international services,” said the APAC report.

Using Australian Bureau of Statistics and International Air Travel Association (IATA) data, APAC concluded that Wellington’s strongest growth has been in short-haul traffic between the capital and Australian cities and the Pacific Islands, where most of the growth in new routes to Welllington has been in recent years.

“Presently, Wellington has no markets with sufficient origin-destination demand beyond New Zealand, Australia or the Pacific Islands that could support non-stop services with adequate frequency.”

The report makes almost no mention of improved export freight-forwarding opportunities that might arise from a longer runway – the main benefit cited by Wellington Chamber of Commerce head John Milford, who called for support from local businesses ahead of last Friday’s deadline for submissions to the Wellington Regional Council on WIAL’s application for a resource consent to undertake the $350 million project.

WIAL is seeking to make Wellington an alternative long-haul destination to Auckland, the country’s dominant airline gateway, the existing second gateway Christchurch, and Queenstown, which is increasingly connected by direct flights from Australia.

WIAL is owned 66 percent by Infratil, the NZX-listed infrastructure company, and 33 percent by Wellington City Council. It is seeking the majority of the runway extension cost from central government and Wellington ratepayers, arguing the benefits would accrue more to the country and the region rather than the airport owner, which cannot justify the expansion on purely commercial grounds.

APAC disclosed in its submission that it has undertaken work for key opponents of the Wellington plan, Air New Zealand, Auckland International Airport, and Queenstown airport, in which AIA has a shareholding, but says its analysis is independent.

“The simple fact is that Wellington International Airport’s catchment region is too small and too slow-growing to warrant non-stop long-haul services,” said APAC, which makes serious accusations about the quality of the InterVistas analysis undertaken for WIAL.

“InterVistas .. have either failed to accurately reflect the nature of demand at Wellington International Airport when benchmarked against neutral and industry-accepted data sources, including data sources InterVistas purports to rely on, or appear to have reinterpreted the data to support a case for long-haul demand,” the APAC report said.

In a submission on the runway extension application, the New Zealand Air Line Pilots Association said there was increased risk of a serious accident or incident, especially from larger planes using Wellington Airport, unless an adequate Runway End Safety Area (RESA) of 240 metres or a recognised equivalent solution is used.

NZALPA president Tim Robinson said despite his members having the most to gain from the runway extension, they were opposed to it unless it included the RESA. He suggested an alternative though known as Engineered Material Arresting System in use globally, which is a crushable material installed on an existing RESA to declerate an aircraft in an emergency.

Earlier this month, the association filed an appeal against the High Court’s decision to turn down a review of the runaway’s 90-metre safety area.

(BusinessDesk)