Whenuapai Airport –

Economic Cost Benefit Assessment

Prepared for

Auckland International Airport Limited

November 2004

by
 Table of Contents

1 Introduction ................................................................................................................... 1
1.1 O b j e c t i v e ................................................................................................................. 1
1.2 B a c k g r o u n d ............................................................................................................. 1
1.3 K e y I s s u e s .............................................................................................................. 2
2 Outline and Scope of Study .................................................................................... 4
2.1 S c o p e o f S t u d y ...................................................................................................... 4
2.2 I n f o r m a t i o n S o u r c e s ............................................................................................ 4
2.3 R e p o r t O u t l i n e ....................................................................................................... 5
3 Methodology and Assumptions ............................................................................. 6
3.1 C o r e C o s t B e n e f i t A p p r o a c h ............................................................................. 6
3.2 P a s s e n g e r F o r e c a s t s .......................................................................................... 7
3.3 A i r p o r t F l i g h t D a t a A n a l y s i s ............................................................................. 7
3.4 A i r T r a v e l l e r L a n d T r a n s p o r t A n a l y s i s .......................................................... 7
3.5 A i r p o r t C a p i t a l E x p e n d i t u r e C o m p a r i s o n s ................................................... 8
3.5.1 Auckland Airport Future Capital Expenditure Assumptions ................................ 8
3.5.2 Whenuapai Airport Future Capital Expenditure Assumptions ............................. 9
3.6 W h e n u a p a i O p e r a t i n g C o s t S t r u c t u r e s ....................................................... 10
3.7 A i r l i n e O p e r a t i n g C o s t s .................................................................................... 11
3.8 C e n t r a l a n d L o c a l G o v e r n m e n t A g e n c y C o s t s .......................................... 11
3.8.1 Central Government Agency Costs .................................................................. 11
3.8.2 Local Government Costs .................................................................................. 12
3.9 N o i s e C o s t s .......................................................................................................... 12
3.10 N P V A s s e s s m e n t o f C o s t A l t e r n a t i v e s .................................................... 13
4 Potential Travel and Transport Benefits from a Whenuapai Airport .... 14
4.1 S c o p e ...................................................................................................................... 14
4.2 L a n d T r a v e l A n a l y s i s ......................................................................................... 14
4.2.1 Land Travel Model Outputs............................................................................... 19
4.3 W h e n u a p a i L a n d T r a v e l S c e n a r i o s ............................................................... 20
4.4 T r a v e l A s s e s s m e n t ............................................................................................. 21
4.5 S t i m u l u s t o A i r T r a v e l D e m a n d ...................................................................... 25
5 Net Economic Cost Benefit Assessment .......................................................... 29
5.1 M o s t L i k e l y E c o n o m i c O u t c o m e – B a s e C a s e .......................................... 29
5.2 L o w a n d H i g h S c e n a r i o s .................................................................................. 31
5.3 O t h e r P o t e n t i a l E c o n o m i c B e n e f i t s .............................................................. 33
6 Conclusions ................................................................................................................ 34
APPENDIX 1: Best Case Whenuapai Scenario ...................................................... 35
APPENDIX 2: No Second Runw ay Scenario ........................................................... 37
APPENDIX 2: Peer Review – Professor Basil Sharp........................................... 39
1 Introduction

1.1 Objective
This paper identifies the economic cost and benefits that arise if a second commercial airport
is developed on the site of the Whenuapai Airbase. Comparing the benefits that could
potentially flow from a second airport with the associated costs is the appropriate way of
determining, in economic terms, whether a second commercial airport for Auckland is
necessary or justified. This paper draws together a wide range of economic, operating and
transportation information to address this issue.

1.2 Background
The Whenuapai Airbase is due to be decommissioned by 2008, and the land will become
available for alternative uses.

The Airbase occupies a large site on the Auckland urban fringe, close to the existing
metropolitan urban limits. The future use(s) of the site will largely determine the development
pattern for the wider Whenuapai-Hobsonville-West Harbour area. Its location within the upper
Waitemata Harbour catchment underlies its significance to the physical environment, while its
pivotal location on the northern and western development fringes of urban Auckland underlies
its economic significance.

Auckland’s continuing strong growth means the region and constituent Territorial Authorities
(TAs) face a number of challenges to simultaneously manage urban expansion and maintain
urban sustainability, within a finite land resource. This strong growth will also lead to
significant growth in demand for air travel both domestic and international. On average,
forecast New Zealand outbound travel is expected to rise by 4.5% per annum over the next 7
years1. At the same time population is expected to increase by around 1% per annum.

Infratil and Waitakere City Council seek to develop the existing Airbase into a fully functioning
commercial airport, initially operating alongside the RNZAF, and aim to capture between 15%
and 20% of Auckland air passenger volumes in the domestic main trunk and trans-Tasman
markets. The proponents believe this market share can be achieved through the combined
effects of greater convenience to travellers from western and northern Auckland, and by
attracting a Low Cost Carrier (LCC) such as Virgin Blue to operate through Whenuapai and
provide a substantial stimulus to the total air travel demand.

To this end Infratil has commissioned a range of studies that examine the likely benefits that
might accrue to air travellers in the form of choice and convenience, and impacts on the local
and regional economies should the land be used for a second airport. These studies included
assessment of the potential transport and traffic savings under a two-airport future (Mangere
and Whenuapai) compared with the single-airport (Mangere) future. David Young Consulting

1
“New Zealand Outbound Tourism Forecasts, 2004 – 2010”, Tourism Research Council, August 2004

1
(DYC) was commissioned to undertake this analysis utilising the Auckland Regional Transport
Model (ART Model).

That study identified a potential saving to the region of around $340m in transport costs.
However, in the context of the overall cost of travel within the region this represents only 0.2%
- 0.5% saving across the entire network. Moreover, the benefits identified accrue to road users
in general rather than to airport users specifically. The travel savings are manifest as a
positive externality to all travellers on the network rather than to air travellers per se.

BERL was also commissioned to report on the economic impacts of a second airport
development, in terms of the effect on the Waitakere City economy of a commercial airport,
and from assumed growth in inbound international trans-Tasman tourism from the existence of
an LCC.

1.3 Key Issues

The key question to be addressed in this study is whether developing a second commercial
airport for Auckland at Whenuapai results in a net benefit in economic terms. This question can
be addressed by considering the full range of costs and benefits which would arise from the
development and operation of a second commercial airport at Whenuapai.

The core question has associated a range of issues, including:

• the likely costs associated with the development and operation of a second commercial
airport within the Auckland Region at Whenuapai, including land, capital expenditure,
and airport operation

• the costs to airport users (airlines and passengers), including facilities and operating
costs, and government agency costs

• the costs and potential savings from changes in land travel patterns by air passengers

• the costs of externalities, especially through the effects of aircraft noise on land values

• which markets and what passenger numbers a Whenuapai airport would serve, and
which catchments would these passengers be drawn from

• whether the quantum of costs associated with Whenuapai would result in higher or
lower costs to service the same volumes of passengers through the existing airport at
Mangere.

• the types of commercial air traffic would Whenuapai cater for

• the value of the land at Whenuapai, especially in relation to potential highest and best
use
• the operational requirements and costs associated with Civil Aviation Rules to operate
Whenuapai as a commercial airport
• how the social and economic costs to maintain a commercial airport at Whenuapai are
likely to be distributed within the Auckland economy and community

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 • The trade-offs between expected transport savings, and the additional costs of a
second commercial airport, especially given the loss of scale economies in airport
sector operation from having two airports within the region.

Addressing these issues provides guidance on the most appropriate structure for the airport
sector within the region to meet Auckland’s current and future needs.

There are also more strategic issues. The establishment of a second commercial airport will
provide additional capacity over and above that required for Auckland’s projected air sector
demands to 2050 and beyond. The existing airport at Mangere has consent for a second
runway, and would on its own provide capacity beyond 2050. The development of a second
runway capacity at Whenuapai has direct implications for the timing of future expansion at
Mangere, and it would substantially alter the relative economics of runway development or
alternative uses. While considerable comment has been devoted to not losing the opportunity
for a second airport at Whenuapai, there has been scant consideration of the equivalent
opportunity cost of not developing the second runway at Mangere.

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2 Outline and Scope of Study

2.1 Scope of Study

This study covers all expected costs and benefits that arise as a result of operating a
commercial airport on the Whenuapai RNZAF airbase from 2008 to 2032. These are then
compared with the costs associated with the same passenger volumes processed through
Auckland International Airport.

This study is limited to three potential airport configurations within Auckland Region. It does
not consider any other changes to the environment other than those listed in the assumptions
outlined below.

2.2 Information Sources

This study draws on a wide range of information. Much commercially sensitive and detailed
capital and operating expenditure information has been provided by Auckland International
Airport (AIA) Ltd in order to develop a range of airport futures. This has been combined with
expenditure data drawn from publicly available sources on other airports in New Zealand,
primarily Wellington and Hamilton (that represent broadly similar operational profiles to
Whenuapai).

Extensive passenger volume information was also provided by AIA Ltd covering all passenger
arrivals into AIAL by time and day over the past year. This allowed comprehensive checking of
likely schedules and markets for Whenuapai and also provided a vital cross check of the
assumptions that underlie the traffic modelling undertaken by David Young Consulting (DYC)
and Sinclair Knight Mertz Ltd (SKM).

SKM have produced infrastructure costs under three development scenarios at Whenuapai in
a report to Auckland International Airport2. The costs identified here have been used to
estimate building costs at Whenuapai.

Airplan have provided information covering the relative costs associated with meeting
standards set by Civil Aviation in terms of border security, Aviation Security, baggage
screening and passenger screening at Whenuapai compared with AIA3.

Future passenger numbers expected through Auckland International Airport have been derived
from forecasts produced by Tourism Futures International in combination with the domestic
and international tourism forecasts produced by Covec Ltd and Market Economics Ltd for the
Ministry of Tourism.

