Bay of Plenty Regional Airport Feasibility Study · Bay of Plenty Regional Airport Feasibility...

F I N A L D R A F T R E P O R T

Bay of Plenty Regional Airport Feasibility Study COMMERCIAL-IN-CONFIDENCE

Prepared for

Environment Bay of Plenty Whakatane, New Zealand

30 July 2006

43187149

J:\JOBS\43187149\6000 DELIVERABLES\EBOP AIRPORT FEASIBILITY FINAL.DOC\28-JUL-06

Project Manager: ………………………………….. Brian Carson Principal – Airports & Infrastructure

Project Director: ………………………………….. Ivo Favotto Principal- Finance & Economics Principal – Airports & Infrastructure

URS Australia Pty Ltd Level 3, 116 Miller Street North Sydney, NSW 2060 Australia Tel: 61 2 8925 5500 Fax: 61 2 8925 5555

Date: Reference: Status:

30 July 2006 43187149 Draft

Contents

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i

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---------------------------------------------------------------------------------------------------1

1.1 Introduction 1 1.2 Summary of Stage 1 RASS Outcomes 2 1.3 Objectives of the Stage 2 of the RASS 3 1.4 New Airport Development Process 3 1.5 Study Process 5

2 Current Situation--------------------------------------------------------------------------------------------7

2.1 Introduction - Current Situation 7 2.2 Geography & Political Structure 7 2.3 Population & Trends 9 2.4 Existing Airports System 10

2.4.1 Tauranga 11 2.4.2 Rotorua 12 2.4.3 Whakatane 13

2.5 Transport Task 13

3 Benefit Cost Process ------------------------------------------------------------------------------------ 15

3.1 Benefit-Cost Analysis 15 3.2 Benefit-Cost Analysis Process 15 3.3 Benefit Cost Workstreams 17

4 Traffic Forecasting & Facility Requirement Analysis ----------------------------------------- 22

4.1 Introduction – Traffic Forecasting 22 4.2 Traffic Growth Analysis 24

4.2.1 Historical Trend Analysis 24 4.2.2 Existing Airport Projections 29 4.2.3 Ratio Analysis/Benchmarking 32 4.2.4 Schedule Analysis 36 4.2.5 Econometric Analysis 37

4.3 Regional Airport Traffic Forecasts 42 4.4 Benefits Arising from Regional Airport Traffic Growth 45

Contents


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4.4.1 Regional Economic Impact 45 4.4.2 Regional Economic Impact – Spend Rate Sensitivity 48 4.4.3 Economic Impact Summary Results 49

4.5 Facility Requirements Analysis 50

5 Site Identification ----------------------------------------------------------------------------------------- 51

5.1 Introduction - Site Identification 51 5.2 Site Identification Criteria 51

5.2.1 Physical Criteria 52 5.2.2 Contextual Criteria 54 5.2.3 Manageable Criteria 55

5.3 Application of Site identification Criteria 56 5.3.1 Location Relative to Population Catchments 56

5.4 Physical Criteria 60 5.5 Alternative Site 61 5.6 Contextual Criteria 66 5.7 Manageable Criteria 66 5.8 Summary – Site Identification 67

6 Concept Development & Costings ------------------------------------------------------------------ 68

6.1 Introduction Concept Development & Costing 68 6.2 Global, Operational & Infrastructure Assumptions 68

6.2.1 Global Assumptions 68 6.2.2 Operational Assumptions 69 6.2.3 Infrastructure Assumptions 70

6.3 Regional Airport Concept Capital Costing 75 6.4 Recurrent Capital Expenditure Estimates 78

6.4.1 Historical Cap-Ex profile of Existing Airports 78 6.4.2 Regional Airport Capital Expenditure Profile 79

7 Real Estate Analysis ------------------------------------------------------------------------------------- 80

7.1 Introduction - Real Estate Analysis 80 7.2 Methodology 80 7.3 Data Sources 81 7.4 Value of Existing Bay of Plenty Regional Airports Land 81

7.4.1 Rotorua 81 7.4.2 Tauranga 82 7.4.3 Whakatane 83

7.5 Value Estimates of Highest and Best Use - Existing Bay of Plenty Regional Airports 83 7.5.1 Rotorua 83 7.5.2 Tauranga 84 7.5.3 Whakatane 85

7.6 Estimates of the Value of Regional Airport Land Requirements 87 7.6.1 Regional Airport Land Requirement Value Estimation Methodology 87 7.6.2 Paengaroa 88 7.6.3 Pyes Pa 93

7.7 Real Estate Analysis – Summary Outcomes 99

Contents


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8 Airport & Airline Operations & Costs Analysis------------------------------------------------ 101

8.1 Introduction Airport & Airline Analysis 101 8.2 Airport & Airline Analysis Methodology and Approach 101

8.2.1 Airport Analysis Methodology and Approach 102 8.2.2 Airline Analysis Methodology and Approach 102 8.2.3 General Methodology and Approach 102

8.3 Airport Operational Revenue and Cost 102 8.3.1 Establishing Current Revenue & Operating Costs of Bay of Plenty

Airports 103 8.3.2 Benchmarking Comparable Airports 103

8.4 Airline Analysis – Introduction 105 8.4.1 Regional Flight Schedule Review 105 8.4.2 Assumptions for Airline Revenues Estimates 107 8.4.3 Assumptions for Airline Costs Estimates 107 8.4.4 Airline Operational Costs Estimates 107 8.4.5 Airline Cost Summary Outcomes 108

8.5 Airport and Airline Outcomes - Summary 109

9 Transport Planning Analysis------------------------------------------------------------------------ 110

9.1 Introduction Land Transport Planning Analysis 110 9.2 Land Transport Analysis Costing Approach and Methodology 110 9.3 Land Transport Analysis Parameters 111 9.4 Transport Demand Projections 115

9.4.1 Impacts on Capital Expenditure 117 9.5 Costing Land Transport Movements Bay of Plenty 117

9.5.1 Vehicle Operating Costs 117 9.5.2 Travel Time Costs 117 9.5.3 Accident Costs 118 9.5.4 Vehicle Emissions 118

9.6 Land Transport Cost Summary 119 9.7 Non Airport User Effects 119

10 Financial Feasibility Analysis----------------------------------------------------------------------- 120

10.1 Introduction Financial Feasibility 120 10.2 Financial Feasibility Methodology and Approach 120 10.3 Feasibility Analysis Parameters 120 10.4 Financial Inputs Analysis 121

10.4.1 Capital Expenditure 121 10.4.2 Real Estate Costs 122 10.4.3 Profit and Loss Statement 124

10.5 Financial Feasibility Results 125 10.6 Financial Feasibility Sensitivity Testing 125 10.7 Financial Feasibility Conclusions 126

11 Benefit Cost Analysis --------------------------------------------------------------------------------- 129

11.1 Introduction Benefit Cost Analysis 129 11.2 BCA Key Parameters 129 11.3 Base Case and Options for Analysis 130

Contents


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11.4 Analysis Methodology 131 11.5 Results of the Benefit-Cost Analysis 133

11.5.1 Sensitivity Analysis 134 11.6 Benefit Cost Analysis Conclusions 142

12 Risk Factors ---------------------------------------------------------------------------------------------- 145

13 Conclusions ---------------------------------------------------------------------------------------------- 147

General 147 Financial Feasibility 149 Economic Benefit Cost Analysis 152

List of Tables, Figures, Plates & Appendices


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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 ($’m) ............................................................................................ES-10 Table ES.8 - Financial Feasibility Results ...........................................................................................ES-11 Table ES.9 - Base Benefit Cost Analysis Results ................................................................................ES-11 Table 2.1 - Bay Of Plenty 2001 & 2005 Population By District ..................................................................9 Table 2.2 - Bay Of Plenty 2026 Forecast Population By Sub District .......................................................10 Table 2.3 - Bay Of Plenty Airport Traffic Statistics – 2005 .......................................................................11 Table 4.1 - Bay of Plenty Airport Traffic Growth – 1996 to 2005 ............................................................27 Table 4.2 - Bay of Plenty Airports Passenger Forecasts ............................................................................30 Table 4.3 - Benchmark Analysis – Forecast Growth Rates ........................................................................32 Table 4.4 - Ratio Analysis – Historical Traffic-to-Population Ratio .........................................................34 Table 4.5 - Ratio Analysis – Historical & Forecast Traffic-to-Population Ratio .......................................35 Table 4.6 - Ratio Analysis – BOP Regional Airport Traffic-to-Population Ratio (2025) ..........................36 Table 4.7 - Airport Schedules – Daily Services .........................................................................................37 Table 4.8 - Airport Schedules – Daily Service Impacts .............................................................................38 Table 4.9 - Time and VOC Parameters ......................................................................................................40 Table 4.10 - Annual Incremental Economic Impact Summary ($ millions) ..............................................50 Table 5.1 - Potential Site Identification & Short Listing Criteria ..............................................................52 Table 5.2 - Bay Of Plenty Population By District ......................................................................................57 Table 5.3 - Application of Physical Criteria ...............................................................................................60 Table 5.4 - Bay Of Plenty Population By Sub Region ...............................................................................61 Table 5.5 - Application of Contextual Criteria ...........................................................................................66 Table 5.6 - Application of Manageable Criteria .........................................................................................67 Table 6.1 - Development Concept Operational Assumptions ...................................................................70 Table 6.2 - Development Concept Infrastructure Assumptions .................................................................72 Table 6.3 - Development Concept Capital Cost .........................................................................................76 Table 6.4 - Current Bay of Plenty Airport vs Proposed Sites Ongoing Capex Comparison ......................79 Table 7.1 - Rotorua Existing Values ..........................................................................................................82 Table 7.2 - Tauranga Existing Values ........................................................................................................82 Table 7.3 - Whakatane Existing Values .....................................................................................................83 Table 7.4 - Rotorua Highest and Best Value Estimate ...............................................................................84 Table 7.5 - Tauranga Highest and Best Value Estimate .............................................................................85 Table 7.6 - Whakatane Highest and Best Value Estimate..........................................................................86 Table 7.7 - Paengaroa Site 1 Land Cost Value Estimate.............................................................................90 Table 7.8 - Paengaroa Site 1 Land Rentals ................................................................................................90 Table 7.9 - Paengaroa Site 2 Land Cost Value Estimate............................................................................92 Table 7.10 - Paengaroa Site 2 Land Rentals ..............................................................................................92 Table 7.11 - Pyes Pa Site 1 Land Cost Value Estimate..............................................................................94 Table 7.12 - Pyes Pa Site 1 Land Rentals ...................................................................................................94 Table 7.13 - Pyes Pa Site 2 Land Cost Value Estimate..............................................................................96 Table 7.14 - Pyes Pa Site 2 Land Rentals ...................................................................................................96 Table 7.15 - Pyes Pa Site 3 Land Cost Value Estimate...............................................................................98 Table 7.16 - Pyes Pa Site 3 Land Rentals ...................................................................................................98



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Table 7.17 - Existing Airport Land Value Estimate....................................................................................99 Table 7.18 - Regional Airport Land Costs ...............................................................................................100 Table 7.19 - Rental Income Summary ......................................................................................................100 Table 8.1 - Existing BOP Airports Combined Financial Performance ...................................................103 Table 8.2 - Benchmark Airports Financial Results ..................................................................................104 Table 8.3 - Incremental Airport Financial Outcomes ...............................................................................105 Table 8.4 – Current Schedule - Daily Number of Flights ........................................................................106 Table 8.5 - Future Schedule - Daily Number of Flights ...........................................................................106 Table 8.6 - Airline Operational Costs Calculations ..................................................................................108 Table 8.7 - Incremental Airline Financial Outcomes ...............................................................................108 Table 8.8 - Incremental Airport and Airline Cost Outcomes ...................................................................109 Table 9.1 - Distance and Transit Time Parameters ..................................................................................112 Table 9.2 - Local Area Transport Parameters ..........................................................................................114 Table 9.3 - Land Transport Cost Parameters ............................................................................................114 Table 9.4 - Forecast Passenger Movements .............................................................................................115 Table 9.5 - Incremental VKT and VHT Movements (‘000s) ...................................................................116 Table 9.6 - Incremental VOC Costs ($’m) ...............................................................................................117 Table 9.7 - Incremental Travel Time Costs ($’m) ....................................................................................118 Table 9.8 - Incremental Accident Costs ($’m) .........................................................................................118 Table 9.9 - Incremental Vehicle Emission Costs ($’m) ...........................................................................119 Table 9.10 - Land Transport Costs ($’m) .................................................................................................119 Table 10.1 - Financial Feasibility Parameters ..........................................................................................121 Table 10.2 - Development Concept Capital Cost .....................................................................................122 Table 10.3 - Current BOP Airport vs Proposed Sites Ongoing Capex Comparison ................................122 Table 10.4 - Existing Airport Land Value Estimates ...............................................................................123 Table 10.5 - Regional Airport Land Costs ..............................................................................................123 Table 10.6 - Annual Rental Income .........................................................................................................124 Table 10.7 - Incremental Airport Financial Outcomes .............................................................................124 Table 10.8 - Financial Feasibility Results ................................................................................................125 Table 10.9 - Financial Feasibility Sensitivity Results ..............................................................................126 Table 11.1 - Base Benefit Cost Analysis Results .....................................................................................133 Table 11.2 - Best Case Scenario Benefit Cost Result Summary .............................................................135 Table 11.3 - Worst Case Scenario Benefit Cost Result Summary ...........................................................136 Table 11.4 - Ratio-Passenger Benefit Cost Result Summary ...................................................................137 Table 11.5 - Rotorua Passenger Benefit Cost Result Summary ...............................................................138 Table 11.6 - Reduced CapEx Benefit Cost Result Summary ...................................................................139 Table 11.7 - Increased CapEx Benefit Cost Result Summary ..................................................................140 Table 11.8 - Visitor Spend Benefit Cost Result Summary .......................................................................141 Table 11.9 - Increased Annual CapEx Benefit Cost Result Summary .....................................................142 Table 13.1 - Financial Feasibility Results ................................................................................................149 Table 13.1 - Financial Feasibility Sensitivity Results ..............................................................................150 Table 13.3 - Base Benefit Cost Analysis Results .....................................................................................153

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 – 2025 ..........................ES-5 Figure ES.4 - Regional Airport Scoping Study Process ......................................................................ES-13 Figure 1.1 - Regional Airport Scoping Study Process ................................................................................1 Figure 1.2 - Typical New Greenfield Airport Development Process ...........................................................3



vii

Figure 1.3 - Overall Methodology ................................................................................................................5 Figure 2.1 - Bay Of Plenty Locality Map .....................................................................................................8 Figure 3.1 - Workstream 1 .........................................................................................................................15 Figure 3.2 - Benefit-Cost Analysis Process ................................................................................................16 Figure 4.1 - Workstream 2 .........................................................................................................................22 Figure 4.2 - Traffic Forecasting Methodology ...........................................................................................22 Figure 4.3 - Traffic Forecasting & Facility Requirements Process ............................................................23 Figure 4.4 - Historical Tauranga Passenger and Aircraft Movement Data – 1996 to 2005 .......................24 Figure 4.5 - Historical Rotorua Passenger and Aircraft Movement Data – 1996 to 2005 .........................25 Figure 4.6 - Historical Whakatane Passenger and Aircraft Movement Data – 1996 to 2005 ...................26 Figure 4.7 - Bay of Plenty Combined Passenger Traffic – 2005 ................................................................27 Figure 4.8 - Bay of Plenty Combined Passenger Traffic Comparison – 2005 ...........................................28 Figure 4.9 - BOP Trend Forecasts ..............................................................................................................29 Figure 4.10 -- Bay of Plenty Passenger Traffic Projection to 2025 High and Low Case ...........................30 Figure 4.11 - Bay of Plenty Passenger Forecast to 2025 ............................................................................39 Figure 4.12 - Frequency Modal Shift Impacts – 2025 ................................................................................40 Figure 4.13 - Time and VOC Modal Shift Impacts – 2025 ........................................................................41 Figure 4.14 - Trans-Tasman Service Impacts – 2025 .................................................................................42 Figure 4.15 - Market Share Growth – 2025 ...............................................................................................43 Figure 4.16 - Bay of Plenty Passenger Traffic Projection – Regional Airport – 2025 ...............................44 Figure 4.17 - Sensitivity of Passenger Numbers – 2025 ............................................................................47 Figure 4.18 - Incremental Regional Airport Economic Impact – Regional Forecast .................................48 Figure 4.19 - Incremental Regional Airport Economic Impact – NZ Ratio Forecast ................................49 Figure 4.20 - Annual Economic Impact with Trans-Tasman Sensitivity ...................................................51 Figure 5.1 - Workstream 3 .........................................................................................................................51 Figure 5.2 - 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 4 .........................................................................................................................68 Figure 6.2 – Regional Airport Development Concept ................................................................................74 Figure 7.1 – Workstream 5 .........................................................................................................................80 Figure 7.2: Paengaroa – Site 1 Lot Requirements ......................................................................................89 Figure 7.3: Paengaroa – Site 2 Lot Requirements ......................................................................................91 Figure 7.4: Pyes Pa Site 1 ..........................................................................................................................93 Figure 7.5: Pyes Pa Site 2 ..........................................................................................................................95 Figure 7.6: Pyes Pa Site 3 ..........................................................................................................................97 Figure 8.1 - Workstream 6 ......................................................................................................................101 Figure 8.2 - Airport & Airline Operations & Cost Analysis Process .......................................................101 Figure 9.1 - Workstream 7 .......................................................................................................................110 Figure 9.2 - Land Transport Planning Process .........................................................................................111 Figure 9.3 - Site Options .........................................................................................................................113 Figure 9.4 - Sources of Passenger Growth ...............................................................................................117 Figure 10.1 - Workstream 8 .....................................................................................................................120 Figure 11.1 - Workstream 1 .....................................................................................................................129 Figure 11.2 - Discounted Cashflow Analysis Methodology ...................................................................132 Figure 13.1 - Regional Airport Scoping Study Process ..........................................................................147

Executive Summary


ES-1

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 12,500km2 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.

Executive Summary


ES-2

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 2001 - 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 2005. 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

Executive Summary


ES-3

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:

Executive Summary


ES-4

Figure ES.2

Traffic Forecasting Methodology

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

Historical trend

analysis

Review ofexisting airport

projections

Econometricanalysis

Forecast Development

Ratio analysis &

benchmarking

Schedule analysis

Historical trend

analysis


projections

Econometricanalysis


Ratio analysis &

benchmarking

Schedule analysis

Executive Summary


ES-5

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

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

2005 2025 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.

462,493

679,485

816,691

1,000,000

LOW HIGH

+77%CAGR: 3.0%

+ 47%CAGR: 2.0%

+116%CAGR: 4.1%

WhakataneTaurangaRotorua


Pax

Executive Summary


ES-6

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

Value

Regional Forecast $36 million

NZ Benchmark $85 million

Spend Rates Sensitivity

$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.

Executive Summary


ES-7

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 Ongoing Annual Capital Expenditure Estimates

BOP Current Total $4.53m

Base Cost (-30%)

Base Cost Base Cost (+30%)

Paengaroa Site Option

Total Capex Estimate $256.2 m $366.0 m $475.8 m

Annual Capex @ 0.5%

$1.28 m $1.83 m $2.38 m

Pyes Pa Site Option


Annual Capex @ 0.5%

$1.39 m $1.99 m $2.58 m

Source: URS Analysis

Executive Summary


ES-8

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 Lots

400ha Land

Estimates

400 ha Improve -

ments

400 ha Results

Paengaroa – Site 1

110 $90 m $165 m $255 m


79 $90 m $190 m $280 m

Pyes Pa – Site 1

18 $20 m $21 m $41 m

Pyes Pa – Site 2

23 $20 m $29 m $49 m

Pyes Pa – Site 3

21 $20 m $29 m $49 m

Executive Summary


ES-9

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


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.

Executive Summary


ES-10

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


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 2025. 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 2025. The results of the transport planning analysis are shown in Table ES.7.

Table ES.7

Land Transport Costs ($’m)

Site Incremental Value

2010 2025

Paengaroa - Site 1 $5.9 m $7.3 m

Pyes Pa - Site 2 $ 4.7 m $5.4 m

Executive Summary


ES-11


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.

Executive Summary


ES-12

Table ES.8

Financial Feasibility Results

Site Option NPV ($’m)

Paengaroa Site 1 -$453 m


Pyes Pa Site 1 -$271 m




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 – Site 1


Pyes Pa – Site 1

Pyes Pa – Site 2

Pyes Pa – Site 3

Net Present Value

-$98 m -$121 m $60 m $53 m $53 m

Net Present Value - Benefits

$367 m $367 m $357 m $357 m $357 m

Net Present Value - Costs

$466 m $488 m $298 m $304 m $304 m

Benefit Cost Ratio

0.76 0.72 1.21 1.18 1.18


Executive Summary


ES-13

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.

Executive Summary


ES-14

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

Executive Summary


ES-15

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.

SECTION 1 Background


1

1 Background

1.1 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 land-air 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.


Figure 1.1



(completed 2002)


(current)


(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



2

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, 2002. 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.



3

1.3 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

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;

Preliminary feasibility

assessment & site

identification

1-2 years

Development of concept design

and detailed feasibility

1-2 years

Resource consent/

approvals

3-5 years

Construction & development

2-3 years

Site consolidation &

acquisition

3-5 years

Pre-Feasibility needs/risk analysis

1 year

Detailed design and

planning

3-4 years

Current Situation

Preliminary feasibility

assessment & site

identification

1-2 years

Development of concept design

and detailed feasibility

1-2 years

Resource consent/

approvals

3-5 years

Construction & development

2-3 years

Site consolidation &

acquisition

3-5 years

Pre-Feasibility needs/risk analysis

1 year

Detailed design and

planning

3-4 years

Current Situation



4

• 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 1962. 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:



5

• acquiring/reserving an appropriate site;

• managing land use around the site to preserve its availability for airport development (i.e. avoiding residential encroachment and hence potential future aircraft noise issues);

• managing off-airport and environmental impacts;

• incorporating the new airport site into medium and long term infrastructure planning (roads, power, water);

• incorporating the new airport site into land use considerations (i.e. patterns of urban, agricultural and industrial developments); and

• incorporating the funding of further investigations and ultimate development into EBOP’s long term financial planning.

1.5 Study Process

The process undertaken by URS to conduct the feasibility study is set out in Figure 1.3 below. The process involved dividing the feasibility study into 9 separate workstreams whilst simultaneously conducting stakeholder information sharing throughout the Study.

Figure 1.3

Overall Methodology

WORKSTREAM 8

Financial feasibility analysis

WORKSTREAM 7

Transport planning analysis

WORKSTREAM 6

Airport & airline operations & cost

analysis

WORKSTREAM 5

Real estate analysis

WORKSTREAM 4

Concept development &

costing

WORKSTREAM 3

Site identification & short listing

WORKSTREAM 2

Traffic forecasting & facility

requirements

WORKSTREAM 1

Benefit -cost analysisWORKSTREAM 9

Reporting & peer review

BAY OF PLENTY

REGIONAL AIRPORT

FEASIBILITY STUDY

Client/StakeholderConsultation









WORKSTREAM 8


WORKSTREAM 7


WORKSTREAM 6


analysis

WORKSTREAM 5


WORKSTREAM 4


costing

WORKSTREAM 3


WORKSTREAM 2


requirements

WORKSTREAM 1



BAY OF PLENTY

REGIONAL AIRPORT

FEASIBILITY STUDY

StakeholderInformation sharing









WORKSTREAM 8


WORKSTREAM 7


WORKSTREAM 6


analysis

WORKSTREAM 5


WORKSTREAM 4


costing

WORKSTREAM 3


WORKSTREAM 2


requirements

WORKSTREAM 1



BAY OF PLENTY

REGIONAL AIRPORT

FEASIBILITY STUDY










WORKSTREAM 8


WORKSTREAM 7


WORKSTREAM 6


analysis

WORKSTREAM 5


WORKSTREAM 4


costing

WORKSTREAM 3


WORKSTREAM 2


requirements

WORKSTREAM 1



BAY OF PLENTY

REGIONAL AIRPORT

FEASIBILITY STUDY





















6

A brief description of each work stream is set out below.

Workstream 1 – Benefit-Cost Process - this workstream brought together the output of all other workstreams in a benefit-cost, net-present value framework, so that an overall, high-level benefit-cost ratio (BCR) for the regional airport proposal can be estimated.

Workstream 2 – Traffic Forecasting & Facility Requirements - this workstream involved the development of a traffic forecast for a single regional airport for the Bay of Plenty, contrasted against the traffic forecasts of the existing airports. The traffic forecast then determines the extent of facility required for a new airport (e.g. number of runways, length of runways, size of terminals etc).

Workstream 3 – Site Identification & Short Listing – this workstream involved the utilisation of a criteria based site identification methodology. The criterion for site identification was developed during the Feasibility Study.

Workstream 4 – Concept Development & Costing – this workstream involved the development of a concept plan for the regional airport and a capital expenditure cost estimate at a +/- 30 per cent confidence level.

