DECEMBER 2007

Wellington’s links with the world

This Update looks at Airport’s work to encourage airlines to provide direct links with Asia and America, why airlines can now offer this service, and why the Wellington aviation market would support such a service. has an unprecedented opportunity to grow air travel. For the country to maximise the value of this opportunity it must have the infrastructure, including airports. Gateways to New Zealand must avoid becoming bottlenecks. and will benefit from increased Asia Pacific travel and central New Zealand must also be “open for business”.

www.Infratil.com Air services matter

Global Economic Activity (GEA) and world population within a 3.5 hour flying time

PARIS

CHICAGO 26% of world GEA 15% of world 32% of 25% of population HONG KONG world GEA world GEA 42% of world 7% of world population population

WELLINGTON

1% of world GEA 0.4% of world population New Zealand is the furthest away place in the world. Draw a circle on a map to show 3.5 hours flying time from New Zealand and the circle captures 0.4% of the world’s population. The benefits and barriers of better connectivity are apparent from doing the same exercise centred on Hong Kong (42% of the world’s population and 32% of global economic activity), Paris (15% of the people, 26% of the economy) and Chicago (7% of the people and 25% of the world’s economy). A direct Wellington-Hong Kong air service would reduce travel time by at least three hours (six to seven if the service is via Sydney rather than Auckland). Studies have shown that more convenient, quicker travel makes an appreciable difference to demand, and reduces emissions. A link with Hong Kong is also a link with Europe. Even a tiny impact on people’s willingness to visit New Zealand, for business or pleasure, would be a major economic boon - not to mention providing Wellingtonians with the ability to see the Hong Kong Sevens without half a day in transit lounges. ’s investment in facilities

Wellington Airport’s point to point plans for TOKYO long haul flights to Asia and America SAN FRANCISCO

LOS ANGELES SHANGHAI

HONG KONG

BANGKOK

SINGAPORE

WELLINGTON

TRAVELLERS WANT DIRECT SERVICES WELLINGTON AIRPORT INVESTING & AIRLINES WANT TO PROVIDE THEM IN FACILITIES & SERVICES Air travel is becoming more point to point, as opposed Since the Government sold its 66% stake in 1998, to flying to a hub and then on to a destination. Travellers Wellington Airport has markedly increased investment prefer the faster trip time and the reduced hassle. in facilities and services, in particular the new domestic Airlines prefer the cost savings, especially on fuel, which terminal, the upgrade to the international terminal means environmental benefit. (which has some way to go yet), and runway safety To quote , “Point to point flying, rather enhancements. than hub and spoke flying … will enable airlines to The Airport also invests in improving and encouraging air conserve up to 25% of their fuel by reducing fuel- services. It partners with the city’s tourism organisation, intensive take offs and landings. These are strategies Positively Wellington Tourism, Air New Zealand, , we are pursuing.” and Pacific Blue to market Wellington as a destination. Studies indicate that leisure travellers are heavily From 2002 to 2007 it had a growth agreement with influenced by travel time. For a week’s holiday, over Air New Zealand which meant that the airline was not 90% of people are willing to travel four hours, but only charged by the airport for up to 20% of their passengers. about 40% are willing to spend eight hours travelling. Wellington Airport is now working to encourage airlines The same is true for business travel and many businesses to provide long haul services, in the first instance to choose their locations on the basis of ease of provide a link between Wellington and Europe via Asia. communication and travel. Wellington’s high reliance on service sector employment (government, banking, finance, design, entertainment, etc.) makes good transport links necessary.

Infratil UPDATE 2 Issue 26 3 Airports generate economic benefits for their Regional benefits surrounding communities. Businesses locate nearby to take advantage of the access to inbound business, so as to be able to send their employees to visit customers, suppliers, and other offices, and to be accessible to incoming business advisers and contacts. Wellington has a particularly successful and proactive tourism organisation, Positively Wellington Tourism, which is partnering with the Airport to market direct air links with Asia and working with local hotels and attractions to develop services and activities for visitors. Tourism is a significant beneficiary of good connectivity and a significant source of regional income and wealth. The Wellington economy gained $536 million last year from international visitor spend.

