Bay of Plenty Regional Airport Feasibility Study COMMERCIAL-IN-CONFIDENCE FINAL DRAFT REPORT. Environment Bay of Plenty.

Transcription

1 FINAL DRAFT REPORT Bay of Plenty Regional Airport Feasibility Study COMMERCIAL-IN-CONFIDENCE Prepared for Environment Bay of Plenty Whakatane, New Zealand 30 July

2 Project Manager: Project Director:.. Brian Carson Principal Airports & Infrastructure.. Ivo Favotto Principal- Finance & Economics Principal Airports & Infrastructure URS Australia Pty Ltd Level 3, 116 Miller Street North Sydney, NSW 2060 Australia Tel: Fax: Date: Reference: Status: 30 July Draft

3 Contents Executive Summary ES-1 Background 1 Current Situation 1 Benefit Cost Process 3 Traffic Forecasting & Facility Requirements 3 Site Identification 6 Concept Development & Costing 7 Real Estate Analysis 8 Airport & Airline Operations & Cost Analysis 9 Transport Planning Analysis 10 Financial Feasibility 11 Economic Benefit Cost Analysis 12 Risk Factors 13 Conclusions 13 1 Background Introduction Summary of Stage 1 RASS Outcomes Objectives of the Stage 2 of the RASS New Airport Development Process Study Process 5 2 Current Situation Introduction - Current Situation Geography & Political Structure Population & Trends Existing Airports System Tauranga Rotorua Whakatane Transport Task 13 3 Benefit Cost Process Benefit-Cost Analysis Benefit-Cost Analysis Process Benefit Cost Workstreams 17 4 Traffic Forecasting & Facility Requirement Analysis Introduction Traffic Forecasting Traffic Growth Analysis Historical Trend Analysis Existing Airport Projections Ratio Analysis/Benchmarking Schedule Analysis Econometric Analysis Regional Airport Traffic Forecasts Benefits Arising from Regional Airport Traffic Growth 45 J:\JOBS\ \6000 DELIVERABLES\EBOP AIRPORT FEASIBILITY FINAL.DOC\Error! Unknown switch argument. i

4 Contents Regional Economic Impact Regional Economic Impact Spend Rate Sensitivity Economic Impact Summary Results Facility Requirements Analysis 50 5 Site Identification Introduction - Site Identification Site Identification Criteria Physical Criteria Contextual Criteria Manageable Criteria Application of Site identification Criteria Location Relative to Population Catchments Physical Criteria Alternative Site Contextual Criteria Manageable Criteria Summary Site Identification 67 6 Concept Development & Costings Introduction Concept Development & Costing Global, Operational & Infrastructure Assumptions Global Assumptions Operational Assumptions Infrastructure Assumptions Regional Airport Concept Capital Costing Recurrent Capital Expenditure Estimates Historical Cap-Ex profile of Existing Airports Regional Airport Capital Expenditure Profile 79 7 Real Estate Analysis Introduction - Real Estate Analysis Methodology Data Sources Value of Existing Bay of Plenty Regional Airports Land Rotorua Tauranga Whakatane Value Estimates of Highest and Best Use - Existing Bay of Plenty Regional Airports Rotorua Tauranga Whakatane Estimates of the Value of Regional Airport Land Requirements Regional Airport Land Requirement Value Estimation Methodology Paengaroa Pyes Pa Real Estate Analysis Summary Outcomes 99 J:\JOBS\ \6000 DELIVERABLES\EBOP AIRPORT FEASIBILITY FINAL.DOC\Error! Unknown switch argument. ii

5 Contents 8 Airport & Airline Operations & Costs Analysis Introduction Airport & Airline Analysis Airport & Airline Analysis Methodology and Approach Airport Analysis Methodology and Approach Airline Analysis Methodology and Approach General Methodology and Approach Airport Operational Revenue and Cost Establishing Current Revenue & Operating Costs of Bay of Plenty Airports Benchmarking Comparable Airports Airline Analysis Introduction Regional Flight Schedule Review Assumptions for Airline Revenues Estimates Assumptions for Airline Costs Estimates Airline Operational Costs Estimates Airline Cost Summary Outcomes Airport and Airline Outcomes - Summary Transport Planning Analysis Introduction Land Transport Planning Analysis Land Transport Analysis Costing Approach and Methodology Land Transport Analysis Parameters Transport Demand Projections Impacts on Capital Expenditure Costing Land Transport Movements Bay of Plenty Vehicle Operating Costs Travel Time Costs Accident Costs Vehicle Emissions Land Transport Cost Summary Non Airport User Effects Financial Feasibility Analysis Introduction Financial Feasibility Financial Feasibility Methodology and Approach Feasibility Analysis Parameters Financial Inputs Analysis Capital Expenditure Real Estate Costs Profit and Loss Statement Financial Feasibility Results Financial Feasibility Sensitivity Testing Financial Feasibility Conclusions Benefit Cost Analysis Introduction Benefit Cost Analysis BCA Key Parameters Base Case and Options for Analysis 130 J:\JOBS\ \6000 DELIVERABLES\EBOP AIRPORT FEASIBILITY FINAL.DOC\Error! Unknown switch argument. iii