Workstream 5 – Real Estate Analysis – this workstream involved estimating the net realisable value from the sale of the existing airports and the estimated acquisition cost for the short-listed sites.

Workstream 6 – Airport & Airline Operations & Cost Analysis – this workstream involved identifying any significant costs or savings from either airline or airport operations associated with moving from a three airport system to a single airport system.

Workstream 7 – Transport Planning Analysis – this workstream involved evaluating the impact the regional airport proposal had on land-air modal splits.

Workstream 8 – Financial Feasibility Analysis – this workstream involved determining whether a regional airport would be financially viable, given estimated capital and operating costs and revenues.

Workstream 9 – Benefit-Cost Analysis – this workstream involved coordinating all identified benefits and costs and deriving a benefit-cost ratio.

SECTION 2 Current Situation


7

2 Current Sit uation

2.1 Introduction - Current Situation

In order to assess the possible future aviation infrastructure needs of the Bay of Plenty region, it is first necessary to understand the current situation in terms of:

• the geography and political structure of the region;

• population trends;

• the existing airports system & traffic patterns; and

• the region’s transport task.

An examination of these factors is undertaken in the remainder of the section.

2.2 Geography & Political Structure

The Bay of Plenty region, shown in Figure 2.1 below, comprises an area of about 12,500km2 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.

In general, the western most districts - Western Bay of Plenty, Tauranga and Rotorua - are home to the majority of the population and economic activity.. The Port of Tauranga is New Zealand's largest export port.

The eastern most districts - Whakatane, Kawerau and Opotiki -have smaller populations and a more agricultural and natural resource oriented industry base. These parts of the region typically have lower incomes, and include some of New Zealand's most deprived areas.

To the west of the Bay of Plenty region lie the Auckland and Waikato regions. Auckland is New Zealand’s most populous city (388,800 in Auckland City and 1.22 million in Auckland Region1), as well as its economic hub and visitor gateway. Auckland is 3 hours drive from Tauranga and 3 and a half hours drive from Rotorua. The Waikato region is New Zealand’s third largest region in terms of population

1 Based on 2001 Census, sourced from: NZ Statistics Projected Population of Regional Councils (June 2005), URL: http://www.stats.govt.nz/products-and-services/info-releases/subnat-pop-est-info-releases.htm



8

(120,900 in Hamilton and 369,800 in the Waikato region2), with the city of Hamilton, a city based on argi-business and industrial development, at its heart. Hamilton is one hour’s drive south of Auckland and 1.5 hours drive from both Tauranga and Rotorua. Both Auckland and Hamilton have developed passenger airports catering to regional, domestic and international traffic.

To the south of the Bay of Plenty region is Taupo. The Taupo district has a relatively small population of 32,5003 but is home to agricultural, forestry and tourism industries. Taupo also has its own airport, although it has limited passenger services.

To the west, the major centre is Gisborne, one of New Zealand’s smallest regions in population terms but with a vibrant economy based on natural resources, agriculture, tourism and viticulture.

Figure 2.1 Bay Of Plenty Locality Map

Source: URS Mapping & EBOP data

2 Based on 2001 Census, sourced from: NZ Statistics Projected Population of Regional Councils (June 2005), URL: http://www.stats.govt.nz/products-and-services/info-releases/subnat-pop-est-info-releases.htm

3 Based on 2001 Census, sourced from: NZ Statistics Projected Population of Territorial Authorities (June 2005), URL: http://www.stats.govt.nz/products-and-services/info-releases/subnat-pop-est-info-releases.htm



9

2.3 Population & Trends

The Bay of Plenty region is New Zealand’s fifth most populated region, with approximately 246,900 inhabitants in 20014 - around 6.4 per cent of national population. The distribution of the Region’s population by District is set out in Table 2.1 below. 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).

Table 2.1

Bay Of Plenty 2001 & 2005 Population By District

District 2001 % of Total 2001

Estimated 2005

% of Total 2005

Western Bay 39,300 15.9% 42,200 16.01%

Tauranga 93,300 37.8% 103,800 39.37%

Rotorua 66,900 27.1% 67,600 25.64%

Whakatane 34,000 13.8% 33,900 12.86%

Kawerau 7,300 3.0% 6,620 2.51%

Opotiki 9,500 3.8% 9,530 3.61%

BOP Regional Total 246,900 100.0% 260,300 100.00%

Source: NZ Statistics: 30 June 2001 Subnational Population Estimates (June 2005 and June 2006)

Historically, the Region’s population has grown significantly faster than the national average, with population growth between 1991 and 2001 being 17 per cent compared to the national average of 11 per cent. This trend is likely to be continued into the future with the University of Waikato’s Migration Research Group estimating that the Region’s population will grow to 333,040 by 2026, a growth rate of 1.2 per cent on the 2001 population levels.

The distribution of the Region’s forecast 2026 population by Sub - Region is set out in Table 2.2 below. The bulk of the Region’s population growth is anticipated in the Western Bay and Tauranga districts (the western sub - region). Over the next 20 years, the western sub - region is expected to grow by a cumulative annual growth rate of 1.97 per cent. At the same time, it is anticipated that the eastern sub - district – including Whakatane, Opotiki and Kawerau – will experience a minor population decline of 0.18% per annum and that Rotorua will also experience a minor population increase of 0.35% per year.

4 Source: Statistics New Zealand Website 2005, Subnational Population Estimates (June 2005), URL: http://www.stats.govt.nz/products-and-services/info-releases/subnat-pop-est-info-releases.htm



10

Table 2.2

Bay Of Plenty 2026 Forecast Population By Sub Region

District 2026 Population

% of Total CAGR %

West 211,700 63.57% 1.97%

East 48,640 14.60% -0.18%

South 72,700 21.83% 0.35%

Bay of Plenty Total

333,040 100.00% 1.20%

Source: University of Waikato’s Migration Research Group (Modified Medium Variant) and NZ Statistics Projected Population of Regional Councils & Territorial Authorities, 2005

According to EBOP, the primary drivers behind the growth of the western sub - region include, but are not limited to:

• the continued growth/spread of the Auckland population west along the Bay of Plenty’s coastal plain;

• the continuation of the sea-change phenomenon, attracted by the Bay of Plenty’s coastal towns and lifestyle; and

• the continued growth of industrial, natural resource and argi-business development in the region.

2.4 Existing Airports System

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 2005, as set out in Table 2.3 below.



11

Table 2.3

Bay Of Plenty Airport Traffic Statistics – 2005

Airport Passenger Movements

% of Total Aircraft Movements

% Total

Tauranga 155,000 34% 86,000 90%

Rotorua 279,493 60% 4,598 5%

Whakatane 28,000 6% 5,200 5%

BOP Total 462,493 100% 95,798 100%

Source: Rotorua, Tauranga and Whakatane Airport data and URS Analysis

In terms of share of total Bay of Plenty arriving and departing airline passengers, Rotorua Airport caters for just over 60 per cent of all passenger movements reflecting Rotorua’s role as a tourist destination. Tauranga represents just over one third with the smallest proportion of passenger traffic (six per cent) passing through Whakatane Airport.

However, in terms of aircraft movements, the majority occur at Tauranga. This reflects the small capacity of the passenger aircraft and the fact that general aviation traffic at the airport makes up 90 per cent of the total number of aircraft movements at Tauranga. While Rotorua has the largest proportion of passengers, it only accounts for only 5 per cent of aircraft movements. This reflects the larger capacity of passenger aircraft as well as a lower number of General Aviation aircraft movements. As with passenger movements, Whakatane represents the smallest share of aircraft movements.

A brief profile of each of the existing airports within the Bay of Plenty is set out below.

2.4.1 Tauranga

The airport was opened in 1936 and commenced passenger services in 1946. The airport is located approximately 4km north-east of the centre of Tauranga and occupies a site of 225 hectares.

From an infrastructure perspective the airport has the following:

• one sealed runway 1825m x 45m capable of handling Boeing 737 and the Airbus A320; and

• three grass runway strips.

Although the main runway is capable of handling large commuter aircraft traffic at the airport consists of domestic turbo prop commuter aircraft only.



12

In terms of passenger facilitation the airport has a 580m2 terminal building and a 6,700m2 car park providing an estimated 190 car park spaces5.

The vision of the airport6 is stated as follows:

“To successfully operate a commercially viable Airport which is recognised as a centre of excellent airport transport services, related facilities and other services”

The current airport Master Plan envisages a number of aviation and non aviation developments including but not limited to:

• minor runway extension;

• additional apron outside the passenger terminal to cater for the forecast peak aircraft stand requirements;

• five commercial development zones;

• aviation support and aviation education facilities; and

• future General Aviation and Helicopter facility expansion.

2.4.2 Rotorua

The airport is located on a site of approximately 95 hectares on the south eastern shore of Lake Rotorua and is regarded as one of New Zealand’s most important tourist attractions with over 3 million visitors both international and domestic annually.

The main runway at the airport is 1,622m long by 30m wide making it capable of handling B737 and A320 aircraft. Currently, the airport has approximately five airlines offering domestic services to destinations in the North Island as well as Christchurch and Nelson in the South Island.

The airport operates a passenger terminal of approximately 2,800m2 and has a car parking capacity of 402 vehicles.

The airport has a mission that states the following:

“A user friendly attractive airport ’hub’ which meets the regional needs for domestic and trans-Tasman airline services and as a safe commercially viable operation optimising the social and economic benefits to the community stakeholders”

5 Tauranga Airport Master Plan 2005

6 Tauranga Airport Strategic Plan (2003-2006)



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The airport is keen to attract direct trans-Tasman traffic to the airport and has indicated in a recent study7 that the current runway is capable of handling direct inbound aircraft from Australia. The study also states that the current runway can be further extended by an additional 430m bringing the total potential length to 2,052m.

2.4.3 Whakatane

Whakatane airport is located in the north east of the Bay of Plenty region and commenced operation as an airport in 1960. The airport occupies an area of approximately 230 hectares.

From an infrastructure perspective the airport has a single sealed runway 1,280m in length by 30m wide and can only receive aircraft with passenger seating capacity of up to 30. The airport also operates a small terminal building as well as car parking facilities.

The main air route is to an from Auckland with a small number of flights to other regional destinations.

The stated goal of the airport is to:

“provide and maintain public airports having regard to the volume and nature of the traffic using them in accordance with Council’s Asset Management Plan.”

No major expansion of facilities has occurred at the airport in recent years.

2.5 Transport Task

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 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;

7 Rotorua Regional Airport Trans-Tasman Demand & Economic Impact Assessment – APR Consultants, September 2005



14

• 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 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.

SECTION 3 Benefit Cost Process


15

WORKSTREAM 8


WORKSTREAM 7


WORKSTREAM 6


analysis

WORKSTREAM 5


WORKSTREAM 4


costing

WORKSTREAM 3


WORKSTREAM 2

Traffic forecasting &

facility requirements

WORKSTREAM 1

Benefit-cost analysis

WORKSTREAM 9


BAY OF PLENTY

REGIONAL AIRPORT

FEASIBILITY STUDY

StakeholderInformation

Sharing


Sharing StakeholderInformation

Sharing


Sharing


Sharing


Sharing


Sharing


Sharing


Sharing

Figure 3.1

Workstream 1

3 Benefit Cost Process

3.1 Benefit-Cost Analysis

Benefit Cost Analysis is a widely accepted and used technique in financial and economic analysis. The BCA provides the framework for the overall feasibility study. In terms of the overall workstream analysis as presented in Figure 3.1, the BCA takes the inputs of all the other workstreams in order 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 purpose of this section of the report is to give a broad overview of the process used to determine the feasibility of the Bay of Plenty regional airport. The actual results of the financial and economic BCA are presented in Sections 10 and 11 of the report respectively.

3.2 Benefit-Cost Analysis Process

The primary objective of a BCA is to determine and value the benefits and costs of a proposed project for a decision on feasibility and therefore potential for investment. The seven steps which were involved in conducting this BCA, as discussed in the original proposal, are set out in Figure 3.2 and described in further detail below.



16

Figure 3.2

Benefit-Cost Analysis Process

Step 1

Parameters andMethodology

Step 2

Identify benefits &

costs

Step 3

Determine valuation

methodology

Step 4

Value benefits and

costs

Step 5

StakeholderConsultation

&Feedback

Step 7

Sensitivity Testing

Step 6

BCA Analysis

The first step in conducting the BCA analysis was to set up the parameters for analysis. In conducting this BCA, it has been decided though consultation with stakeholders that the perspective taken for analysis should be from a region-wide perspective – that is, on the basis of net benefits for all economic agents in the Bay of Plenty. The alternative to this methodology is to take the New Zealand wide

perspective, but it was decided that the regional airport effects would be most important for this study.

The key parameters that needed to be developed and are used in the BCA include:

• formalising the project base case and scenario to be assessed;

• identifying the appropriate assumptions that will be required to be made;

• determining the appropriate time frame for the analysis; and

• determining the appropriate discount rate.

The next step in the BCA process involved identifying all potential benefits and costs. This step in the BCA process involved consultation with the region and stakeholders.

The methodology used in the evaluation involved the following activities:

• preparing an initial list of potential benefits and costs;

• consulting with stakeholders; and

• reviewing and amending the initial list of potential benefits and costs.

Once all potential benefits and costs were identified in step 2, a methodology for valuing those benefits and costs was determined. The valuation techniques used broadly consist of utilising market and non-market based techniques. Those benefits and costs which could not be valued were considered on a qualitative basis.

Step 1

Parameters andMethodology

Step 2

Identify benefits &

costs

Step 3

Determine valuation

methodology



17

The next stage in the regional airport feasibility study BCA process involved the actual valuation of the benefits and costs. This step is the most detailed in the BCA process and involved research of past studies, consultation with industry experts and detailed modelling of financial and economic inputs.

URS undertook a number of workshops within the Bay of Plenty region involving stakeholders and regional government representatives. These workshops involved presentation of benefit and cost valuation results and general overviews of the process and outcomes. These workshops allowed interactive feedback from parties involved in feasibility process.

After receiving the feedback from stakeholders, the benefits and costs were placed into an incremental BCA format. The production of the BCA allowed for a number of decision criteria to be produced to allow for the determination of project feasibility.

Given the high-level nature of the feasibility study undertaken in this report, and the high level nature of some of the benefits and costs valuations, a series of sensitivities were conducted on the most uncertain and highest impact variables. This will enables EBOP to assess the risks to the BCA outcomes.

3.3 Benefit Cost Workstreams

A number of workstreams have been analysed to undertake the BCA feasibility study. These workstreams are documented in the Figure 3.1 There are 7 workstreams that fed into the BCA analysis, which include:

Workstream 2 – Traffic Forecasting and Facility Requirements

The traffic forecasting and facility requirements workstream involved the development of aviation traffic forecasts and the determination of facility requirements. Initially, a base case traffic forecast was developed based on the existing situation of three primary airports servicing the Bay of Plenty region. Once the base case traffic forecasts were finalised, the traffic forecast based on the scenario of a regional

Step 4

Value benefits and

costs

Step 5

StakeholderConsultation

&Feedback

Step 6

BCA Analysis

Step 7

Sensitivity Testing



18

airport was developed. The centralised regional airport traffic forecast were undertaken on a location neutral basis - that is, regardless of where the regional airport was ultimately to be located,.

The facility requirements analysis was prepared in two stages – a conceptual stage and a developed stage. These are described in further detail below. To facilitate the site identification process, URS conducted a facility requirements assessment. This conceptual assessment focussed on the inputs required for an initial site identification process – i.e. the overall size and shape of the piece of land that required. It also provided guidance to the site identification process in terms of aviation issues such as airspace requirements, approach surface protection and weather requirements (e.g. relatively fog free, with potential for one runway to provide sufficient wind coverage without cross wind components etc).

In order to prepare a more developed facility requirements assessment, it was necessary to prepare a secondary forecast. While primary forecasts focus on annual traffic levels, secondary forecasts focus on factors such as likely peak period demand and aircraft type usage. URS prepared the secondary traffic forecasts on the basis of:

• review of the existing situation;

• analysis of key industry trends gathered from previous interviews with industry; and

• benchmarks from other (similar) regional airports drawn from the URS proprietary airports database.

Once the secondary forecasts were completed, URS then progressed to the preparation of the detailed facility requirements assessment. This focussed on key elements of any regional airport including:

• required runway, taxiway and apron complex;

• required airspace protection areas;

• required terminal building;

• other required airside facilities (e.g. hangars, fuel facilities etc); and

• required landside facilities such as car parks and roads.

Workstream 3 – Site Identification and Short Listing

The third workstream involved identifying and short-listing potential sites for the regional airport. The first and most critical aspect of any site identification process involves establishing the criteria against which candidate sites can be assessed. The site selection criteria included physical and contextual issues as well as secondary or manageable issues. Qualified screening techniques were used in the site selection process, rather than black and white yes/no techniques so that the various positive and negative aspects of each site could be scored in a transparent process.



19

The site assessment criteria and weighted scoring system determined in the earlier aspects of this workstream was then applied to the list of potential sites. The scoring system allowed URS to narrow down the eight potential general areas to a short list of two.

Based on the application of the site assessment criteria and consideration of Iwi issues, a final short list of candidate sites were selected. While this process does not recommend one site in particular, the short listed sites have relative scores arising from the process of the application of the weighted criteria.

Workstream 4 – Concept Development and Costing

The fourth workstream involved developing a concept layout of the regional airport and preparing high level engineering costing for each of the candidate sites The first task in the concept development was to review the key inputs into concept layout development – traffic forecasts and facility requirements assessments.

This review was done due to the potential for the short listed sites to influence the traffic forecast (positively or negatively) and hence to influence the facility requirements analysis (positively or negatively).

A concept layout plan for each of the short listed sites has been produced. The concept plans are largely similar on a site by site basis, only differing by site constraints or airspace/weather constraints (eg wind direction, fog etc).

An estimate of the gross cost of developing a regional airport has been produced. The cost estimates are engineer’s estimates, rather than more detailed estimates by quantity surveyors. This approach is consistent with the stage EBOP is at in the process of considering a regional airport development. The gross cap-ex estimates (with appropriate allowances for sensitivity analysis) include airside, landside and off-airport elements.

The development of a regional airport brings some elements of capital efficiencies, allowing anticipated cap-ex at some or all of the existing airport sites to be avoided. URS has developed avoided cap-ex estimates based on data for the existing airports and industry estimates. Data sources used include airport master plans, cap-ex plans, historical cap-ex levels, discussions with existing airport operators and URS’ own experience in preparing capital programs for regional airports.

The avoided cap-ex estimates have been subtracted from the gross cap-ex estimates to determine the net cap-ex requirements. The net cap-ex requirements are entered into the financial feasibility and benefit-cost analyses.

Workstream 5 – Real Estate Analysis

Real estate analysis was required to determine the benefits or costs associated with the existing airport sites in the event of the development of a regional airport. Secondly, real estate analysis has been undertaken to determine land acquisition costs for a regional airport.



20

Because of ownership and other complexities, a formal valuation of airport land has not been conducted for this study – either for existing sites or for the short listed sites. Rather, real estate estimates based on existing data available, over-the-fence value estimates and desktop appraisals has been used for the BCA. This analysis was conducted independent of ownership (ie answering the question, what is the value of the land in its highest and best commercial use. URS acknowledges the potential for some land associated with the existing airports to revert to Iwi ownership).

As part of the process of estimating the value of airport sites, an understanding has been gained of the value of the airports on an as-is basis. This is done on the basis of existing airport valuations or cash-flow based estimates using earnings multiple assumptions. On the other hand, land value can be determined on the basis of alternative uses. This analysis has been undertaken neutral of ownership issues. This analysis provides a gross value to take into the financial feasibility and benefit cost analyses.

Any estimates of value arising from land released from airport use must take into account site closure/make good costs. An estimate of site closure and make good costs on the basis of existing documentation, interviews with airport managers, site history analysis, existing aerial photos and industry benchmarks is made in this document.

Both the financial feasibility and the benefit cost analysis considered the cost of land acquisition for a regional airport. Recent transaction analysis, over-the-fence assessments and desk top appraisals to estimate the cost of land required to be acquired for a regional airport have been used as the input to the BCA.

Workstream 6 – Airport and Airline Operations and Cost Analysis

The sixth workstream determined if there will be any benefits arising from a regional airport development associated with efficiencies of airport and airline operation. The availability of such benefits is based on the hypothesis that one airport may be cheaper to run than three – both from an airport and an airline perspective.

An estimate of the operating cost of a regional airport based on benchmark data is made as an input into the BCA. The operating benchmarks are based on similar airports operating in a similar environment (e.g. Australia, New Zealand and the USA).

To estimate the impact on airlines data has been gathered on the operating cost structures of airlines and other industry operators with services at the three existing airports. This analysis formed the basis against which airline operating cost estimates for airline and aviation operators at a centralised regional airport was compared.

Workstream 7 – Transport Planning Analysis

The seventh workstream involved assessment of land transport planning issues. Land transport planning considerations were a key input into other workstreams, including traffic forecasting and cap-ex costing. Road transport competes with air transport on key sectors between Auckland/Hamilton and Tauranga and



21

Rotorua as such it will impact on the aviation traffic forecast. The land transport planning analysis estimated the extent of this competition and identified key behaviour switching trigger points – positive and negative. Positive trigger points included greater frequency and use of larger (jet) aircraft while negative trigger points may included increases in some door-to-door trip times.

Land transport planning is also a key input into the cap-ex costing of the regional airport on a site-by-site basis. The land transport planning task involved determining the extent and quality of land transport links required and appraising various options – for example, a site may have higher road infrastructure development costs but may generate greater benefits in terms of travel time savings or road/air modal shifts.

The location of a regional airport will alter (positively and negatively) the pattern of land trips by existing airport users. The location of a regional airport also altered (positively and negatively) the pattern of land trips by non-airport users – i.e. the local population. These changes have been taken into consideration as part of the overall assessment of benefits and costs.

SECTION 4 Traffic Forecasting & Facility Requirement Analysis


22

WORKSTREAM 8


WORKSTREAM 7


WORKSTREAM 6


analysis

WORKSTREAM 5


WORKSTREAM 4


costing

WORKSTREAM 3


WORKSTREAM 2


requirements

WORKSTREAM 1



BAY OF PLENTY

REGIONAL AIRPORT

FEASIBILITY STUDY










WORKSTREAM 8


WORKSTREAM 7


WORKSTREAM 6


analysis

WORKSTREAM 5


WORKSTREAM 4


costing

WORKSTREAM 3


WORKSTREAM 2


requirements

WORKSTREAM 1



BAY OF PLENTY

REGIONAL AIRPORT

FEASIBILITY STUDY










WORKSTREAM 8


WORKSTREAM 7


WORKSTREAM 6


analysis

WORKSTREAM 5


WORKSTREAM 4


costing

WORKSTREAM 3


WORKSTREAM 2


requirements

WORKSTREAM 1



BAY OF PLENTY

REGIONAL AIRPORT

FEASIBILITY STUDY










WORKSTREAM 8


WORKSTREAM 7


WORKSTREAM 6


analysis

WORKSTREAM 5


WORKSTREAM 4


costing

WORKSTREAM 3


WORKSTREAM 2


requirements

WORKSTREAM 1



BAY OF PLENTY

REGIONAL AIRPORT

FEASIBILITY STUDY



















Figure 4.1

Workstream 2

4 Traffic Forecasting & Facil ity Requireme nt Ana lysis

4.1 Introduction – Traffic Forecasting

As a starting point for the feasibility study, URS conducted a traffic forecast for the regional airport, 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. In order to deliver on this project requirement, URS developed a traffic forecasting methodology 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 4.2 below:

Figure 4.2

Traffic Forecasting Methodology

Historical trend

analysis


projections

Econometricanalysis


Ratio analysis &

benchmarking

Schedule analysis

Historical trend

analysis


projections

Econometricanalysis


Ratio analysis &

benchmarking

Schedule analysis



23

The five approaches taken by URS, in conjunction with its stakeholders, 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 process and establishing 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 such as population, income and propensity to travel to determine the level of passenger movements over time.