Ernst & Young’s Real Estate Group carried out a range of valuation exercises on the
Whenuapai Airbase site (311ha)4. Firstly they valued the site as an operational airport

2
“Whenuapai: Future Use Assessment Infrastructure”, January 2004
3
“Whenuapai as an Airport for a Low Cost Carrier – Summary of Airplan Tasks”, 24/12/2003
4
“Scenario Based Valuation Advice RNZAF Airbase, Whenuapai”, 16/12/2003

4
requiring 145ha with the rest as a mix of commercial, industrial and residential uses. They
have also valued an alternative highest and best land-use scenario developed by Boffa Miskell
Ltd that excludes the airport. Associated with this is an estimation of the likely rate take for the
highest and best land-use scenario.

This valuation represents the opportunity cost of the airport land – it is therefore the most
appropriate value to apply.

Ernst & Young have also provided information regarding the likely impacts of aircraft noise on
the value of affected properties located within the expected air-noise contours around
Whenuapai.

Other data used in this study include:

• Statistics New Zealand’s Business Directory, 2003 (covering all employment activity by
meshblock across Auckland Region)

• Market Economics Household Demand Model, 2004, locates 2004 households by type
and size across Auckland Region at meshblock level

• Statistics New Zealand’s Population and Household Forecasts 2001 – 2021 (2001
base)

2.3 Report Outline

The following sections of this report outline the assumptions and methodologies that apply to
the various analyses undertaken in Sections 3 and 4. Section 5 outlines the results of traffic
and transport analysis undertaken to quantify these costs. Section 6 draws together the
various components of economic cost and benefit to present a most likely net benefit outcome.
Section 7 presents conclusions that can be drawn from the analysis.

In order to present the extent of outcomes possible under the various scenarios, Appendix 1
contains the results of modelling the most favourable mix of parameters along with definitions
of the assumptions used. Appendix 2 contains the results of the no second runway option at
AIA. This can be seen as the worst possible outcome for the region and country and
represents the other extreme to the positive Whenuapai scenario.

5
3 Methodology and Assumptions

There is established capability and consented expansion at the existing international airport at
Mangere to meet Auckland’s long-term air sector requirements. The question of the costs and
benefits of meeting current and future air travel needs of Aucklanders can be addressed by
comparing the net benefits of two airports for Auckland, compared with a single airport at
Mangere.
To this end three overall future airport configuration scenarios have been tested:
• Whenuapai and Auckland both competing in the domestic main trunk and SW Pacific
markets – Auckland with a second runway. The first scenario presents the most likely
outcomes if Whenuapai goes ahead.
• Whenuapai and Auckland competing as above – however, this scenario leans all
parameters to favour Whenuapai as heavily as possible.
• Whenuapai and Auckland do not compete – no second runway is developed at AIA.
This is the highest cost future for the region and nation.

3.1 Core Co st Benefit Approach

The primary objective of the study is to provide an independent assessment of these options,
through evaluation of all significant potential benefits and costs. It is a relatively
straightforward approach, primarily through the comparison of potential benefits and assumed
costs. However, it also covers broader strategic and competitive issues.
The potential benefits include:
• reduced ground travel time for air travellers who could use Whenuapai rather than
Mangere (especially residents of northern and western Auckland);
• greater consumer choice between airports;
• potentially better access to discount air travel services (VBAs or LCCs);
• greater security of travel services (less likelihood of two airports being closed for any
reason at the same time).
These benefits have been weighed against the potential costs, for the airport development
and operation, for airport users, and those affected by airport operation, including:
• property costs for the Whenuapai land and assets at the opportunity cost of the land;
• capital costs of runway upgrade and airport facility development;
• additional operational costs for two airports operating in parallel under the three
scenarios;
• development costs for airport users and operations;
• additional operational and facilities costs for airlines serving two airports
• impacts on land values from airport operation (especially through noise effects).

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The general approach taken to assess the net costs and benefits is to model the operation of
each airport under each scenario and a given set of passenger volumes, then to discount all
costs incurred over the first 25 years of operation (assumed to be 2008 to 2032).

All costs are expressed in net present value terms (NPV). A discount rate of 7.5% has been
used through out this study

By summing the NPV values and comparing outcomes between scenarios, it is relatively easy
to determine three net economic outcomes (subject to the assumptions listed above) and
therefore the best result in economic terms.

3.2 Passen g er Forecasts

Passenger forecasts have been drawn from a range of sources. Tourism Futures International
and Landrum and Brown have been commissioned by AIAL to produce a series of passenger
movement forecasts through to 2052 as part of ongoing strategic master planning for the
airport.

3 . 3 A i r p o r t F l i g h t Dat a A n a l ysi s
A full set of airport flight information from Auckland International Airport has been analysed –
both domestic and international. All flights arriving and departing along with passenger
numbers by day and time have been categorised and used to drive the likely land transport
patterns and likely market shares.

This information was not made available to the original Auckland Regional Transport modellers
and highlights the severe limitations in the assumptions that underlie the ART based
transportation findings.

3.4 Air Traveller Land Transport Analysis

For each scenario, analysis of the land travel implications has been undertaken using a Land
Travel Model developed for the study. This provides a detailed reconciliation of AIAL
passenger numbers (arrivals and departures, international and domestic, by airport of
origin/destination, by time of week) against survey data which shows the structure of these
travel markets. The analysis provides a strong base for assessing the potential markets which
Whenuapai can service, together with the likely origin-destination patterns for their land travel
within Auckland.
These travel patterns have been combined with various estimates of Whenuapai passenger
volumes, including market capture and stimulus across each catchment within Auckland, to
identify the likely land travel outcomes. These have then been compared with the
transportation modelling analysis, to identify the potential land travel cost savings most closely
aligned with a Whenuapai operation.

7
3.5 Airport Capital Expenditure Comparisons
In this study, where alternative futures are being compared and contrasted, it has been
necessary to make a range of assumptions about capital expenditure at Auckland Airport.
Where possible actual data has been used to calculate cost profiles for both Auckland
International Airport’s development of a second runway and Whenuapai as a commercial
airport.

3.5.1 Auckland Airport Future Capital Expenditure Assumptions

The actual response of Auckland International Airport to the potential presence of Whenuapai
is not known so has been scenario modelled. AIAL have two broad development options.
One is to continue with development of the second runway on the current schedule. This is
riskier in commercial terms, because of the loss of passenger volumes to Whenuapai. The
other is to defer (or even abandon) the second runway development, given the changed
economics and potential pressure from shareholders to maximise the returns generated on
existing infrastructure and divest the land banked for the second runway.

To show the implications of these outcomes, two alternative scenarios have been run. Both
scenarios contains a range of assumptions, as follows:

Scenario I: AIAL Two-Runway Future

• AIAL continue with scheduled infrastructure investment which sees investment in

building a second runway commence in 2011/12 with a second round in 2015. This
follows ongoing investment in taxiways, hardstands and terminal buildings.

• Significant road realignments are also included in the costs, including realignment of
George Bolt Memorial Drive and expansion of the terminal ring road to meet up with the
second runway.

• The runway has an expected life of 40 years. Most of the other infrastructure has life-
spans of 30 years.

• AIAL focuses turbo-prop traffic onto the second runway in order to maximise the
number of slots on the main runway for larger jet aircraft.

• Whenuapai establishes along with a VBA that operates solely on the main trunk routes
domestically (Auckland, Wellington and Christchurch), trans-Tasman (eastern
seaboard Australia) and to Fiji.

• Whenuapai captures between 15% and 20% of these market segments.

The costs of the second runway at Auckland are significantly higher than those at Whenuapai.
This is because this runway will be built to cater for significantly higher passenger volumes.
Therefore it is necessary to isolate the component attributable to Whenuapai passenger
volumes. To do this, capex associated with the second runway are divided by expected

8
domestic passenger volumes to estimate a capital cost per passenger. This is then multiplied
by Whenuapai passenger volumes and expressed in NPV terms over 25 years.

In reality it is not as simple as dividing by domestic passenger volumes, as a significant

proportion of these will land on the main runway. However, the presence of the second
runway frees up capacity on the main runway thereby increasing the capacity of the entire
airport. Dividing through by domestic passenger volumes is the best proxy for this.

Under the most likely future scenario Auckland International Airport will spend $60m over 25
years (in NPV terms) to cater for a similar passenger volume to Whenuapai.

Scenario II: AIAL One-Runway Future

• AIAL decide the risks of developing a second runway are too great and divest land
banked for the runway

• Over time AIAL increase landing charges in order to move all turbo-prop traffic off the
existing runway in order to maximise the number of slots for and therefore the returns
from jet aircraft.

• This forces Air New Zealand and other operators to relocate their non-trunk services to
Whenuapai. This maximises the volume of cross-town traffic and inconvenience for air
travellers – whilst maximising the returns for AIAL.

• This has the effect of doubling the volume of traffic travelling through Whenuapai (from
1.5m movements in 2015 to 2.97m.

There is expected to be other capital expenditure under this scenario that is not possible to
model. Without a second runway, Auckland International Airport will realign itself towards the
current runway, requiring a re-modelling of existing facilities. No plans have been developed
that outline the expected costs involved but they are likely to be significant and would therefore
add to the economic cost of the two airport, single runway at AIA scenario.

3.5.2 Whenuapai Airport Future Capital Expenditure Assumptions

SKM have produced a range of capital infrastructure scenarios that could be applied to
transform Whenuapai from a military airbase to a commercial airport. The focus is around
bringing the runway up to commercial standards as well as converting existing built
infrastructure over to civilian purposes.

The scenarios are outlined in the “Whenuapai – Future Use Assessment Infrastructure” report
prepared for AIAL in January 2004. They range in cost as follows:

• Option 1: Overlay Existing Runway 03/21. This involves laying asphalt over the
existing runway to correct to civil aviation standards. This scenario has an initial cost of

9
 $37m but incurs significantly higher maintenance costs over time (these have not been
modelled).

• Option 2: Reconstruct Existing Runway. This involves digging up the existing runway
and relaying it in concrete. This scenario has a cost of $51m excluding the refunds on
clean fill that could potentially be gained.