6 Contents 11.4 Analysis Methodology Results of the Benefit-Cost Analysis Sensitivity Analysis Benefit Cost Analysis Conclusions Risk Factors Conclusions General 147 Financial Feasibility 149 Economic Benefit Cost Analysis 152 J:\JOBS\ \6000 DELIVERABLES\EBOP AIRPORT FEASIBILITY FINAL.DOC\Error! Unknown switch argument. iv

7 List of Tables, Figures, Plates & Appendices Tables Table ES.1 - Annual Incremental Economic Impact Summary ($ millions)...es-6 Table ES.2 - Current BOP Airport vs Proposed Sites Ongoing Capex Comparison...ES-7 Table ES.3 - Existing Airport Land Value...ES-8 Table ES.4 - Regional Airport Land Costs...ES-8 Table ES.5 - Rental Income Summary...ES-9 Table ES.6 - Incremental Airport and Airline Cost Outcomes...ES-9 Table ES.7 - Land Transport Costs ($ m)...es-10 Table ES.8 - Financial Feasibility Results...ES-11 Table ES.9 - Base Benefit Cost Analysis Results...ES-11 Table Bay Of Plenty 2001 & 2005 Population By District...9 Table Bay Of Plenty 2026 Forecast Population By Sub District...10 Table Bay Of Plenty Airport Traffic Statistics Table Bay of Plenty Airport Traffic Growth 1996 to Table Bay of Plenty Airports Passenger Forecasts...30 Table Benchmark Analysis Forecast Growth Rates...32 Table Ratio Analysis Historical Traffic-to-Population Ratio...34 Table Ratio Analysis Historical & Forecast Traffic-to-Population Ratio...35 Table Ratio Analysis BOP Regional Airport Traffic-to-Population Ratio (2025)...36 Table Airport Schedules Daily Services...37 Table Airport Schedules Daily Service Impacts...38 Table Time and VOC Parameters...40 Table Annual Incremental Economic Impact Summary ($ millions)...50 Table Potential Site Identification & Short Listing Criteria...52 Table Bay Of Plenty Population By District...57 Table Application of Physical Criteria...60 Table Bay Of Plenty Population By Sub Region...61 Table Application of Contextual Criteria...66 Table Application of Manageable Criteria...67 Table Development Concept Operational Assumptions...70 Table Development Concept Infrastructure Assumptions...72 Table Development Concept Capital Cost...76 Table Current Bay of Plenty Airport vs Proposed Sites Ongoing Capex Comparison...79 Table Rotorua Existing Values...82 Table Tauranga Existing Values...82 Table Whakatane Existing Values...83 Table Rotorua Highest and Best Value Estimate...84 Table Tauranga Highest and Best Value Estimate...85 Table Whakatane Highest and Best Value Estimate...86 Table Paengaroa Site 1 Land Cost Value Estimate...90 Table Paengaroa Site 1 Land Rentals...90 Table Paengaroa Site 2 Land Cost Value Estimate...92 Table Paengaroa Site 2 Land Rentals...92 Table Pyes Pa Site 1 Land Cost Value Estimate...94 Table Pyes Pa Site 1 Land Rentals...94 Table Pyes Pa Site 2 Land Cost Value Estimate...96 Table Pyes Pa Site 2 Land Rentals...96 Table Pyes Pa Site 3 Land Cost Value Estimate...98 Table Pyes Pa Site 3 Land Rentals...98 J:\JOBS\ \6000 DELIVERABLES\EBOP AIRPORT FEASIBILITY FINAL.DOC\Error! Unknown switch argument. v

8 List of Tables, Figures, Plates & Appendices Table Existing Airport Land Value Estimate...99 Table Regional Airport Land Costs Table Rental Income Summary Table Existing BOP Airports Combined Financial Performance Table Benchmark Airports Financial Results Table Incremental Airport Financial Outcomes Table 8.4 Current Schedule - Daily Number of Flights Table Future Schedule - Daily Number of Flights Table Airline Operational Costs Calculations Table Incremental Airline Financial Outcomes Table Incremental Airport and Airline Cost Outcomes Table Distance and Transit Time Parameters Table Local Area Transport Parameters Table Land Transport Cost Parameters Table Forecast Passenger Movements Table Incremental VKT and VHT Movements ( 000s) Table Incremental VOC Costs ($ m) Table Incremental Travel Time Costs ($ m) Table Incremental Accident Costs ($ m) Table Incremental Vehicle Emission Costs ($ m) Table Land Transport Costs ($ m) Table Financial Feasibility Parameters Table Development Concept Capital Cost Table Current BOP Airport vs Proposed Sites Ongoing Capex Comparison Table Existing Airport Land Value Estimates Table Regional Airport Land Costs Table Annual Rental Income Table Incremental Airport Financial Outcomes Table Financial Feasibility Results Table Financial Feasibility Sensitivity Results Table Base Benefit Cost Analysis Results Table Best Case Scenario Benefit Cost Result Summary Table Worst Case Scenario Benefit Cost Result Summary Table Ratio-Passenger Benefit Cost Result Summary Table Rotorua Passenger Benefit Cost Result Summary Table Reduced CapEx Benefit Cost Result Summary Table Increased CapEx Benefit Cost Result Summary Table Visitor Spend Benefit Cost Result Summary Table Increased Annual CapEx Benefit Cost Result Summary Table Financial Feasibility Results Table Financial Feasibility Sensitivity Results Table Base Benefit Cost Analysis Results Figures Figure ES.1 -Bay Of Plenty Locality Map...ES-1 Figure ES.2 Traffic Forecasting Methodology...ES-3 Figure ES.3 - Bay of Plenty Passenger Traffic Projection Regional Airport ES-5 Figure ES.4 - Regional Airport Scoping Study Process...ES-13 Figure Regional Airport Scoping Study Process...1 Figure Typical New Greenfield Airport Development Process...3 J:\JOBS\ \6000 DELIVERABLES\EBOP AIRPORT FEASIBILITY FINAL.DOC\Error! Unknown switch argument. vi