Figure 4.3

Traffic Forecasting & Facility Requirements Process

Step 1

Review existing airport forecasts

Step 2

Econometric analysis & sensibility

checks

Step 3

Base case traffic

forecast

Step 4 Step 5 Step 7

Step 8

Consult client

& stakeholders

Step 6 Step 9

Phase 2Phase 1

Step 10

Client presentation

& sign off

Step 13

Facility requirement

analysis

Step 14

Client presentation

& sign off

Step 15

Finalisefacility

requirements analysis

Step 12

Secondary forecast

development

Existing Airports

Traffic Forecast

Regional Airport Traffic

Forecast

Facility Requirements

Step 11

Conceptualfacility

requirement analysis

Step 1


Step 2


checks

Step 3

Base case traffic

forecast

Step 4

Airport & airline interviews

Step 5

Scenario development & transport planning

Step 7

Regional airport traffic

forecast

Step 8

Consult client

& stakeholders

Step 6

Econometricanalysis

Step 9

Fine tune forecasts as

required

Phase 2Phase 1

Step 10

Client presentation

& signoff

Step 13


analysis

Step 15

Client presentation

& sign off

Step 16

Finalisefacility

Requirements

analysis

Step 12

Secondary forecast

develop -ment

Existing Airports

Traffic Forecast


Forecast


Step 11

Conceptualfacility


Step 13


analysis

Step 14

Potential for aviation requirement other

develop-ments

Step 1


Step 2


checks

Step 3

Base case traffic

forecast

Step 4 Step 5 Step 7

Step 8

Consult client

& stakeholders

Step 6 Step 9

Phase 2Phase 1

Step 10

Client presentation

& sign off

Step 13


analysis

Step 14

Client presentation

& sign off

Step 15

Finalisefacility

requirements analysis

Step 12

Secondary forecast

development

Existing Airports

Traffic Forecast


Forecast


Step 11

Conceptualfacility


Step 1


Step 2


checks

Step 3

Base case traffic

forecast

Step 4

Airport & airline interviews

Step 5

Scenario development & transport planning

Step 7

Regional airport traffic

forecast

Step 8

Consult client

& stakeholders

Step 6

Econometricanalysis

Step 9

Fine tune forecasts as

required

Phase 2Phase 1

Step 10

Client presentation

& signoff

Step 13


analysis

Step 15

Client presentation

& sign off

Step 16

Finalisefacility

Requirements

analysis

Step 12

Secondary forecast

develop -ment

Existing Airports

Traffic Forecast


Forecast


Step 11

Conceptualfacility


Step 13


analysis

Step 14

Potential for aviation requirement other

develop-ments



24

4.2 Traffic Growth Analysis

4.2.1 Historical Trend Analysis

The first approach to the traffic forecasting is to understand historical traffic trends at each of the existing airports, Tauranga, Rotorua and Whakatane. The historical passenger and aircraft movements were supplied by the airport operators or councils for use in the feasibility study.

Tauranga Airport

The first of the existing Bay of Plenty airports to be analysed is Tauranga. The historical traffic movements for Tauranga Airport are shown in Figure 4.4 between 1996 and 2005. In 1996, the aircraft movements totalled 68,057 for the year, while there were 90,000 passenger movements. The passenger and aircraft movements have gradually risen over the ten years of analysis, with a compound annual growth rate (CAGR) from 1996 to 2005 of 6.2 per cent in passenger and 2.6 per cent in aircraft movements. Tauranga Airport had experienced fairly steady passenger levels between 1996 and 2001 with slight ups and downs, however, post 2002, there has been significant growth in the level of passengers moving through the airport.

Figure 4.4

Historical Tauranga Passenger and Aircraft Movement Data – 1996 to 2005

0

30,000

60,000

90,000

120,000

150,000

180,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Pass

enge

rs

0

30,000

60,000

90,000

120,000

150,000

Airc

raft

Passengers Aircraft

Source: Tauranga Airport Data and URS Analysis

CAGR – PAX: 6.2%

CAGR – AIRCRAFT: 2.6%



25

Rotorua Airport

Historically, Rotorua Airport has had the largest passenger levels within the region. In 1996 the number of passengers arriving and departing the airport was 239,596 and this number has increased to 279,493 passengers in 2005. The historical data for Rotorua is shown in Figure 4.5 below, indicates an overall reduction in aircraft numbers from 1996 to 2005 which is indicative of the change in passenger aircraft mix over time. There was a peak of passenger movements through Rotorua in 2000, with 304,696 passengers, then a decrease until mid-2003, which much of the aeronautical industry faced due to international shocks (namely September 11). Post 2003 passenger numbers began to increase. Over the course of the 10 year historical analysis the CAGR for passengers at Rotorua Airport is 1.7 per cent while the CAGR for aircraft movements is -0.7 per cent.

Figure 4.5

Historical Rotorua Passenger and Aircraft Movement Data – 1996 to 2005

0

60,000

120,000

180,000

240,000

300,000

360,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Pass

enge

rs

0

2,000

4,000

6,000

8,000

10,000

Airc

raft

Passengers Aircraft

Source: Rotorua Airport Data and URS Analysis

Whakatane Airport

Whakatane Airport services the lowest population base and has the lowest passenger throughput of the existing Bay of Plenty airports. In 1996, Whakatane Airport had 32,000 passenger movements, this number has fallen to 28,000 over the past 10 years.

CAGR – PAX: 1.7%

CAGR – AIRCRAFT: - 0.7%



26

Figure 4.6 below presents the historical traffic movements for Whakatane Airport. The airport has experienced a steady increase in aircraft movements of 3.3 per cent compound annual growth from 1996 to 2005. Passenger numbers have trended in the opposite direction, decreasing continually over the ten years, with a compound annual growth rate from 1996 to 2005 of negative 1.6 per cent.

Figure 4.6

Historical Whakatane Passenger and Aircraft Movement Data – 1996 to 2005

0

15,000

30,000

45,000

60,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Pass

enge

rs

0

2,000

4,000

6,000

8,000

10,000

Airc

raft

Passengers Aircraft

Source: Whakatane Airport Data and URS Analysis

Summary Trend Indicators

In summary the historical data indicates that over the ten years of analysis, Tauranga and Rotorua Airports both experienced positive passenger movement growth of 6.2 per cent CAGR and 1.7 per cent CAGR respectively. Whakatane Airport showed a negative passenger CAGR of -1.5 per cent over this same ten-year timeframe. In terms of aircraft movements, Tauranga and Whakatane Airports have both undergone aircraft traffic increases of 2.6 per cent and 2.8 per cent CAGR respectively over the ten years. On average, the total passenger and traffic movements for the Bay of Plenty region experienced increases however, with 2.8 per cent CAGR passenger growth and 2.5 per cent CAGR aircraft movement growth from 1996 to 2005. The table below presents a summary of the historical cumulative annual growth rates of each of the three regional airports, as well as a total for the region from 1996 to 2005.

CAGR – PAX: - 1.5%

CAGR – AIRCRAFT: 2.8%



27

Table 4.1

Bay of Plenty Airport Traffic Growth – 1996 to 2005

District Passenger TrafficCAGR %

Aircraft Traffic CAGR %

Tauranga 6.2% 2.6%

Rotorua 1.7% -0.7%

Whakatane -1.5% 2.8%

BOP Total 2.8% 2.5% Source: Bay of Plenty Airport Data and URS Analysis

Bay of Plenty Regional Totals

The total number of passenger movements to and from the Bay of Plenty using the existing airports were 462,493 in 2005. In Figure 4.7 below contribution of each of the airports to this total passenger movement level. The figure shows that Rotorua serves the majority of passengers, with 60.4 per cent of combined travellers (arriving or departing) from the Bay of Plenty. Tauranga Airport serves 33.5 per cent and Whakatane Airport serves the smallest proportion of 6.1 per cent of total passengers.

Figure 4.7

Bay of Plenty Combined Passenger Traffic – 2005

28,000

279,493

155,000

0

100,000

200,000

300,000

400,000

500,000

2005

Whakatane 6.1%Tauranga 33.5%Rotorua 60.4%


The historical trends analysis highlights Rotorua as the airport with the most traffic throughput but Tauranga as the airport with the fastest growth. As Figure 4.8 below highlights, Tauranga had the fastest

462,493



28

growth in terms of compound annual growth from 1996 to 2005, with a 6.2 per cent rate of increase over this ten year period.

Figure 4.8

Bay of Plenty Combined Passenger Traffic Comparison – 2005

28,000

279,493

155,000

0

100,000

200,000

300,000

400,000

500,000

2005


The first traffic forecast methodology involved applying the historical passenger movements CAGRs calculated above for each of the airports to the 20 year forecast period. The assumption made for this forecasting approach is that the trend over the last 10 years at each of the Bay of Plenty airports will continue into the future. While past trends cannot be relied upon as a guide to future trends, they nevertheless provide a first-cut method for estimating future passenger growth. If the trends seen over the last ten years were to continue, the passenger throughput of the existing airports would be 933,147 in 2025. This is largely being driven by Tauranga Airport which has a CAGR of 6.2 per cent. The passenger forecast consists of 393,567 passengers at Rotorua Airport, 518,769 passengers through Tauranga Airport and 20,811 passengers through Whakatane.

462,493

% of RegionTotal

10 YearHistorical CAGR

Whakatane 6.1%

Whakatane -1.5%

Tauranga 33.3%

Tauranga 6.2%

Rotorua 60.4%

Rotorua 1.7%





29

Figure 4.9

Bay of Plenty Trend Forecasts

393,567

28,000

279,493

518,769

155,000

20,811

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

2005 2025



Of course at this stage no work was undertaken on whether these passenger numbers are feasible from a service capacity, population and demand level. These limiting characteristics are developed further under other approaches.

4.2.2 Existing Airport Projections

The second approach to determining future passenger levels within the Bay of Plenty region is to combine the forecasts made by the existing airports in their master plan and service documents.

Table 4.2 sets outs the individual airport forecasts for 2015 and 2025. The forecasts provided by the airports indicate that there will be 679,485 in 2025.

462,493

933,147



30

Table 4.2

Bay of Plenty Airports Passenger Forecasts

Airport 2005 (Actual)

2015 2025

Tauranga 155,000 250,000 310,000

Rotorua 279,493 315,587 338,573

Whakatane 28,000 30,884 30,912

Total 462,493 596,471 679,485

Source: Rotorua, Tauranga and Whakatane Airports

Figure 4.10 below indicates a high and low projection of passengers, based on individual airport forecasts and the movement from the current 2005 position.

Figure 4.10

Bay of Plenty Passenger Traffic Projection to 2025

High and Low Case

338,573

310,00028,000

30,912

534,985

279,493

155,000

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2005 2025 Low 2025



This figure indicates that the three existing airports are projecting passenger traffic to grow by 16-47 per cent over the next 20 years. This is an increase from the current 462,493 passengers to between 534,985 and 679,485 in 2025. The strongest growth projections coming from Tauranga, with compound annual

462,493

679,485



31

growth of 0.3 to 3.7 per cent over the 20 year period. Rotorua and Whakatane forecast 1.1 per cent and 0.5 per cent CAGR respectively over the same timeframe.

Figure 4.11 below further explains the projections of the three airports in terms of the compound annual growth rate from 2006 to 2025, and compares these growth rates with the historical CAGR from 1996 to 2005.

Figure 4.11

Bay of Plenty Passenger Forecast to 2025

28,000

338,573

279,493

310,000

155,000

30,912

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2005 2025

Rotorua Tauranga Whakatane


This figure indicates that the three airports are projecting that traffic will grow by 47 per cent over the next 20 years with the strongest growth projections coming from Tauranga. Tauranga’s proportion of regional passengers is estimated to increase from 33.3 per cent (CAGR 1996-2005) to 45.6 per cent (CAGR 2006-2025). In comparison Rotorua and Whakatane Airports are estimated to lose a proportion of the regional population as passengers in the forecast 20 years in comparison with the previous ten years. While Tauranga forecasts the greatest growth rates, it is at a slightly lower compound annual growth rate for the future ten years (3.7 per cent from 2006 to 2026), than a CAGR of 6.1 per cent from 1996 to 2005. The comparison of the historical and the forecast growth rates shows that Whakatane and Rotorua Airports both anticipate slightly greater growth rates in the coming decade than has been experienced from 1996 to 2005.

679,485

462,493

% Region Total(Historical/Forecast)

Whakatane 6.1%/4.5%

Tauranga 33.3%/45.6%

Rotorua 60.4%/49.8%

10 Year CAGR (Historical/Forecast)

Whakatane -1.5%/+0.5%

Tauranga +6.2%/+3.7%

Rotorua +1.7%/+1.1%



32

4.2.3 Ratio Analysis/Benchmarking

The third approach to analysing and forecasting air travel passenger levels serves to compare the existing airport projections on a region-wide basis to assess their suitability and accuracy. Two types of ratio analysis have been undertaken as part of the feasibility study, benchmarking to regional growth rates and benchmarking airport and population data. Ratio analysis/ benchmark analyse is a top down approach to developing or checking forecasts passenger levels with the Bay of Plenty region.

Benchmarking Analysis – Regional Growth Rates

One of the major drivers of air travel is economic prosperity, both for business purposes and as people holiday more often, and travel further. Because of this link between air travel and economic prosperity, air traffic forecasts can be considered to be an outcome of the prevailing and forecast economic conditions. Assessing these conditions enables the reasonableness of traffic forecasts to be determined.

The traffic forecasts developed at the existing airport, and those developed at the regional airport can be benchmarked against growth in the Bay of Plenty and New Zealand in terms of the economy, population and tourism.

Economic parameters are detailed in the table below, showing the forecast traffic levels at the existing Bay of Plenty airports over the next 20 years. The air traffic forecasts are then compared to the forecast economic conditions within the Bay of Plenty. This analysis is done between 2005 and 2025 where possible, using data sourced from the airports and from Statistics New Zealand.

Table 4.3

Benchmark Analysis – Forecast Growth Rates

Indicator 20 year Growth Rate

Existing Airport Traffic Forecast

+2.0%

BOP Population +1.0%

BOP Economy +3.5%

BOP Tourism +4.4%

Source: Statistics New Zealand, Bay of Plenty Airport Data & URS Analysis

Based on the results shown in Table 4.3 above, the existing airport traffic forecasts seem somewhat conservative against most economic parameters for the Bay of Plenty. The projected 20 year growth rate of 2.0 per cent CAGR from 2005 is lower than the growth rates of both the regional economy, and regional tourism historical and forecast trends. Traffic for the three airports is 1.5 per cent below the Bay of Plenty economy which has a 3.5 per cent CAGR, and is 2.4 per cent below Bay of Plenty tourism which has a 4.4 per cent CAGR over the same twenty year time frame. This indicates that there may be a



33

potential for the passenger numbers to increase higher than forecast for 2025, if forecast economic growth and increased tourism are achieved.

In conducting this benchmark analysis, the following traffic forecasting rules of thumb were used as a guide:

• domestic traffic grows in line with GDP per capita; and

• international traffic grows at 1.5 times GDP per capita.

The ratios displayed above have been sourced from analysis of traffic and economic data in New Zealand and around the world.

Ratio Analysis – Traffic-to-Population Ratios

The second form of benchmarking or ratio analysis uses existing traffic levels or traffic forecasts as a ratio to population levels within the surrounds of the airport to determine the reasonableness of forecast passenger levels. In terms of historical traffic numbers, the 2005 passenger traffic for Whakatane, Tauranga and Rotorua Airports have been calculated as a ratio in Table 4.4 below in terms of the proportion of the passenger traffic numbers in comparison to the area’s catchment or population.

The population levels around the airport have been calculated on a regional basis within the Bay of Plenty. There are three broad regions which are:

• west – the western region of the Bay of Plenty is represented by Tauranga Airport. The population of the western region for purposes of analysis includes Tauranga and the Western Bay of Plenty region;

• south – the southern region of the Bay of Plenty is represented by Rotorua Airport. The population of the southern region consists of the Rotorua district, including that which does not lie within the Bay of Plenty region; and

• east – the eastern region of the Bay of Plenty is represented by Whakatane Airport. The population of the eastern region consists of Whakatane, Opotiki and Kawerau.

The population numbers used in the analysis, both current and forecast have been calculated by the University of Waikato for EBOP. URS have taken these numbers provided by EBOP and adjusted them to 2005 levels in order to produce the ratio analysis.



34

Table 4.4

Ratio Analysis – Historical Traffic-to-Population Ratio

Area Population 2005 Traffic-to-Population Ratio

West (Tauranga Airport) 146,746 1.06

South (Rotorua Airport) 67,866 4.12

East (Airport Region) 50,304 0.56

Source: Bay of Plenty Airport Data & URS Analysis

This table shows that Rotorua Airport serves passenger numbers that are 4.12 times the size of the region’s population, which is higher than the New Zealand and Australian traffic-to-population ratio averages. Tauranga and Whakatane airports have lower ratios of passengers to population than Rotorua, reflecting the level of tourism within the Rotorua area. For Whakatane, the passenger numbers are below the eastern region’s population at a ratio of 0.56, and for Tauranga, it serves passenger numbers that are 1.06 times the western region’s population.

The next step in the ratio analysis/benchmarking process is to look at the forecast ratios for each of the existing airports using their respective regional population projections. These forecast ratios can then be compared to ratios for other airports and to the country as a whole.

Table 4.5 indicates that the traffic-to-population ratios with the Bay of Plenty are projected to increase over the 20 year period to 2025. The projected traffic-to-population for Rotorua Airport is relatively comparable to the New Zealand and Australian average ratios, as well as to a number of other benchmarked airports. Tauranga and Whakatane airports have lower ratios of forecast passengers to population than all other airports analysed, with Hamilton Airport the only benchmarked airport with a lower ratio. This may indicate that there is a potential for the three Bay of Plenty airports to attract a larger proportion of their local population.



35

Table 4.5

Ratio Analysis – Historical & Forecast Traffic-to-Population Ratio

Airport Population Traffic-to-Population Ratio

Bay of Plenty – Forecast Ratios (2025)

East 48,640 0.64

West 211,700 1.46

South 72,700 4.66

New Zealand Historical

Dunedin 196,800 3.40

Invercargill 93,000 2.52

Auckland 1,353,900 7.39

Queenstown 196,800 2.73

Hamilton 386,600 0.85

NZ Average 3,373,000 3.80

Australia

Alice Springs 28,000 21.70

Coffs Harbour 22,170 10.80

Newcastle 140,900 2.20

Dubbo 33,827 3.40

Australian Average 20,358,000 4.30


Up until this point in the ratio analysis we have compared the existing airport forecasts to ratio analysis undertaken on other airports. The next stage in this process was to analyse what the forecast passenger numbers would be for the existing airports and the regional airport, if ratio outcomes from similar airports were used as a guide for the Bay of Plenty airports. The outcomes of the top down ratio approach has been summarised in Table 4.6 below, focussing on the most comparable airports to the three Bay of Plenty airports, in order to present preliminary passenger forecasts.

In terms of the existing airports, comparisons have been made based on airports of similar size and similar regional characteristics, such as industry. Whakatane airport has been compared to Newcastle, Dubbo and Dunedin airports as more regional centres with airports, which results in a ratio outcome of 2.1 and passenger levels of 101,000. Tauranga airport has been compared to Newcastle airport, on the basis that they are more industrial type regions with particular focus on sea port activities relatively close to major population centres and major international hub airports. The result of this ratio analysis for Tauranga is a ratio of 1.4 to population which gives a passenger forecast level in 2025 of 303,820. Rotorua is the tourism hub of the Bay of Plenty, mainly due to its thermal springs, and is compared to



36

airports with a high tourism market including Auckland and Coffs Harbour in Australia. The result of this analysis is a ratio of 5.2 to population and a passenger forecast of 381,360. The total of this ratio analysis in 2025 is 786,280 passengers per year for the Bay of Plenty.

A regional airport forecast has also been made using the New Zealand average ratio. The average traffic to population ratio in New Zealand is 3.8. If this ratio is transposed over the Bay of Plenty population forecasts for 2025, the forecast air traffic passenger levels in the region would be 1,006,682 per annum.

Table 4.6

Ratio Analysis – Bay of Plenty Regional Airport Traffic-to-Population Ratio (2025)

Airport Comparative Airport Groupings

Traffic-to-Population Ratio

Passenger Forecast

Whakatane Newcastle, Dubbo, Dunedin

2.1 101,000

Tauranga Newcastle 1.4 303,820

Rotorua Auckland, Coffs Harbour

5.2 381,360

Total 786,280

Regional Airport New Zealand Average

3.8 1,006,682


This analysis suggests traffic levels for a regional airport could be in the order of 780,000 to 1 million. Given current traffic levels, the results of this ratio analysis suggest that 250,000 to 500,000 passenger movements from the Bay of Plenty “leak” out of the region’s airports. This could be either via other airports (e.g. Auckland and Hamilton), or through the drive market.

4.2.4 Schedule Analysis

The fourth approach to determining passenger forecasts for the Bay of Plenty involves analysis of the schedule of services (aircraft movements) for the existing airports. The purpose of this approach to the analysis to determine whether scheduled services and service changes allow for the growth in passenger levels.

The current average schedule of daily services to and from each of the airports to Auckland, Christchurch, Wellington and other destinations is shown in Table 4.7 below.



37

Table 4.7

Airport Schedules – Daily Services

ToFrom

Auckland Christchurch Wellington Other Total

Tauranga 16 - 10 - 26

Rotorua 10 6 10 2 28

Whakatane 8 - - - 8

Total Current 34 6 20 2 62

Note 1: Assumes Air Nelson move to Q300 – schedule may change if there is a shift to larger/jet aircraft Source: Bay of Plenty Airport Data & URS Analysis

The table above indicates that the majority of arriving and departing flights for the three existing airports are to/from Auckland and Wellington, with a smaller number of daily services operating to Christchurch and other destinations. Rotorua has the highest number of daily services with 28 per day, with Tauranga following with 26 daily services. In total the three existing airports have 62 daily services, indicating that a single regional airport could anticipate a similar flight schedule.

4.2.5 Econometric Analysis

The fifth approach to traffic forecasting used in this report involves the use of econometric techniques to develop a forecast. The factors that need to be considered when looking at an econometric approach to a forecast passenger level for a region, in particular a centralised airport and hence drive a higher traffic forecast for a single regional airport include:

• frequency modal shift – assumed due to improved services levels (frequency, aircraft type, etc), resulting in two additional services per day being assumed

• time and vehicle operating cost modal shift – this is anticipated to capture some of the current drive-market between Auckland/Hamilton and Rotorua/Tauranga;

• trans-Tasman service – capture of trans-Tasman travel estimated to be initiated from the Bay of Plenty regional airport; and

• market share growth – capture of some domestic traffic due to growth in the overall market for travel from the region and capture of some domestic traffic that currently leaks out of the region through other airports (e.g. Auckland, Hamilton, Taupo).

These factors will be discussed in further detail below, in the process to generate the traffic forecasts for the proposed regional airport.



38

Frequency Modal Shift

For a comparison of frequency modal shifts, a schedule of services was developed for the proposed regional airport. This schedule is compared to the current schedule of existing airports below in Table 4.8.

Table 4.8

Airport Schedules – Daily Service Impacts

ToFrom

Auckland Christchurch Wellington Other Total

Tauranga 16 - 10 - 26

Rotorua 10 6 10 2 28

Whakatane 8 - - - 8

Total Current 34 6 20 2 62

Combined Regional Airport

32 8 20 2 62

Note 1: Assumes Air Nelson move to Q300 – schedule may change if there is a shift to larger/jet aircraft Note 2: Traffic reallocated to the combined regional airport schedule based on advice from Air Nelson


This regionalised flight schedule will be used in the estimation of the traffic level of the proposed regional airport, as the modal shifts are a key factor to determine the regional forecast.

Analysis of the combined regional airport flight schedule indicates that an increased frequency of flights will be available for a combined regional airport. As a result of increased flight frequency, general market growth is being considered as a factor of the regional airport traffic forecasting.

As an industry rule-of-thumb, each addition in frequency on a city pair typically increases the market by around 30 per cent (assuming that the market is not already saturated). Under the combined schedule shown in Table 4.8 above, it has been conservatively estimated that most passengers will have two additional services to Auckland and one each to Wellington and Christchurch to travel. This means that the regional airport will have four additional flights per day, or an extra 1,500 flights per annum.

The changes in service levels are estimated to result in an increase in passenger levels of 31,289 to the existing three airport total in 2025. This is shown diagrammatically in Figure 4.12.



39

Figure 4.12

Frequency Modal Shift Impacts – 2025

816,69111,39999,816-5,29831,289

679,485

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

Current Forecast Frequency Modal Shift Time & VOC ModalShift

International Market Share Growth Total

816,69111,39999,816-5,29831,289

679,485

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000




This figure indicates that general market growth results in an increase to annual passenger numbers of 31,289 for a centralised airport in 2025.

Time and Vehicle Operating Cost Modal Shift

For some segments of the Auckland drive market, a regional airport increases travel time and hence would result in a air traffic decrease of around 5,298 passengers. This is shown in Table 4.9 below.



40

Table 4.9 Time and VOC Parameters

Measure Road ($) Current Air ($) Site 1 ($) Site 2 ($)

Summary Tauranga

Vehicle Operating Cost

45 239 264 264

Travel Time 33 44 44 44

Total 78 283 308 308

Summary Rotorua

Vehicle Operating Cost

49 261 281 281

Travel Time 38 78 54 54

Total 87 339 335 335

Source: TPG

According to analysis undertaken on the drive fly market to Auckland, the increased transit time to the Airport will reduce the number of passengers by 5,298 in 2025. This is shown below in Figure 4.13.

Figure 4.13

Time and VOC Modal Shift Impacts – 2025

816,69111,39999,816-5,29831,289

679,485

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000



816,69111,39999,816-5,29831,289

679,485

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000






41

Trans-Tasman Service

A forecast for Australian travel (inbound and outbound) for the Bay of Plenty has been developed based on information gained in discussions with Air Nelson, and using data from Statistics New Zealand.