• Option 3: New Parallel Runway. This involves building a new runway parallel to the
existing runway. This scenario has a cost of $49m

Under the ‘Most Likely’ and the ‘Best Whenuapai Outcome’ scenarios modelled, the lowest-
cost runway option has been selected (Option 1). It is assumed each option has a 40-year life,
therefore after 25 years of operation the runway has residual value. This has been
incorporated into the NPV calculation of costs.

Under the “No Second Runway at Auckland” scenario, Option 2 has been selected to reflect
the additional wear generated by increased flights.

3.6 Whenuapai Operating Cost Structures

The costs of operating a commercial airport on the Whenuapai airbase land are unknown. In
order to incorporate this spend category into the model, it has been necessary to derive
estimates based on known airport operating costs from similar airports in New Zealand.

As the proposed airport is expected to serve primarily domestic main-trunk markets and some
limited international destinations under a LCC operation model, it is important to align the
operating costs as closely as possible with those of other New Zealand airports in a similar
mode. To this end, publicly available cost information has been obtained covering Hamilton
International Airport, Wellington International Airport and Christchurch International Airport.

It is also important to isolate the airfield component of operating expenses as many airport
companies are involved in general commercial business and land development.

For the purposes of this report both a low-cost and a high-cost option have been utilised
depending on the expected volume of air travel from Whenuapai and based on analysis of
other New Zealand Airports.

• The High Cost Option has been modelled where Whenuapai operates in competition
with a second runway at Auckland. This sees between 1.5m and 2.0 million passenger
movements annually by 2015. Under this option the net additional cost per passenger
over and above Auckland is $3.16.

• The Low Cost Option has been modelled where Whenuapai operates without
competition as Auckland’s second runway is not built. This sees almost 3.0m
passenger movements annually by 2015 and the airport is focused more on serving the
domestic market than in the first option (on a proportional basis). This scenario sees a
saving per passenger of $0.69 compared with Auckland.

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As with other cost streams, operating expenses have been multiplied through by expected
passenger volumes then expressed in NPV terms over 25 years at 7.5%. The numbers
presented in Section 5 are net of Auckland costs.

3.7 Airline Operating Costs

No robust information has been produced that specifically identifies the range of net additional
costs associated with airlines operating out of Whenuapai. However, there will be duplication
of some infrastructure necessary, especially under the no second runway future at AIA. There
are also likely to be net additional costs per passenger as the airlines will not be able to
achieve the economies of scale that AIA offers – this includes any LCC that seeks to operate
out of Whenuapai, although not to the same extent.

For the purposes of this report a conservative $2m in duplication of infrastructure has been
assumed to cover additional plant and equipment at Whenuapai. This is replaced every 10
years. In addition, a net additional operating expense of $1 per passenger has been adopted
at Whenuapai over AIA.

• Under the ‘Most Likely’ scenario this translates into NPV costs of $19m over 25 years.

• Under the ‘Best Outcome for Whenuapai’ scenario this translates in NPV costs of $15m
over 25 years.

• Under the “No Second Runway’ scenario this translates into NPV costs of $28m
reflecting the higher passenger numbers expected.

3.8 Central and Local Government Agency Costs

3.8.1 Central Government Agency Costs

We have modelled the costs of establishing and operating an additional entry point into New
Zealand (MAF and Immigration costs as well as security and Customs). This is based on
information provided by Airplan5. These costs have been calculated as a net addition to
processing the same volumes of air travellers through Auckland Airport.
There is some uncertainty as to whether some of the costs of establishing border control
measures at Whenuapai, or extending the facilities that already exist there, could be covered
by directly charging airlines. Regardless of how these direct costs are met, the economic cost
of duplication of infrastructure that is then under-utilised is borne by the economy as a whole.
The government agency costs incorporated into this analysis include:
• MAF charges at an incremental rate of $10 per arriving passenger, based on the
charges MAF has, until recently, been charging at airports other than the “places of
first arrival” (which are defined as Auckland, Wellington, Christchurch, Whenuapai and
Ohakea).
5
“Whenuapai as an airport for a Low Cost Carrier – Summary of Airplan Tasks”, internal paper to AIAL, 2004

11
 • Customs charges; These are expected to be between $8 - $10 per passenger net
additional to the charges these same passengers would face at Auckland International
Airport.
• Aviation Security: AvSec provides its services at international airports including
screening of departing passengers and cabin baggage plus limited inspection of hold
stored baggage and general security surveillance of facilities and people. This is
charged at $4.00 per international passenger and $2.80 per domestic passenger.
Whilst this is charged to the passenger there would be duplication of infrastructure that
would not be covered by this fee. For the purposes of this report we have assumed
10% of the fees represents the over-investment in infrastructure ($0.40 per
international passenger and $0.28 per domestic passenger).
• The CAA has also ruled that by the beginning of 2006 all hold stowed baggage will be
screened for explosives. The cost of undertaking this at Whenuapai is expected to be
$10 per departing passenger compared with $2 per passenger at AIA. This represents
a net additional $8 per passenger using Whenuapai. There will also be an initial set-
up cost burden of between $2 m and $4m ($3m has been modelled over 10 years on a
per passenger basis).

3.8.2 Local Government Costs

There is also some evidence that local council is offering rates relief in order to progress a
second commercial airport. This represents an opportunity cost that is borne by residents and
needs to be incorporated into any assessment of costs and benefits. Ernst & Young have
calculated the likely rate take from the highest and best use of the Whenuapai land is around
$3.3m.
This subsidy is important from a second perspective. If the second commercial airport is only
viable with subsidies from local councils then once these are removed, the airport may not
continue to operate – or only do so with government subsidies. AIAL may then have made
investment decisions in light of a second airport that prove to be sub-optimal. The end result
could be a shortage of airport capacity across the region.

3.9 Noise Costs

There are likely to be significant costs associated with increased levels of noise from an
increase in the number of aircraft movements at Whenuapai operating as a commercial airport
– compared with the existing RNZAF operation. These costs are reflected in impacts on
property values for households that reside within the various noise contours. Ernst & Young’s
Real Estate Group have produced an assessment of the range of impacts across 1,278
impacted properties6.

We adopt their findings for the purposes of this report.

The Ernst & Young report prepares two scenarios of impact:

6
“Scenario Based Valuation Advice RNZAF Airbase, Whenuapai”, December 2003, prepared for AIAL

12
 • The Low Impact scenario is developed by comparing likely noise profiles with the
current RNZAF noise contours. This means that the increase in noise from existing
levels is lower than from a rural base. Under this scenario, the value impact quantum
ranges from $18m to $53m, based on international studies into the % diminution range
(between 0.75% and 2.25%).

• The High Impact scenario is developed by comparing expected noise profiles against
typical rural/residential noise level. This reflects the underlying zoning for the site and
the highest and best use for the land post airbase closure. The value impact quantum
ranges from $52m to $155m.

In the absence of information to distinguish between these two options, the midpoints have
been selected and weighted 60:40 in favour of the low impact scenario, with the exception of
the no second runway at AIA scenario, where the higher number of flights expected at
Whenuapai are reflected in the selection of the highpoints of each option. Again the
weightings have been applied.

This produces two noise cost inputs to the model:

• The most likely and best Whenuapai outcome scenarios carry noise costs of $62m

• The no second runway at AIA scenario carries noise costs of $92m.

3.10 NPV Assessment of Cost Alternatives

From the benefit and cost estimates, we have developed cost and benefit streams for each
scenario, over the first 25 years of potential operation (the 2008-2032 period). We have
identified the NPV of each scenario in $2004 terms. We have also identified the relevant
airport costs per passenger, so that the resource consumption for each level of output is
identified. These provide key measures, since they show the relative additional cost which
may be carried by passengers if Auckland has additional airport capacity.
We have not carried out an economic impact analysis that measures the contribution of
airports to the regional economy. That type of analysis is not appropriate in this case – the
larger cost structure that would occur under a two-airport future would show up as a higher
level of economic activity in Auckland simply on the basis of the additional resources (land,
labour and capital) required to sustain two airports.
The real issue is the level of resource consumption (or costs) for the required level of activity
to meet Aucklanders’ travel and freight needs. These are best met by the lowest net cost
outcome.

13
4 Potential Travel and Transport Benefits from a
Whenuapai Airport

4.1 Scope
Two main benefits from a second airport at Whenuapai have been suggested:
i. Lower land travel costs and increased travel convenience for air passengers, arising
from the choice between two airports, and reduced travel distance and time for
passengers living closer to Whenuapai than Mangere.
ii. Increased air travel, arising from the operation of a low cost carrier (LCC) from
Whenuapai. The availability of lower air fares would see increases in domestic and
outbound air travel (by New Zealand residents) and additional travel (trans-Tasman) to
New Zealand by overseas visitors.
To examine these potential benefits, two detailed analyses have been undertaken. One
examines the land travel patterns within Auckland by domestic and international passengers
who use Mangere, and the potential for those passengers to more conveniently or cheaply
access Whenuapai. The second analyses the New Zealand air travel market, with particular
regard to current domestic and outbound travel rates by Auckland residents, and inbound rates
by the Australian market.