9 List of Tables, Figures, Plates & Appendices Figure Overall Methodology...5 Figure Bay Of Plenty Locality Map...8 Figure Workstream Figure Benefit-Cost Analysis Process...16 Figure Workstream Figure Traffic Forecasting Methodology...22 Figure Traffic Forecasting & Facility Requirements Process...23 Figure Historical Tauranga Passenger and Aircraft Movement Data 1996 to Figure Historical Rotorua Passenger and Aircraft Movement Data 1996 to Figure Historical Whakatane Passenger and Aircraft Movement Data 1996 to Figure Bay of Plenty Combined Passenger Traffic Figure Bay of Plenty Combined Passenger Traffic Comparison Figure BOP Trend Forecasts...29 Figure Bay of Plenty Passenger Traffic Projection to 2025 High and Low Case...30 Figure Bay of Plenty Passenger Forecast to Figure Frequency Modal Shift Impacts Figure Time and VOC Modal Shift Impacts Figure Trans-Tasman Service Impacts Figure Market Share Growth Figure Bay of Plenty Passenger Traffic Projection Regional Airport Figure Sensitivity of Passenger Numbers Figure Incremental Regional Airport Economic Impact Regional Forecast...48 Figure Incremental Regional Airport Economic Impact NZ Ratio Forecast...49 Figure Annual Economic Impact with Trans-Tasman Sensitivity...51 Figure Workstream Figure Site Identification Criteria development Process...51 Figure 5.3 Original Site Identification...57 Figure 5.4 Wind Analysis...62 Figure 5.5 Site Orientation...63 Figure 5.6 Alternative Site Identification...65 Figure 6.1 Workstream Figure 6.2 Regional Airport Development Concept...74 Figure 7.1 Workstream Figure 7.2: Paengaroa Site 1 Lot Requirements...89 Figure 7.3: Paengaroa Site 2 Lot Requirements...91 Figure 7.4: Pyes Pa Site Figure 7.5: Pyes Pa Site Figure 7.6: Pyes Pa Site Figure Workstream Figure Airport & Airline Operations & Cost Analysis Process Figure Workstream Figure Land Transport Planning Process Figure Site Options Figure Sources of Passenger Growth Figure Workstream Figure Workstream Figure Discounted Cashflow Analysis Methodology Figure Regional Airport Scoping Study Process J:\JOBS\ \6000 DELIVERABLES\EBOP AIRPORT FEASIBILITY FINAL.DOC\Error! Unknown switch argument. vii

10 Executive Summary Background This document reports the findings of a feasibility study, incorporating an economic benefit-cost analysis and financial assessment, conducted by URS for Environment Bay of Plenty (EBOP) on the proposal to replace the three primary passenger airports within the Bay of Plenty Tauranga, Rotorua and Whakatane with a single regional airport. While the study did investigate potential locations, the study did not include any technical, detailed considerations of these potential locations for example, geotechnical, weather or environmental considerations. Consequently, the outcome of the study is not a recommendation to build an airport on a particular site. Rather, the objective is to determine if a regional airport is worthy of further consideration and if so, provide an indication of the potential availability of sites. Consideration of these more detailed, technical issues are part of the next stage of consideration of a regional airport. A summary of the findings of the URS study into the feasibility of a Bay of Plenty Regional Airport are set out in the remainder of this executive summary. Current Situation The Bay of Plenty (BOP) region, shown in Figure 2.1 below, comprises an area of about 12,500km 2 in essentially a y formation, at the north - eastern side of New Zealand s North Island. The area comprises coastal plains to the north, which accommodate most of the urban areas as well as large areas utilised for pasture/cropping and large forested mountain ranges to the south. The region is made up of seven districts - Western Bay of Plenty, Tauranga, Whakatane, Kawerau, Opotiki, a large part of the Rotorua District and a small part of the Taupo District - which are quite different with respect to geography, demography and economics. ES-1

11 Executive Summary Figure ES.1 Bay Of Plenty Locality Map Source: URS Mapping & EBOP data The Bay of Plenty region is New Zealand s fifth most populated region, with approximately 246,900 inhabitants in around 6.4 per cent of national population. The Tauranga District accounts for the largest share of the region s population (37.8 per cent) followed by Rotorua (27.1 per cent) and Western Bay (15.9 per cent). The Bay of Plenty region is currently serviced by three passenger airports Tauranga, Rotorua and Whakatane. Across these three airports, the region accommodated 453,288 passengers and 95,798 aircraft movements in Each of the three existing airports has a different interface between air travel and surface transport modes. These interface points include: competition between air and road for Auckland-Tauranga and Hamilton-Tauranga trips. There is a large drive market between Auckland/Hamilton and Tauranga as door-to-door road travel times are not dissimilar to door-to-door times associated with air travel; competition between air and road for Wellington/Christchurch - Tauranga trips, via Auckland or Hamilton. URS understands that some competition exists for travel between Tauranga and major ES-2