There are currently 880,000 trips to Australia per year by all New Zealanders, which represents a 21 per cent propensity for New Zealanders to travel to Australia. To derive an estimate for the Bay of Plenty, the marginal propensity to travel to Australia was discounted by 25 per cent (to 16 per cent) indicating an estimate of 49,908 outbound passengers per annum from the Bay of Plenty. This is sufficient to justify one daily Boeing 737 service to Australia (which is about 35 per cent of capacity at a 70 per cent load factor).

In terms of reverse trips across the Tasman for Australians, the Bay of Plenty is a prime destination for Australian leisure visitors. It is estimated that a proportion of this market will access the Bay of Plenty directly, to give a total passenger forecast of 99,816. For international passenger movements from the Bay of Plenty that are currently through Auckland, these were embedded in the domestic forecast numbers so have been removed for consistency of data.

The impact of trans-Tasman service impacts on total passenger number is indicated below in Figure 4.14.

Figure 4.14

Trans-Tasman Service Impacts – 2025

816,69111,39999,816-5,29831,289

679,485

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000



816,69111,39999,816-5,29831,289

679,485

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000




Market Share Growth

The traffic forecasts for a single regional airport have been developed to take into account a projected general market growth, which is related to economic activity in the region. Based on growth of population and the economy (discussed in Section 4.2.3), it has been assumed that there will be a growth



42

in the market for travel from the region which equates to approximately 1.5 per cent of the market for travel above existing levels. The estimated market growth factors result in an additional forecast of 11,399 by 2025, which is presented diagrammatically in Figure 4.15.

Figure 4.15

Market Share Growth – 2025

816,69111,39999,816-5,29831,289

679,485

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000



816,69111,39999,816-5,29831,289

679,485

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000




Using industry ratios for growth based on population increases and economic activity, a market share growth factor has been forecast. The additional level of market growth is 11,399 passengers in 2025. The implication of these factors resulted in a projection for passenger traffic levels that is above combined projected levels for the three existing airports.

4.3 Regional Airport Traffic Forecasts

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 4.16 below over the same time period of 20 years as the existing airport projections shown in sections above.



43

Figure 4.16

Bay of Plenty Passenger Traffic Projection – Regional Airport – 2025

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

2005 2025 Regional Forecast NZ Benchmark


As this figure shows, 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. The major drivers of this increase in forecast passengers under a regional airport scenario are an increase in trip frequency attributable to consolidated services and the development of a trans-Tasman international route.

Using Figure 4.16 above as the base case, a sensitivity analysis has been carried out to assess scenario variations for changes in passenger forecast levels of the regional airport. The sensitivity scenarios analysed include Rotorua with trans-Tasman traffic and New Zealand ratio based forecasts.

462,493

679,485

816,691

1,000,000

LOW HIGH

+77%CAGR: 3.0%

+ 47%CAGR: 2.0%

+116%CAGR: 4.1%





44

Figure 4.17

Sensitivity of Passenger Numbers – 2025

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

Base Trans Tasman NZ Benchmark


The scenario where Rotorua has trans-Tasman passengers increases the forecast for the three existing airports to more than 164,703 above the current three-airport forecast. In this case, the regional airport would still deliver incremental growth. Nevertheless, due to the on-going uncertainty associated with Rotorua developing trans-Tasman traffic (albeit that this uncertainty may be declining as Rotorua Airport management improves facilities, invests in market understanding and discusses possibilities with airlines), the incremental analysis reported in this document is based on a no Rotorua trans-Tasman assumption. The validity of this assumption would need to be monitored as and when or if the situation at Rotorua Airport changes. URS has undertaken sensitivity analysis on this issue as detailed in Section 11.

679,485

844,188

1,000,000 Rotorua Trans -Tasman

NZ Benchmarks





45

4.4 Benefits Arising from Regional Airport Traffic Growth

In Section 4.3, a forecast of potential passenger levels for the regional airport was developed. The regional airport passenger forecasts showed that over the course of the evaluation period, there is scope to increase the number of passengers travelling into and out of the Bay of Plenty region compared to the levels forecast by the individual localised airports. The traffic forecasts for the regional airport will have an effect on a number of aspects of the Benefit Cost Analysis (BCA). These impacts will include:

• changes in tourism activity/economic activity in the region;

• land and facility requirements and capital costs;

• changes in travel cost; and

• impacts on financials of airports and airlines.

The effect of the levels forecast traffic on the listed parameters is detailed in the remainder of this report. The effect on the regional economy is detailed in section 4.4.1 and 4.4.2. The economic impact of increased passenger inflows, particularly tourism passenger flows, on the Bay of Plenty region forms the largest ‘benefit’ in the BCA and is a major driver into the investigation of the regional airport.

4.4.1 Regional Economic Impact

The regional economic impact analysis measures the contribution that a major commercial or government activity has on a regional, state or national economy. For the purposes of this report, the effect of a centralised regional airport on the economy of the Bay of Plenty is being compared to the existing economic impact of the individual airports at Rotorua, Tauranga and Whakatane. Economic impacts are usually measured in terms of contribution to four key economic indicators:

• output;

• employment;

• value added (ie GDP); and

• household income.

There are two components to an economic impact study – a direct component and a flow-on component. While the direct employment and economic activity impacts of an industry are usually obvious, the flow-on impacts are not so obvious, referring to the "multiplier effect" of the direct activity. By way of example, the jobs of employees in an industry or working on a project is an example of a direct impact, while the jobs created in other industries by those employees spending their wages on various items of consumption is an example of a flow-on impact.

The economic impact being analysed in the regional airport feasibility study is how the Bay of Plenty region is impacted by an increase in passenger numbers, particularly in the tourism market. According to



46

the forecasts produced earlier in this section of the report, it has been shown that there is potential for an increase in patronage under a regional airport of between 20 and 47 per cent by 2025.

Inputs

The input into the economic impact for this study is calculated using the average spend by visitors to the region. The data used to calculate the average spend has been sourced from the Statistics New Zealand Visitor Survey data to March 2005. The inputs into the regional economic impact calculations include:

• there was approximately $6.143 billion in visitor spending across New Zealand;

• there was 2.180 million visitors across New Zealand;

• there is an average visitor spend based on these numbers of $2,818;

• of the visitors to New Zealand 158,232 travel to the Bay of Plenty region. This equates to approximately 7.3 per cent of all visitors; and

• using the same logic, if 7.3 per cent of the travel is destined for the Bay of Plenty, 7.3 per cent of the average expenditure has been assumed to occur in the Bay of Plenty. This equates to an average visitor spend within the region equal to $204 per visit.

In order to determine the economic impact of visitors on the Bay of Plenty, outbound passengers have been separated from the inbound passengers, as it is the inbound travellers that contribute to the economy during their stay.

This per passenger spend is then used in conjunction with the input – output multiplier to determine the total increase in economic impact within the Bay of Plenty region.

Multipliers

Flow-on economic impacts to the Bay of Plenty region are generated through expenditure on locally provided intermediate inputs and labour. The flow-on impacts of projects can be calculated using a specific industry multiplier calculated from input output models. Input output methods were developed so that the transactions among industries could be studied. In addition to the transactions where industries sell their goods and services to final users (eg consumers, government), the model can answer questions of the type – What will be the effect on all industries of the sale of products and services to final users?

The core component of the input output method is the transactions table. This is a matrix where there is a row and column for each defined sector. The rows of the input output table indicate how the turnover of each industry is sold to other industries or to final users (consumers and government). The columns of the table indicate how the turnover value is allocated to purchases from other industries (intermediate inputs), payments for labour, imports, indirect taxes and business profit.



47

URS has sourced the input output multipliers used for calculation in this study from a report undertaken by APR Consultants titled “Rotorua Regional Airport - Trans Tasman Demand and Economic Impact Assessment”, on advice from Environment Bay of Plenty. URS has taken the inputs and outputs from this study and augmented them to be applicable to the regional airport study.

Outcomes

The base analysis has been undertaken using the regional airport forecast (816,691passengers in 2025) to determine a total economic impact of a single regional airport on the region versus the individual airport forecasts (679,485 passengers in 2025).

Figure 4.18

Incremental Regional Airport Economic Impact – Regional Forecast

0

50

100

150

200

250

Current Incremental Regional Forecast

$'m

illio

ns


Figure 4.18 shows, using the regional traffic forecast in comparison to the forecast produced by the individual existing airports, the potential change in economic impact due to an increase in inbound passengers into the Bay of Plenty, amounts to an increase of $36 million by 2025 in expenditure levels within the region.

180

36 216



48

If the NZ ratio average is used as the forecast level of passenger throughput (1,000,000 passengers) then the economic impact levels are as shown in Figure 4.19.

Figure 4.19

Incremental Regional Airport Economic Impact – NZ Ratio Forecast

0

50

100

150

200

250

300

Current Incremental NZ Ratio Average

$'m

illio

ns


The economic impact of the New Zealand average ratio forecast for inbound passengers into the region is estimated to result in an incremental $85 million economic impact above the existing forecast in 2025. This represents an additional $49 million per annum in economic impact within the region, above the initial regional airport forecast level.

4.4.2 Regional Economic Impact – Spend Rate Sensitivity

Sensitivity analysis has been run on spend rates and their effect on the regional economic impact. This sensitivity has been run using the regional traffic level forecast for the airport compared to the existing forecast for individual airports. The spend rate sensitivity involves separate spend rates for trans-Tasman visitors compared to other visitors to the Bay of Plenty region. Using the New Zealand Statistics visitor survey data for 2005, spend by Australian passengers using the same logic as above was estimated to be $443 per visit.. As was shown during the econometric derivation of the forecasting, one of the major sources of passenger growth, under the regional airport model was trans-Tasman passengers. The modal shift and market growth visitor spend is estimated to remain at $204 per visit.

180

85 265



49

Figure 4.20

Annual Economic Impact with Trans Tasman Sensitivity

0

50

100

150

200

250

300

Current Modal Shift &Market Growth

Trans Tasman Total

$'m

illio

ns


This figure shows that the economic impact of the modal shift and market growth, and trans-Tasman growth of passengers, amounts to a base increase of $67 million using the variable spend rates in 2025.

4.4.3 Economic Impact Summary Results

As these sensitivities have indicated, the economic impact of increased passenger inflows into the Bay of Plenty creates benefits for the region. The economic impact forms the largest ‘benefit’ in the Benefit Cost Analysis and to the region.

180 10

57 247



50

Table 4.10

Annual Incremental Economic Impact Summary ($ millions)

Passenger Scenario

Value

Regional Forecast $36 million

NZ Ratio Forecast $85 million

Spend Rates Sensitivity

$67 million


4.5 Facility Requirements Analysis

The passenger and aircraft trends and projections detailed in this section of the report provide key inputs into the determination of the facility requirements for the potential regional airport. Based on known terminal standards (for example, IATA), the facility requirements have been based on an integration of traffic numbers, the demand and supply parameters (that are determined from passenger and aircraft projections), and also additional findings shown throughout the remainder of this report regarding a single regional airport to serve the Bay of Plenty region.

Section 6 of this report deals with facility requirements in detail in the analysis and discussion of the concept development and costing.

SECTION 5 Site Identification


51

5 Site Ide ntification

5.1 Introduction - Site Identification

The objectives of this Workstream were two fold:

• to identify a set of widely acceptable criteria against which potential locations for a regional airport could be identified;

• to apply those criteria to the Bay of Plenty region to determine if there are any suitable sites available for a regional airport.

The objective of this Workstream was not, however, to select the site for the regional airport. Rather, the intention was to see if it was possible to find suitable sites for a regional airport and if such sites could be found, assess the benefits and costs of utilising those sites for regional airport purposes.

5.2 Site Identification Criteria

The process of selecting a set of site identification criteria is set out in Figure 5.2 below.

Figure 5.2

Site Identification Criteria development Process


The first step in the process involved the development of an initial list of potential criteria. This list was based on a desk-based literature review of other airport site identification selection studies, URS’ expertise in the requirements of a regional airport based on the airport planning work that URS has done for more than 100 airports around the globe and URS’ own experience in conducting site identification/selection studies for other airports and infrastructure facilities.

This initial list was then presented to a working group of EBOP and District Council officers for feedback and additions/deletions. Following on from this officer level workshop and additional analysis, the initial list was refined and presented to the Stakeholder Group (elected officials, Council CEOs and Airport

WORKSTREAM 8


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Figure 5.1

Workstream 3

Initial List

Review Refined List Review Final

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managements) for further feedback and additions/deletions. Following on from the presentation to Stakeholders, the refined list of site identification criteria was finalised.

Ultimately, three categories of criteria were identified as follows:

• physical criteria;

• contextual criteria; and

• secondary/manageable criteria.

The final, adopted list of site identification criteria incorporated into the Feasibility Study, is set out in Table 5.1 below.

Table 5.1

Potential Site Identification & Short Listing Criteria

Overall site size/shape

Topography

Geology

Flooding

Airspace & aviation weather issues

Physical Criteria

Protected lands

Location relative to population catchments

Direct impacts on populated areas

Indirect impacts on populated areas

Contextual Criteria

Maori/Iwi issues

Ease of site utilisation

Ownership complexities

Environmentally significant or heritage areas

Transport links

Secondary (Manageable)

Criteria

Access/proximity to utilities

Source: EBOP Project Brief

5.2.1 Physical Criteria

A brief description of each physical criterion is set out below. These physical criteria were treated on a go/no go basis (ie either the site was clear of the criteria or it was ruled out).



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Overall Site Size Shape

The overall site size/shape criterion was based on typical airport planning parameters for a regional airport. Consequently, the site identification process was tasked with looking for a 400 hectare site, being approximately 4km long by 1 km wide. This size/shape allowed sufficient land for most aircraft types using regional airports, as well as sufficient land for supporting infrastructure and facilities. It was also determined that 400 hectares would be sufficient to “future-proof” a regional airport site in terms of expandability requirements at some point in the future should traffic levels grow significantly more than anticipated. The requirement for 400 hectares can be viewed as a “gold plate” assumption. At this stage of investigations, the overall site size requirements are intended to cover all eventualities. Should the regional airport proposal progress, it is possible that the site size requirements could be reduced.

Topography

The development of a regional airport requires a site with suitable topography – ie 400 hectares of reasonable flat (for runway operational purposes) land, clear of major obstacles such as mountains, lakes, rivers and escarpments. A site was required where there were free surfaces at a 2 per cent gradient from each runway end.

Geology

The Bay of Plenty region does experience periods of relatively geological instability, given some mountainous terrain and the presence of a number of active volcanoes in the region. A regional airport site was sought clear of major volcanoes and known major fault lines.

Flooding

With mountain ranges in the south and coastal plains to the north of the Region, many areas within the Bay of Plenty are subject to significant flooding . While many airports around the world are built on low lying or flood prone land, areas of significant flooding are typically avoided due to extra construction costs associated with making terminals and other buildings free of flood risk.

Airspace/Aviation Requirements

Any regional airport needs to be clear of any major airspace obstacles (eg mountains, escarpments etc) and have suitable weather (relatively clear of fog and very low lying cloud) for aviation operations (ie to minimise delays and aircraft diversions).

Protected Lands

To the extent that they existed in the region, it was determined that any potential regional airport sites would need to be clear of protected lands such as defence installations and national parks.



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5.2.2 Contextual Criteria

A brief description of each contextual criterion is set out below. These contextual criteria were treated on a go/no go basis (ie either the site was clear of the criteria or it was ruled out).

Location Relative to Population Catchments

The location of an airport relative to population catchments is a key determinant of an airport’s traffic levels, particularly where there are competing airports relatively nearby that offer viable or more attractive options.

In the case of the Bay of Plenty, there are a number of airports that compete with the three existing airports, and would also compete with any regional airport, including Auckland and Hamilton. Each competitor airport has its particular attractiveness.

Auckland Airport, for example, to the west of the Bay of Plenty region, currently draws passenger traffic away from Tauranga Airport (and to a lesser extent Rotorua Airport), despite it being some 3 to 4 hours drive away, because of its connections to more destinations (domestic and international), higher frequency to major destinations (eg to Wellington and Christchurch) and availability of jet operations.

In addition, the proximity of New Zealand’s biggest city, Auckland, to the Western bay area and the Rotorua region means that there is a substantial drive market between Auckland and Tauranga (typically business traffic) and between Auckland and Rotorua (a more tourism market).

Given that the existing airports in Tauranga, Rotorua and Whakatane are relative close to these major population centres (most people in these three centres currently do not travel more than 15 to 20 minutes to access their local airport), the location of any regional airport may impact on the current balance between Auckland/Hamilton airports and Tauranga/Rotorua/Whakatane airports and the current balance between the drive and fly markets.

Consequently, it was determined that a key site identification criteria was that the majority the Bay of Plenty’s population had to have relatively convenient access to any regional airport site. This criteria was further refined to 60 per cent of the population being able to access the regional airport within a 35 minutes drive based on:

• consultation with the stakeholder groups;

• analysis of the geographical spread of the Bay of Plenty population across the six Districts;

• further analysis of trade-offs between the attractiveness of Auckland and Hamilton airports and the Bay airports; and

• further assessment of the switch points (in terms of door-to-door travel time comparisons) between the drive and fly markets.



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Direct Impacts on Populated Areas

Because large portions of the Bay of Plenty land area is used for either residential, industrial, agricultural, forestry or natural resource purposes, it was determined that any site for a regional airport must have limited direct impacts on populated area. Consequently, it was determined that any site requiring the acquisition of more than 50 to 100 properties would, at least initially, be ineligible for consideration.

Indirect Impacts on Populated Areas

Because airports notoriously have issues associated with aircraft noise and consequent incompatible land use underneath flight paths, a criteria was also developed that any site generating significant noise impacts for more than 100 -200 properties would, at least initially, be ineligible for consideration.

Iwi Issues

A criteria was also introduced that any areas of known Iwi significance would also be excluded. While at this stage, the Feasibility Study did not go into a detailed examination of Iwi issues specific to any particular site, it was considered important to understand any particular Iwi issues impacting on the potential availability of sites.

5.2.3 Manageable Criteria

A brief description of each manageable criterion is set out below. These manageable criteria were not treated on a go/no go basis but simply identified as an issue that could be scored or ranked to assist in narrowing down sites if required.

Ease of Site Utilisation

The first manageable criterion was ease of site utilisation. Given that an airport runway needs to be relatively flat and with good, simple access potential sites were assessed for ease of utilisation.

Ownership Complexities

In addition to the number of sites required to be acquired, it was determined that the ownership of sites was also to be assessed from a complexity perspective – eg land owned by Government may be easier to acquire than land held privately (or vice-a-versa).

Known Environmentally Significant or Heritage Areas

Although no field based environmental or heritage assessments were conducted as part of the Feasibility Study, any known areas of environmental significance were to be identified, without ruling out any particular site.



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Transport Links

As discussed above, the accessibility of any airport to population catchments is a key determinant of traffic levels. As a result, it was determined to include transport linkages – particularly road transport as a criterion. Any site which did not have adequate transport linkages would not be considered.

Access/Proximity to Utilities

Given the geography/topography of the bay of Plenty region, and the concentration of population and services in limited coastal areas, it was determined that access/proximity to utilities would be included as a site identification criteria.

5.3 Application of Site identification Criteria

The methodology determined to conduct the site identification analysis was a Geographic Information Systems (GIS) based filter approach where each criteria would be applied as a filter or sieve over the entire Bay of Plenty area to rule out ineligible areas. URS utilised EBOP’s own GIS database for the Region, as well as conducting its own analysis.

As each additional criterion was applied, the eligible areas would be narrowed down into an increasingly small list of candidate sites until a short list of 2-3 sites could be identified for further analysis.

Following consultation with EBOP officials and the Stakeholder group, the site identification criteria listed above were ranked in order of importance as follows:

1. location relative to population catchments;

2. physical criteria;

3. other contextual criteria; and

4. all manageable criteria

Given the potential impact on a regional airport’s viability of competing airports and the competing drive market, it was determined that location relative to population catchments (ie 60 per cent with 35 minutes) was the most important criteria.

5.3.1 Location Relative to Population Catchments

Although population figures by District were presented in Section 2, the spread of the Bay of Plenty’s 246,900 inhabitants over 2.2 million hectares makes assessment of travel times for each inhabitant an impractically complex exercise for a high level feasibility study of this nature.

Given that 80 per cent of the Region’s population lives in urban areas, particularly in Tauranga, Rotorua and Whakatane, it was determined to measure travel distances from the geographic centre of each of the



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major urban centres, using major highways such as the State Highway 2 (including the Northern and Eastern Arterials), and State Highways 29, 30 and 33. The breakdown of the Region’s population by districts is set out below in Table 5.2.

Table 5.2

Bay Of Plenty Population By District

District 2001 % of Total 2001

Estimated 2005

% of Total 2005

Western Bay 39,300 15.9% 42,200 16.01%

Tauranga 93,300 37.8% 103,800 39.37%

Rotorua 66,900 27.1% 67,600 25.64%

Whakatane 34,000 13.8% 33,900 12.86%

Kawerau 7,300 3.0% 6,620 2.51%

Opotiki 9,500 3.8% 9,530 3.61%

BOP Regional Total

246,900 100.0% 260,300 100.00%

Source: Statistics New Zealand

Distances reached driving along major highways was estimated by applying an average speed assumption of 70km per hour, based on TDG advice. At an average speed of 70km per hour, a vehicle can travel around 40kms within 35 minutes.

Around 60 per cent of the Region’s urban population reside in the centres of Tauranga, Western Bay/Te Puke and Rotorua. These three centres are clustered within the western most section of the Region and are relatively well connected by highways. The remaining 40 per cent are either in the Eastern Bay Districts of Whatatane, Kawerau and Opotiki and hence a minimum of 50 kilometres, but typically more, from the largest population centres of Tauranga and Rotorua or spread over rural areas and hence typically even further away from the main population centres.

Consequently, the application of the location relative to population catchments (ie 60 per cent of the population to reach any regional airport site within 35 minutes drive) significantly narrowed the search for a regional airport location to two regions:

• 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; and

• Site 2 - along the Pyes Pa Rd, some 30-35km between the main urban areas of both Tauranga and Rotorua.



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The general locality of these two potential sites for the regional airport is highlighted in Figure 5.3 below. Following this analysis, these two sites then formed the basis for further assessment of regional airport site locations

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5.4 Physical Criteria

Once the search for appropriate locations for a regional airport in the Bay of Plenty had been narrowed down to Sites 1 and 2, the next step involved applying the physical criteria filters to these sites to determine if there were any major physical obstacles to these sites. The outcome of the application of these filters is set out in Table 5.3 below.

Table 5.3

Application of Physical Criteria

Criterion Site 1 (Paengaroa)

Site 2 (Pyes Pa)

Airspace/Aviation Pass Pass

Site size & shape Pass Pass

Geology Pass Pass

Flooding Pass Pass

Protected lands Pass Pass

Topography Fail Pass


The detailed outcomes of the examination of Sites 1 and 2 against the physical criteria are set out below:

• Airspace/Aviation Issues - the first physical filter applied was the airspace/aviation criterion. Due to the site shape requirements (ie a rectangular shape of 4km by 1km), it was important to understand the likely runway orientation requirements. Generally, airports typically provide runways to cover 95 per cent of wind conditions within the cross wind tolerances of the design aircraft for the airport (ie the largest aircraft likely to utilise the airport) and/or the cross wind tolerances of the most common aircraft likely to use the airport).

Unfortunately, no official wind recording devices are in place in either Site 1 or Site 2 or their general vicinity. As a proxy, URS investigated the wind conditions at each of the existing airport sites, being the closest locations to Sites 1 and 2 that have official wind records. These investigations determined that a single runway with a south-east to north-west orientation was likely to be sufficient to meet the requirements of a regional airport (see Figure 10.4 below). The site size is considered to be sufficient to incorporate a small cross wind runway for smaller General Aviation aircraft if further, more detailed investigations warrant that this is necessary. Both Sites 1 and 2 passed the airspace and aviation issues filter.

• Other physical filters – both Sites 1 and 2 pass all of the other physical filters, with the exception of the topography filter in relation to Site 2.



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Both Sites 1 and 2 can accommodate a 400 hectare site with a south-east to north-west runway orientation and hence pass this filter (see Figure 5.5 below). Both Sites 1 and 2 are also clear of any geological or flooding obstacles.

With regards to topography however, while Site 2 passed, Site 1 (Paengaroa) failed the requirement for a generally flat site with a clear 2 per cent surface from each runway end. Preliminary desk-based investigations suggested significant earthworks (at a cost of hundreds of millions of dollars) would be required at the Paengaroa site (see Figure 5.6 below). Consequently, Site 1 was ruled out as an option for a regional airport.

5.5 Alternative Site

As only Sites 1 and 2 meet the location relative to population catchments criteria, following the elimination of Site 1 from the Feasibility Study, an alternative site was identified by relaxing the location relative to population catchments criteria of 60 per cent of the urban population being able to reach the regional airport site within 35 minutes by 5 minutes.

With this relaxation, another site was identified – referred to hereafter as Site 1a, Paengaroa North – just to the north of the original Site 1. Moving the site further north towards the coastal plains enabled the topography criteria to be met. Site 1a is estimated to be around 40 minutes from the main urban centre of Rotorua but only around 30 minutes from the main urban areas of Tauranga.