4.2 Land Travel Analysis

The land travel analysis is a detailed examination of air travel by each key market segment into
and out of Auckland. The purpose is to identify those markets which Whenuapai can
potentially serve, and to understand the likely origins and destinations within Auckland of those
travellers who visit Auckland, and Auckland residents travelling by air to other parts of New
Zealand or overseas. A Land Travel Model has been developed, with capability to show the
within-Auckland origins and destinations for each market, by time of week (relating to peak
traffic flows) and according to future air travel growth. This model shows the land travel
implications of air travellers using Mangere and Whenuapai, under different assumptions of
market capture and travel stimulus.
The key sections of the Land Travel Model are:
i. Passenger and Flight Statistics: AIAL domestic and international passenger arrival
and departure numbers, showing origins and destinations of flights, and time of
departure and arrival. This provides a complete picture of current commercial air travel
to and from Auckland. While it does not provide detail on the nature of air travellers (for
example, distinguishing between business and non-business travel, or between New
Zealand residents and international visitors travelling on domestic services), this data
provides the base against which survey data can be reconciled.
AIAL domestic and international flight numbers and capacity, by time and airport of
origin or destination. The domestic origin and destination information is critical to
identify the potential for routes to be serviced simultaneously from two airports in

14
 Auckland, since there need to be enough daily flights (and passengers) to sustain two
parallel services.
Similarly, international travel origin and destination data is critical to distinguish demand
and capacity from routes which can feasibly be serviced by 737 aircraft from
Whenuapai (Sydney, Brisbane, Melbourne, Canberra, Coolangatta, Fiji), from those
which cannot (the balance).
The passenger and flight statistics by time of day are an essential indicator of times at
which domestic and international arrivals are likely to exit the airport, and when
departing travellers are likely to leave for the airport. In relation to traffic analysis, these
equate to the time of trip start.
ii. Air Travel Survey Statistics: customised data was obtained from the International
Visitor Survey (IVS) 2000-2003 and Domestic Travel Survey (DTS) 1999-2001 to
identify the annual numbers of :
a. Domestic Travellers from Auckland on overnight trips, for
• Business travellers
• Non-Business travellers (Holiday, VFR and Other purposes)
• By destination (main axis vs other)
b. Domestic Travellers from Auckland on day trips, for
• Business travellers
• Non-Business travellers (Holiday, VFR and Other purposes)
• By destination (main axis vs other)
c. Domestic Travellers to Auckland (from elsewhere in NZ) on overnight trips.
This is again based on DTS data, by purpose and origin.
d. Domestic Travellers to Auckland on day trips. This is based on DTS data, by
purpose and origin.
e. International Visitors to New Zealand travelling to Auckland on domestic air
services. This is based on IVS data, with the same detail as above.
f. International Visitors to New Zealand travelling from Auckland on domestic
air services. IVS data .
g. International Travel by Auckland residents. This is based on IVA data by
purpose and main destination (Australia vs Other), and allows for departures and
returns.
h. International Travel by New Zealanders from elsewhere in the country. IVA
data by purpose and main destination (Australia vs Other).
i. International Arrivals to Auckland by purpose and market. IVA data by
purpose and main origin (Australia vs Other).
j. International Departures from Auckland by purpose and market. IVA data by
purpose and main destination (Australia vs Other).

15
 This data was compared and reconciled with the AIAL arrival and departure statistics,
to estimate the structure of each major air passenger flow (inbound and outbound,
domestic and international, main axis and other) by time of week, in terms of each
market, and purpose and duration of travel. Overall, some 64 specific market and
origin-destination combinations were identified and matched with aggregate flows to
and from AIAL.
Because the data on market structure is derived from surveys (IVS, DTS, IVA) and
weighted up to produce total figures, there is not a direct match between the surveyed
totals and the AIAL actual passenger number counts. To reconcile the totals, the AIAL
counts were adopted as the actual numbers, and the IVS, DTS and IVA data used to
estimate the percentage shares of each flow which can be attributed to each market
segment.
The market segment analysis is critical, because each market has different
characteristics in terms of their origins and destinations within Auckland.
iii. Passenger Time of Arrival/Departure Analysis. It is also necessary to understand
the likely distribution of air passenger travel across the week, for each market. This is
because each market has different origin-destination characteristics within Auckland,
so passenger arrival and departure times have different implications for road travel
within the region.
The requirement to identify time of arrival or departure applies especially to domestic
travel. The longer duration of international travel means that it is appropriate to allocate
arrival and departure times for each market pro rata with the average for all markets
(eg to allow for the weekly pattern of business travel to Australia to have the same
distribution across the week as all travel to Australia).
There are no statistics available from the IVS or DTS on the time of domestic travel,
and estimates have been derived according to the nature of travel, and its required or
likely duration. The estimation involved weighting the arrival and departure
distributions of each market to reflect these characteristics, while at the same time
ensuring that the aggregate effect of the estimates across all market remained
consistent with the actual arrival and departure counts at AIAL (for weekday morning
peak, middle of day, afternoon peak, evening, and weekend). The key adjustments
were:
a. Domestic Travellers on Day Trips:
Day trip departures from Auckland were weighted toward travel early in the day
(and return flights correspondingly later in the day), and toward weekday travel for
business travellers. This reflects the purpose and cost of air travel (travellers can
maximise the time able to be spent at the destination by early departure/late
return), and the simple logistics of travel time (eg 90 minutes flight time to
Christchurch, airport turnaround and 2-3 hours of business makes for a minimum
6-7 hour return trip duration, which pushes departure times toward morning peak
or mid morning and return times toward afternoon or evening peak).

16
 The same logic applies for day visitors to Auckland, whose arrivals are weighted
more heavily to the morning peak and subsequent departure (returning home) to
the late afternoon peak or evening.
Non-business travellers were assumed to have similar departure and return
characteristics as business travellers, driven mainly by the time logistics of
undertaking day return air travel, though with a higher weighting toward evening
travel and weekend travel to reflect the higher flexibility of non-business travellers,
and their greater sensitivity to travel costs (lower fares are generally available for
later evening and weekend travel).
b. Domestic Travellers on Overnight Trips:
Overnight trip departures from Auckland were also weighted toward early in the
day (and return flights later in the day), although the weighting adjustment was
less than for day travellers. This is because overnight travellers have greater time
flexibility, and so will show a distribution of travel time which is closer to the all
passenger average.
As with day travellers, business travel was weighted more toward weekdays,
away from weekends, while non-business travel was correspondingly weighted
toward weekends.
c. International Visitors on Domestic Air Services:
The time distribution of international visitors on domestic services was weighted
to correspond with the overnight travel arrival and departure patterns (for
business and non-business).

The principal output from the analysis and reconciliation of the AIAL and travel survey data
is a set of estimates for the 2003 (June) base year which shows for each market segment
the numbers of passengers arriving and departing, and the proportions of those
passengers arriving or departing in each main time period (weekday morning peak, middle
of day, afternoon peak, evening and weekend). The totals across all market segments
correspond with the AIAL passenger counts, in total and for each time period across the
week.
This data set has been applied to the base analysis (2003) and to the projected passenger
numbers for 2008, 2011, 2015, 2020 and 2025 (see below, passenger projections).

iv. Passenger Origins and Destinations within Auckland. The origin and destination
characteristics of travellers to and from Auckland will vary according to the nature of the
market segment, the purpose of travel and the time of travel, as well as the direction
(visitors to Auckland will have different destinations within the region from Auckland
travellers returning). There is very limited data available on origins and destinations
within Auckland, since the survey sources do not offer reliable details on individual
trips.
Nevertheless, knowledge of the purpose and timing of travel provides a reasonable
guide as to likely origins and destinations.

17
The main influences on non-business domestic travel origins and destinations are the
place of residence (Aucklanders outbound, other travellers inbound staying with friends
and relatives), and the distribution of commercial accommodation (especially hotels
and motels) within the region. The distribution of business activity (especially retail) is
recognised as a minor influence on non-business travel.
The main influences on business travel origins and destinations are the distribution of
business activity (business visitors to Auckland, and business travellers from
Auckland), commercial accommodation (hotel and motel for visitors to Auckland) and
resident households (a minor influence for visitors to Auckland, though a major
determinant of the departure point for Aucklanders flying).
The main influence on international visitors’ origins and destinations are the distribution
of commercial accommodation (hotels and motels), the resident population (especially
for VFR and other non-business visitors staying in the homes of friends and relatives),
and business activity (for business travellers).
The relative importance of each driver varies according to the time of travel, especially
for business travellers leaving from home (early flights) or place of work (later flights),
and returning to Auckland (home or to the place of business). The distributions of
business, accommodation and resident population were identified for each area unit
(CAU) and each ART model zone within Auckland, as follows:
Business Activity – identified from the Business Directory (Statistics NZ 2003) which
shows numbers of business and employment (FTEs) in each location. However, it is
recognised that the amount of air travel per person employed varies considerably
among sectors of the economy. Data from the Statistics NZ Inter-Industry tables (2001)
was analysed to show the scale of purchases from the air transport sector by each
other sector. Although this data is generalised, and the purchases show air freight as
well as passenger flows (especially for the manufacturing and wholesale sectors), it
provides a reasonable indication of the relative propensity of different sectors to use air
travel services.
The Inter-Industry tables show relatively high purchases in the communication, property
and business services and finance sectors, and relatively low use of air services in the
trade sector, government and household services, health and education.
These weightings were used to estimate a weighted distribution of employment as a
generator/attractor of air travel. The effect of applying the weighting is to accentuate the
CBD and other areas where commercial business activity is concentrated, and to
correspondingly reduce the importance of other areas. Overall, the weighting shows a
higher generation/attraction by businesses in Auckland City, reflecting the structure of
economic activity there, and lower generation/attraction in other TA areas of the region.
Commercial Accommodation Capacity – this is also identified from the Business
Directory, with data on numbers of business and employment (FTEs) in each location.
For international visitors and business travellers, the distribution is according to hotel
and motel accommodation only, with the % share in each CAU/ART zone of total
regional employment. For domestic visitors, the distribution is according to employment
in all types of commercial accommodation. However, there is very little difference in

18
 the two distributions, given the dominance of the hotel and motel sub-sectors (83% of
total accommodation sector employment).
Resident Households – household numbers have been identified from Census 2001,
and updated to 2003 according to ARC projections (2003). However, allowance is also
made for observed differences in outbound air travel by Auckland residents between
local authority areas within Auckland. This was identified from the Domestic Travel
Survey (1999 to 2001), which showed that outbound travel rates for business day and
overnight travel are higher among Auckland City residents (some 30% above the
regional average), and relatively high for North Shore and Manukau residents
compared with travel by Waitakere, Rodney, Papakura and Franklin residents.
Similarly, travel rates for overnight non-business air travel are higher for Auckland City,
North Shore City and Papakura residents than for residents of Waitakere, Rodney,
Manukau and Franklin. The data on day-return non-business travel is not
comprehensive enough to show within-region differences.
These weightings were used to reflect differences in travel volumes per household
originating in each local authority area, though factored down by 50% to allow for
expected shifts in the last 18 months following the re-positioning of Air New Zealand
and the resulting increase in domestic air travel volumes.
Passenger Projections
Passenger growth projections for the ‘Base Case’ situation have been applied as follows:

Air Travel Annual Growth Rates 2003-2025

2003-11 2011-25
Domestic 4.4% 2.4%
NZ Outbound 4.2% 2.4%
International 6.7% 3.7%

4.2.1 Land Travel Model Outputs

The principal outputs from the Land Travel Model are estimates of passenger numbers for
each market segment and time of week, for each ART zone. Identified separately are
passengers leaving to travel to the airport (outbound travel and visitors leaving for return
flights) and from the airport (inbound travel, and Auckland travellers returning home). These
outputs represent the “Base Case” situation of air travel, where Auckland is serviced by the
AIAL airport at Mangere.
The core outputs have been applied using a simulation process to identify passenger numbers
from each segment who would use Whenuapai, according to different assumptions about
market capture, and the stimulation of additional air travel, for each catchment area.