12 Executive Summary domestic centres such as Wellington and Christchurch with travellers driving to Auckland or Hamilton Airports to pick up services which offer more convenient schedules, greater frequency and/or (in some cases) faster jet aircraft; competition between air and road for Auckland-Rotorua trips. There is a significant segment of the international visitor market in Rotorua that arrives in buses from Auckland or other destinations; and competition between the air and the self-drive tourism market. New Zealand has a large self-drive tourism component and this impacts on air traffic through Tauranga and Rotorua. Benefit Cost Process Benefit Cost Analysis (BCA) is a widely accepted and used technique in financial and economic analysis. The BCA provides the framework for the overall feasibility study. The BCA takes the inputs of all the workstreams of the project to produce a feasibility result and recommendation. Benefit-Cost studies attempt to take into account the claims a project makes on an economy and any gains it provides to the economy as a whole, so the perspective is economy wide, rather than that of any particular individual, organisation or project. A key advantage of a BCA for the analysis of a single regional airport for the Bay of Plenty, is that the technique can bring together financial and economic factors to provide an overall assessment within an integrated format. The BCA has been undertaken over a twenty year evaluation period from the beginning of the regional airports potential operating start date. The evaluation has been undertaken using a national starting date of 2005 (recognising that the project would commence at some undefined point in the future) and a 7 per cent real discount rate on the project cashflows, recognising the time value of money. Traffic Forecasting & Facility Requirements A traffic forecast for the regional airport was conducted as the first step of the feasibility analysis, with the objective of determining the following factors: how many passenger and aircraft movements a regional airport would generate; whether a regional airport would generate additional traffic over and above the combined traffic forecasts of the existing airports; and the nature of any additional traffic that may be generated. Developing a traffic forecast for an airport that does not exist within a region that already has three operating airports is a complex task. A traffic forecasting methodology was established that involved adopting five different approaches to estimating traffic levels for a regional airport, and then synthesising the results of those four different approaches into a traffic forecast. The approaches taken by URS to develop a traffic forecast are set out in Figure ES.2 below: ES-3

13 Executive Summary Figure ES.2 Traffic Forecasting Methodology Historical trend analysis Review of existing airport projections Ratio analysis & benchmarking Forecast Development Schedule analysis Econometric analysis The five approaches taken to develop passenger traffic forecasts for the regional airport are briefly described: historical trend analysis involves analysing the current passenger and aircraft movements through the existing airports to gather a picture of what have been the trends over the last 10 years. This allows a determination to be made on whether passenger movements have been increasing or decreasing over time in each of the existing airports; review of existing airport projections the existing local airports have undertaken their own traffic forecasting as part as their master planning processes and to establish their operating requirements. The forecasts for the existing airports has been used as the base case passenger forecasts for the evaluation period; ratio analysis and benchmarking the benchmarking of passenger movements involves analysing other airports to establish comparative measures for the regional airport. There are a number of ratios which can be developed for benchmarking purposes. The main benchmark used in this study is passengers as a proportion of local population. New Zealand and Australian airports were used for benchmarking purposes; schedule analysis an examination of the current schedule of flights to the three local airport has been undertaken and an estimation of what may change in the schedule in the future and how the schedule would change under a centralised regional airport has been made; and econometric analysis the final method of analysis uses econometric principles and methodologies to forecast passenger movements within the region. This forecasting methodology uses parameters ES-4

14 Executive Summary such as population, income and propensity to travel to determine the level of passenger movements over time. Using the process detailed above, a synthesised regional airport traffic forecast has been developed based on analysis of historical trends and future projections of the three existing airports, as well as the additional factors and forecasting methods discussed above. In addition to the existing airport traffic forecasts, the regional airport is expected to deliver incremental traffic growth. This projection for a single regional airport is shown diagrammatically in Figure ES.3 over the same time period. Figure ES.3 Bay of Plenty Passenger Traffic Projection Regional Airport 2025 Pax 1,000, , , % CAGR: 3.0% 816, % CAGR: 4.1% 1,000, , , , , % CAGR: 2.0% 679,485 LOW HIGH Whakatane Tauranga Rotorua 400, , , , Regional Forecast NZ Benchmark Source: Bay of Plenty Airport Data and URS Analysis It is anticipated that a single regional airport would, by 2025, result in projected passenger growth of between 77 per cent and 116 per cent above the current level of Bay of Plenty activity, compared to 47 per cent based on current forecasts. ES-5

15 Executive Summary A regional economic impact assessment was developed to determine the regional airport s economic impact taking an incremental analysis position. The regional economic impact analysis measures the contribution that a major commercial or government activity has on a regional, state or national economy. The effect of a centralised regional airport on the economy of the Bay of Plenty is compared to the existing economic impact of the individual airports at Rotorua, Tauranga and Whakatane. The economic impact forms the largest benefit in the Benefit Cost Analysis and to the region. Table ES.1 Annual Incremental Economic Impact Summary ($ millions) Passenger Scenario Regional Forecast NZ Benchmark Spend Rates Sensitivity Value $36 million $85 million $67 million Source: NZ Statistics Visitor Survey; APR Regional Economic Impact Report; Bay of Plenty Airport Data; and URS Analysis Site Identification The site identification section of the report attempted to: identify a set of widely acceptable criteria against which potential locations for a regional airport could be identified; and apply those criteria to the Bay of Plenty region to determine if there are any suitable sites available for a regional airport. The application of the adopted site identification criteria uncovered two general areas suitable for the location of a regional airport for the Bay of Plenty Site 1a: Paengaroa North and Site 2: Pyes Pa. While each of the sites had their relative advantages and disadvantages, both sites meet the physical, contextual and manageable criteria. Within each of the general areas identified, there are a number of options for the layout of the regional airport. The general Paengaroa area has two potential airport site options which are evaluated in this study, while the general Pyes Pa area has three airport site options which are considered as part of this feasibility report. ES-6