Following consultation with EBOP and the stakeholder group, it was determined to continue with the inclusion of Site 1a in the Feasibility Study, primarily because of forecast population projections by District which show population growth in the west but static to declining population in the south and east. By 2026, it is anticipated that more than 60 per cent of the Region’s population will be in Tauranga and Western Bay, thereby meeting the 60 per cent of population with 35 minutes criteria.

Table 5.4 Bay Of Plenty Population By Sub Region

District 2001 Population

% of Total

2005 Population Estimates

% of Total

2026 Population

% of Total

West 130,799 52% 144,529 55% 211,682 64%

East 50,110 20% 49,546 19% 48,636 15%

South 65,991 26% 66,226 25% 72,694 22%

Total Bay of Plenty

246,900 100% 260,300 100% 333,011 100%

Source: Statistics New Zealand & Environment Bay of Plenty

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5.6 Contextual Criteria

Sites 1a and 2 were then assessed against the contextual criteria. To assess the sites against direct impacts (land acquisition) and indirect property impacts (aircraft noise), the airport site size, shape and orientation were overlaid against a plan of property boundaries.

Within each Site, a number of possible airport location options were possible. Site 1a includes two physical options, while Site 2 includes at least 3 possible options. Each of the options were assessed against the contextual criteria.

Although the number of directly and indirectly affected properties were significantly lower at Site 2 rather than Site 1a, both sites passed these criteria of less than 100 properties required to be acquired and less than 200 properties affected by significant aircraft noise.

The result of the application of the contextual criteria to the Sites is set out in Table 5.5 below.

Table 5.5

Application of Contextual Criteria

Criterion Site 1a (Paengaroa north)

Site 2 (Pyes Pa)

Directly affected properties 79 to 110

Pass

18 to 21

Pass

Indirectly affected properties 126 to 133

Pass

60 to 86

Pass

Maori/Iwi issues Pass Pass

Source: TPG analysis

5.7 Manageable Criteria

Sites 1a and 2 were then assessed against the manageable criteria. The result of the application of the manageable criteria to the Sites is set out in Table 5.6 below.

Based upon desk investigations, both sites passed ease of site utilisation criteria and neither site had any readily identifiable environment or heritage issues.

In terms of ownership complexities, clearly Site 1a, with more properties directly affected would have more ownership complexities but neither site had any ownership issues sufficiently complex to warrant abandonment of the site.

Both sites were located on a highway, although the quality of road servicing Site 1a (Paengaroa North) is higher than the road servicing the Pyes Pa site. South of the regional airport site, the Pyes Pa Rd has a

Site Identification


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number of difficult bends and one-way bridges that impairs access to Rotorua. Given these concerns, it was determined to add sufficient additional capital costs to the assessment of Site 2 to resolve this transport linkage issue.

Site 2 also has clear disadvantages in terms of convenient transport linkages to the Eastern Bay. Based on current major roads, Site 2 is at least 40km further away from Whakatane and Opotiki and some 10km further away from Kawerau. While this did not rule out Site 2 according to the adopted site identification criteria, it is an issue that needs to be considered further should the regional airport proposal proceed.

Similarly, Site 1a also has superior access to major utilities – particularly electricity. Consequently, it was determined to add sufficient additional capital costs to the assessment of Site 2 to normalise access/availability of utilities issues.

Table 5.6

Application of Manageable Criteria

Criterion Site 1a (Paengaroa North)

Site 2 (Pyes Pa)

Ease of site utilisation Pass Pass

Ownership complexities Pass Pass

Environment/heritage Pass Pass

Transport links Pass Pass

Access/proximity of utilities Pass Pass


5.8 Summary – Site Identification

The application of the adopted site identification criteria uncovered two large areas suitable for the location of a regional airport for the Bay of Plenty – Site 1a: Paengaroa North and Site 2: Pyes Pa. While both sites had their relative advantages and disadvantages, both sites meet the physical, contextual and manageable criteria.

SECTION 6 Concept Development & Costings


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WORKSTREAM 8


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Figure 6.1

Workstream 4

6 Concept Developme nt & Costings

6.1 Introduction Concept Development & Costing

The objectives of this workstream were to:

• 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.

It should be noted that the regional airport concept and associated costing has been developed using an “opening day” passenger estimate of 500,000. However, the aviation infrastructure within the proposed airport site is capable of being expanded to cater for up to 1,500,000 passengers per annum. The infrastructure required for additional passengers has not been costed as part of this study.

6.2 Global, Operational & Infrastructure Assumptions

To commence the analysis 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.

These assumptions can be categorised into three groups as follows:

• 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.

6.2.1 Global Assumptions

To set the basis for the overall development of the airport development concept the following assumption were made:

• the critical aircraft for the facility were determined as the full range of Boeing B737 series and the Airbus A320 series;



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• the combined level of passengers currently at all three airports is just over 450,000. The assumption for a new airport on opening day will be about 500,000 annual passengers;

• while the main activity from a site utilisation point of view will be passenger traffic, limited air freight and a reasonable level of GA movements have been assumed;

• the airport’s approach slopes will need to remain free and clear of obstructions for a slope of 1:50 and a distance of at least 3,000 metres; and

• for a single runway airport the wind coverage allows for operation at least 95 per cent of the year with a 12 knot crosswind.

These global assumptions lead URS to identify a site requirement of 400 hectares, being approximately 4km long by 1 km wide. URS considers this site area requirement to be reasonably conservative (ie likely to be more than is actually needed), however, due to the high level nature of this study and the need to cater for the long term expansion of facilities to cater for 1.5 million passengers a 400 hectare assumption was adopted. Given this situation, it may be possible, based on more detailed planning, to reduce the site area requirements. In the interim, URS has assumed that any component of land not immediately required for aviation purposes can be used for industrial/commercial purposes.

6.2.2 Operational Assumptions

Establishing the site area and infrastructure for the regional airport development concept also requires establishing the operational assumptions for passenger, aircraft and other activity that will take place on the site.

The table below lists the operational assumptions that have been made for this analysis.



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Table 6.1

Development Concept Operational Assumptions

Operational Assumption Item

Commercial Passengers

Annual Enplanements 500,000

Peak Month Passengers 45,000

Average Passengers per Day 1,452

Peak Hour Passengers 218

Commercial Operations

Average Seats per Departure 110

Average Load Factor 80%

Total Departures per annum 5,682

Total Commercial Operations 11,364

Peak Month Commercial Operations 1,023

Average Commercial Operations per Day 33

Enplaned Air Freight (tonnes) 2

Peak Hour Commercial Operations 5

Other Operations

Cargo Operations per annum 600

Enplaned Cargo per annum (tonnes) 18,000

General Aviation Operations per annum 45,000


6.2.3 Infrastructure Assumptions

Using the operational assumptions detailed above it is possible to determine the aviation and other infrastructure requirements for the proposed airport site. The information sources assisting in the infrastructure determination are as follows:

• the New Zealand Civil Aviation Authority;

• the International Air Transport Association – Airport Development Reference Manual; and

• URS experience master planning and developing airports throughout Australasia, North America and Europe.

The infrastructure required has been categorised into a number of groups as follows:



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• airfield infrastructure – runways, taxiways etc;

• terminal infrastructure – terminal building, aircraft gates etc;

• surface transport – car parks, vehicle holding areas etc; and

• other facilities – freight warehouses, General Aviation facilities, fuel farm

Using the groups listed above the facility infrastructure requirements are summarised in Table 6.2 below.



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Table 6.2

Development Concept Infrastructure Assumptions

Infrastructure Assumption Description

Airfield Infrastructure

Critical Design Aircraft Boeing 737 & Airbus A320

Runway Dimensions (m) 2,800 x 45

Taxiway System Full parallel taxiway

Instrument Approaches Category I (CAT I) Instrument

Terminal Navigation Aids ASR, ATCT, AWOS, LAAS, Vortac

Visual Aids PAPI, rotating Beacon, Wind Indicator

Terminal Infrastructure

Aircraft Gate Positions 3

RON Positions 5

Terminal Building (m2) 8,611

Terminal Curb (m) 7

Surface Transport Infrastructure

Car Parking – Short Term (spaces) 118

Car Parking – Long Term (spaces) 245

Car Parking – Employees (spaces) 118

Holding Areas – Taxis (spaces) 12

Holding Areas – Vans/minibuses (spaces) 5

Holding Areas – Buses (spaces) 2

Rental Car – Return & Storage (spaces) 182

Other Facilities

Passenger Freight Facilities (m2) 344

Dedicated Freight Warehouse (m2) 966

Dedicated Freight Apron (m2) 2,323

Dedicated Freight Loading Area (m2) 1,040

Freight Vehicle Parking (m2) 28

General Aviation Hangars (m2) 37,160

General Aviation Apron (m2) 46,450

Fixed Based Operator Facility (m2) 1,394

Fuel Farm – Seven Day Supply (litres) 5,700,000

Flight Kitchen (m2) 22,657

Source: NZ CAA, IATA & URS Analysis



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Additional infrastructure identified for the site requiring costing included:

• construction support – earthworks, professional services etc;

• roads – to facilitate access into and out of the site; and

• services – water supply, stormwater, electricity etc.

The global, operational and infrastructure assumptions enabled a regional airport concept to be developed, as shown as Figure 6.2.

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6.3 Regional Airport Concept Capital Costing

Using the required infrastructure identified above, an analysis was undertaken to estimate the capital cost of construction.

The capital cost estimate was prepared using the grouping identified above namely:



• surface transport – car parks, vehicle holding areas etc;



• roads – to facilitate transport to the site; and


The estimates for the capital cost for both site options were the same apart from two items of infrastructure. It was determined that additional road and electrical cost would be incurred with the Pyes Pa site option.

This additional cost for the Pyes Pa site option has been separately identified in the table below.

For the purposes of Benefit Cost modelling three capital cost scenarios were prepared to reflect capital expenditure variations. The three scenarios were as follows:

• base capital expenditure less 30 per cent;

• base capital expenditure; and

• base capital expenditure plus 30 per cent.



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Table 6.3

Development Concept Capital Cost

Item Cost Estimate ($’m)

Base Cost (-30%) Base Cost Base Cost (+30%)

Airfield Infrastructure

Runways, Taxiways & Aprons $74.9 m $107.0 m $139.1 m

Lighting $1.8 m $2.5 m $3.3 m

Navigation Aids $7.1 m $10.2 m $13.3 m

Pavement Marking $0.6 m $0.9 m $1.2 m

Subtotal $84.4 m $120.6 m $156.8 m

Terminal Infrastructure

Terminal Building & Associated Infrastructure

$12.0 m $17.2 m $22.4 m

Subtotal $12.0 m $17.2m $22.4 m

Surface Transport Infrastructure

Car Parking Infrastructure $1.2 m $1.7 m $2.2 m

Subtotal $1.2 m $1.7 m $2.2 m

Other Facilities

Hangars & Fixed Base Operator

$30.6 m $43.7 $56.8 m

Freight Facilities $1.0 m $1.4 m $1.8 m

Fuel Farm $5.6 m $8.0 m $10.4 m

Flight Kitchen $0.6 m $0.8 m $1.0m

Subtotal $37.7 m $53.9 m $70.1 m

Construction Support

Environmental Management $0.4 m $0.5 m $0.7 m

Clearing & Earthworks $15.4 m $22.0 m $28.6 m

Commissioning $0.4 m $0.5 m $0.7 m

Consents $0.1 m $0.2 m $0.3 m

Professional Services $25.2 m $36.0 m $46.8 m

Preliminary Works $14.0 m $20.0 m $26.0 m

Subtotal $55.4 m $79.2 m $103.0 m

Roads

Roads (Paengaroa) $6.2 m $8.9 m $11.6 m

Roads (Pyes Pa) $20.6 m $29.4 m $38.2 m



77

Item Cost Estimate ($’m)


Subtotal (Paengaroa) $6.2 m $8.9 m $11.6 m

Subtotal (Pyes Pa) $20.6 m $29.4 m $38.2 m

Services

Water Supply Plant $1.4 m $2.0 m $2.6 m

Water Treatment $7.0 m $10.0 $13.0 m

Stormwater $7.4 m $10.5 m $13.7 m

Electricity to Gate (Paengaroa) $11.9 m $17.0 m $22.1 m

Electricity to Gate (Pyes Pa) $19.6 m $28.0 m $36.4 m

Electricity on Site $28.0 m $40.0 m $52.0 m

Telecommunications $1.4 m $2.0 m $2.6 m

Gas $0.7 m $1.0 m $1.3 m

Landscaping $1.4 m $2.0 m $2.6 m

Subtotal (Paengaroa) $59.2 m $84.5 m $109.9 m

Subtatal (Pyes Pa) $66.9 m $95.5 m $124.2 m

TOTAL - PAENGAROA $256.2 m $366.0 m $475.8 m

TOTAL – PYES PA $278.3 m $397.5 m $516.8 m


The results of the capital cost estimates show the following:

• the capital cost for construction of the Paengaroa site option ranges from $256.2m to $475.8m; and

• the capital cost for construction of the Pyes Pa site option ranges from $278.3m to $516.8m.

For any new airport development the initial cost of construction of aviation infrastructure such as runways, taxiways and aprons and supply of services to and around the site (water, electricity sewerage etc) represent significant up front expenditure.

For the selected sites, it has been assumed that passenger growth over time while requiring additional capital expenditure expanding terminal and car parking facilities etc may not require any additional aviation infrastructure or services expenditure. This assumption is based on the following:

• the future design aircraft for the airport remains at B737 and A320 size; and

• sufficient capacity is provided in the services to meet potential future needs.



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6.4 Recurrent Capital Expenditure Estimates

As part of the Benefit-Cost analysis, recurrent capital expenditure was identified as a potential benefit of the regional airport – that is, that recurrent expenditure on one new airport would be less than recurrent expenditure on three existing airports.

As a result, URS conducted a comparative analysis of the likely recurrent capital expenditure profile of the existing airports and the proposed regional airport.

Estimates of the likely recurrent capital expenditure profile of the existing airports was based on an analysis of the historical capital expenditure profile of these three airports over the past five years while the recurrent capital expenditure of the regional airport was based on an engineering “rule-of-thumb” for new airport facilities – ie recurrent capital expenditure of 0.5 per cent of the total build cost.

6.4.1 Historical Cap-Ex profile of Existing Airports

Rotorua

Rotorua airport has in recent years been engaged in a number of capital expenditure projects designed to expand the facilities to cater for forecast passenger growth. These projects include a terminal expansion and associated infrastructure work. URS notes that the future capital expenditure profile of Rotorua Airport is likely to be higher than the historical profile due to growth in traffic and plans to extend the runway complex.

URS understand that the ongoing capital expenditure for Rotorua has averaged out over the past 5 years at approximately $3.6m per annum.

Tauranga

Analysis of the historical capital expenditure profile of Tauranga Airport enabled URS to estimate an average capital expenditure spend per annum to be estimated at $0.9m. URS notes that the future capital expenditure profile of Tauranga Airport is likely to be higher than the historical profile due to growth in traffic.

Whakatane

For Whakatane the average historical capital spend per annum was estimated at $0.03m. URS notes that there is likely to be little difference between the future and historical profiles due to limited traffic growth at Whakatane.



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Summary of Existing Airports

In summary, URS have estimated an annual capital expenditure profile of $4.53m per annum for the existing airport scenario.

6.4.2 Regional Airport Capital Expenditure Profile

As part of the comparative analysis the combined existing capital expenditure for the current Bay of Plenty airports of $4.53m was compared against the estimated ongoing capital expenditure ranges for both proposed airport site options. To develop an estimate the ongoing capital expenditure for the new airport was set at 0.5 per cent of the total cost of the build.

The Table below summarises the comparison between the combined capital expenditure for the Bay of Plenty airports and the range calculated for the Paengaroa and Pyes Pa site options.

Table 6.4



BOP Current Total $4.53m Base Cost (-30%)

Base Cost Base Cost (+30%)

Paengaroa Site Option


Annual Capex @ 0.5% $1.28 m $1.83 m $2.38 m

% difference vs Current

72% 60% 47%

Pyes Pa Site Option


Annual Capex @ 0.5% $1.39 m $1.99 m $2.58 m

% difference vs Current

69% 56% 43%


In summary from the above table, in terms of ongoing capital expenditure the following observation can be made for each site option:

• Paengaroa – the ongoing capital expenditure for this option have been estimated as being between 47 per cent and 69 per cent lower that the current combined ongoing capital expenditure estimates at the current Bay of Plenty airports; and

• Pyes Pa – the ongoing capital expenditure for this option have been estimated as being 43 per cent and 69 per cent lower that the current combined ongoing capital expenditure at the current Bay of Plenty airports.

SECTION 7 Real Estate Analysis


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7 Real Estate Ana lysis

7.1 Introduction - Real Estate Analysis

The objectives of the real estate analysis are to estimate the value of the land at the current regional airports and for the central regional airport. The study has not made strict valuations of the airport lands, but has made estimates based on industry knowledge. This was agreed by EBOP and stakeholders to be the appropriate level of analysis at this stage of the airport process.

URS contracted The Property Group Ltd (TPG) to undertake an estimate of the value of land in the Bay of Plenty region. TPG, in conjunction with URS, has undertaken the real estate analysis using two methodologies. The estimations have been undertaken using the existing use (or as is) and under a situation were the land was used for the highest and best use.

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.

For some years now the overall property market in the Bay of Plenty region has been strong and URS understands that this is due to the growth in the population with the forecast growth over the next 20 years being in the higher bracket for the country as a whole. This growth has seen demand in the residential and industrial sectors in particular and it is these uses which the present airport sites would be most suited for in the event of a regional airport being developed on a new site.

7.2 Methodology

The real estate analysis has been undertaken to estimate the value of the land holdings of the existing airports and the cost of purchasing land for the centralised regional airport. Assumptions under-pinning estimates include:

• highest-and-best use considered, based on advice from TPG;

• ownership issues ignored from a BCA perspective;

• gross land values estimated by TPG, based on market assessments/recent sales etc;

• very high level estimates for make good and servicing estimates, based on information available to date; and

• no account has been taken of site specific issues – e.g. contamination.

WORKSTREAM 8


WORKSTREAM 7


WORKSTREAM 6


analysis

WORKSTREAM 5


WORKSTREAM 4


costing

WORKSTREAM 3


WORKSTREAM 2



WORKSTREAM 1


WORKSTREAM 9


BAY OF PLENTY

REGIONAL AIRPORT

FEASIBILITY STUDY


Sharing



Sharing


Sharing


Sharing


Sharing


Sharing


Sharing


Sharing

Figure 7.1

Workstream 5



81

The definition of existing use and alternative use (highest and best) are:

• existing use – have been conducted with particular regard to the present rating value estimate for each airport and the asset values shown in the financial statements. No details were available as to building floor areas, dates of construction, leases applicable to individual buildings and the high level of assessment precluded any study into landing fees etc; and

• alternative uses (highest and best) – analysis done for each of the airport sites using sales evidence applicable to alternative uses.

The valuations made in this report are made with a plus and minus 20 per cent standard error.

7.3 Data Sources

The data used for the purpose of value estimation has been gathered from a variety of sources including:

• district planning maps;

• long term community council plans;

• smart growth forecasts/predictions;

• Airport Authority annual reports, asset, tenancy registers and past valuations;

• “over the fence” inspections of the facilities;

• recent sales data for the region; and

• in depth knowledge of the trends in real estate in the region and nationally.

7.4 Value of Existing Bay of Plenty Regional Airports Land

The first step in the real estate analysis process is to estimate the value of the existing airport sites at Rotorua, Tauranga and Whakatane. For ownership reasons and other complexities, formal valuations of each existing airport have not been undertaken. It has been considered too early in the feasibility process to conduct detailed or formal valuations, therefore, high level estimates were developed. The valuations of existing use have been undertaken with regards to the current rating valuation and asset values shown in financial statements.

7.4.1 Rotorua

Rotorua Airport is sited adjacent to State Highway 30 and Lake Rotorua. The airport site and bounding land is zoned airport/airport protection. Rotorua Airport is a council owned facility and is approximately 95 hectares in area.



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TPG has estimated the current value of the airport at Rotorua as $12.5 million under existing conditions. This has been based on the present rating valuation in 2002 of $6.5 million and the financial statements asset value listed as $9.6 million.

Table 7.1

Rotorua Existing Value

Estimated Existing Value Value estimate

($’m)

Rotorua Airport Valuation Estimate $12.5 m

Present Rating Valuation (2002) $6.5 m

Financial Statement Asset Value $9.6 m

Source: TPG

7.4.2 Tauranga

The Tauranga Airport site is approximately 235 hectares in size. It is currently zoned as industrial and residential. Parts of the existing Tauranga Airport site bound inner Tauranga Harbour and is located near the Tauranga Port operation. The Tauranga District Council own and operate the existing airport site.

TPG has estimated the current value of the airport at Tauranga as $95.0 million under existing conditions. This has been based on the present rating valuation in 2003 of $75.4 million and the financial statements asset value listed as $91.3million.

Table 7.2

Tauranga Existing Values


($’m)

Tauranga Airport Valuation Estimate $95.0 m

Present Rating Valuation (2003) $74.5 m

Financial Statements Asset Value $91.3 m

Source: TPG



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7.4.3 Whakatane

The Whakatane Airport site is approximately 230 hectares. Virtually all of the Whakatane site is zoned rural, at present, apart from some associated service industrial. Whakatane Airport and the land on which it is situated is council owned.

TPG has estimated the current value of the airport at Whakatane Airport as $5.0 million under existing conditions. This has been based on the present rating valuation in 2001 of $3.0 million and the financial statements asset value listed as $0.5 million.

Table 7.3

Whakatane Existing Values


($’m)

Whakatane Airport Valuation Estimate $5.0 m

Present Rating Valuation $3.0 m

Financial Statements Asset Value (Improvements Only)

$0.5 m

Source: TPG

7.5 Value Estimates of Highest and Best Use - Existing Bay of Plenty Regional Airports

The estimates of the value of airport land, using the highest and best use, has been undertaken based on an analysis of sales of comparable property types to which the airport land could, and would most likely, be used.

7.5.1 Rotorua

The Rotorua Airport site is most likely to be used for commercial/industrial and residential development. Commercial/Industrial development has commenced in the immediate area of the Airport. The highest and best usage for the 95 hectare site is considered to be approximately half residential, for that land which bounds the lake, with commercial/industrial making up the balance.



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Table 7.4

Rotorua Highest and Best Use Value Estimate

Value estimate $’m

Land Value:

47 ha @ $0.4m per ha

48 ha @ $0.25m per ha

$18.8 m

$12.0 m

$30.8 m

Estimated Cost of Making Land Good:

Site clearance of runways, taxiways, roads and car park areas

Demolition of Buildings $2.5 m

$0.5 m

Estimated Cost of Servicing:

95 ha @ $0.3m $28.5m

Incremental Land Value -$1.5 m


The break down of usage of the 95 hectares Rotorua Airport site is:

• 47 hectares used for industrial purposes valued at $0.4 million per hectare; and

• 48 hectares used for residential purposes around Lake Rotorua at $0.25 million per hectare.

The net result for the Rotorua Airport site under this highest and best use framework is negative $1.5 million due to the high cost of servicing the area ($28.5 million). The negative $1.5 million return is still considered the best result to be used in the BCA evaluation for the Rotorua site when compared to existing use value given the cost of servicing and the cost of make- good.

7.5.2 Tauranga

The estimated site of the existing Tauranga Airport is approximately 235 hectares including some 15 hectares of the site subject to ground leases from the Airport Authority. The highest and best use for the Tauranga airport site is considered to be a mixture of residential and industrial. Approximately one third of the site would be suitable for residential, with the remainder being used for industrial purposes.



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Table 7.5

Tauranga Highest and Best Value Estimate

Value estimate $’m

Land Value:

150 ha @ $0.4m per ha

70 ha @ $0.25m per ha

15ha @ $3.0m per ha (at 50%)

$75.0 m

$14.0 m

$22.5 m

$111.5 m



Demolition of Buildings

$3.2 m

$0.6 m

$3.8 m

Estimated Servicing Cost:

220ha @ $0.3m

15 ha already serviced

$66.0 m

Incremental Land Value $41.7 m


The net result for the Tauranga Airport site under highest and best use conditions is $41.7 m. The break down of highest and best usage of the 235 hectares of the Tauranga Airport site is:

• 150 hectares used for industrial purposes valued at $0.5 million per hectare;

• 70 hectares used for residential purposes valued at $0.2 million per hectare; and

• 15 hectares currently subject to ground leases for industrial purposes at $3.0 million per hectare with half allocated to the evaluation.

7.5.3 Whakatane

Virtually the entire Whakatane site is zoned rural at present apart from some associated service industrial. The site is close to the ocean and there are other pockets of nearby land to the ocean front that have been developed for residential purposes. Whakatane was originally developed around the river and has continued to grow from there. Highest and best use for the airport site is considered to be residential, but because of remoteness at present and size, the development programme would likely take 20 years. Cost of provision of services is likely to be high at the Whakatane airport site because of the lack of infrastructure which presently exists in the area.