19
4.3 Whenuapai Land Travel Scenarios
The focus of the land travel assessment is the origins and destinations within Auckland of air
travellers using Whenuapai in the future. Within the time frame of this study, alternative travel
modelling using the ART model with a revised set of airport travel inputs was not feasible.
Instead, the focus is on which of the ART travel modelling results already available reflects
most accurately the likely outcome from an airport at Whenuapai. The Land Travel Model
analysis has been applied to identify the land travel patterns which will reflect the most likely
patronage outcome for Whenuapai, for comparison with the ART inputs.

4.3.1 Background
The travel and traffic implications of potential passenger flows within Auckland were previously
analysed using the Auckland Regional Council’s ART model, by David Young Consulting
(DYC) during 2003 and Sinclair Knight Mertz (SKM) in early 2004. Those analyses applied the
airport trip generation and origin-destination information contained in the ART model.
Concerns were raised in the SKM study regarding the accuracy of the travel time and distance
savings from the ART model analysis. This was particularly because most of the travel cost
savings (which were equated with travel benefits) derived from reduced travel time rather than
travel distance, and because the travel reductions were in the order of 0.2%-0.5% across the
network. The average travel time and distance savings per trip for airport users were very
small.
This meant that the magnitude of potential travel benefits was driven primarily by:
• the number of air travellers using Whenuapai
• their origin and destination points across Auckland (for travel to and from the airport).

The DYC and SKM analyses both confirmed this through the substantial differences in the
amount of travel benefit. The DYC study estimated benefits of $12m to $304m (expressed in
NPV terms over 25 years), with the differences arising primarily from the assumptions about
the origins and destinations of travellers. The DYC study estimated that if users of
Whenuapai were distributed pro rata (per capita of population, and per FTE of employment)
across Auckland, then the travel savings were around $12m over the period. For the higher
level of travel benefits to be achieved, the origins and distributions of travellers had to be
strongly weighted toward the Waitakere City, North Shore and Rodney catchments. This
meant that Whenuapai would have to serve a very high share of the demand from these
catchments (48-49%), with minimal levels of cross town travel by air travellers from central
and southern Auckland.
The SKM study expressed concerns about that assumed distribution of travel, particularly
because around two thirds of the passenger numbers through Whenuapai were assumed to be
new demand, arising from the presence of an LCC there. Since the main driver of this
additional demand would be the lower price of air travel, there was little likelihood of all the
extra demand arising simply in the Waitakere, North Shore and Rodney catchments, with none
generated from the larger population bases in Auckland City, Manukau City, Papakura and

20
Franklin, or areas south of Auckland. Rather, the additional travel stimulated by a lower price
threshold would be more likely to apply to the population at large, and so the associated travel
would be spread more or less pro rata across Auckland.
Further, since the ART model analysis was based on redistribution of existing airport-related
trips, it was not able to make allowance for additional vehicle trips arising from the additional
air travel. Accordingly, the travel benefits are assumed to arise from redistribution of the same
volume of airport-related travel, rather than redistribution of around 6% of existing travel, and
the addition of 11-12% of such travel.
Finally, the ART model analysis is based on travel in the weekday morning peak, an average
for the weekday inter-peak, and the evening peak period, with estimates for travel during the
balance of the week (evening and weekends). As a consequence, the estimates of travel
benefits are sensitive to assumptions about the time of airport related travel, especially the
shares of this travel which occur in the morning and evening peaks. In the various analyses by
DYC and SKM, these periods account for 35-62% of the total travel benefits.
4.3.2 Land Travel Model
The more detailed analysis undertaken for this study reflected the concerns about the
underlying assumptions and trip distributions contained in the ART modelling. While the ART
model is effective for its prime purpose as a regional transportation and travel model, its
application to assess the siting of specific infrastructure, such as an airport, places higher
demands on the accuracy of base data (trips, origins, destinations and timing) and consistency
with other information (passenger numbers, travel rates, and the geographical distribution of
the origin and destination drivers.

4 . 4 T ra ve l A s s e s s me n t

4.4.1 Whenuapai Operation

A commercial airport at Whenuapai would be potentially be able to service:
1. Domestic main trunk travel (to and from Wellington and Christchurch). Travel on
the main trunk represents about 70% of total domestic air travel to and from
Auckland.
The level of inbound and outbound demand on other domestic routes is not
sufficient to sustain parallel services operating from two airports – either from the
same airlines operating from both, or competing airlines each operating exclusively
through Mangere or through Whenuapai.
These regional services will therefore continue to serve the wider Auckland market,
and it is very unlikely that they would completely relocate to Whenuapai, for four
reasons:
a. the major share of travel demand arises from areas closer to Mangere than to
Whenuapai (making the latter less convenient)
b. additional time and cost in making flight connections to other domestic or
international flights through Mangere

21
 c. the loss of airline scale economies from operating main trunk and regional
services from different airports in the same destination
d. the LCC orientation to large passenger volumes means that the low-volume
regional routes offer little return.
2. International trans-Tasman air services (to the east coast cities of Australia, and
Fiji). This is because the Whenuapai runway would be able to service 737 aircraft,
but not larger 747s or 767s and the like. The operational range of 737s means that
direct flights would be possible trans-Tasman to and from Australia (Sydney,
Brisbane, Melbourne, Coolangatta) and Fiji. Other destinations are also within
range (especially other Pacific Islands), but do not offer large enough passenger
volumes to be attractive to LCC operation. The main international market would be
Australia, together with Aucklanders and other New Zealand residents travelling to
and from Australia. In broad terms, Whenuapai could potentially serve a maximum
of around 32% of international travel (Australians) and around 49% of New
Zealand outbound travel.

4.4.2 Whenuapai Travel Scenarios

The numbers of passengers using Whenuapai and their origins and destinations by ART zone
within Auckland have been estimated for three scenarios. In each, the passenger numbers
using Whenuapai are estimated to reach 1,500,000 by 2015 (at 15% market capture) and
2,000,000 (at 20% capture). Of these, 33% (500,000 or 667,000) are assumed to be attracted
from Mangere, and the balance of 67% (1,000,000 or 1,330,000) represents market growth
stimulated by an LCC. The 1,500,000 passengers by 2015 equates with 15% of the total
market (including the assumed stimulation from the LCC) and thereafter passenger numbers
would grow in line with overall demand growth, to around 1,900,000 by 2025 and 2,300,000 by
2035.

Among passengers attracted from Mangere, the assumed split is 20% business and 80% non-
business, reflecting the greater price sensitivity of non-business travellers. Among the extra
demand assumed to be stimulated by the LCC-Whenuapai combination, the split is 10%
business and 90% non-business.
The scenarios are as follows:
Origin-Destination Pattern 1 – travellers through Whenuapai are distributed pro rata
across Auckland, for both those captured/attracted from Mangere, and for growth in
demand stimulated by an LCC.
Origin-Destination Pattern 2 – travellers through Whenuapai are not distributed pro rata
across Auckland. Some 50% of those captured/attracted from Mangere are from areas
closer to Whenuapai (compared with 27% for passengers overall), so that the capture rate
in these areas is around 2.5 times than in areas closer to Mangere. The demand stimulus
effect is stronger by one third in areas closer to Whenuapai.
Origin-Destination Pattern 3 – travellers through Whenuapai are not distributed pro rata
across Auckland. Some 75% of those captured/attracted from Mangere are from areas
closer to Whenuapai (around three times the average of 27% for passengers overall), so

22
 that the capture rate in these areas is around 7-9 times than in areas closer to Mangere.
The demand stimulus effect is stronger by one third in areas closer to Whenuapai.
These passenger travel outcomes (origins and destinations) were compared with the ART
model assumptions used in the DYC and SKM analysis.
The comparison is shown in Figure 4.1, which portrays the shares of passenger numbers
(Land Travel Model) and vehicle trips (ART Model) to/from each TA. Pattern 1 is reasonably
close to the pro rata estimate used in the DYC study (Option 1) though with higher shares from
Auckland City according to the Land Travel Model, and lower shares for other TAs. That
pattern identified travel savings of around $12m (based on subsequent adjustments by the
SKM analysis).
Figure 4.1 : Air Passenger & Trip Origins-Destinations within Auckland – Land Travel
and ART Model Comparison 2011

60%

50%
SHARE OF PAX / TRIPS (%)

40%

30%

20%

10%

0%
RDC NSC WCC ACC MCC PDC FDC RDC NSC WCC ACC MCC PDC FDC RDC NSC WCC ACC MCC PDC FDC
PRO RATA SPREAD MEDIUM REGIONAL FOCUS STRONG REGIONAL FOCUS

AIAL ART

Pattern 2 reflects the medium regional focus from the Land Travel Model, but differs
substantially from the DYC medium pattern. In the Land Travel Model, the shares of
passengers to/from the northern and western catchments (40%) are still well below those in
the ART analysis (53%).
Pattern 3 from the Land Travel Model has the strongest regional focus toward Waitakere,
North Shore and Rodney, with around 51% of passengers to or from these catchments.
However, this differs considerably from the DYC analysis Option 2, which has 100% of trips
to/from these catchments, and none from other areas.
Rather, the strongest regional focus from the Land Travel Model corresponds most closely with
the DYC study’s Option 3 (moderate regional focus). This is shown in Figure 4.2, where
Pattern 3 is compared with DYC Option 3. Even then, the shares of Whenuapai air travel
arising from the Waitakere, North Shore and Rodney catchments in Pattern 3 are lower (51%)
than those applied in the DYC’s ‘moderate’ regional focus (53%).