16 Executive Summary Concept Development & Costing In developing a concept for a regional airport and costing this development, the following steps were taken: develop a concept plan for the airport; estimate the cost of building a regional airport and the associated required infrastructure, to the standard of a modern international regional airport; and estimate any differences in recurrent capital expenditure between the regional airport and the existing three airport scenarios. To develop the regional airport concept and associated costing, a number of assumptions were made. The assumptions, with the exception of two capital cost items (electricity and roads) were the same for both the Pyes Pa and Paengaroa site options, and include: global assumptions designed to set the basis for the overall task; operational assumptions to assist in establishing some of the required infrastructure and size of the area required; and infrastructure assumptions designed to set the boundaries of the site area required and the capital and operational costs. The Table below summarises the comparison between the combined capital expenditure for the existing Bay of Plenty airports and the range calculated for the Paengaroa and Pyes Pa site options including the on going annual capital expense. Table ES.2 Current Bay of Plenty Airport vs Proposed Sites Ongoing Capex Comparison Item BOP Current Total $4.53m Ongoing Annual Capital Expenditure Estimates Base Cost (-30%) Base Cost Base Cost (+30%) Paengaroa Site Option Total Capex Estimate $256.2 m $366.0 m $475.8 m Annual 0.5% $1.28 m $1.83 m $2.38 m Pyes Pa Site Option Total Capex Estimate $278.3 m $397.5 m $516.8 m Annual 0.5% $1.39 m $1.99 m $2.58 m Source: URS Analysis ES-7

17 Executive Summary Real Estate Analysis The real estate analysis aims to estimate the value of land at the current regional airports and the value of the land for the central regional airport. URS contracted The Property Group Ltd (TPG) to provide estimates of land values in the Bay of Plenty region. These valuations have been carried out at the existing Bay of Plenty airport sites and at the preferred locations for the regional airport Pyes Pa and Paengaroa. The results of the existing use and the highest and best use are presented in Table ES.3. Table ES.3 Existing Airport Land Value Airport Existing Use Value Estimates Highest and Best Use Value Estimates Rotorua $12.5 m $30.0 m Tauranga $95.0 m $110.0 m Whakatane $5.0 m $18.0 m Source: TPG and URS Analysis There has been growth in demand for lands in some parts of the Bay of Plenty in recent years. This growth has seen demand in the residential and industrial sectors in particular and it is for these uses that the present airport sites may be most suited for in the event of a regional airport being developed on a new site. The value of each of the selected sites have been estimated from a land acquisition stand point. The outcomes of purchase price of lands for the regional airport are summarised in the table below. Table ES.4 Regional Airport Land Costs Site No. of 400ha 400 ha 400 ha Lots Land Improve - Results Estimates ments Paengaroa Site 1 Paengaroa Site 2 Pyes Pa Site 1 Pyes Pa Site 2 Pyes Pa Site $90 m $165 m $255 m 79 $90 m $190 m $280 m 18 $20 m $21 m $41 m 23 $20 m $29 m $49 m 21 $20 m $29 m $49 m ES-8

18 Executive Summary Source: TPG & URS Analysis The cost of the land for the regional airport is mitigated somewhat by the opportunity to rent approximately 150 hectares of land quarantined by airport activity but surplus to aviation requirements to other users. Based on advice from TPG, rental rates have been calculated at 6 per cent of land value estimates for the purpose of evaluation. The per annum value of the rented land is shown in Table ES.5 below. Table ES.5 Rental Income Summary Site Hectares Leased Rental Rates (p/ha) Annual Rental Income Paengaroa 150 ha $13,500 $2.025 m Pyes Pa 150 ha $3,000 $0.450 m Source: TPG & URS Analysis For the Paengaroa sites the value of the rental land is approximately $2 million, while for Pyes Pa sites, the value of the 150 hectares is $0.45m. Airport & Airline Operations & Cost Analysis The feasibility study discusses the potential or likely effect of the process of consolidation of airports on airport profitability and airline profitability. The process involves estimating the net benefit resulting from the following: operating a single airport facility at the selected site as opposed to the three airports currently operating in the Bay of Plenty region ; and airlines being able to consolidate their operations to one airport rather than three. The proposition of this analysis is that one airport may be cheaper to run than three both from an airport and an airline perspective. The total airport and airline operating outcomes are shown in the table below, which does not take into account switching or transaction costs. The table shows the net costs of airport and airline operating costs at different points in time over the course of the evaluation under the existing three airport conditions and under the regional airport scenario. ES-9