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Table 7.6

Whakatane Highest and Best Value Estimate

Value Estimate $’m

Land Value:

60ha @ $0.2m per ha discounted for 5 years @ 9%




$7.8m

$5.1m

$3.3m

$1.8m

$17.9m



Demolition of Buildings

$0.3 m

$0.1 m

$0.4 m

Estimated Servicing Cost:

230ha @ $0.4m $92.0 m

Incremental Land Value -$74.5 m


The net result under this highest and best use analysis is a negative $74.5 million. The negative results of the highest and best outcome are driven by the servicing costs associated with site. Given the negative highest and best result outcome, the current usage estimate has been used in the evaluation. The net result of the current land value estimate is $3.65 million which results from a current land value of $5 million, make good cost of $0.4 million and a servicing cost of $1 million.

Sensitivity of Estimated Values

Given the high level nature of these estimates, the outcomes must be treated with a plus or minus 20 per cent margin of error. Sensitivity tests have been carried out at plus and minus 20 per cent land valuations in the BCA sensitivity section of the report.

The elements that have not been considered in these valuations that could have a significant impact on these estimates are as follows:



87

• an analysis of income received by way of landing fees, lease and concession rentals;

• net cash flow from airport operations;

• historical financial performance relative to current;

• any Maori land claim issues;

• ability for infrastructure to be able to support alternative uses; and

• the sub–strata nature of the land not occupied by buildings, runways etc.

7.6 Estimates of the Value of Regional Airport Land Requirements

The regional airport requires 400 hectares of land on which to operate. In Section 5 of this report, preferred sites where selected on a number of required criteria. Using these criteria, sites were selected at Paengaroa North and Pyes Pa. Based on the selection of preferred and available sites and based on lot sizes, the range of land purchases is from 645 hectares to 1,139 hectares and a lot range between 18 and 110. In this section of the report, land valuations have been carried out on the preferred site options at Paengaroa and Pyes Pa.

7.6.1 Regional Airport Land Requirement Value Estimation Methodology

There were three elements used in the calculation of the costs associated with securing land for the proposed regional airport site. These three elements included:

• land value estimation;

• land improvements value estimation; and

• rental estimations.

Estimates of land value were undertaken by TPG. TPG investigated the number of lots which would need to be purchased for each of the proposed sites set out in Section 5. The valuations were estimated using general costs parameters for existing land in the region. The major land uses in the region include rural lifestyle properties, orchards, grazing blocks and some dairy farms. The land being assessed for the location of the regional airport is classified as Rural G zoning. The land required for the regional airport is 400 hectares. To gain the 400 hectares required for the regional airport it will be necessary to purchase more land than is required. It has been assumed that this addition land can be on–sold for the same price at which has been purchased.

When the land is purchased for the regional airport, improvements will be required to allow the placement of the regional airport. Land improvements were developed using a reasonable sample of the properties in each location to ascertain the land improvement value for each property. These estimated improvement values were then extrapolated across all blocks required for the airport. Land



88

improvements have been estimated across all of the lots purchased for the regional airport. As has already been mentioned in the assumptions to the analysis, not all of the land will be needed for the regional airport, and hence some land will be on – sold. However, it is not possible to determine what the effect of this will be on the value of improvements required, as the improvements could be averaged across each lot or occur in one lot. Therefore, for the purpose of the evaluation, it has been assumed that 75 per cent of the value of improvements will be required within the regional airport land. This assumption has been used in each site evaluation.

Of the 400 hectares required for the regional airport, only 250 hectares of this area are actually needed for airport operations. It has been determined that the remaining 150 hectares of land purchased can be rented for non aeronautical purposes. Rental valuations have been made at 6 per cent of the sale price.

The land cost estimates are subject to a sensitivity of plus and minus 25 per cent relative to the actual values.

7.6.2 Paengaroa

The Paengaroa sites are located in the Te Puke and Paengaroa area. The Paengaroa sites are located along State Highway 33 approximately 10 kilometres south of the junction with the Eastern Arterial. The two sites being looked at in the Paengaroa area contain a cross section of property types from grazing blocks to fully producing orchards with more emphasis on orchard and smaller rural lifestyle properties. Based on TPG analysis of the value of lands in this area are between $0.200 million and $0.250 million.

Paengaroa - Site 1 Land Requirements and Valuations

Site 1 in the Paengaroa region consists of 110 property lots and 645 hectares of land. The make up of lots for site 1 is shown in Figure 7.2.



89

Figure 7.2: Paengaroa – Site 1 Lot Requirements



90

Based on this lot analysis, a valuation on the land requirements has been undertaken. The value of these lots, make good costs and servicing costs is shown in Table 7.7.

Table 7.7

Paengaroa Site 1 Land Cost Value Estimate


Number of Lots/Properties Required for Purchase

110

Land Value:

645ha @ $0.225m per ha $145.1 m

On – Sold Land Value:

245ha @ $0.225m per ha $55.1 m

Land Improvement Costs (includes any make good and servicing costs identified at this stage):

645ha @ $0.34m per ha @ 75% $164.3 m

Regional Airport Land Costs $254.3 m

Source: TPG

Using the assumptions detailed in the valuation methodology section of this Section, the cost of the lands and improvements for the regional airport for Paengaroa Site 1 is $254.3 million, which consists of $90 million in land costs (400 ha) and $164.3 million in land improvement costs.

In additional to the above land costs, there is the ability for the land which is not required to be leased to third parties. The value of this per annum rent for Paengaroa site 1 is shown in the table below.

Table 7.8

Paengaroa Site 1 Land Rentals

Value Estimate Parameters $’m

Land Required for Rental (ha) 150

Value of Rental Land:

150ha @ 6% of Land Costs ($13,500 per ha) per annum

$2.025m

Source: TPG

The rent has been valued at 6 per cent of the land cost, in the case of Paengaroa site 1, this equates to $13,500 per hectare. The value of the 150 hectares of rental land is $2.025 million.



91

Paengaroa - Site 2

Site 2 in the Paengaroa region consists of 79 property lots and 748 hectares of land. The make up of lots for Site 2 is shown in Figure 7.3.

Figure 7.3: Paengaroa – Site 2 Lot Requirements



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Table 7.9

Paengaroa Site 2 Land Cost Value Estimate

Valuation $’m

Number of Lots/Properties Required for Purchase 79

Land Value:

748 ha @ $0.225m per ha $168.3 m


348 ha @ $0.225m per ha $78.3 m

Land Improvement Costs (Includes any make good and servicing costs identified at this stage):

748 ha @ $0.37m per ha @ 75% $189.0 m

Regional Airport Land Cost $279.0 m


Using the assumptions detailed in the valuation methodology section of this Section, the cost of the lands and improvements for the regional airport for Paengaroa Site 2 is $279.0 million, which consists of $90 million in land costs (400 ha) and $189.0 million in land improvement costs.

In additional to the above land costs, there is the ability for the land which is not required to be leased to third parties. The value of this per annum rent for Paengaroa site 2 is shown in the table below.

Table 7.10

Paengaroa Site 2 Land Rentals




150 ha @ 6% of land cost ($13,500 per ha) per annum

$2.025


The rent has been valued at 6 per cent of the land cost, in the case of Paengaroa site 2, this equates to $13,500 per hectare. The value of the 150 hectares of rental land is $2.025 million.



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7.6.3 Pyes Pa

The three options for the Pyes Pa regional airport contain mostly grazing blocks, lifestyle blocks and dairy farms. The analysis undertaken by TPG of sales in this area indicates an average value of approximately $0.050 million per hectare.

Pyes Pa – Site 1

Site 1 in the Pyes Pa region consists of 18 property lots and 842 hectares of land. The make up of lots for Site 1 is shown in Figure 7.4.

Figure 7.4: Pyes Pa Site 1



94


Table 7.11

Pyes Pa Site 1 Land Cost Value Estimate



18

Land Value:

842ha @ $0.05m per ha $42.0 m


442ha @ $0.05m per ha $22.0 m


842ha @ $0.033m per ha @ 75% $21.0 m


Source: TPG

Using the assumptions detailed in the valuation methodology section of this Section, the cost of the lands and improvements for the regional airport for Pyes Pa Site 1 is $41.0 million, which consists of $20 million in land costs (400 ha) and $21.0 million in land improvement costs.

In additional to the above land costs, there is the ability for the land which is not required to be leased to third parties. The value of this per annum rent for Pyes Pa site 1 is shown in the table below.

Table 7.12

Pyes Pa Site 1 Land Rentals

Valuation Parameters $’m




$0.450 m

Source: TPG

The rent has been valued at 6 per cent of the land cost, in the case of Pyes Pa site 1, this equates to $3,000 per hectare. The value of the 150 hectares of rental land is $0.450 million.



95

Pyes Pa – Site 2

Site 2 in the Pyes Pa region consists of 23 property lots and 1,124 hectares of land. The make up of lots for Site 2 is shown in Figure 7.5.




96


Table 7.13




23

Land Value:

1,124ha @ $0.05m per ha $56.2 m


724ha @ $0.05m per ha $36.2 m


1,124ha @ $0.034m per ha @ 75% $28.5 m


Source: TPG



Table 7.14






$0.45 m

Source: TPG




97

Pyes Pa – Site 3

Site 3 in the Pyes Pa region consists of 21 property lots and 1,139 hectares of land. The make up of lots for Site 3 is shown in Figure 7.6.




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Table 7.15




21

Land Value:

1,139ha @ $0.05m per ha $57.0 m


739ha @ $0.05m per ha $37.0 m


1,134ha @ $0.33m per ha @ 75% $28.5 m


Source: TPG



Table 7.16






$0.450 m

Source: TPG




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7.7 Real Estate Analysis – Summary Outcomes

The real estate analysis has been done on two components of the project. These components include the sale of existing airports land and purchase of lands for the regional airport.

The valuations of the existing sites have been undertaken on an existing use basis and on a highest and best usage basis. Estimated values were constructed by The Property Group (TPG) in conjunction with URS. The results of the existing use and highest and best use are presented in Table 7.17.

Table 7.17

Existing Airport Land Value Estimates

Airport Existing Use Valuation

Highest & best Use Value

Rotorua $12.5 m $30.0 m




In additional to the value of the existing land, a quantification of the costs associated with make good and improvement have been undertaken for each of the sites.

For the regional airport, value estimates were determined on the potential sites which where selected as suitable in the site selection section of this report (Section 5). The two broad regions selected are in the Paengaroa area and the Pyes Pa. There have been multiple potential sites selected in each of these areas for evaluation, two in Paengaroa and three in Pyes Pa. Each of these potential sites has been valued. The outcomes of purchase price of lands for the regional airport are summarised in the table below.



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Table 7.18


Site No. of

Lots

Area of Lots

Land Estimates

Improve –ments

Estimates

Total Initial

Estimates

400ha Land

Estimates

400 ha Improve - ments

400 ha Results


110 645 ha $146 m $219 m $365 m $90 m $165 m $255 m


79 748 ha $168 m $252 m $420 m $90 m $190 m $280 m

Pyes Pa – Site 1

18 842 ha $42 m $28 m $70 m $20 m $21 m $41 m

Pyes Pa – Site 2

23 1,124 ha $56 m $36 m $95 m $20 m $29 m $49 m

Pyes Pa – Site 3

21 1,139ha $57 m $37 m $95 m $20 m $29 m $49 m


The cost of the land for the regional airport is mitigated slightly by the opportunity to rent approximately 150 hectares of land surplus to aviation requirements to other users. Based on advice from TPG, rental rates have been calculated at 6 per cent of land values for the purpose of evaluation. The per annum value of the rented land is shown in the table below.

Table 7.19

Rental Income Summary

Site Hectares Rented

Rental Rates (p/ha)

Annual Rental

Income

Paengaroa – Site 1 150 ha $13,500 $2.025 m

Paengaroa – Site 2 150 ha $13,500 $2.025 m

Pyes Pa – Site 1 150 ha $3,000 $0.450 m

Pyes Pa – Site 2 150 ha $3,000 $0.450 m

Pyes Pa – Site 3 150 ha $3,000 $0.450 m



SECTION 8 Airport & Airline Operations & Costs Analysis


101

8 Airport & Airline Operations & C osts A nalysis

8.1 Introduction Airport & Airline Analysis

Section 8 of the regional airport feasibility study discusses the effect of the process of centralisation 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. This proposition is tested in this section of the report.

8.2 Airport & Airline Analysis Methodology and Approach

The methodology and approach used in this section of the report is as discussed within the original proposal and is set out in figure 8.2. The airport and airline effects of airport centralisation are analysed as two separate task streams.

Figure 8.2

Airport & Airline Operations & Cost Analysis Process

Airports

Step 1

Gather data on cost structure & efficiencies -existing

Step 2

Bench-marking

analysis to determine

cost structure

Step 3

Determine net

Benefit/cost

Airlines

Step 4

Gather data on cost structure & efficiencies -existing

Step 5

Bench-marking

analysis to determine

cost structure

Step 6

Determine net

Benefit/cost

WORKSTREAM 8


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Figure 8.1

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8.2.1 Airport Analysis Methodology and Approach

The first step in the airport analysis involves gathering data on the operating revenue and cost structures of the existing airports at Rotorua, Tauranga and Whakatane. The profit and loss data has been made available by the existing airports for 2003/04 and 2004/05. This data is used as the basis for comparison with the regional airport results.

An estimate of the operating revenue and cost of a regional airport are made based on benchmark data. Using an extensive database of airport operating costs and revenues a financial result can be constructed for the Bay of Plenty regional airport. The benchmark results will be based on similar airports operating in a similar environment (e.g. Australia, New Zealand and the USA).

Based on an assessment of the benchmarked revenue and cost of operating a single regional airport against the current cost structures of the existing airports, the overall or incremental benefit cost is determined.

8.2.2 Airline Analysis Methodology and Approach

To analyse the effect of regionalising or centralising the Bay of Plenty airports on the airlines that are likely to service the regional airport, the first step involves gathering data on the operating cost structures of airlines and other industry operators with services at the three existing airports. The airlines have not been particularly supportive of the feasibility study process, as such, benchmark airline statistics have been used and applied to the Bay of Plenty region. This analysis will form the basis against which airline operating cost estimates for airline and aviation operators at a regional airport can be compared. Using this information the overall benefits and costs of the project, compared to the existing situation, can be evaluated and entered into the BCA.

8.2.3 General Methodology and Approach

The most important assumption made about the airport and airline revenue and cost analysis, undertaken in this report, is that the landing fees do not change under any of the scenarios being analysed. This assumption has been made to avoid reliance on having to increase landing fees in order for the project to be feasible. It also reduces the risk of losing support from airlines at the airport which has occurred at a number of airports that have undertaken developments or expansion.

8.3 Airport Operational Revenue and Cost

As stated above, the proposition guiding this analysis is that consolidation of the existing airports into a single regional site will result in net benefits to the airport operator due to economies of scale. To estimate the net operating benefits resulting from the consolidation the three Bay of Plenty airports to one site, the following process was undertaken:

• establishing the current consolidated revenue and operating cost at the three Bay of Plenty airports;



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• establishing a benchmarked revenue and operating cost estimate using data from comparable airports; and

• estimating the forecast (2025) revenue and operating costs for the current three airports and the proposed single airport using passenger forecasts to establish the net benefit in terms of revenue, costs and surplus.

8.3.1 Establishing Current Revenue & Operating Costs of Bay of Plenty Airports

Currently, the three Bay of Plenty airports of Rotorua, Tauranga and Whakatane operate as stand alone businesses, each producing separate accounts. To establish a base case for comparative purposes against a regional airport it was considered appropriate to combine the financial results for each airport.

As a result financial data for 2003/04 and 2004/05 was obtained from each of the airports and an average revenue and expenditure was calculated.

The financial results for the existing Bay of Plenty airports are shown in the table below.

Table 8.1

Existing Bay of Plenty Airports Combined Financial Performance

Indicator 2003/04 2004/05 Average

Revenue $4.30 m $4.40 m $4.35 m

Expenditure $3.50 m $4.0 m $3.70 m

Net Surplus $0.8 m $0.5 m $0.6 m

Source: Rotorua, Tauranga and Whakatane Airports & URS Analysis

For the analysis the average for the three Bay of Plenty airports was used as this was considered to be more representative of financial performance over time. The average results for the three airports highlights a yield (surplus as a proportion of revenue) of just over 14 per cent.

8.3.2 Benchmarking Comparable Airports

To determine the benefit of operating a single regional airport as opposed to the current situation, an estimate of the revenues and operating costs of the proposed airport were required to be developed. Examining the financial performance of other comparable airports was considered to be the best method of estimating the revenue and costs that may be generated by the proposed airport.



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To prepare the idealised financial results for the new regional airport a number of airports were identified that had a traffic pattern similar to the proposed new regional airport. The similar airports were chosen for benchmark purposes, three of the airports were New Zealand with one airport selected from Australia. The airports were:

• Dunedin International Airport;

• Palmerston North Airport;

• Newcastle International Airport (Australia); and

• Invercargill.

The financial results of these airports were used to derive an average for a typical regional airport. The financial results of the regional airport are summarised in the table below.

Table 8.2

Benchmark Airports Financial Results

Indicator Dunedin Palmerston North

Newcastle (AUS)

Invercargill Average Regional

Airport

Revenue $6.0 m $5.0 m $5.1 m $1.4 m $4.4 m

Expenditure $3.4 m $3.9 m $3.8 m $1.1 m $3.0 m

Net Surplus $2.6 m $1.1 m $1.3 m $0.3 m $1.3 m

Source: URS analysis & financial results

The benchmarked, average regional airport results have been converted into a per passenger (based on the forecasts undertaken in Section 4 of this report) rate. As the passenger levels rise over the course of the evaluation, the financial results of the airport rise on a passenger proportional basis.

For the BCA, a net or incremental result should be calculated showing the difference between the centralised regional airport and the existing airports. The results of this incremental analysis over the period of the analysis are shown in Table 8.3.



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Table 8.3

Incremental Airport Financial Outcomes

Year Existing

Airport

Regional

Airport


Revenue Costs Revenue Costs Total

2010 $4.9 m $4.2 m $5.9 m $4.1 m $1.1 m

2025 $6.7 m $5.7 m $7.7 m $5.4 m $1.3 m


The incremental benefit under a regional airport scenario is $1.1 million in 2010 and increases to $1.3 million in 2025.

8.4 Airline Analysis – Introduction

This section provides an estimate of the potential airline savings which are thought to occur if airport operations into the region are servicing a single regional airport, compared to servicing the three existing airports. The analysis is based on changes in on the ground operation and flight schedule changes.

This analysis was undertaken through four main steps which objectives were respectively to:

• establish the future regional flight schedule;

• define all necessary assumptions to assist in the financial estimations for both current and future operations;

• determine the airline financial estimates for current and future operations; and

• evaluate the resulting net potential benefit.

The airline analysis is confined to the regional (Bay of Plenty) benefits and costs. Because of this, the analysis does not include changes in revenue that may occur for airlines that service the regional airport the current airport. In Section 4, of this report, it was forecast that there would be increases in passenger movements due to the centralisation of airports within the Bay of Plenty, for those passenger movements that have shifted to air and off the roads, it is likely that there will be revenue improvements. However, there is little to suggest the additional revenue improvements will find their way to the Bay of Plenty.

8.4.1 Regional Flight Schedule Review

The following table presents a summary of the existing flight schedule as currently applicable to Whakatane, Tauranga and Rotorua airports. The existing timetable is based on an average for the year and takes into account peak periods of flights and downturns in flight numbers which occur over the course of any year:



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Table 8.4 Current Schedule - Daily Number of Flights

Current Daily Total

Auckland Christ-

church

Wellington Inter -national

Other Total

Whakatane 8 - - - - 8

Tauranga 16 - 10 - - 26

Rotorua 10 6 10 - 2 28

Total 34 6 20 - 2 62

Source: Airline Data & URS Analysis

As a result of moving from a three airport configuration to a single airport system within the Bay of Plenty, the flight schedule has been forecast to change on the basis of destinations, frequency and aircraft types.

For each destination, the new schedule offers the same number of flights per week as the sum of the frequencies for the three individual current airports, with the same time constraints where possible. Few adjustments were to be made on the Auckland and Christchurch routes resulting in the same number of total daily domestic flights, however the frequency of flights to these locations out of the region is increased from a single location point.

Nevertheless, as the creation of a single airport system is a unique opportunity to extend flight services and to open new routes where opportunity has been identified, the analysis includes the creation of two international services.

As shown in the following table, 64 daily flights are planned under the new schedule compared to a current total of 62 flights. Although the new timetable only adds an extra two flights per day, the benefits to the region actually arise from the frequency at which these flights arrive and depart.

Table 8.5

Future Schedule - Daily Number of Flights

Future Daily Total

Auckland Christ - church

Wellington Inter - national

Other Total

Total 32 8 20 2 2 64




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In order to meet the passenger forecast constraints, the new schedule involves the use of bigger aircraft. For the future system, aircraft capacity was assumed to be 50 seats on domestic services and 186 on international routes, with the use of the most likely planes, respectively Q300s and B737s, compared to a current aircraft capacity of approximately 33 seats on average for the three airports system.

8.4.2 Assumptions for Airline Revenues Estimates

The change in the total number of frequencies per destination is not significant enough to generate a critical upgrade/downgrade in terms of quality of service provided to passengers, which could have justified a change in yield. Airline revenues would then only change as a result of the increase in traffic, as determined in the passenger forecast section. We assume that airlines revenues’ increase has no significant direct impact on the economy of the Bay of Plenty region. Therefore, airlines revenues estimates are not included in our BCA analysis. From the region’s point of view, as owner of airport facilities, the potential savings from airline operations could then only come from a change in expenses.

8.4.3 Assumptions for Airline Costs Estimates

In order to calculate the estimated airlines costs for current and future scenarios, a series of assumptions have been made. These assumptions include:

• airlines currently servicing the Bay of Plenty region, and those that will service the region in the future will have similar cost structures on average;

• number of flights per year were assumed to be obtained by multiplying the daily frequencies by 300 for both existing and future situations;

• an average of 60 minutes per flight (one-way) was assumed to apply for both current and future systems, independently of the destination;

• unit cost of operation is based on unit cost per hour by aircraft type as per ICAO average per block hour, using available data for the closest aircraft types in terms of seat capacity;

• as the unit cost data was sourced from international sources, an exchange rate of 0.64 USD per NZD has been applied for conversion; and

• airlines on ground operations and overheads (such as airport check in and baggage handling costs) were estimated, based on industry sources and benchmarking, to be 15 per cent for the current system and 10 per cent for the future system.

8.4.4 Airline Operational Costs Estimates

Using the assumption set out above, the operating cost of the airline operations within the region under each of the scenarios was developed. The following calculations were undertaken:



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Table 8.6

Airline Operational Costs Calculations

Parameters Current System Future System

Number of daily flights 62 64

Number of annual flights 18,600 19,200

Time (return in minutes) 120 120

Aircraft costs ($’m) 87.4 86.7

Overheads ($’m) 13.1 8.6

Total costs ($’m) 100,466,156 95.3

Passenger Forecast 679,485 816,691

Cost per passenger ($/pax) 147.9 116.7

Source: IACO & URS Analysis

The airline operation cost per passenger was calculated to be $147.9 per passenger for a three airport system and $116.7 per passenger for a centralised single airport operation.

The per passenger calculations developed in Table 8.6 were applied to the annual passenger forecast to calculate the annual cost of operation within the Bay of Plenty. This allowed incremental results to be used within the BCA. The results of this analysis are shown below.

8.4.5 Airline Cost Summary Outcomes

The outcome of the airline operations within the Bay of Plenty region over the course of the evaluation is shown in the table below. The results include the airline operational and overhead costs which can be attributable to the Bay of Plenty component of airline operations.

Table 8.7

Incremental Airline Financial Outcomes

Year Existing

Airport

Regional

Airport


2010 $74.1 m $73.3 m $0.8 m

2025 $100.5 m $95.3 m $5.1 m


The table shows that in 2010 the incremental benefits to airline operating costs is $0.8 million and by 2025 the costs savings are increased to $5.1 million.



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8.5 Airport and Airline Outcomes - Summary

The total airport and airline outcomes are shown in the table below. The table shows the net costs of airport operation 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.

Table 8.8

Incremental Airport and Airline Cost Outcomes

Year Existing

Airport

Regional

Airport


2010 $73.4 m $71.5 m $1.9 m

2025 $99.5 m $93.0 m $6.6 m


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 2025.

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.

SECTION 9 Transport Planning Analysis


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9 Transport Planning Analys is

9.1 Introduction Land Transport Planning Analysis

The purpose of this section is to calculate 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 centralised 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. As such, the land transport effects need to be analysed from a number of perspectives which include:

• the extent of this competition and identify key behaviour switching trigger points – positive and negative. Positive trigger points may include greater frequency and use of larger (jet) aircraft while negative trigger points may include increases in door-to-door trip times;

• the extent and quality of land transport links required and appraising various options – for example, a site may have higher road infrastructure development costs but may generate greater benefits in terms of travel time savings or road/air modal shifts;

• assessment of the potential for a regional airport to generate modal shifts between air and road for existing traffic, as well as an assessment of whether the regional airport changes the overall dynamic of air travel by altering time of cost elasticities;

• the pattern of land trips by existing airport users. These changes need to be taken into consideration as part of the overall assessment of benefits and costs; and

• the pattern of land trips by non-airport users – i.e. the local population.