23
Figure 4.2 : Air Passenger & Trip Origins-Destinations within Auckland – LTM (Pattern 1
& 3) and ART Model (Option 1 and 3) 2011

60%

50%
SHARE OF PAX / TRIPS (%)

40%

30%

20%

10%

0%
RDC NSC WCC ACC MCC PDC FDC RDC NSC WCC ACC MCC PDC FDC
PRO RATA SPREAD L.T.M. STRONG vs ART MEDIUM REGIONAL FOCUS

AIAL ART

In other words, the strongest geographical focus from the Land Travel Model implies a slightly
more even spread across the region even than the DYC medium modelling, with its associated
travel savings of $79m (as previously, based on subsequent adjustments in the SKM analysis).
The key implication is that the detailed market analysis and catchment estimates using the
Land Travel Model indicate that the likely land travel savings lie between the two lower
estimates from the DYC study – in other words, the potential travel savings lie between $12m
and $79m in NPV terms.
The DYC study’s Option 2 (strong regional focus, where all demand for Whenuapai is from
Waitakere, North Shore and Rodney) was acknowledged as an extreme outcome. The
research in developing the Land Travel Model suggests such an outcome is unrealistic, since
the market shares which Whenuapai would have to attract are very high, and it is simply
inconsistent to assume very high attractiveness to certain markets at the same time as very
low attractiveness to similar markets nearby.

The Whenuapai passenger travel patterns have also been analysed by time of week. As
noted, between 33% and 62% of the travel savings arise from the peak period (morning and
evening peak). The analysis of air passenger travel timing shows that 10-12% of airport
related travel starts during these peak times. This suggests that the potential travel savings
may be overstated if a disproportionately high share of trips is assumed to be in the peak
periods, when the savings from travel time reduction tend to be greatest.

24
4.4.3 Implications for Land Travel Costs
The Land Travel Model analysis, of both catchments and time of day of airport related travel,
indicates clearly that the potential travel benefits from Whenuapai lie within the $12m - $79m
range. The time of day analysis further indicates that the travel cost savings are closer to the
lower end of that range than the upper end.
However, these conclusions need to be confirmed through comparable ART model analysis,
when appropriate.

4.5 Stimulus to Air Travel Demand

The second major benefit suggested for a second airport is a stimulus to air travel demand,
generated primarily by the presence of an LCC at Whenuapai. Growth in demand would mean
benefits to Auckland consumers if they are able to fly to more destinations, and to the national
economy in the form of foreign exchange earnings if more international visitors travel to New
Zealand.
The key issues are the scale of such benefits, and whether they are attributable to the
presence of a second airport.

4.5.1 LCC vs Second Airport

The stimulus to air travel demand would be driven primarily by the presence of an LCC at
Whenuapai. The price differential (lower air fares) would result in more domestic and outbound
travel by Aucklanders, and more international travel from the eastern seaboard of Australia.
There would be a secondary, but very small, stimulus from the closer proximity of services for
residents of northern and western Auckland.
This means, however, that the stimulus would arise from the LCC operation, not the existence
of a second airport per se. The link with a second airport is predicated on the assumption that
an LCC would only operate through Auckland if Whenuapai were developed, and would not
operate through Mangere.
In other markets, LCC operations are not dependent on the presence of secondary airports. In
Australia, for example, LCC operators use the ‘main’ airports in Sydney, Melbourne, Brisbane,
Perth and elsewhere. Further, there is capacity for LCC operations at Mangere, and the
planned expansion of international and domestic facilities there will provide for such capacity in
the long term.
Accordingly, any stimulus to travel demand from an LCC, and associated benefits, cannot
reasonably be attributed to establishment of a second airport.

4.5.2 Potential Stimulus to Air Travel Demand

The second issue is the scale of any demand stimulus. In previous reports, various scenarios
were publicised of passenger numbers through Whenuapai, based on one third from market
capture and two thirds from demand stimulus, and assumed market shares of 15% and 20%

25
for Whenuapai, from among the segments served – domestic main trunk, NZ outbound and
international inbound (and vice versa) trans-Tasman.
We have examined the implied market shares and demand stimulus implicit in these numbers,
using base growth passenger forecasts, for 2015 as a base year.
• In 2015, total passenger numbers through Auckland would be around 18.1m, including
6.9m domestic, 3.5m NZ outbound, and 7.7m international. Of these, around 8.9m
would be domestic main trunk, or trans-Tasman.
• If one third of Whenuapai passengers are drawn from the existing base market, this
would mean 0.5m (out of 1.5m total) drawn from the 8.9m base market.
• This is a ‘capture’ rate of some 5.6%.
• The balance of 1.0m would represent the demand stimulus. While this would vary
across the domestic and trans-Tasman market, it would mean an overall stimulus of
around 11.3% (an extra 1.0m passengers from a base demand of 8.9m).
• Any stimulus effect is expected to be stronger for the domestic and NZ outbound
markets than for Australians inbound. If 75% of the demand is from these markets, then
this would represent a stimulus effect of around 11.5%.
• If the overall passenger throughput were 2.0m by 2015, then the capture rate would be
7.3%, and the market stimulus effect 15% (and 15.5% for New Zealand resident travel).

These figures imply strong market shifts in response to air fares, primarily from the Auckland
market. Several factors are relevant:
i. There is already considerable low-cost capacity both domestically and trans-Tasman.
The availability of low fares from existing airlines across all domestic routes including
the main trunk (for example, Air New Zealand’s express service) means that a
specialised LCC would be competing within an existing market structure, rather than
establishing an entirely new niche.
ii. The domestic market has already responded to these fare structures, with substantial
increases in domestic travel – domestic passengers through Mangere in the year to
June 2004 were 14.4% up on the 2003 year. Similarly, the numbers of New Zealanders
travelling to Australia during 2003 increased by 9.8% over the 2002 level, after annual
growth of around 1.4% over the previous 4 years.
iii. The domestic and trans-Tasman markets are of limited size in international terms. This
suggests there will be less scope for the very low cost fares – which are usually
available on a portion of route capacity overseas – to be widely available.
iv. Similarly, the fact of route distances – with a 2,000km haul trans-Tasman – limits
airlines’ capability to make cost savings and offer low fares, since a relatively high
share of costs arise from aircraft operation.
v. As a consequence, the price differential between LCC operation and the fares available
from existing carriers will be limited.

26
These factors together indicate that the potential for a significant market shift in response to
lower air fares from an LCC will be similarly limited, especially on top of the recent observed
shifts in response to lower fare structures.
This is especially so for the Auckland air travel market, which would generate the bulk of
New Zealand demand through Whenuapai. The air travel rates by Auckland residents (travel
per capita) are already nearly double those for New Zealand as a whole. They are
substantially higher than travel rates from the catchments already served by LCC operations.
Figure 4.3 shows outbound travel rates for 2003 (trips per 1000 resident population), by
region. The Auckland rate is substantially higher than for other markets, at 487 per 1000
(compared with the national average of 265 per 1000). The major metropolitan markets
(Auckland, Wellington and Canterbury) which are served by international airports have travel
rates higher than other regions. Waikato, Manawatu and Otago (all served by LCC trans-
Tasman services from their regional airports) have travel rates similar to other regions not
directly served.

Figure 4.3 : Outbound Air Travel Rates by Region 2003

600
Annual Departures per 1,000 population

500

400

300

200

100

0
Bay of Plenty
Canterbury

Hawke's Bay
Otago

Northland

Gisborne

Marlborough

Southland
Auckland

Taranaki

Tasman / Nelson
Manawatu-Wanganui
Wellington

West Coast
Waikato

REGION

Figure 4.4 shows outbound travel rates for Auckland region compared with the rest of New
Zealand, over the period 1991-2003. The Aucklanders’ outbound travel rate has remained
substantially higher than for other markets, growing at an annual rate of 3% since 1991
(though only 1.4% since 1996).
As well as showing the established differential in travel rates, the long term growth rate of
1.4% helps set the effect of the assumed demand stimulus (of 11-15%) in context.

27
 Figure 4.4 : Auckland vs Other Outbound Air Travel Rates 1991-2003

600
Annual Departures per 1000 population

500

400

300

200

100
Auckland All Other

0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

4.5.3 Other Issues

The various assumptions relating to the Whenuapai market structure – in terms of growth vs
market stimulus – also require further consideration. In particular, there is a prima facie
inconsistency in the notion that lower fare structures would generate an increase of 11-15%
in travel demand, but have only half that effect in terms of attracting existing travellers.
We note also that the assumptions about the structure of Whenuapai passenger numbers
are very important for an economic assessment. In particular, if the split were not heavily
weighted toward demand stimulus rather than market capture, then this would mean a
greater level of diversion from Mangere to Whenuapai – and correspondingly greater impact
on travel costs per air traveller.

28
5 Net Economic Cost Benefit Assessment

The net economic benefits of a second airport at Whenuapai are assessed by comparing the
NPV costs associated with meeting the travel needs of those passengers likely to be attracted
to Whenuapai, either at Whenuapai or at AIA.

5.1 Most Likel y Eco n omic Outcome – Base Case

The Base Case Scenario is the one that is most likely to occur should Whenuapai be
developed as a second commercial airport for Auckland. The scenario has the following
characteristics:

• Whenuapai is developed to operate alongside the RNZAF for the initial years with
commercial flights starting in 2008.

• A low-cost carrier is established at Whenuapai beginning services on the main trunk

routes (Auckland Wellington and Christchurch) and the SW Pacific (eastern Australia
and Fiji).

