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Merimbula Airport Demand, Route Profitability and Airport Charges – Updated Report

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Merimbula Airport Demand, Route Profitability and Airport Charges – Updated Report Chapter 0. Summary Merimbula Airport Demand, Route Profitability and Airport Charges – Updated Report For Bega Valley Council Webber Quantitative Consulting February 2015 WC Webber Quantitative Consulting 0 Disclaimer While every effort has been made to ensure the accuracy of this Report, the irregular and stochastic nature of economic and financial data, forecasting and analysis means that Webber Quantitative Consulting is unable to make any warranties in relation to the information contained herein. Webber Quantitative Consulting disclaims liability for any loss or damage which may arise as a consequence of any person relying on the information contained in this Report. Any questions in relation to this report should be directed to: Dr Tony Webber Managing Director Webber Quantitative Consulting Pty Ltd ABN 93 150 410 601 Email: [email protected] Mobile: 61 (0) 423 028 720 Merimbula Airport Demand ii | P a g e WC Webber Quantitative Consulting 0 Table of Contents Table of Contents TABLE OF CONTENTS ..................................................................................................... III LIST OF FIGURES ................................................................................................................ V LIST OF TABLES .................................................................................................................VI QUICKFACTS ..................................................................................................................... VII 0. EXECUTIVE SUMMARY .......................................................................................... X SCOPE AND ECONOMIC DEMOGRAPHIC ............................................................................................................................ X INBOUND AND OUTBOUND TOURISM ................................................................................................................................ X MERIMBULA AIRPORT DEMAND ESTIMATION................................................................................................................. X RISKS TO THE DEMAND PROJECTIONS .......................................................................................................................... XIII ROUTE PROFITABILITY .................................................................................................................................................... XIII AIRPORT CHARGES ............................................................................................................................................................ XV 1. REQUEST AND INTRODUCTION ............................................................................ 1 2. DEMOGRAPHIC BACKGROUND ............................................................................ 3 3. TOURISM BACKGROUND ........................................................................................ 5 3.1 INBOUND TOURISM......................................................................................................................................................... 5 3.1.1 Domestic Overnight Visitors................................................................................................................................5 3.1.2 Domestic Day Visitors ..........................................................................................................................................7 3.1.3 International Visitors ............................................................................................................................................9 3.2 OUTBOUND TOURISM ................................................................................................................................................... 10 4. AIRPORT BACKGROUND ....................................................................................... 14 5. UNDERLYING DEMAND ESTIMATION .............................................................. 16 5.1 DOMESTIC CITY PAIRS MODEL .................................................................................................................................. 16 5.2 BACKWARD LOOKING DEMAND ESTIMATES............................................................................................................ 24 5.3 FORWARD LOOKING DEMAND ESTIMATES AND INTERPRETATION....................................................................... 26 5.3.1 DEMAND ESTIMATES ................................................................................................................................................ 26 5.3.2 INTERPRETATION OF RESULTS................................................................................................................................. 31 5.3 PEER CITY PAIRS .......................................................................................................................................................... 33 5.4 PEER AIRPORTS ............................................................................................................................................................. 35 5.5 INBOUND AND OUTBOUND TRAVEL........................................................................................................................... 37 5.6 WHY IS AIR PENETRATION SO LOW AT MERIMBULA? ............................................................................................ 38 6. RISKS AND SENSITIVITIES.......................................................................................... 43 6.1 ECONOMIC GROWTH RISK........................................................................................................................................... 43 6.2. EXCHANGE RATE ......................................................................................................................................................... 46 6.3 OIL PRICES ..................................................................................................................................................................... 50 6.4 MODEL AND SAMPLING ERROR .................................................................................................................................. 51 6.5 TOURISM SUPPLY CHAIN CONSTRAINTS ................................................................................................................... 51 7. MERIMBULA ROUTE UNIT COST MODELLING ................................................... 53 7.1 BACKGROUND METHODOLOGY .................................................................................................................................. 53 7.1.1 Theory ................................................................................................................................................................... 53 7.1.2 Theory Applied to Merimbula Routes ............................................................................................................. 53 7.1.3 Estimating the Elasticity of Unit Cost to Distance........................................................................................ 54 7.2 MERIMBULA ROUTE UNIT COSTS .............................................................................................................................. 58 7.2.1 Network Level Unit Costs .................................................................................................................................. 58 7.2.2 Estimates of Unit Costs...................................................................................................................................... 59 8. MERIMBULA ROUTE YIELD MODELLING............................................................. 61 8.1 METHODOLOGY AND RATIONALE .............................................................................................................................. 61 Merimbula Airport Demand iii | P a g e WC Webber Quantitative Consulting 0 Table of Contents 8.2 STEPS IN YIELD MODELLING ...................................................................................................................................... 63 8.2.1 Step 1: Passenger Supply Estimation .............................................................................................................. 63 8.2.2 Step 2: Excess Passenger Supply ..................................................................................................................... 64 8.2.3 Step 3: Neutral Yield .......................................................................................................................................... 65 8.2.4 Step 4: Modelled Yield ....................................................................................................................................... 65 8.3 NETWORK MARK-UPS AND ELASTICITY ................................................................................................................... 67 8.3.1 Network Mark-Up ............................................................................................................................................... 67 8.3.2 Airfare Elasticity of Demand ............................................................................................................................ 68 8.4 ESTIMATING THE MODELLED YIELD ......................................................................................................................... 70 8.4.1 Passenger Supply Estimates.............................................................................................................................
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