The 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.

9.2 Land Transport Analysis Costing Approach and Methodology

The process followed for the land transport costing analysis is shown in Figure 9.2. This process has been used to determine the effect of a centralised regional airport on the Bay of Plenty local community

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Figure 9.1

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and the drive market between the region and major cities such as Auckland and Wellington, that is those that drive rather than fly.

Figure 9.2

Land Transport Planning Process

Step 1

Assess land transport impacts on aviation forecasts

Step 2

Provide input into landside cap-ex calcs

Step 3

Assess potential

for air/road modal shifts

Step 4

Assess change in trip no. & length by

airport users

Step 5

Assess change in trip no. & length by

non-airport users

Step 7

Conduct sensitivity analysis

Step 8

Transport benefit-cost assessment

Step 6

Valuation of potential

benefits & costs

As the process chart shows, the initial driver of transport changes is the passenger forecasts. These passenger forecasts were developed in Section 4 of this report and are applied to the analysis undertaken in this section. A vehicle-operating cost and travel time methodology has been used to assess the impact of the regional airport in benefit-cost terms. This BCA process is undertaken using an incremental approach to changing traffic levels within the region under the selected scenarios.

9.3 Land Transport Analysis Parameters

In order to capture the impacts on land transport of centralising the regional airport in the Bay of Plenty a number of key parameters must be identified for use in analysis. The major parameters used in the land transport analysis are:

• local and transitory distance;

• local and transitory travel time; and

• values for the economic cost of transport.

The parameters used in the study have been determined by URS in conjunction with the Traffic Design Group (TDG) using available data and industry recognised standards.



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The first set of parameters to be set out for use in the transport planning analysis is the major city destinations within New Zealand. These are the city locations which the current local airports service. At present, the commuter makes a choice about their mode of transport to these locations. The commuter decides whether they will drive (car or bus) or fly between the locations listed in table 9.1.

Table 9.1

Distance and Transit Time Parameters

Locations Rotorua Tauranga Whakatane

Auckland

Distance (kms)

Time (hrs)

234

3.3

205

2.9

298

4.3

Christchurch

Distance (kms)

Time (hrs)

Local Trip

Local Trip

Local Trip

Local Trip

Local Trip

Local Trip

Wellington Distance (kms)

Time (hrs) 460

6.5

549

7.8

519

7.4

Source: Traffic Design Group & URS Analysis

The table indicates that the Auckland and Wellington markets have been considered contestable for the purpose of analysis, but in general terms, the Christchurch market is considered a fly market and hence a local trip from the Bay of Plenty region to airport.

The travel time and distance from town centre to the airport or airports is of major importance to this study and is the next set of parameters that need to be defined for the land transport analysis. Under the existing airport situation, where there are three local airports, a trip to the airport involves a short local trip from the home or business. By centralising the airport, based on the site options selected, it is likely that passengers will need to travel a greater distance to get to the airport.

The sites that have been selected for further review and put through a feasibility test in this report are shown in Figure 9.3.



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Figure 9.3

Site Options



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The impact of the changes in airport location are shown in Table 9.2. The table shows that the average local trip changes from 15 minutes to approximately 40 minutes for each airport site. The Whakatane area has the greatest impact with a change from 20 minutes to 90 or 100 minutes for a trip to the airport.

Table 9.2

Local Area Transport Parameters

Location Travel Time Distance

Rotorua

Existing

Site 1

Site 2

15 minutes

40 minutes

30 minutes

25 km

50 km

40 km

Tauranga

Existing

Site 1

Site 2

15 minutes

40 minutes

30 minutes

25 km

50 km

40 km

Whakatane

Existing

Site 1

Site 2

20 minutes

90 minutes

100 minutes

25 km

85 km

105 km

Source: TDG and URS analysis

The final parameters used in the land transport analysis are the economic parameters used to evaluate the cost of vehicle trips. The economic parameters are driven by vehicle kilometres traveled and vehicle hours traveled.

Table 9.3

Land Transport Cost Parameters

Cost Item Unit Costs/Unit

Vehicle Operating Cost VKT $0.1602

Travel Time Cost VHT $15.95

Accident Cost VKT $0.04

Vehicle Emission Cost VKT $0.038

Source: TDG and URS analysis

Each of the parameters set out in the Section 9.3 will be used for calculating land transport outcomes for the remainder of the section.



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9.4 Transport Demand Projections

In defining a regional airport effect on land transport within the Bay of Plenty, and the flow through to the BCA, the start point for calculation is the passenger forecasts for air travel. In section 4 a detailed study of the derivation of the passenger forecasts was made under the existing airports scenario and the regional airport scenarios. The results of this analysis are shown in table 9.4.

Table 9.4

Forecast Passenger Movements

Indicator Aviation Passenger Movements

2010

Aviation passenger movements – existing

Aviation passenger movements – regional

501,221

626,717

2025

Aviation passenger movements – existing

Aviation passenger movements – regional

679,485

816,691


The forecast impact of regionalising the airport in the Bay of Plenty is a 20 per cent - 25 per cent increase in passengers levels above those that have been forecast by the three local airports.

The drivers for passenger growth in 2025 are shown in figure 9.4. The diagram shows that there are four drivers of change for the regional forecast. These drivers are:

• frequency modal shift –negative effect on VKT and VHT;

• time and VOC mode shift – negative effect on VKT and VHT;

• international visitation – positive effect on VKT and VHT; and

• market share growth – positive effect on VKT and VHT.



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Figure 9.4

Sources of Passenger Growth

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

Current Forecast Frequency ModalShift

Time and VOCModal Shift

International Market ShareGrowth

RegionalForecast

679,485

31,289 -5,298

99,81611,399 816,691

Passengers


These forecasts are used as the drives for trip generation within the region. An additional airport passenger will create an additional local trip within the Bay of Plenty region, however that may result in a reduction in the number of drive trips to Auckland, for example. The incremental movement in vehicle kilometres and vehicle hours traveled are shown in table 9.5.

Table 9.5

Incremental VKT and VHT Movements (‘000s)

Site Vehicle Kilometres Travelled (VKT)

Vehicle Hours Travelled (VHT)

2010

Paengaroa

Pyes Pa

7,539

5,598 255

202

2025

Paengaroa

Pyes Pa

8,040

5,972

336

254


Decrease VKT & VHT’s

Increase VKT & VHT’s



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9.4.1 Impacts on Capital Expenditure

Based on the projected forecasts which have been developed as part of the feasibility study, it is not foreseen that there would be additional capital expenditure off airport. There are currently plans for a number of road upgrades within the region which are likely to provide appropriate service for the proposed regional airport.

9.5 Costing Land Transport Movements Bay of Plenty

Calculating the costs of land transport changes due to the consolidation of airports in the Bay of Plenty were done based on changes in passenger levels and hence changes in trip movements on the road.

There are four main, quantifiable road user economic costs which are identified in this report, including:

• vehicle operating costs;

• travel time costs;

• accident costs; and

• emission costs.

9.5.1 Vehicle Operating Costs

Vehicle operating costs estimate the true economic cost of operating a vehicle. The value includes operating costs such as petrol, maintenance and registration.

Table 9.6

Incremental VOC Costs ($’m)


2010 2025

Paengaroa - Site 1 1.2 m 1.3 m

Pyes Pa - Site 2 1.0 m 0.9 m


9.5.2 Travel Time Costs

The travel time unit cost seeks to value the economic opportunity cost of time spent traveling. The value of travel time in a road evaluation is $15.95 per vehicle hour traveled.



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Table 9.7

Incremental Travel Time Costs ($’m)


2010 2025


Pyes Pa - Site 2 $3.2 m $4.1 m


9.5.3 Accident Costs

Accident costs cover three types of accident: fatality, injury and property damage. They are calculated from the average cost and rate of occurrence for each type of accident. The economic cost of accidents per VKT is $0.04. The incremental effect on accidents of centralising airports in the Bay of Plenty is shown in table

Table 9.8

Incremental Accident Costs ($’m)


2010 2025


Pyes Pa - Site 2 $0.2m $0.2 m


9.5.4 Vehicle Emissions

Vehicle emission costs are an economic attempt to quantify environment costs associated with land transportation. The vehicle emissions parameter is $0.038 per VKT.

Vehicle emissions parameters include:

• noise;

• air quality; and

• greenhouse gas.

The results of the emissions costing are shown in Table 9.9.



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Table 9.9

Incremental Vehicle Emission Costs ($’m)


2010 2025


Pyes Pa - Site 2 $0.2 m $0.2 m


9.6 Land Transport Cost Summary

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 2025. The results of the transport planning analysis are shown in Table 9.10.

Table 9.10

Land Transport Costs ($’m)


2010 2025


Pyes Pa - Site 2 $ 4.7 m $5.4 m


9.7 Non Airport User Effects

Based on the aviation traffic forecasting and land transport planning outcomes, it is currently assumed that there will be no non airport user effects. If a regional airport was to be established, there is likely to be some reduction in the level of traffic around the existing local airports, while there is a corresponding increase in traffic around the established regional airport. There has not been a detailed traffic study done on the region for this study.

SECTION 10Financial Feasibility Analysis


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10 Financial Feasibil ity Ana lysis

10.1 Introduction 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 has been mentioned in section 8 of this study, and one of the most important assumptions made within the report, the landing fees charged at the airport have not been changed for the purpose of analysis.

10.2 Financial Feasibility Methodology and Approach

As well as looking at the project using an economic framework to determine feasibility, the regional airport has been considered in terms of its financial returns. The financial feasibility analysis is undertaken from the perspective of the airport operator therefore the factors that must be considered as part of the financial evaluation are:

• capital expenditure;

• real estate values; and

• airport operational returns.

The financial feasibility is approached from an incremental perspective. The financial outcomes of the existing airports are compared to the estimates for the regional airport to give a net financial outcome.

10.3 Feasibility Analysis Parameters

The first step in this section of the study involves setting the parameters for the financial analysis. The parameters include, evaluation start dates and the discount rates used to account for the time value of money.

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Table 10.1

Financial Feasibility Parameters

Parameter Value

Evaluation Start Date 2005

Evaluation Period -Operational (years)

20

Discount Rate 7%

10.4 Financial Inputs Analysis

As mentioned in section 10.2, the inputs to the financial feasibility are only those that have a cash flow impact on the owners of the airport.

10.4.1 Capital Expenditure

Using the required infrastructure identified in section 6, an analysis was undertaken to estimate the capital cost of construction. The capital cost estimate was prepared using the grouping identified above namely:



• surface transport – car parks, vehicle holding areas etc;



• roads – to facilitate transport to the site; and


For the purposes of financial feasibility modelling three capital cost scenarios were prepared to reflect capital expenditure variations. Table 10.2 shows the capital expenditure outcomes used in the analysis. The capital scenarios used in the analysis were as follows:

• base capital expenditure less 30 per cent;


• base capital expenditure plus 30 per cent.



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Table 10.2

Development Concept Capital Cost

Item Cost Estimate


Paengaroa $256 m $366 m $476 m

Pyes Pa $278 m $397 m $516 m


The results of the capital cost estimates show the following:

• the capital cost for construction of the Paengaroa site option ranges from $256.2m to $475.8m; and

• the capital cost for construction of the Pyes Pa site option ranges from $278.3m to $516.8m.

There is also an on going annual capital maintenance component to airport costs. As part of the comparative analysis the combined existing capital expenditure for the current Bay of Plenty airports of $4.53m was compared against the estimated ongoing capital expenditure ranges for both proposed airport site options. To develop an estimate the ongoing capital expenditure for the new airport was set at 0.5 per cent of the total cost of the build. Detailed analysis on these calculations is provided in section 6.

The Table below summarises the comparison between the combined capital expenditure for the Bay of Plenty airports and the range calculated for the Paengaroa and Pyes Pa site options.

Table 10.3



Current BOP Airports Capex

$4.53 m

Proposed Annual Capex $1.99 m


10.4.2 Real Estate Costs

The real estate analysis has been done on two components of the project. These components include the sale of existing airports land and purchase of lands for the regional airport. Details on the derivation of real estate parameters are shown in Section 7.

The results of the existing use and highest and best use are presented in Table 10.4.



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Table 10.4

Existing Airport Land Value Estimates

Airport Existing Use Valuation

Highest and Best Use Value

Rotorua $12.5 m $30.0 m




In additional to the value of the existing land, a quantification of the costs associated with make good and improvement have been undertaken for each of the sites.

For the regional airport, value estimates were made on the potential sites which where selected as suitable in the site selection section of this report (Section 5). The two broad regions selected are in the Paengaroa area and the Pyes Pa. There have been multiple potential sites selected in each of these areas for evaluation, two in Paengaroa and three in Pyes Pa. Each of these potential sites have been valued. The outcomes of purchase price of lands for the regional airport are summarised in the table below.

Table 10.5


Site 400ha Site Land Cost

Paengaroa – Site 1 $255 m

Paengaroa – Site 2 $280 m

Pyes Pa – Site 1 $41 m




In addition, there is an opportunity for the regional airport operator to rent quantities of the land purchased, which is not required for aviation/airport use. The per annum value of the rented land is shown in the table below.



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Table 10.6

Annual Rental Income

Site Annual Rental Income

Paengaroa – Site 1 $2.025 m

Paengaroa – Site 2 $2.025 m

Pyes Pa – Site 1 $0.450 m





10.4.3 Profit and Loss Statement

The financial profit and loss results were derived from benchmarking typical regional airports. In section 8 of this report a detailed description of the calculation of regional airport profit and loss is given.. For the existing airport, the profit and loss data was sourced from each of the airports.

Table 10.7 shows the incremental outcomes for the existing and regional airport for 2010 and 2025. .

Table 10.7

Incremental Airport Financial Outcomes

Year Existing

Airport

Regional

Airport


Revenue Costs Revenue Costs Total

2010 $4.9 m $4.2 m $5.9 m $4.1 m $1.1 m

2025 $6.7 m $5.7 m $7.7 m $5.4 m $1.3 m


The incremental profit and loss benefit under a regional airport scenario is $1.1 million in 2010 and increases to $1.3 million in 2025.



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10.5 Financial Feasibility Results

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 10.8.

Table 10.8









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 $475 million outcome for Paengaroa (Site 2).

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.

10.6 Financial Feasibility Sensitivity Testing

The sensitivity tests being undertaken on the financial feasibility analysis include:

• New Zealand ratio passenger level forecasts;

• Rotorua trans-Tasman passenger forecasts;

• reduction in capex by 30 per cent; and

• increase in capex by 30 per cent.

The results of the sensitivity tests are presented in Table 10.9. Under no sensitivity, run in this report, does the regional airport become feasible financially.



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Table 10.9

Financial Feasibility Sensitivity Results

Site Option NZ Ratio Pax

NPV($’ms)

Rotorua Trans

Tasman Pax

NPV($’ms)

-30% Capex

NPV ($’ms)

+30% Capex

NPV ($’ms)

Paengaroa Site 1 -$451 m -$451 m -$360 m -$545 m


Pyes Pa Site 1 -$269 m -$270 m -$178 m -$364 m

Pyes Pa Site 2 -$276 m -$277 m -$185 m -$371 m

Pyes Pa Site 3 -$276 m -$277 m -$185 m -$371 m


The ranges of financial outcomes for the sensitivity analysis are:

• New Zealand ratio passenger forecast – negative $269 m for Pyes Pa (Site 1) to negative $473 million for Paengaroa (Site 2);

• Rotorua trans-Tasman passenger forecast – negative $270 m for Pyes Pa (Site 1) to negative $474 million for Paengaroa (Site 2);

• reduction in capex by 30 per cent– negative $178 m for Pyes Pa (Site 1) to negative $382 million for Paengaroa (Site 2); and

• increase in capex by 30 per cent – negative $364 m for Pyes Pa (Site 1) to negative $568 million for Paengaroa (Site 2).

10.7 Financial Feasibility Conclusions

Overall Conclusions

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.

Under none of the financial feasibility scenarios analysed in this report is the regional airport project financially feasible. The negative results which range from negative $271 million to negative $475



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million over the twenty year operation evaluation can be attributed to the 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.

For continuity there were no specific increases in landing fees at the regional airport above those that were inherent in the benchmarking analysis used to determine the financial profit and loss of the type of regional airport being considered for the Bay of Plenty region.

Airports are, however, long term assets, which does give the owner/operator the opportunity to build revenue streams over a substantial period of time.

The lack of financial feasibility means that for the regional airport project to be considered there will need to be benefits to the community and the region which are not captured within the financial parameters of the airport but in the Bay of Plenty economy or socio - economy.

Conclusions – Paengaroa – Site 1

Due to the high cost of land at the Paengaroa sites, the financial feasibility of Site 1 is negative. The income streams which include landing fees, land and facility rental, are not of a magnitude which is high enough to cover the costs associated with the project.

With all the regional airport options being considered, the effect of the upfront construction costs, makes achieving financial feasibility difficult. The capital expenditure costs for the regional airport has been estimated at $366 million for the Paengaroa sites.

The base financial outcome for Paengaroa – Site 1 using the inputs discussed within this report is a negative return of $453 million over the course of the evaluation.


The conclusions for Paengaroa – Site 2 are identical to Site 1. The capital costs and the land costs associated with the regional airport are of a magnitude that does not allow a financial return to the owner/ operator over the period of the evaluation. The land acquisition costs are $25 million greater at Site 2 compared to Site 1 which results in a less financially feasible outcome at Paengaroa – Site 2.


Conclusions – Pyes Pa – Site 1

The Pyes Pa sites have a more financially feasible outcome than siting the regional airport at Paengaroa, but the outcomes are still negative. Pyes Pa – Site 1 gives the least negative financial return of all the



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evaluated regional airport sites. This is a function of a lower land acquisition cost, which has been estimated at $41 million. The Pyes Pa regional airport sites are estimated to cost $397 million to construct, approximately $31 million greater than the Paengaroa sites, which is due to additional requirements for servicing the sites.

The base financial outcome for Pyes Pa – Site 1 using the inputs discussed within this report is a negative return of $271 million over the course of the evaluation.


The conclusions for Pyes Pa – Site 2 are identical to Site 1. The capital costs and the land costs associated with the regional airport are of a magnitude that does not allow a financial return to the owner/ operator over the period of the evaluation. The land acquisition costs are $8 million greater at Site 2 compared to Site 1 which results in a less financially feasible outcome at Pyes Pa – Site 2.


Conclusions – Site 2 C



SECTION 11Benefit Cost Analysis


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11 Benefit Cost Analys is

11.1 Introduction Benefit Cost Analysis

Using the inputs from the previous Sections, a benefit cost analysis (BCA) has been undertaken on the development of the regional airport in the Bay of Plenty. A BCA is a process of analysis which attempts to quantify the claims that a project makes on an economy and any gains that a potential project provides to the economy as a whole.

The perspective of a BCA is “economy wide”, rather than that of any particular individual or organisation. The inputs and outputs of BCA analysis often include both market and non market factors.

A BCA typically involves a three step process as set out below:

• step 1 - setting parameters;

• step 2 – discovering potential benefits & costs; and

• step 3 - valuing (either directly or via proxy) benefits and costs.

11.2 BCA Key Parameters

The first step in a BCA process involves setting parameters for the analysis in terms of:

• the perspective of the analysis – ie from whose perspective is the benefit cost analysis being undertaken. On this occasion, the perspective is regional – ie from a Bay of Plenty wide perspective, what are the benefits and costs that arise from the regional airport development;

• the establishment of a base cases – for this analysis, URS, in consultation with relevant stakeholders, has set the do nothing as the base case, that is, the continued operation of the three airports operating at Rotorua, Tauranga and Whakatane;

• the establishment of scenarios – a number of scenarios for analysis have been selected on the basis of criteria developed with stakeholders, for example, distance from population centres, terrain conditions and land availability;

• selection of modelling approach - the feasibility analysis has been conducted utilising an industry standard technique called Discounted Cash Flow (DCF) modelling. DCF modelling seeks to evaluate whether a stream of quantifiable flows over a period of time can justify a capital investment

WORKSTREAM 8


WORKSTREAM 7


WORKSTREAM 6


analysis

WORKSTREAM 5


WORKSTREAM 4


costing

WORKSTREAM 3


WORKSTREAM 2



WORKSTREAM 1


WORKSTREAM 9


BAY OF PLENTY

REGIONAL AIRPORT

FEASIBILITY STUDY


Sharing



Sharing


Sharing


Sharing


Sharing


Sharing


Sharing


Sharing

Figure 11.1

Workstream 9



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at a given required rate of return. In order to undertake DCF modelling however, the financial parameters of the model need to be determined.

• determination of a discount rate - a 7 per cent real discount rate has been adopted. This is typical of a discount rate used in government infrastructure projects; and

• determination of the assessment period - the utilisation of a 25 year analysis period – this is the industry standard analysis period for investments of this nature, driven primarily by asset life and depreciation assumptions (5 years in construction and 20 years in operation).

11.3 Base Case and Options for Analysis

The feasibility study report has detailed the base case airport locations and operations, and has detailed the process and outcomes for the selection of options for a regional airport within the Bay of Plenty. The base case and the five scenarios analysed as part of the “base analysis” are listed and briefly detailed below:

Base Case

The base case has been defined as the existing airport set up and operation within the Bay of Plenty region. The existing situation involves the operation of three airports within the area servicing particular town populations. Broadly, the assumptions for the base case airport operation are that passenger traffic will continue to move as forecast by the three airports as will airline service levels, while the airports will retain their current cost and revenue profiles.


The Paengaroa site is located in the Te Puke and Paengaroa areas. The Paengaroa sites are located along State Highway 33 approximately 10 kilometres south of the junction with the Eastern Arterial. Site 1 in the Paengaroa region consists of 110 property lots and 645 hectares of land.


Site 2 at Paengaroa is the same general location as Site 1, but has a different land footprint. Site 2 in the Paengaroa region consists of 79 property lots and 748 hectares of land.

Pyes Pa – Site 1

The Pyes Pa site is located between Tauranga and Rotorua on Pyes Pa Rd. Site 1 in the Pyes Pa region consists of 18 property lots and 842 hectares of land.



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Pyes Pa – Site 2

Pyes Pa – Site 2 operates under the same conditions of Site 1 but consists of 23 property lots and 1,124 hectares of land.

Pyes Pa – Site 3

Site 3 in the Pyes Pa region consists of 21 property lots and 1,139 hectares of land. Besides the differences in land area, the site assumptions are the same as for Pyes Pa Sites 1 and 2.

11.4 Analysis Methodology

The analytical approach taken within the project feasibility study is an incremental discounted cash flow approach, comparing the existing situation with the proposed regional airport scenarios. A discounted cash flow (DCF) analysis uses future free cash flow projections and discounts them to arrive at a present value, which is used to evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one.

In order to undertake the DCF analysis, the benefits and costs associated with a development, and the existing scenario, or base case, must be identified. An economic benefit cost study will 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. These additional factors often include externalities in terms of environmental benefits or costs. In general two types of cost and benefit items exist when undertaking BCA studies - market and non-market.

• market costs and benefits are those costs and benefits that can be readily identified and valued in money terms, eg the value of constructions costs or the value of maintenance costs often derived from any financial assessment that has been undertaken of a specific project.

• non-market costs and benefits, these are costs and benefits which can be identified and measured in physical terms or are known to exist but cannot be accurately quantified or valued in money terms because of the absence of a specific market that trades those cost and benefit items, eg environmental benefits as a result reduced pollution or the value of new infrastructure to the community in terms better quality and improved reliability of service.

In other words, while market costs and benefits can be assigned a quantitative value with reference to market information, non-market costs and benefits can be difficult to quantify, given there is no direct valuation placed on them in a market.

The process associated with the regional airport feasibility DCF analysis is represented diagrammatically in the figure below:



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Figure 11.2

Discounted Cashflow Analysis Methodology

Base Case –Existing Local

Airports

Scenario Analysis –

Regional AirportCosts

Benefits

IncrementalDCF

Analysis

Decision Outputs

Example Benefits and Costs:

•Construction;

•Maintenance;

•Real Estate;

•Airport Operating Impacts;

•Traffic and Transport;

•Airline Operating Impacts; and

•Regional economic impacts.

Example Decision Outputs:

•Net Present Value (NPV);

•Benefit Cost Ratio (BCR); and

•Internal Rate of Return (IRR).

Base Case –Existing Local

Airports

Scenario Analysis –

Regional AirportCosts

Benefits

IncrementalDCF

Analysis

Decision Outputs

Example Benefits and Costs:

•Construction;

•Maintenance;

•Real Estate;

•Airport Operating Impacts;

•Traffic and Transport;

•Airline Operating Impacts; and

•Regional economic impacts.

Example Decision Outputs:

•Net Present Value (NPV);

•Benefit Cost Ratio (BCR); and

•Internal Rate of Return (IRR).