• By 2015 the Whenuapai airport has reached its maximum market penetration of 20% of
target routes (11% overall market share). This translates to around 2m passenger
movements in 2015. Passenger volumes through Whenuapai then grow at the rate of
overall Auckland market air travel growth into the future.

• The airport is developed by overlaying the existing runway with asphaltic concrete and
a deep asphalt overlay (SKM’s Infrastructure Option 1). This option has high
maintenance costs but low capital costs up front. It is believed this will be the approach
taken. Note also that no allowance has been made for the higher maintenance costs
which this option incurs. By assuming low capital costs up front, the figures presented
are a very conservative cost estimate.

• The capital expenditure costs associated with the second runway at AIA have been
isolated from the total capital expenditure programme over the next 15 years on a pro
rata basis, in order to standardise the costs for appropriate comparison between the
two airports. AIA costs have been divided by the volumes of domestic passenger
movements over the next 25 years to derive a cost per passenger through AIA, then
multiplied by the numbers of passenger movements expected at Whenuapai to
estimate the share of AIA costs which would be attributable to that volume of
passengers. This is to ensure that like-for-like capital cost comparisons can be made.

• The proposed Whenuapai airport is likely to have operational characteristics which are
very similar to Hamilton airport (with a similar flight offer both domestically and
internationally), therefore very similar airport operating expenditure profiles are
expected. Given this assumption, the proposed airport at Whenuapai is likely to
operate at a higher cost per passenger movement than at Auckland. It is unlikely that
any airport operating on the passenger volumes expected at Whenuapai can match the

29
 economies of scale and therefore the low average cost curve on which AIA is able to
operate. The figures presented in Table 5.1 represent the net additional airport
operating costs associated with Whenuapai over and above those at AIA.

• Costs associated with increased noise are based on the midpoint of the Ernst & Young
2003 study findings, which assessed the likely effects on property values. The EY
study identified two alternative noise impact measures – one based on the miliary base
activities (with higher implied noise tolerance and lower impacts on value), the other
based on the underlying zoning for rural activities (which has lower noise tolerance and
therefore higher impacts on value). The difference between low and high noise impacts
is considerable (a factor of 3) and for the Base Case (given uncertainty about future
surrounding land uses) a weighting of 60:40 towards the lower military noise contours
has been applied.

• Border security, Customs and aviation security costs are based on the net figures
provided by Airplan. They are net of the costs associated with processing those same
passengers through AIA.

• Additional airline land side operating costs have been estimated at $1 per passenger
plus a small component for duplication of infrastructure. These costs are additional to
those associated with processing the same passenger volumes through AIA, and
reflect the costs of duplication and the loss of scale economies.

• Land required for the airport operation has been valued at the opportunity cost
associated with the highest and best alternative use. In Whenuapai’s case this is
based on the Ernst & Young estimates of value associated with Boffa Miskell’s
alternative vision for the site as “A satellite community that is economically, socially and
environmentally sustainable and planned to meet the needs of the community today, as
well as having long term viability for the future.”7

In the AIA case, this is based on the current value of the land required for the second
runway. However, that second runway is intended to service significantly more
passengers than estimated for Whenuapai. As with the AIA capital cost allocation, the
land value has been pro rated per passenger, and weighted according to the number of
movements expected at Whenuapai. This ensures the “consumption” of land by a
comparable passenger volume is included only. Again, the opportunity cost of next-
best use has been applied rather than simply applying the existing land valuation.

• The travel savings are based on the lowest assessment carried out by SKM. These
numbers are comparable with SKM Option 1 – “No regional bias”. As described above,
there are significant issues involved with the current assessment of transport impacts,
primarily because the ART model may not be an appropriate tool to assess impacts
that are significantly less than 1%, therefore are likely to fall well within the margins of
error of the model.

7
“Whenuapai Air Force Base – Environmental and Urban Design Contextual Analysis and Vision” November
2003, p5

30
Given this set of most likely assumptions, Table 5.1 presents the net economic outcome. It
shows that over the 25 years from 2008, the presence of Whenuapai as a second commercial
airport in Auckland will cost the country $238m in current dollar terms (2004). In every aspect
other than in the costs of construction and, by a very small margin, the land transport costs, it
indicates an advantage in economic terms from concentrating Auckland air traffic out of
Auckland International Airport rather than splitting it across two airports.

Table 5.1: Base Case Net Economic Costs of Whenuapai as Auckland’s Second
Commercial Airport
Net Additional
Major Expenditure Category Whenuapai Mangere Cost of
Whenuapai
Runway - Capex $ 14.7 $ 27.0 -$ 12.4
Buildings - Capex $ 4.7 $ 33.5 -$ 28.8
Noise $ 62.2 $ - $ 62.2
Airport Operating Costs (net) $ 49.4 $ - $ 49.4
Border Security and Immigration Measures (net) $ 149.6 $ - $ 149.6
Airline Operating Costs $ 18.7 $ - $ 18.7
Opportunity Cost of Land $ 15.6 $ 2.5 $ 13.0
Sub Total $ 314.8 $ 63.1 $ 251.7
Travel Savings - negative impact for Mangere -$ 13.8

Net Total $ 237.9

5.2 Low and High Scenarios

It is important to place the most likely outcome within the context of the range of possibilities
(Table 5.2 and Table 5.3). This requires two additional scenarios, as follows

• Best Outcome for Whenuapai Scenario: This scenario, detailed in Appendix 1,

presents the lowest cost options for Whenuapai compared with the highest alternative
costs at Auckland. It is associated with a lower market share capture and therefore
raises doubts about the ongoing viability of the airport at these levels.

• No Second AIA Runway Scenario: This scenario, detailed in Appendix 2, presents the
situation where AIAL shareholders deem the risks of developing a second runway are
too great and choose to divest land banked for this purpose. This results in
approximately twice the passenger numbers being forced to use Whenuapai as in the
most likely scenario.

Under the best outcome scenario (in net economic terms) for Whenuapai, the airport
generates an overall economic cost of $63m in current terms to the national economy, over the
first 25 years of operation. The increases in land transport costs are not enough to overcome
the $142m additional airport-related costs of Whenuapai (Table 5.2).

The worst outcome for the region and the nation occurs if Auckland International Airport Ltd
decides against developing a second runway. Under these assumptions the economic cost of
processing significant volumes of additional air traffic through Whenuapai increase to over
$343m (in current terms over 25 years). This is likely to be compounded by an additional

31
transport cost as significant numbers of air travellers would need to travel between two airports
each specialising in different sets of services and routes.

Table 5.2: Best Outcome for Whenuapai Scenario –

Net Economic Costs of Whenuapai as Auckland’s Second Commercial Airport

Net Additional
Major Expenditure Category Whenuapai Mangere Cost of
Whenuapai
Runway - Capex $ 14.7 $ 20.3 -$ 5.6
Buildings - Capex $ 4.7 $ 25.2 -$ 20.5
Noise $ 35.0 $ - $ 35.0
Airport Operating Costs (net) -$ 8.1 $ - -$ 8.1
Border Security and Immigration Measures (net) $ 112.6 $ - $ 112.6
Airline Operating Costs $ 14.8 $ - $ 14.8
Opportunity Cost of Land $ 15.6 $ 1.9 $ 13.7
Sub Total $ 189.3 $ 47.3 $ 141.9
Travel Savings - negative impact for Mangere -$ 78.9

Net Total $ 63.0

Given limitations in the ART modelling, this scenario has not been tested. However, it is
expected to be in favour of Mangere given that a majority of the region’s air travellers reside or
work in closer proximity to Mangere than to Whenuapai. To avoid debate, it has been set to
zero – therefore the figures here are conservative.

In addition, the significant levels of construction activity that would otherwise have occurred at
AIA to develop the second runway would no longer occur. Depending on AIAL’s use of the
funds freed up by the decision to no longer develop the runway, the net effect of this non-
investment could see Auckland’s future economy smaller than it would otherwise be.

Construction activity has a high multiplier effect throughout the economy due to its use of
materials and expertise from a wide cross-section of the economy. If the monies were
invested elsewhere, used to repay debt or even invested offshore, the multiplier effect in the
regional economy could be lower than from construction.

32
 Table 5.3: No Second AIA Runway Scenario – Net Economic Costs of Whenuapai as
Auckland’s Second Commercial Airport
Net Additional
Major Expenditure Category Whenuapai Mangere Cost of
Whenuapai
Runway - Capex $ 27.4 $ - $ 27.4
Buildings - Capex $ 5.9 $ - $ 5.9
Noise $ 93.8 $ - $ 93.8
Airport Operating Costs (net) -$ 17.0 $ - -$ 17.0
Border Security and Immigration Measures (net) $ 189.2 $ - $ 189.2
Airline Operating Costs $ 27.7 $ - $ 27.7
Opportunity Cost of Land $ 15.6 $ - $ 15.6
Sub Total $ 342.6 $ - $ 342.6
Travel Savings - negative impact for Mangere $ -

Net Total $ 342.6

5.3 Other Potential Economic Benefits

Under a normal economic impact analysis a wider range of benefits are considered along with
the effects they are likely to have across the wider economy. They include construction costs
and often the stimulus effect that a particular development could potentially have on the
economy in question.

It is important to note that these aspects are not relevant for the purposes of this assessment,
as they are constant across both scenarios, especially if viewed from a regional or national
perspective. At the territorial authority level they are simply a transfer from one TA to another,
as construction and development around either airport could potentially occur.

33
6 Conclusions

In conclusion, it is clear from the assessment presented above that the development of a
second commercial airport at Whenuapai carries with it significant costs to the regional and
national economies that are not paid by those reaping the benefits of developing the airport.

It is also apparent that the transport modelling analysis undertaken in support of the proposal
has considerable limitations, particularly in regard to the origins and destinations of
passengers, and the inherent limitations of applying a regional transport analysis tool to
examine specific locations for key non-road infrastructure. The detailed analysis of passenger
flows and markets carried out for this study shows significant differences in likely travel
patterns within Auckland, and consequent use of the roading network. These, together with the
nature of demand associated with Whenuapai (especially the assumed market-wide stimulus
to air travel), mean that two airports would be much more likely to draw close to pro rata
across the Auckland catchment.