19 Executive Summary Table ES.6 Incremental Airport and Airline Cost Outcomes Year Existing Airport Regional Airport Incremental Outcomes 2010 $73.4 m $71.5 m -$1.9 m 2025 $99.5 m $93.0 m -$6.6 m Source: URS Analysis The incremental cost savings, under a regional airport scenario, to the airport and airline in total is $1.9 million in 2010 and increases to $6.6 million in The changes to airport operations and cost are included in both the financial and economic evaluation whereas the airline operational outcomes are only included in the economic evaluation. Transport Planning Analysis The transport planning analysis analysed the effect on the cost of land transport within the Bay of Plenty if the existing scenario of three local airports were to be replaced with a consolidated regional airport. Land transport issues and outcomes have the potential to have flow back effects into other workstreams involved in the feasibility study such as capital expenditure involved in the facility construction and the aviation traffic forecasts. The transport planning analysis involves an assessment of: reductions in on-roads travel times and associated costs due to modal shifts; and increases in on-road travel times and associated costs due to less convenient location of the regional airport relative to major population areas. Using the vehicle kilometres traveled and the vehicle hours traveled under each scenario, the effect of road transport issues adds a net $7.3 million to the Paengaroa site and $5.4 million the Pyes Pa site in costs to the BCA in The results of the transport planning analysis are shown in Table ES.7. Table ES.7 Land Transport Costs ($ m) Site Incremental Value Paengaroa - Site 1 $5.9 m $7.3 m Pyes Pa - Site 2 $ 4.7 m $5.4 m ES-10

20 Executive Summary Source: URS Analysis Financial Feasibility Financial feasibility analysis is undertaken to determine if the cash flow gains from a development are greater than the cash outflows associated with the development. It is used to assess, on a net profit basis, whether the project will provide positive return to investors. The financial feasibility is undertaken from the perspective of the airport owner, rather than from a community point of view, as is done for the economic BCA. Only the revenue and cost streams attributable to the airports, existing and proposed, are included in the financial feasibility analysis. As is detailed in Section 8 of this study, URS has assumed that the landing fees charged by a regional airport operator would be the same as charged by the existing airports. While a regional airport may actually be able to increase landing charges due to newer and more extensive facilities, there is potential for argumentative circularity if landing charges are used as a residual item to justify capital costs. Moreover, consultation with airlines highlighted their extreme concern at any regional airport proposal increasing landing charges. Consequently, a no landing charge increase assumption has been made. The financial feasibility results have been undertaken using all the base assumptions for the regional airport detailed throughout this report with regard to passenger forecasts. The results of the financial feasibility analysis are shown in Table ES.8. ES-11

21 Executive Summary Table ES.8 Financial Feasibility Results Site Option NPV ($ m) Paengaroa Site 1 -$453 m Paengaroa Site 2 -$475 m Pyes Pa Site 1 -$271 m Pyes Pa Site 2 -$278 m Pyes Pa Site 3 -$278 m Source: URS Analysis The results of the financial feasibility analysis range from Pyes Pa (Site 1) with a negative $271 million outcome over the course of the evaluation to a negative $453 million outcome for Paengaroa (Site 1). While URS has assessed that a regional airport would be profitable from an operating perspective, the cost of servicing the significant capital is the primary driver of this lack of financial feasibility. Any significant reductions in capital costs that may be able to be achieved would alter the financial feasibility analysis results. Economic Benefit Cost Analysis The economic BCA results highlight the impact on the economy as a whole of the development of the new regionalised airport in the five different site-option scenarios. The results of the cost benefit analysis are set out in Table ES.9 below. Table ES.9 Base Benefit Cost Analysis Results Parameter Paengaroa Paengaroa Pyes Pa Pyes Pa Pyes Pa Site 1 Site 2 Site 1 Site 2 Site 3 Net Present Value Net Present Value - Benefits Net Present Value - Costs Benefit Cost Ratio -$98 m -$121 m $60 m $53 m $53 m $367 m $367 m $357 m $357 m $357 m $466 m $488 m $298 m $304 m $304 m Source: URS Analysis ES-12

22 Executive Summary The results in this table show that Pyes Pa sites generate a benefit-cost ratio greater than one, with BCR results ranging from 1.18 to 1.21, the ultimate result being for Pyes Pa Site 1 (BCR 1.21), while the Paengaroa sites generates a benefit-cost ratio between zero and one, indicating that benefits do not cover costs for the Paengaroa options in the base analysis. While a BCR ratio of greater than one can be viewed as a positive outcome, the high-level estimate nature of a feasibility study of this nature would typically require a stronger BCR of at least 2 before an equivocally positive recommendation can be made. Risk Factors A risk assessment involves the systematic assessment and integration professional judgments about possible adverse conditions and events. The risk assessment process should provide a means of organising and integrating professional judgments to allow these risks to be considered in terms of the likelihood and the effect on project feasibility. The risk factors that have been identified as possibilities with the regional airport project include: air travel patronage levels; airline service levels and frequency modal shift; regional airport capital cost; availability of land; and cost of supporting infrastructure. Further study and analysis could be conducted to mitigate these risk factors, and possibly to improve the financial and economic outcomes. URS consider that such further studies and analyses are part of the next, more detailed, stage of consideration of any regional airport. Conclusions The feasibility of establishing a Bay of Plenty regional airport to replace the existing local airports at Rotorua, Tauranga and Whakatane has been analysed and tested using financial and economic analysis. This analysis was conducted by URS for Environment Bay of Plenty (EBOP). The feasibility study represents the second stage of a potentially three stage Regional Airport Scoping Study (RASS) being conducted by EBOP. Each stage of the RASS is set out in Figure ES.4 below. The RASS process is intended to determine whether the Bay of Plenty region would, at an economy wide level, benefit from the development of a single airport to service the entire region and if so, to determine at a detailed level, the feasibility of, and an overall plan for, any proposed development. ES-13