The results of the DCF analysis can be calculated, ranked and presented via a number of key decision tools, including:

• the Net Present Values (NPV) of each scenario option – The NPV sums the discounted cashflow outcomes of benefits and costs of a project. If a project has a positive NPV (NPV>0) it is prudent to invest in the project;

• Benefit Cost Ratio (BCR) of each option – the BCR compares the ratio of benefits to costs of a particular project. A BCR greater than one indicates a positive return to a project/scenario and hence investment in the project is valid; and

• Internal Rate of Return (IRR) – the IRR is the discount rate at which NPV=0. The IRR gives an indication of the risk of a project. The greater the IRR, and its relation to the standard discount rate, the less risky a project/scenario is to invest in.

The brief description of the major benefits and costs which have been identified in the regional airport feasibility study include:

• airport capital expenditure – the cost of building a centralised regional airport based on required specifications compared to the benefits of avoided capital expenditure at the three existing airports;

• facility maintenance – the costs of maintaining a new facility compared to the cost of maintaining the existing facilities;



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• real estate costs and benefits – the cost of purchasing land for the potential sites for the regional airport compared with benefit of selling existing airport land;

• airport operating revenues and costs – the changes in operating revenues and costs at a regional airport versus those at the three local airports;

• airline operating revenues and costs – the changes in costs and revenues to the airlines of having to staff and travel to one airport within the region versus the three localised airports;

• transport and traffic benefits and costs – the economic benefits and costs to the Bay of Plenty region in transport to and from the regional airport compared to those currently attributable to the local airports; and, in terms of travel times, operating costs, environmental emissions and accidents; and

• economic impact benefits – the incremental economic impact (or GDP effect) on the local region of increased travel into the region associated with establishing a regional airport.

The calculation and analysis of these impacts provides the results for the options selected for the regional airport in the Bay of Plenty. These results and subsequent sensitivities are analysed and presented in the proceeding sections.

11.5 Results of the Benefit-Cost Analysis

The results of the benefit cost analysis are set out in Table 11.1 below. The outcomes highlight the impact on the economy as a whole of the development of the new regionalised airport in the five different site-option scenarios.

Table 11.1




Pyes Pa – Site 1

Pyes Pa – Site 2

Pyes Pa – Site 3

Net Present Value ($’m)

-98 -121 60 53 53

Net Present Value - Benefits ($’m)

367 367 357 357 357

Net Present Value - Costs ($’m)

466 488 298 304 304

Benefit Cost Ratio

0.76 0.72 1.21 1.18 1.18




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These results have been produced for the “Base Case Scenario. The base scenario was analysed using the base inputs, which include the following key parameters:

• base level traffic forecasts for the existing airports and the forecast regional airport;

• net capital expenditure of $366 million;

• net real estate values between of $4 million and $208 million;

• traffic and transport ; and

• base economic impact outcomes from spending in the region (average spend of $204 per visit).

11.5.1 Sensitivity Analysis

The Bay of Plenty regional airport project is currently at the feasibility stage of analysis and there are still many “what ifs” or “maybes” associated with the project. Sensitivities to important parameters have been run on the base case BCA results, in order to determine the factors that have the greatest impact on project feasibility, and also to indicate the variations that may occur in project impacts should these variations occur.

The key parameters on which sensitivities have been run, in various forms are:

• passenger forecasts (base, high and Rotorua);

• capital cost (± 30 per cent on base capital costs); and

• value of economic impacts.

Best Case Scenario Sensitivity

The first sensitivity presented in this report is described as the best case scenario. The best case scenario sensitivity analyses the regional airport using all the upside scenarios which include maximum passenger forecasts, low capital expenditure and high economic impacts. The best case sensitivity analysis includes the following parameters:

• ratio level traffic forecasts for the regional airport (1 million passengers by 2025);

• capital expenditure of $256 million; and

• increased economic impact. (spend $330 per visit)



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Table 11.2

Best Case Scenario Benefit Cost Result Summary

Site Option Benefit Cost Ratio

Paengaroa Site 1 2.59


Pyes Pa Site 1 5.18

Pyes Pa Site 2 4.98

Pyes Pa Site 3 4.98


For the best case scenario sensitivity, the BCR results range between a low point of 2.43 for Paengaroa Site 2 and a high point of 5.18 for Pyes Pa Site 1. The results of the best case scenario analysis highly positive and if achievable would suggest that the regional airport project proceed.

Worst Case Scenario Sensitivity

The worst case scenario analysis brings together many of the potential downsides that could be associated with the regional airport project. These potential downsides include an increase in passengers through Rotorua, particularly trans-Tasman traffic, which would result in a lower incremental benefit for the regional airport, a higher than expected capital expenditure for the establishment of the regional airport and a lower regional economic impact because of reduced incremental passenger levels. The worst case sensitivity analysis includes the following parameters:

• Rotorua trans-Tasman traffic forecasts;


• base economic impact (spend $204 per visitor).



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Table 11.3

Worst Case Scenario Benefit Cost Result Summary




Pyes Pa Site 1 0.59

Pyes Pa Site 2 0.58

Pyes Pa Site 3 0.58


The BCR results for the worst case scenario analysis are between 0.42 for Paengaroa Site 2 and 0.59 for Pyes Pa Site 1. All the BCR results under the worst case scenario analysis are below one which indicates that the project should not be invested in, if there was a high probability of these events occurring.

Increased Passenger Forecast Sensitivity

A sensitivity analysis has been undertaken on passenger forecasts for the regional airport. The base passenger levels for the regional airport were set using econometric techniques, as set out in Section 4, such as population levels, propensity for travel, income levels for example. A sensitivity has been carried out where the level of passengers travelling through the regional airport have been increased on the basis of New Zealand average ratios of population to travel. .

The assumptions used in the ratio passenger analysis include the following parameters:

• New Zealand ratio level traffic forecasts (1 million passenger movements);

• base capital expenditure of $366 million; and

• base economic impact (spend $204 per visitor).

The summary results for each of the options in terms of the BCR are shown in the table below



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Table 11.4

Ratio-Passenger Benefit Cost Result Summary




Pyes Pa Site 1 1.76

Pyes Pa Site 2 1.72

Pyes Pa Site 3 1.72


If the number of passengers going through the regional airport in the Bay of Plenty was derived from New Zealand average ratios, all options being analysed in the feasibility study would be greater than one. The BCR results for increased passenger throughput range between 1.04 for Paengaroa Site 2 and 1.76 for Pyes Pa Site 1.

Increased Rotorua Passenger Forecast Sensitivity

Rotorua Airport have been actively seeking increasing passenger numbers through their airport, particularly trans-Tasman patronage. A scenario has been run in the study to determine what the effect of increased traffic through Rotorua would be on the feasibility of the regional airport. In effect, if Rotorua was to achieve its goals in terms of trans-Tasman passengers, it would have a downward effect on the regional airport as the incremental passenger levels fall.

This Rotorua passenger analysis includes the following key parameters:

• Rotorua level traffic forecasts (844,188 passengers by 2025) ;


• base economic impact unit cost (spend $204 per visitor).

The summary results for each of the options in terms of the BCR are shown in the table below.



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Table 11.5

Rotorua Passenger Benefit Cost Result Summary




Pyes Pa Site 1 0.79

Pyes Pa Site 2 0.77

Pyes Pa Site 3 0.77


The outcomes of the Rotorua Airport sensitivity give BCR results which range from 0.50 for Paengaroa Site 2 and 0.79 for Pyes Pa Site 1.

Reduced and Increased Capital Expenditure Sensitivities

Two sensitivities have been performed to analyse the impacts of a capital expenditure cost. Sensitivity testing has been carried out on a decrease in capital expenditure and an increase in capital expenditure. The sensitivities have been undertaken with capital expenditure valued at 30 per cent below and 30 per cent above the estimated costs modelled in the base case.

The first sensitivity was to look at the outcomes if there was reduced capital expenditure for the construction of the of the regional airport. This reduced capital expenditure sensitivity includes the following parameters:

• 30 per cent decrease in base capital expenditure;

• base level traffic forecast; and

• base economic impact.

The summary results for the reduced capital expenditure sensitivity in terms of the BCR are shown in the table below.



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Table 11.6

Reduced CapEx Benefit Cost Result Summary




Pyes Pa Site 1 1.84

Pyes Pa Site 2 1.77

Pyes Pa Site 3 1.77


A reduction in the base capital expenditure by 30 per cent results in a BCR range of 0.89 for Paengaroa Site 2 and 1.84 for Pyes Pa Site 1. Using this analysis, it can be seen in the table, that the BCR for each of the Pyes Pa site options are greater than one, which means that it is economically feasible for the construction and operation of a regional airport. The Paengaroa sites BCR results are both still negative under the reduced capex scenario and are therefore still considered not feasible.

The second of the capital expenditure sensitivities is an increase in capex by 30 per cent on the base level. The increased capital expenditure analysis includes the following parameters:

• 30 per cent increase in capital expenditure;

• base level traffic forecast; and

• base economic impact.

The summary results for the increased capital expenditure sensitivity, in terms of the BCR, are shown in the table below.



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Table 11.7

Increased CapEx Benefit Cost Result Summary




Pyes Pa Site 1 0.90

Pyes Pa Site 2 0.89

Pyes Pa Site 3 0.89


Under an increased capital expenditure analyse, all options in Paengaroa and Pyes Pa have a BCR less than one, meaning that the project is not feasible under these conditions. The BCR results for the high capital expenditure scenario range between 0.61 for Paengaroa Site 2 and 0.90 for Pyes Pa Site 1.

Visitor Spend Rate Sensitivity

The average visitor spend ratio in the Bay of Plenty is $204 per visit. As discussed in Section 4, the spend rates have been derived from the Statistics New Zealand Visitor Survey. The average visitor spend has been derived from all visitors to the Bay of Plenty. With the establishment of a regional airport, it has been forecast that the level of trans-Tasman visitors will increase. Based on the Statistics NZ visitor survey, it can be shown that trans-Tasman visitors are more likely to spend more than the average per visit. A sensitivity has been undertaken on an increase trans-Tasman visitor per visit expenditure. The effect of this increased spend is to increase the level of economic activity within the Bay of Plenty region. The visitor spend sensitivity analysis includes the following parameters:

• spend rate of $330 per trans-Tasman passenger and $204 for other passengers;

• base level traffic forecasts;


• increased economic impact.



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Table 11.8

Visitor Spend Benefit Cost Result Summary




Pyes Pa Site 1 2.08

Pyes Pa Site 2 2.03

Pyes Pa Site 3 2.03


The BCR results for the sensitivity analysis range from 1.21 for Paengaroa Site 2 to 2.08 for Pyes Pa Site 1. The results presented show that under each of the options evaluated under the visitor spend sensitivity, all BCR results are all greater than one, meaning that under these assumed conditions, the regional airport is feasible.

Increased Annual Capital Expenditure Sensitivity

The final sensitivity test that has been undertaken on the feasibility of a regional airport in the Bay of Plenty is to assess the impact of higher annual capital expenditure at the existing airports relative to the regional airport. This scenario increases capital expenditure to $4.5 million per annum from the current level which has been estimated by the existing airports to be $2.5 million. The increase represents an increase in annual capex associated with changes and improvements at Rotorua Airport.

The increased base annual capital expenditure sensitivity analysis includes the following parameters:

• base level traffic forecasts;

• base level capital expenditure;

• base economic impact; and

• increased annual capital expenditure of $4.5 million per annum;



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Table 11.9

Increased Annual CapEx Benefit Cost Result Summary




Pyes Pa Site 1 1.33

Pyes Pa Site 2 1.30

Pyes Pa Site 3 1.30


The BCR for the increased base annual capex sensitivity results range between 0.80 for Paengaroa Site 2 and 1.33 Pyes Pa Site 1. In more general terms, increasing the base annual capex makes the Pyes Pa sites more feasible from a BCR perspective, it also improves the BCR results for the Paengaroa sites, but all sites are still calculated at less than one, and are therefore considered not feasible.

11.6 Benefit Cost Analysis Conclusions

Overall Conclusions

Benefit – Cost analysis is undertaken from an “economy wide” perspective, rather than that of any particular individual or organisation. For this study, the perspective of the economic analysis undertaken is the Bay of Plenty region, that is, does the regional airport have a beneficial economic effect on the Bay of Plenty region.

There have been a number of decision criteria variables established in the analysis undertaken for the regional airport including net present value, internal rate of return (IRR) and the benefit – cost ratio (BCR). Although all measures are useful, it has been deemed most useful to talk in terms of the BCR. A BCR greater than one means that the benefits of the project outweigh the costs and that are attributable to the project. A BCR of less than one means that the costs of the project outweigh the community benefits. The greater the BCR is above one, the better the project economic returns are expected to be.

Government agencies typically use a project decision criteria outcome as a means to rank the economic return that a project will produce for the region. Given the financial resource constraint faced by all economic entities, there is a limit to the number of projects that governments can invest in, in any given period. The government agency is likely to then choose the project which gives the greatest predicted economic and social returns to the region. Alternatively, a government or agency will set a benchmark BCR for investment in a project, for example, only investing in projects with a BCR greater than two.



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Like the financial feasibility analysis, the BCA analysis is 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. The site based outcomes are discussed below.


Due to the high cost of land at the Paengaroa sites, the BCR of Site 1 is less than one, meaning that economically this site is not feasible. As was the case for the financial feasibility, the land acquisition costs are responsible for the Paengaroa sites being less feasible than the Pyes Pa sites, with the price of acquisition estimated to be approximately 6 times in the Paengaroa area.

The range of BCR options for Paengaroa – Site 1 is between 0.43 and 2.59 using the worst case and best case scenario, with a base BCR result of 0.76 over the course of the evaluation.


The conclusions for Paengaroa – Site 2 are identical to Site 1. The benefits of increased tourism and economic activity within Bay of Plenty as a result of the regional airport are not large enough to cover the cost of land acquisition and capital expenditure needed for the project to progress.



The Pyes Pa sites have BCRs’ that are greater than one. Using the BCR descriptions set out in the conclusion introduction, an NPV greater than one means that a project’s benefits outweigh its costs and is defined as economically feasible. As was the case in the financial feasibility, the outcomes for the Pyes Pa sites are better than for the Paengaroa site because of the difference in the land acquisition costs. Apart from this cost difference, there are limited differences between the two sites in terms of economic outcome. Although the BCR’s are greater than one for the Pyes Pa sites they are not strong positive results and indicate that at this stage the project is marginal.

The range of BCR options for Pyes Pa – Site 1 is between 0.59 and 5.18 using the worst case and best case scenario, with a base BCR result of 1.21 over the course of the evaluation.



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The conclusions for Pyes Pa – Site 2 are identical to Site 1. The only variable factor in the economic analysis for the Pyes Pa sites is the land acquisition costs. The land acquisition costs are $8 million greater at Site 2 compared to Site 1 which results in a lower BCR outcome for Pyes Pa – Site 2.


Conclusions – Site 2 C



SECTION 12Risk Factors


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12 Risk F actors

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

There has been assumptions made throughout the report about the level of, and type of passengers, that will travel to and from the Bay of Plenty region over the evaluation period under both the existing airport structure and if the airports within the Bay of Plenty were centralised into a single regional airport. The forecasts have been made using a number of techniques and are based on historical outcomes and econometric analysis.

There is no foolproof means of insuring that the forecast patronage levels assumed in this report will actually eventuate. There are too many and varied possibilities with regard to world events, for example the effect of bird flu or SARS.

Airline Service Levels & Frequency Modal Shift

The passenger levels forecast over the evaluation period are based on continued support by airlines who will service the area. The assumptions made in the report are that services continue at the same level in terms of number of flights, except for two additional flights internationally from Australia. Even though we have not changed the number of flights into the region, through centralising the airport location we have increased the frequency of flights into and out of the region. If the airlines do not support this increase in frequency in flights, there is not likely to be the same level of modal shift to air away from road and therefore the patronage forecasts will not be met.

A means of mitigating risk would be to sure up support with the airlines before the regional airport is constructed to ensure that the service assumptions made in the report are the same or similar to the intentions of the airlines. By assuming that the landing fees are not increased above the regional airport average benchmark in calculating feasibility, the chances of airline support are improved.

Regional Airport Capital Cost

The capital cost estimations for the regional airport have been undertaken at a conceptual level for this stage of the feasibility study. There has been no detailed analysis of the site specific requirements and no detailed design of the airport facilities. With the limited work undertaken on the costing of the airport comes risk that the actual cost of the airport is under estimated. There is also a possibility that the capital costs are over estimated and this may impact positively on the feasibility of the airport.

SECTION 12Risk Factors


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In order to mitigate this risk a more detailed capital costing will need to be undertaken to produce a more accurate costing outcome. This would be done as part of the next stage of the regional airport process, if the regional airport went to a plan and design stage.

Availability of Land

Once the potential sites for the regional airport have been identified, there is the possibility that accessing the land will be more difficult. There are two possible difficulties which could occur as a result of the placement of the regional airport, regardless of where that placement is, and include:

• refusal to sell lands due to the opposition to the project; and

• inflation of land price because of awareness of requirement.

To mitigate these potential problems, a process of gradual purchase of the required lands is likely to result in a positive outcome. As properties are placed on the market, EBOP can purchase at the prevailing market rates.

Cost of Supporting Infrastructure

The cost of ensuring that the supporting infrastructure required for the regional airport to function properly, such as roads into and out of the airport, have not been analysed in detail for this study. For the same reasons that the airport capital costs have only been estimated at the conceptual level, the surrounding infrastructure has only been estimated at this level of detail. Having the appropriate infrastructure to service the airport is important for the achievement of the passenger forecast levels, particularly the modal shift component, to facilitate access.

A more detailed analysis of the infrastructure undertaken in the planning and design stage of the process would take into account the need for detailed supporting infrastructure costing and should mitigate the risks associated with this issue. The results of this analysis will impact on the feasibility of the regional airport project.

SECTION 13Conclusions


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13 Conclusions

General

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 13.1 below.


Figure 13.1



(completed 2002)


(current)


(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 costing;

• real estate;

• airport and airline operation and cost analysis; and

• transport planning.



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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; and

• Site 2 - along the Pyes Pa Rd, some 30-35km of the main urban areas of 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 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. 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;



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• 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.

Financial Feasibility

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 13.1.

Table 13.1



Paengaroa Site 1 -$453

Paengaroa Site 2 -$475

Pyes Pa Site 1 -$271




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).

The sensitivity tests being undertaken on the financial feasibility analysis include:

• New Zealand ratio passenger level forecasts;

• Rotorua trans-Tasman passenger forecasts;

• reduction in capex by 30 per cent; and

• increase in capex by 30 per cent.



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The results of the sensitivity tests are presented in table 13.2. Under no sensitivity, run in this report, does the regional airport become feasible financially.

Table 13.2

Financial Feasibility Sensitivity Results

Site Option NZ Ratio Pax

NPV($’ms)

Rotorua Trans

Tasman Pax

NPV($’ms)

-30% Capex

NPV ($’ms)

+30% Capex

NPV ($’ms)



Pyes Pa Site 1 -$269 m -$270 m -$178 m -$364 m

Pyes Pa Site 2 -$276 m -$277 m -$185 m -$371 m

Pyes Pa Site 3 -$276 m -$277 m -$185 m -$371 m


The range of financial outcomes for the sensitivity analysis is:

• New Zealand ratio passenger forecast – negative $269 m for Pyes Pa (Site 1) to negative $473 million for Paengaroa (Site 2);

• Rotorua trans-Tasman passenger forecast – negative $270 m for Pyes Pa (Site 1) to negative $474 million for Paengaroa (Site 2);

• reduction in capex by 30 per cent– negative $178 m for Pyes Pa (Site 1) to negative $382 million for Paengaroa (Site 2); and

• increase in capex by 30 per cent – negative $364 m for Pyes Pa (Site 1) to negative $568 million for Paengaroa (Site 2).

Financial Feasibility Overall Conclusions

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.

Under none of the financial feasibility scenarios analysed in this report is the regional airport project financially feasible. The negative results which range from negative $271 million to negative $475 million over the twenty year operation evaluation can be attributed to the high capital costs associated with the construction of the regional airport facility and the purchase price of land within the region, the



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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.

For continuity there were no specific increases in landing fees at the regional airport above those that were inherent in the benchmarking analysis used to determine the financial profit and loss of the type of regional airport being considered for the Bay of Plenty region.

Airports are, however, long term assets, which does give the owner/operator the opportunity to build revenue streams over a substantial period of time.

The lack of financial feasibility means that for the regional airport project to be considered there will need to be benefits to the community and the region which are not captured within the financial parameters of the airport but in the Bay of Plenty economy or socio - economy.


Due to the high cost of land at the Paengaroa sites, the financial feasibility of Site 1 is negative. The income streams which include landing fees, land and facility rental, are not of a magnitude which is high enough to cover the costs associated with the project.

With all the regional airport options being considered, the effect of the upfront construction costs, makes achieving financial feasibility difficult. The capital expenditure cost for the regional airport has been estimated at $366 million for the Paengaroa sites.



The conclusions for Paengaroa – Site 2 are identical to Site 1. The capital costs and the land costs associated with the regional airport are of a magnitude that does not allow a financial return to the owner/ operator over the period of the evaluation. The land acquisition costs are $25 million greater at Site 2 compared to Site 1 which results in a less financially feasible outcome at Paengaroa – Site 2.



The Pyes Pa sites have a more financially feasible outcome than siting the regional airport at Paengaroa, but the outcomes are still negative. Pyes Pa – Site 1 gives the least negative financial return of all the evaluated regional airport sites. This is a function of a lower land acquisition cost, which has been estimated at $41 million. The Pyes Pa regional airport sites are estimated to cost $397 million



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to construct, approximately $31 million greater than the Paengaroa sites, which is due to additional requirements for servicing the sites.








Economic Benefit Cost Analysis

The base results of the cost benefit analysis are set out in Table 13.3 below. The outcomes highlight the impact on the economy as a whole of the development of the new regionalised airport in the five different site-option scenarios.



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Table 13.3




Pyes Pa – Site 1

Pyes Pa – Site 2

Pyes Pa – Site 3

Net Present Value ($’m)

-98 -121 60 53 53

Net Present Value - Benefits ($’m)

367 367 357 357 357

Net Present Value - Costs ($’m)

466 488 298 304 304

Benefit Cost Ratio

0.76 0.72 1.21 1.18 1.18



These results have been produced for the “Base Case Scenario. The base scenario was analysed using the base inputs, which include the following key parameters:

• base level traffic forecasts for the existing airports and the forecast regional airport;

• net capital expenditure of $366 million;

• net real estate values between of $4million and $208 million;

• traffic and transport ; and

• base economic impact outcomes from spending in the region (average spend of $204 per visit).

Economic BCA Overall Conclusions

BCA is undertaken from an “economy wide” perspective, rather than that of any particular individual or organisation. For this study, the perspective of the economic analysis undertaken is the Bay of Plenty region, that is, does the regional airport have a beneficial economic effect on the Bay of Plenty region.

There have been a number of decision criteria variables established in the analysis undertaken for the regional airport including net present value, internal rate of return (IRR) and the benefit – cost ratio (BCR). Although all measures are useful, it has been deemed most useful to talk in terms of the BCR. A BCR greater than one means that the benefits of the project outweigh the costs and that are attributable to



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the project. A BCR of less than one means that the costs of the project outweigh the community benefits. The greater the BCR is above one, the better the project economic returns are.

Government agencies typically use a project decision criteria outcome as a means to rank the economic return that a project will produce for the region. Given the financial resource constraint faced by all economic entities, there is a limit to the number of projects that governments can invest in, in any given period. The government agency is likely to then choose the project which gives the greatest predicted economic and social returns to the region. Alternatively, a government or agency will set a benchmark BCR for investment in a project, for example, only investing in projects with a BCR greater than two.

Like the financial feasibility analysis, the BCA analysis is 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. The site based outcomes are discussed below.


Due to the high cost of land at the Paengaroa sites, the BCR of Site 1 is less than one, meaning that economically this site is not feasible. As was the case for the financial feasibility, the land acquisition costs are responsible for the Paengaroa sites being less feasible than the Pyes Pa sites, with the price of acquisition estimated to be approximately 6 times in the Paengaroa area.



The conclusions for Paengaroa – Site 2 are identical to Site 1. The benefits of increased tourism and economic activity within Bay of Plenty as a result of the regional airport are not large enough to cover the cost of land acquisition and capital expenditure needed for the project to progress.



The Pyes Pa sites have BCRs’ that are greater than one. Using the BCR descriptions set out in the conclusion introduction, an NPV greater than one means that a projects benefits outweigh its costs and is defined as economically feasible. As was the case in the financial feasibility, the outcomes for the Pyes Pa sites are better than for the Paengaroa site because of the difference in the land



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acquisition costs. Apart from this cost difference, there are limited differences between the two sites in terms of economic outcome. Although the BCR’s are greater than one for the Pyes Pa sites they are not strong positive results and indicate that at this stage the project is marginal.







The range of BCR options for Pyes Pa – Site 3 is between 0.58 and 4.98 using the worst case and best case scenario, with a base BCR result of 1.18 over the course of the evaluation period.

Appendix A Diagrams & Mapping


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