For this reason, the very high travel cost savings indicated in earlier studies should not be
taken as accurate, since they do not reflect the market structure and associated traffic
implications of a two-airport future compared with a single-airport future. The lowest of the
scenarios modelled using the ART model has been adopted for the purposes of this paper, as
its core assumptions best reflect the likely actual travel patterns.

Taking that into consideration, the most likely outcome of developing a second commercial
airport at Whenuapai carries a cost to the nation of almost $238m over the first 25 years of
operation (2008 – 2032).

In the best outcome scenario that includes a second airport at Whenuapai the cost to the
national economy is $63m over the first 25 years of operation. In the worst outcome, that is,
where Auckland International Airport Ltd decides not to develop the second runway, the
second airport carries a national economic cost of $343m for the first 25 years of operation.

34
APPENDIX 1: Best Case Whenuapai Scenario

Assumptions

• Whenuapai is developed to operate alongside the RNZAF for the initial years with
flights starting in 2008.

• A low cost carrier is established at Whenuapai beginning services on the main trunk
routes (Auckland Wellington and Christchurch) and the SW Pacific (eastern Australia
and Fiji).

• By 2015 the airport has reached its maximum market penetration of 15% of target
routes (8% overall market share). This translates to around 1.5m passenger
movements in 2015. Passenger volumes then grow at the rate of overall Auckland
market air travel growth into the future.

• The airport is developed by overlaying the existing runway with asphaltic concrete and
a deep asphalt overlay (SKM’s Infrastructure Option 1). This option has high
maintenance costs but low capital costs up front.

• The capital expenditure costs associated with the second runway at AIA have been
isolated from the total capital expenditure programme over the next 15 years. Average
capex per pax is multiplied by Whenuapai pax to ensure that the appropriate
comparisons can be made.

• The airport has operational characteristics very similar to Hamilton airport (similar flight
offer both domestically and internationally) therefore very similar operating expenditure
profiles. Given this assumption the proposed airport at Whenuapai is likely to operate
at a higher cost per passenger movement than at Auckland.

• Costs associated with increased noise are based on the midpoint of the Ernst & Young
assessments. They have been weighted 100% towards the military base noise
contours which are the existing noise contours.

• Border security, Customs and aviation security costs are based on the net figures
provided by Airplan. They are net of the costs associated with processing those same
passengers through AIA.

• Airline operating costs have been estimated at $1 per passenger plus a small
component for duplication of infrastructure. Again these costs are net of those
associated with processing the same passenger volumes through AIA.

• Land required for the airport operation has been valued at the opportunity cost
associated with the highest and best alternative use. The value has been divided by
total domestic passenger movements then multiplied by the number of movements
expected at Whenuapai. This ensures the “consumption” of land by a comparable
passenger volume is included only.

35
• The travel savings are based on the medium assessment carried out by SKM. These
numbers are comparable with SKM Option 2 – “medium regional bias”. As described
above, there are significant issues involved with the current assessment of transport
impacts, primarily because the ART model may not be an appropriate tool to assess
impacts that are significantly less than 1%, therefore are likely to fall well within the
margins of error of the model.

36
APPENDIX 2: No Second Runway Scenario

Assumptions

• Whenuapai is developed to operate alongside the RNZAF for the initial years with
flights starting in 2008.

• A low cost carrier is established at Whenuapai beginning services on the main trunk
routes (Auckland Wellington and Christchurch) and the SW Pacific (eastern Australia
and Fiji).

• Auckland does not develop a second runway at Mangere and seeks to price all turbo-
prop traffic from its main runway in order to maximise the number of slots available for
jet aircraft. This has the effect of forcing Air New Zealand and others to utilise
Whenuapai to service all non main trunk destinations within New Zealand.

• Passenger volumes at Whenuapai are therefore made up of the Low Cost Carrier traffic
to the SW Pacific plus all non main trunk domestic travel, which has been estimated as
31% of all domestic air travel (based on analysis of all passenger movements and
flights over the past year out of Auckland Airport). This sees volumes grow from 1.4m
in 2008 to almost 4.9m by 2035.

• The airport is developed using a concrete runway rather than overlaying asphalt, as
this is the best option given the increased flights expected under this scenario (SKM
Infrastructure Option 2). It is also assumed that due to the increased passenger
volumes, and the move away from a pure discount operation, overall capital
expenditure at Whenuapai will be 25% higher than in the base case scenario.

• It has been assumed that there are no capital expenditure cost implications other than
a reduction at AIA. However, it is noted that if this scenario comes to pass there will be
significant ongoing restructuring of the existing infrastructure along the existing runway
as the airport refocuses itself in an eastward direction rather than to the north where
the second runway will be developed.

• The airport has operational characteristics very similar to Wellington airport given the
similarity in passenger numbers and destinations, therefore very similar operating
expenditure profiles. Given this assumption the proposed airport at Whenuapai is likely
to operate at a lower cost per passenger movement than at Auckland.

• Costs associated with increased noise are based on the high end of the Ernst & Young
assessments. As with the base case, they have been weighted towards the military
base noise contours which are the existing noise contours. A weighting of 60:40
towards the lower military contours has been applied.

• Border security, Customs and aviation security costs are based on the net figures
provided by Airplan. They are net of the costs associated with processing those same
passengers through AIA.

37
• Airline operating costs have been estimated at $1 per passenger plus a component for
duplication of infrastructure ($2m every 10 years). Again these costs are net of those
associated with processing the same passenger volumes through AIA.

• Land required for the airport operation has been valued at the opportunity cost
associated with the highest and best alternative use.

• The travel savings are set to zero as there are likely to be costs overall that haven’t
been able to be modelled using the ART model.

38
APPENDIX 2: Peer Review – Professor Basil Sharp

8th November 2004

Greg Akehurst
Doug Fairgray
Market Economics Ltd

Whenuapai Airport
Economic Cost Benefit Assessment

I have reviewed the above assessment. My report comments on components of the cost-benefit
assessment as follows.

1. Project objectives: the report clearly establishes that the objective is to estimate the
economic costs and benefits of a proposal to establish a second commercial airport at
Whenuapai Airbase.
2. Assumptions: Key assumptions are clearly identified. Two scenarios are identified: #1. AIA
Ltd Two Runway Future, and #2. AIAL One Runway Future. Under #1, Mangere develops
a second runway for smaller aircraft (turboprop), allocating the existing runway to larger jet
traffic. Whenuapai enters the market and captures 15-20% of the (main trunk, eastern
Australian, Fiji) market. Under #2, Whenuapai enters the competition and AIA Ltd divests
land banked for the second runway, large carriers relocate non trunk services to Whenuapai.
On the matter of costs, it is assumed that the average cost of Whenuapai per passenger unit
exceeds the average cost of Mangere per passenger unit. Moreover, there is an allowance
for increasing the volume of traffic at Whenuapai under scenario #2; which raises average
costs at Mangere. Costs have been obtained from AIA and airports of similar size to
Whenuapai (such as Hamilton and Wellington), this approach is satisfactory. Assumptions
underpinning the two scenarios are clearly presented in the appendices.
3. Base Case Scenario: clearly identified as AIA Ltd Two Runway scenario. Importantly, this
is taken as a best case for Mangere in the absence of Whenuapai.
4. Investment Alternatives: The investment alternatives flow out of the scenarios given above.
5. Evaluation Period: Whenuapai is due to be decommissioned in 2008 and the evaluation
spans year 2008 through 2032, a 25-year period. There are no hard and fast rules here; I
would suggest that the period is adequate for a project of this scale.
6. Appropriate Level of Effort: The project team appear to have used the best available
information considering the project constraints.
7. Identification and Quantification of Benefits and Costs:
a. Benefits: Savings in land travel time provide the principal source of economic benefit
arising out of the development of Whenuapai. In addition, the report examines the case
for induced demand arising from low cost carriers operating out of Whenuapai.
Estimates of passenger numbers under the above scenarios are based on a model using
data from AIA Ltd, Air Travel Survey Statistics, passenger origins and destinations, and
air travel growth rate projections. As expected, the number of passengers using
Whenuapai, and their origin and destination, are key determinants of total benefits. The
report clearly describes how passenger numbers and flows are pro-rated as well as
differences with the Auckland Regional Transport model. Other benefits: such as

39
 possible induced demand arising from the entry of a low cost carrier, reduced delays,
consumer choice and convenience, are noted but not quantified.
b. Costs: The principle of opportunity cost has been applied where possible. The timing of
capital expenditure is transparent as are operating costs over the life of the project. The
report accepts the timing of development as given and does not consider the optimal
timing of the runway extension at Mangere or the optimal timing of Whenuapai
development. All inputs are priced at their opportunity cost. In the case of land, the
value of land is included at its market price which is appropriate. The value of land is
expected to rise over the 25-year period and this enhanced real value is accounted for at
the end of the project. Handling salvage has been simplified by using a straight line
depreciation formula. Importantly, the analysis does not double count costs such as
annual depreciation, interest and principal charges. The impact of noise associated with
the development of Whenuapai has been appropriately recognised as a cost.
8. Comparison of Costs and Benefits: Table 5.1 shows the net economic cost of the base case
(Whenuapai over Mangere) is NPV(7.5%) = $237.9 m.
9. Sensitivity Analysis: Two additional scenarios are undertaken: lowest cost Whenuapai and
highest cost at Mangere (Table 5.2) yields a NPV(7.5%) = $63 million; no second runway
at Mangere (Table 5.3) results in NPV (7.5%) = $342.6 m million.
10. Recommendations: The cost-benefit assessment points to a large national cost associated
with developing a second airport at Whenuapai. On the benefit side, the report is careful to
point out discrepancies over results derived from the Auckland Regional Transport model.
The net cost to the economy is found to endure even under the optimistic scenario.

In conclusion, I have reviewed the final outcome and can report that the analytical framework
and overall approach satisfy best practice methods.

Basil M.H. Sharp

Department of Economics
The University of Auckland

40