CHINA’S LITTLE EGRET DANCE COMPANY © Photo by Robert Catto / www.catto.co.nz Unlike other areas in New Zealand where many of the Infrastructure – transport links – economic benefits – attractions are natural, Wellington’s tourism industry cultural/sport events are inextricably linked. Each link of is based on man-made draws such as Te Papa, Karori the chain can be either a stimulant or an impediment. Sanctuary, as well as arts, sport, cultural and culinary Inbound tourism to New Zealand tends to cover the activities. 25,000 people are drawn to Wellington for the area from Auckland to and Christchurch to NZI Sevens, spending $9 million over the three days. The Queenstown. Opening Wellington as a gateway not only International Arts Festival is worth $34 million over three opens central New Zealand to the economic benefits weeks. The Wellington Phoenix v LA Galaxy Game of sustainable tourism, it spreads the tourists and is estimated to have contributed $8 million to the avoids bottlenecks. New Zealand economy. The focus for short-stay Australian visitors is two to In addition to the economic value, Wellingtonians get the four days of intensive activities involving mainly the benefit of being able to attend world class events on immediate region, perhaps going as far afield as Kaikoura their doorstep. As demonstrated by the move of WOW to whale watch or Martinborough to play golf and do a from Nelson to Wellington or the Ellerslie Flower Show wine tour. from Auckland to Christchurch, such events need to be able to generate economic value and have compatible A tourist from Hong Kong may be looking at a six to nine local infrastructure. day stay and hence will need a wider schedule. It will not just be a case of more people doing the same things.

The economy of central New Zealand, business and tourism, will benefit from direct air services to Asia and better on links to Europe.

Infratil UPDATE 4 Issue 26 5 1959 - 1997 24 October 1959 - Wellington Airport was opened by runway than Wellington’s. Wellington maintained its Governor General Lord Cobham (“another link binding the importance for the domestic market but international Commonwealth”), Prime Minister Walter Nash (“earthworks growth was increasingly captured by Auckland and unparalleled in our country”), Leader of the Opposition Christchurch, along with the associated economic activity. Keith Holyoake (“Wellington Airport … wrested from the In 1972, the runway was lengthened by 300 metres, but the hills and the sea”) and Mayor Frank Kitts (“the greatest cost of extending to allow long haul aircraft was probably municipal undertaking ever attempted and carried through not justified by demand and the then owners were unwilling in New Zealand”). It was the culmination of a campaign or unable to take the financial risk. started in 1929 by the Wellington Chamber of Commerce which wanted the capital to have its airport closer than Paraparaumu. Passengers 1959-1997 4.5 The Airport was built on land formed by the most extensive International 3.5 civil works undertaken in New Zealand. A hill was removed Domestic (along with 180 houses and three factories), the south 3.0 coast seawall was built, and there was substantial 2.5 reclamation, including the land along what is now 2.0 (Millions) Cobham Drive. 1.5

From its opening until 1990, the Airport was run as a 1.0 department of the City Council. In 1968 it was .5 New Zealand’s busiest, but Auckland and Christchurch then grew more rapidly because aircraft carrying enough fuel ‘59 ‘61 ‘63 ‘65 ‘67 ‘69 ‘71 ‘73 ‘75 ‘77 ‘79 ‘81 ‘83 ‘85 ‘87 ‘89 ‘91 ‘93 ‘95 ‘97 to go further than east coast Australia needed a longer 1997 - 2007 Wellington Airport took a low key approach to In 2002 (three years after the new terminal’s opening) improvements in facilities and services between its airline charges were increased by $4 per passenger to opening and 1997. The main terminal continued to be pay for the facility. Wellingtonians were enthusiastic the converted factory even though a new facility was about the improvement and a poll undertaken showed announced in 1981. 97% of respondents were happy to pay the extra for Since the Crown’s sale in 1998, Wellington Airport has the facility. invested $191 million in facilities and services, and current projects will take this to over $250 million by 2009. Passengers 1997-2007 5 The investment has resulted in some criticism. Incumbent International airlines tend to argue for a single-minded focus on cost Domestic 4 minimisation and have concerns that expanded facilities open the gate for airlines to enter the market to provide 3 competition. (Millions) One reason the new terminal took until 1999 was because 2 the status quo made it difficult to attract new airlines. 1 Ansett New Zealand’s initiation of air services in 1986 required that the airline build its own terminal resulting in a financial burden which was relevant in Ansett’s ‘97 ‘98 ‘99 ‘00 01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 eventual failure.