23 Executive Summary Figure ES.4 Regional Airport Scoping Study Process Stage 1 Pre-Feasibility Analysis (completed 2002) Stage 2 Feasibility Study (current) Stage 3 Detailed Implementation Plan (2006+ if required) The financial and economic feasibility of the regional airport project was undertaken using inputs from the following workstreams: traffic forecasting and facility requirements; site identification; concept development and costings; real estate; airport and airline operation and cost analysis; and transport planning. The site selection process established that there were two main areas within the Bay of Plenty which met the criteria set for the regional airport. The areas that were selected were: Site 1 - in the general locality of the suburb of Paengeroa, along the State Highway 33 some 10km south of the junction with the Eastern Arterial (this site eventually became Site 1a); and Site 2 - along the Pyes Pa Rd, some 30-35km south of the main urban areas of both Tauranga and Rotorua. These selected sites were then put through a detailed financial and economic evaluation which produced the following outcomes. financial feasibility - under none of the financial feasibility scenarios analysed in this report is the regional airport project financially feasible. The negative feasibility results can be attributed to the ES-14

24 Executive Summary high capital costs associated with the construction of the regional airport facility and the purchase price of land within the region, the cost of which has been growing in recent times, particularly for the Paengaroa site. The incomes streams to the regional airport are not large enough to cover the cost of the construction and land acquisition over the evaluation period. economic BCA - the BCA analysis is also dominated by the land acquisition costs and the airport construction costs, however, increased passenger levels, due to increases in flight frequency and direct international flights to and from the region, result in an increase in economic activity which can be attributed to the project and provides economic benefit to the region. Given that a number of the regional airport options return a positive NPV and a BCR greater than one, it can be said that the project is economically feasible, given the assumptions and inputs that have been detailed in this report, although a stronger BCR would be required before an unequivocally positive recommendation to proceed could be made. The site based outcomes are discussed below. Overall, URS believes that at this particular point in time, the development of a regional airport for the Bay of Plenty is not warranted. Sensitivity analysis highlights that under certain circumstances the feasibility of the development could improve sufficiently to warrant consideration of the development, although this would require significant positive outcomes on all sensitivity factors. URS considers that this would be unlikely. Based on the current costs of establishing the proposed regional airport facility, particularly the capital cost of construction and the land acquisition cost, a regional airport is not feasible at this stage, with analysis producing low BCR results for the economic analysis and significantly negative financial outcomes. Nevertheless, given the long lead times associated with planning a new airport development and other competing pressures on land development in the region, URS considers that it would be prudent for EBOP to keep a watching brief on the regional airport issue. Factors that could improve the case for a regional airport development include: faster than forecast growth in terms of population, industrialisation and income; faster than forecast air traffic growth, including the consideration of international traffic into the region; growth in competing pressures on land use at existing airports; improvements in regional infrastructure (eg roads, power etc); greater congestion at Auckland Airport and on traffic routes between Auckland and the Bay of Plenty; and changes in aircraft technology. URS recommends that EBOP reviews these factors to determine if another examination of the feasibility of a regional airport is warranted on a periodic basis perhaps every 5 to 10 years. ES-15

25 1 Backgro und Background SECTION Introduction This document reports the findings of a feasibility study, incorporating an economic benefit-cost analysis and financial assessment, conducted by URS for Environment Bay of Plenty (EBOP) on the proposal to replace the three primary passenger airports within the Bay of Plenty Tauranga, Rotorua and Whakatane with a single regional airport. The feasibility study was conducted by URS, drawing on the expertise of team members in New Zealand, Australia and Seattle, with the assistance of the following specialist sub-consultants: The Traffic Design Group providing advice on the impact of the regional airport proposal on landair transport modal splits and valuation of surface transport impacts; The Property Group providing estimates of real estate values for existing airport sites and proposed sites for a regional airport; and Boffa Miskel providing Iwi consultation support services. The feasibility study represents the second stage of a potentially three stage Regional Airport Scoping Study (RASS) being conducted by EBOP. Each stage of the RASS is set out in Figure 1.1 below. The RASS process is intended to determine whether the Bay of Plenty region would, at an economy wide level, benefit from the development of a single airport to service the entire region and if so, to determine at a detailed level, the feasibility of, and an overall plan for, any proposed development. Figure 1.1 Regional Airport Scoping Study Process Stage 1 Pre-Feasibility Analysis (completed 2002) Stage 2 Feasibility Study (current) Stage 3 Detailed Implementation Plan (2006+ if required) Stage 1 of the RASS, a pre-feasibility study, was conducted in 2002 by McGregor & Company on behalf of Environment Bay of Plenty. The McGregor & Company report identified that the regional airport 1

