Viability Assessment of Long Haul Service at Wellington Airport
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Viability Assessment of Long Haul Service at Wellington Airport PREPARED FOR Wellington International Airport Ltd PREPARED BY InterVISTAS Consulting Inc. December 2014 Contents Executive Summary ...................................................................................................... 2 1 Introduction ............................................................................................................ 3 1.1 About InterVISTAS ........................................................................................................... 3 1.2 Project Background .......................................................................................................... 3 1.3 Objective ........................................................................................................................... 3 2 Market Demand ...................................................................................................... 4 2.1 Terminology and Definitions ............................................................................................. 4 2.2 Current Wellington Demand ............................................................................................. 4 2.3 Current Wellington Airport (WLG) Traffic .......................................................................... 4 2.4 Market Leakage ................................................................................................................ 7 2.5 Connectivity Potential ..................................................................................................... 10 2.6 Summary of Current Demand ......................................................................................... 13 2.7 Market Growth ................................................................................................................ 15 3 Review of Current Wellington Long Haul Air Service Options ......................... 17 4 Assessment of Potential Airlines & Routes ....................................................... 20 5 Stimulation Benchmarking .................................................................................. 27 6 Route Forecasts ................................................................................................... 29 6.1 Route Analysis Methodology .......................................................................................... 29 6.2 Route Forecast Results .................................................................................................. 30 6.3 Impact on Current WLG Services ................................................................................... 34 7 Summary Statement ............................................................................................ 35 Viability Assessment of Long Haul Service at Wellington Airport 1 Executive Summary Due to Wellington Airport’s runway length, long haul routes operated with wide-body aircraft are generally unable to be operated to and from the airport, limiting Wellington and the region to domestic and nearby international flights. Wellington Airport has engaged InterVISTAS to independently ascertain the potential demand from the airlines’ perspective for a longer runway before embarking on a project to expand the runway. InterVISTAS has extensive experience in strategic airline route and fleet planning, with globally recognized industry experts, and great familiarity with the New Zealand aviation landscape. The initial part of this assessment is to determine the market demand for new long haul services at Wellington Airport. Current demand for the Wellington market consists of three distinct sources: 1) Current Wellington Airport (WLG) Traffic – Passengers currently using WLG and connecting via Auckland and Australia. 2) Market Leakage – Demand to/from areas where WLG is the closest airport, but passengers are currently using other airports due to absence of long haul services at WLG. 3) Regional Connectivity – Demand from other regions in New Zealand that could access a WLG long haul service by making flight connections at WLG. Demand from each of these three sources was Given that many of New Zealand’s key quantified, for the current year as well as markets could be accessed with a single WLG future years, using data from Statistics New long haul route and network connectivity, the Zealand and Diio (a well-established third aggregate levels of current demand that party provider of aviation data). Together these Wellington exhibits would be of interest to three components represent the current potential airlines. demand for services at Wellington Airport (WLG). Overall, the current long haul demand Figure ES 1 - Total Potential WLG Demand from the Wellington catchment area is by Market Country Market Size (Passengers Per Day Each Way) non-WLG O/D estimated at 420 passengers per day each WLG O/D Demand Rank* Market Demand NZ way (or 307,000 annual passengers). The WLG Total Catchment Connections** largest markets are the United States and the 1 United States 93.5 140.8 209.9 2 United Kingdom 65.0 99.6 123.7 United Kingdom with market sizes of 94 3 China 28.6 37.7 84.1 4 Thailand 17.7 27.2 56.9 passengers per day each way (or 68,300 5 Japan 15.0 24.4 86.0 annual passengers) and 65 passengers per 6 Canada 14.5 24.2 32.7 7 India 17.9 23.5 19.6 day each way (or 47,500 annual passengers), 8 Indonesia 15.0 21.7 25.3 9 Singapore 12.8 16.6 86.7 respectively, for travel to/from Wellington 10 Hong Kong 10.8 16.1 45.7 11 France 10.4 14.7 15.4 Airport. Furthermore, when the catchment area 12 Germany 10.0 13.8 25.3 13 Malaysia 8.1 12.4 11.6 is extended to include other areas around 14 Philippines 9.1 12.4 12.3 15 Vietnam 8.2 11.8 6.2 Wellington, the market size increases by Other 83.4 124.6 167.0 approximately 48%. Although the “total Total (ex Oceania) 420.1 621.5 1,008.4 catchment” area figures are representative of * Rank based on market size estimate for total catchment the full potential of the market, a more area. conservative approach has been used in the ** Demand from AKL and HLZ has been excluded. Figures represent the full potential market sizes. The share of route forecasting component of this project traffic that will actually be connected via WLG (i.e. market and the market sizes have been limited to the share) will be determined by the route forecasting model. demand that is currently using Wellington Source: Diio FMg and Statistics New Zealand, YE March Airport (WLG). 2014. Viability Assessment of Long Haul Service at Wellington Airport 2 In terms of current options for Wellington long haul travel, the vast majority of traffic is routed via Auckland. This is especially true in the case of North America, where back-haul connections over Australia add considerable time and distance. In addition to the increased travel time and higher fares associated with connections over Auckland and Sydney, limited capacity on these routes often limits the actual available space for long haul traffic. As a result, the observed levels of long haul demand for Wellington are likely constrained. In terms of identifying potential new long haul routes for Wellington Airport, a number of variables were considered. Some are obvious like market size, but some are perhaps less clear, and reflect the nuances of today’s aviation industry. In addition to local market size, airline planners also look at the connecting market demand, the primary alliance affiliation of the country, and whether New Zealand is already served by their airline, as well as other strategic considerations. These principles helped to narrow a long list of potential markets down to five with the most potential: Singapore Airlines to Singapore, Cathay Pacific to Hong Kong, United Airlines to Los Angeles, Emirates to Dubai (via Melbourne), and Malaysia Airlines to Kuala Lumpur. In addition, it should be noted that Thai Airways to Bangkok also has potential, as its results were comparable with Malaysia to Kuala Lumpur. Furthermore, the Chinese markets and carriers hold potential for future direct services, given China’s significant growth in demand, airline capacity and networks. However, due the relatively small current demand levels and less connecting opportunities at their hubs, these routes were not included in the route forecast stage of this project, as the aforementioned five routes were deemed to hold greater potential in the near-term. Regarding the impact of new services on demand levels, it is generally accepted in the airline industry that some amount of market stimulation (i.e., market growth) will occur. This acceptance is based on analysis of new route launches in various markets and the impact these have had on traffic levels. When new service is added it provides more options for travellers which, in turn, results in additional demand. Specifically, new services provide additional travel options, lower prices and increased market visibility, which in turn results in demand from passengers that would not have travelled before deciding to do so due to the improvement in air access. It is important to note that stimulation does not occur only in the local market, but occurs in connecting markets where travel times and/or airfares are improved. Additionally, new service by foreign carriers generally results in a higher level of inbound stimulation (i.e. new visitors), as foreign carriers usually have a stronger market presence in their home country. Recent examples of new services by foreign carriers into New Zealand indicate that the visitor component of the