Infratil UPDATE 6 Issue 26 7 2007 - 2017 Only by continuing to invest in facilities can the Airport Before these projects are completed, plans will be avoid the pre-1999 predicament of not being physically in place for the next stage of growth. Domestic jet able to accommodate growth. services may increase 30% over the relatively short term. In 1999 the terminal was processing 500 international Enhancements to regional services are on the horizon passengers per hour. That is now 700 per hour and as are better links with east coast Australia and the plans are on track to take the capacity to 1,000 people Pacific islands. per hour. The advent of direct links to Asian destinations would Wellington is also committed to maintaining a quality add a further fillip. As with Pacific Blue’s ability to initiate of service and an appearance which befits the region. services on short notice, it will be critical that Wellington The terminal is anything but the bland international Airport has prepared the infrastructure. experience common to many airports. By 2017, Wellington Airport may have a new regional Wellington is competing for airlines and their decisions terminal, substantial expansions to both domestic and to initiate services are unpredictable, and unfortunately, international terminals, a further layer to its car park, only occasional. When Pacific Blue indicated its intention enhanced public transport links, perhaps a hotel and to begin domestic operations, the Airport was ready as it certainly better passenger service facilities. was already expanding its gate capacity. Current projects to ensure that capacity stays ahead of demand include enhancements to international passenger processing and lounge ($53 million), domestic gates with international swing capability ($13 million), car and bus parking ($12 million), runway safety and overlay ($53 million). Existing terminal Current international expansion Check-in expansion Domestic terminal and gate expansion International terminal expansion

3% per annum growth over the next decade means 6.3 million people using the Airport in 2017; 7% per annum Passengers 2007-2017 growth means 9.2 million travellers and over 12 million 10 airport visitors. 7%pa 9

Wellington Airport passengers 8 5%pa 2007 2017 2017 2017 7

3%pa Growth 3%pa 5%pa 7%pa 6 International 575 773 937 1,131 5 Annual Passengers (Millions) Domestic 3,465 4,657 5,644 6,816 trunk 2007 2017 Domestic 595 799 969 1,170 region

Total passengers 4,635 6,229 7,550 9,118

A single daily direct link with Asia would be expected to increase the Airport’s international passengers by about 140,000 people a year.

Infratil UPDATE 8 Issue 26 9 Airline capability

Wellington’s growth over the last 30 years has been restricted by its physical inability to take long haul services on its two kilometre runway. This limitation vanishes with the arrival in 2008 of the Boeing 787, and in 2012 of the similar Airbus A350. These wide-bodied aircraft will be able to carry full passenger and freight loads from Wellington to America or Asia, and are of a size that suits the scale of the Wellington market.

Aircraft B787-8 B787-9 A350-800 model Passengers 210 to 250 250 to 290 270 to 312 Cargo 28 containers 36 containers 26 containers capacity Maximum take-off 222 tonnes 245 tonnes 245 tonnes weight Range - 15,200 km 15,750 km 15,400 km fully loaded

Boeing has firm orders for 740 B787s which is the most ever for an aircraft pre-launch. 321 of the orders are from airlines in our region.

Firm orders for B787s

Air China 15 Air India 27 Air New Zealand 8 Air Pacific 5 All Nippon Airways 50 CASGC 3 China Eastern Airlines 15 China Southern Airlines 10 Garuda Indonesia 10 Hainan Airlines 8 Hong Kong Airlines 10 Japan Airlines 35 Air Korean Air 10 Qantas 65 Royal Brunei Airlines 4 Shanghai Airlines 9 Singapore Airlines 20 Peace 1 Vietnam Airlines 16

Aircraft orders Orders for the B787 show that airlines will have the tools to undertake direct services between Wellington and Asia. Another factor which will encourage this is the general aircraft order book for airlines which operate in this region. If an airline such as Emirates or Etihad increases B747 or A380 service between Asia and Auckland, expect to see incumbent airlines such as Air New Zealand and Qantas focus on Wellington where competition has not yet emerged.

Aircraft order book for our region

47 Air New Zealand 15 Qantas/ 126 Existing jets 107 Jet orders Virgin/ 52 Pacific Blue 26

Tiger Airways/ 76 Air Asia 201

Emirates/Etihad/ 219 Gulf/Qatar 352 User demand

Forecasting demand involves taking the hard facts about Stimulating demand current passenger and freight flows and assessing the Wellington-Asia traffic indicates that direct links would impact of new services and changing demographics. be viable for an airline. On top of this base, there will be Existing passengers normal growth and a better service will increase demand Over the last year, 90,000 trips were taken from by its very existence. There is a consensus in the travel Wellington to Asia (an average of 238 a day) using tickets industry that a direct Wellington-Asia airline service which cost a total of US$90 million. The number of would increase the overall size of the travel market. travellers and the airline revenue gives a positive signal as Demand demographics to the service’s viability. People fly if they can afford to. If fares decline, more people can afford an air ticket, similarly with rising Average daily passengers ex Europe incomes. Aircraft orders and aircraft manufacturer Wellington to Asia and Europe Asia 350 projections are all based on forecasts of air travel costs and the income of potential passengers. 300