26 Background SECTION 1 concept was worthy of more detailed consideration. The findings of the McGregor & Company report have been accepted by Environment Bay of Plenty, which has now proceeded to Stage 2 of the RASS a feasibility study. If the economic benefit-cost and financial analyses for proceeding with a regional airport are positive, the next stages of the RASS will include more detailed economic impact analysis and a detailed implementation plan. 1.2 Summary of Stage 1 RASS Outcomes In 2002, EBOP commissioned McGregor & Company to prepare a report on Stage 1 of the RASS. The objectives of the Stage 1 RASS, as stated in the McGregor & Company report were: The objective of the study is twofold: determine the risks to regional development of the present airport infrastructure (i.e. three autonomous airports); and then (if there is a risk); assess regional airport requirements, including the need for a single regional airport. McGregor & Company issued their final report to EBOP on 17 December, McGregor & Company found that: Overall, the three airports in the Bay of Plenty region each have the capability to cater for future regional and national air transport requirements. Notwithstanding this, however, the present airport infrastructure presents risks that in our opinion are of concern to the future economic and social development of the region. These risks involve the airspace and land issues surrounding Tauranga aerodrome and airport plus the question of the need for and suitability of Rotorua as an airport to support jet aircraft operations, with and without runway extensions. On the basis of these risks, McGregor & Company assessed that there should be further investigation in to a single regional airport to service the Bay of Plenty region. EBOP accepted the principal finding of the McGregor & Company report that the concept of a single regional airport for the Bay of Plenty region was worthy of further investigation and subsequently engaged URS to conduct a feasibility study. During the course of the feasibility study, it became apparent that some of the risks identified by McGregor & Company notably the suitability of Rotorua Airport for jet operations and airspace issues at Tauranga Airport had dissipated. Nevertheless, EBOP decided to continue with the feasibility study as a means of determining the best long term solution to meet the aviation infrastructure needs of the Bay of Plenty region. 2

27 Background SECTION Objectives of the Stage 2 of the RASS EBOP s primary objective for Stage 2 of the RASS was to determine at a conceptual level the long term feasibility of a single regional airport for the Bay of Plenty region. The primary outcome of the analysis conducted by URS is the provision of input into a future decision by EBOP about whether to proceed to a more detailed evaluation of the regional airport proposal, after taking into consideration locational, economic, technical, operational, surface transport and financial factors. The feasibility study does not include any technical, detailed considerations of the sites for example, geotechnical, weather or environmental considerations. Consequently, the outcome of the study is not a go/no go decision but a decision on whether consideration of these more detailed, technical issues are worthy of consideration. 1.4 New Airport Development Process The process of deciding to develop an entirely new, greenfield airport is a highly complex one. The development of such entirely new airports is quite uncommon internationally and where it does happen, typically involves decades of planning, evaluation and consideration. A typical new airport development process is set out in Figure 1.2 below, highlighting that a typical greenfield airport development could take between 14 and 22 years. In this context, in URS view, the decision by EBOP to examine the long term aviation needs of the Bay of Plenty is appropriate. If additional airports are required in the Bay over the next 20 years, the process needs to be started now. Figure 1.2 Typical New Greenfield Airport Development Process Pre-Feasibility needs/risk analysis Preliminary feasibility assessment & site identification Development of concept design and detailed feasibility Site consolidation & acquisition Detailed design and planning Resource consent/ approvals Construction & development 1 year 1-2 years 1-2 years 3-5 years 3-4 years 3-5 years 2-3 years Current Situation Source: URS analysis The complexity in considering new airport development decisions is the result of the following factors: the requirement for hundreds of hectares of relatively flat, stable land with clear approaches for safe aircraft operation; potential off-site impacts (noise, traffic, air quality etc) affecting local communities; 3

28 Background SECTION 1 potential on-site environmental impacts; the requirement for a significant amount of (sunk) capital expenditure to build runways, taxiways, aircraft parking aprons, terminals etc; the requirement for significant supporting infrastructure such as roads, power, water etc; the considerable impacts airports have on quality of life (both positive - such as access to convenient, low cost travel options and negative); and the significant impact airports have on local economies and transport productivity. In New Zealand, a new passenger airport has not been built since Dunedin Airport was developed in Few other greenfield airports have been developed in the last 20 years and where they have been developed, it has been with great difficulty. Examples include: in Australia, a significant new airport has not been developed since Melbourne Airport moved to Tullamarine in 1970, while Sydney has been considering the development of a new airport since 1972 without ever committing to build it, other than taking 5 years to consolidate and acquire a potential site between 1986 and 1991 (in addition, a small passenger airport was recently built at Mount Hotham in the Victorian Alps after decades of consideration and debate); new airports build in recent years in Kansai and Nagoya in Japan have been planned for some thirty years; and a new airport built in Montreal (Mirabel) took 15 years from planning to construction. Some brownfield airport developments (re development of existing airport sites) have also taken place around the globe (mainly conversion of former military bases). While these Brownfield developments have typically had a shorter gestation period, the process has typically taken between 5 and 10 years. Existing airports also face major hurdles such as Resource Consents and political approvals in significantly expanding aviation capacity such as new runways (Auckland Airport is a typical example). The consideration of a new airport for the Bay of Plenty is further complicated (technically, operationally and politically) by the proposal to eventually close down three existing airports Rotorua, Tauranga and Whakatane. Consequently, the feasibility study is part of a long term planning exercise by EBOP. Should EBOP determine that any proposal for a new airport is worthy of detailed scrutiny, URS considers that any decision to build a new airport in the Bay of Plenty region may take years, perhaps decades to come to fruition and will involve further significant and detailed scrutiny. Nevertheless, in the knowledge that new airport developments do take a long time to come to fruition, URS also considers that it is prudent for EBOP to be considering the long term needs of the region at this point so that planning can being in relation to: 4