250 Over the next 20 years, Boeing forecasts 6.2% per annum growth for Asia-Pacific air traffic. On that basis 300,000 200 people a year would be travelling from Wellington to Asia 150 by 2026 (about four flights a day). 100 On average every American flies 4.5 times a year. Only 50 one in 44 Indians and one in 12 Chinese flies at all. China’s share of global manufacturing has grown hugely, now its Jul Oct Apr consumers are starting to move (literally). Jan Jun Mar Feb Nov Dec Sep Aug May

Business class fares Aircraft orders from China, India, Russia and Brazil 700 A positive factor for Wellington-Asia services is the number of “revenue premium” passengers likely to use 600 it. From New Zealand, 18.5% of trips to Asia and 16.5% 500 of trips to Europe are for business purposes. Wellington 400 travel for business purposes to both destinations is closer to 25%, reflecting the capital’s government 300 agencies, embassies, universities, corporate head offices Number of aircraft 200 and IT and film industries. 100 Europe bound A further factor will be how much of Wellington sourced ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 Asia traffic then travels on to Europe, i.e. generating further income for an airline. Again this is a distinct plus Each year, 80 million people from China, India, Russia and for Wellington as while 9% of national Asia bound traffic Brazil achieve income levels which mean they can afford starts from Wellington, 19% of the travellers heading for air travel. That is 800 million more people entering the air Europe start in Wellington. travel market in a decade. Freight The impact of the growth of air travel affordability is Wellington’s freight catchment is estimated to produce apparent from the share of global aircraft orders coming 29% (60,000 tonnes) of New Zealand’s international air from these countries. In 2004, there were less than 100 freight (inbound and outbound), but the lack of a long haul aircraft orders; in 2006, over 600. service means only 1,800 tonnes of freight goes through Wellington Airport. Another material opportunity for an As income rises so does air travel IRELAND airline with a direct Wellington-Asia service. 10 NEW ZEALAND HONG KONG UK

AUSTRALIA NZ air freight by airport, 2006 1 SOUTH KOREA JAPAN WORLD AVERAGE 200,000 BRAZIL 87% RUSSIA 180,000 0.1 CHINA

160,000 INDIA 140,000 0.01

120,000 per capita (2005) Trips

Tonnes 100,000 80,000 0.001 0 5000 10000 15000 20000 25000 30000 35000 40000 60,000 2005 Real GDP per capita (1997 US$) 40,000 12% 20,000 1% Auckland Christchurch Wellington Other

Infratil UPDATE 10 Issue 26 11 “The development of Wellington “Heightened security around air “A direct air service between Airport is a major issue for the travel has made people more focused Wellington and Asia will change the Wellington Regional Chamber of on how they travel. Gone are the days traditional pattern of arrival through Commerce. We championed the of multiple stopovers, travellers like Auckland and travelling south. It construction of the airport on me are avoiding as much as possible will generate new touring routes its current site and are strong the need to transit in favor of point starting and ending in Wellington supporters of the region’s air to point. As a Wellingtonian, I put up and benefiting its surrounding transport links. The Chamber with the inconvenience when I visit regions. Visitors arriving in Wellington firmly believes in competition and home, a direct service from Hong would head north to experience the encourages both the number of Kong would be a real draw, not only arts and heritage of Taranaki, the operators using Wellington Airport for me and other expats. thermal attractions of Taupo, the and the number of routes flown. A lot of people in Hong Kong are central plateau of Mt Ruapehu and “The strong feedback from my interested in a short-stay holiday its ski fields, the Hawkes Bay wine members is that Wellington needs in central New Zealand or in forging region, or south to the vineyards of direct air links to Asia to grow business links with Wellington based Marlborough, whale watch in Kaikoura, tourist numbers for the region technology or design facilities. 40% the scenic wonders of Marlborough and to facilitate wider business of the world’s population live within and the arts and crafts of Nelson.” and education related travel and four hours by air of Hong Kong Tim Cossar better air freight services. These and they are eager to discover CEO Positively Wellington Tourism flights would make it more efficient the world. Wellington, home to the for people to do business from capital and the national museum, is Wellington and will expand travel an excellent gateway to the lower numbers and freight volume. Given North Island and the beautiful the imminent signature of a FTA Marlborough Sounds and Abel between China and New Zealand, Tasman National Park.” the sooner such flights could start Anthony Muh the better.” CEO Asia Pacific Alliance Trust Plc. Charles Finny CEO Wellington Chamber of Commerce.

Whilst all reasonable care has been taken to ensure the facts stated are accurate, neither Infratil Limited, Morrison & Co Infrastructure Management Limited, Wellington International Airport Limited, nor any of their directors, officers or employees guarantee the accuracy or completeness of the information stated herein.