Cost-Benefit Analysis of Sydney's Second Airport

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To: Sam Haddad, Director-General, NSW Planning and Infrastructure From: Jonathon Flegg, Strategy and Planning Unit, NSW Planning and Infrastructure Email: [email protected] Date: 20-Jun-2011 Re: Evaluating a Proposed Second International Airport for Sydney Executive Summary Sydney’s Kingsford-Smith Airport is Australia’s major international and domestic air transport hub. In 2008-09 there were 32.7 million passengers moved through the airport, including 43.5% of all international arrivals into Australia. As a result there are major concerns that the current airport will reach capacity within the next 10 years. Capacity is current limited by a physical lack of space, federal regulation limited traffic volume, and a lack of land-based transport substitutes. The Policy and Strategy Unit (PSU) has analyzed whether Sydney should: (1) maintain the status quo; (2) seek the removal of the regulatory constraints limiting traffic at the current airport; or (3) build a new secondary airport at the most promising site of Badgery’s Creek in MEMO MEMO

Transcript of Cost-Benefit Analysis of Sydney's Second Airport

Page 1: Cost-Benefit Analysis of Sydney's Second Airport

To: Sam Haddad, Director-General, NSW Planning and Infrastructure

From: Jonathon Flegg, Strategy and Planning Unit, NSW Planning and Infrastructure

Email: [email protected]

Date: 20-Jun-2011

Re: Evaluating a Proposed Second International Airport for Sydney

Executive Summary

Sydney’s Kingsford-Smith Airport is Australia’s major international and domestic air transport

hub. In 2008-09 there were 32.7 million passengers moved through the airport, including 43.5%

of all international arrivals into Australia. As a result there are major concerns that the current

airport will reach capacity within the next 10 years. Capacity is current limited by a physical lack

of space, federal regulation limited traffic volume, and a lack of land-based transport substitutes.

The Policy and Strategy Unit (PSU) has analyzed whether Sydney should: (1) maintain the

status quo; (2) seek the removal of the regulatory constraints limiting traffic at the current

airport; or (3) build a new secondary airport at the most promising site of Badgery’s Creek in

MEMO MEMO

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Western Sydney. Our cost-benefit analysis over the next 50 years shows building a new second

airport at Badgery’s Creek could be completed between 2017 and 2018 and is estimated to

provide additional net social benefits to Australians of A$5.22 billion over the next half century.

The major economic benefits of such a policy decision are from economic stimulus to Western

Sydney and through time savings associated with relieving the capacity constraints at

Kingsford-Smith Airport. The most significant costs associated with the proposed project are the

loss of the alternative use of the site and the costs of congestion and aircraft noise affecting

local residents. The result is robust for any social discount rate below 10.0%. Removing the

regulatory cap on traffic through Kingsford-Smith is not a socially efficient policy solution

according to our analysis.

The political situation is complicated, polarized and salient to voters. The PSU analysis

suggests that with the right strategy a number of key stakeholders could move closer to a

position of support for such an infrastructure project. Passengers and residents of Western

Sydney are both large and politically-significant groups that could mobilized if given the right

inducements, such as better access to public transport.

Problem Statement

In 2007 31.9 million passengers moved through Kingsford-Smith Airport, and this is forecasted

to increase to 78.9 million by 20291. The capacity of the current site is quite limited and there

are major concerns that the current airport is reaching capacity. Occupying a site within only 10

kilometres of the Central Business District, it is surrounded by relatively dense residential

development, the Port of Sydney, and Botany Bay (see Figure 1). The last major capacity

increase was the parallel, or “third”, runway that was completed on reclaimed land in Botany

Bay in 1994. Booz and Company consultants recently reported that by 2020 if the status quo is

maintained bad weather days could result in flight delays of up to 5 hours2.

Is developing a new secondary airport the most appropriate policy response to the projected

increase in demand for air travel services? On the demand-side, air travel continues to grow in

1 SAC. 2009. “Aviation Activity Forecasts 2009”. In Sydney Airport Master Plan 2009 Retrieved from:

http://sydneyairport.com.au/ . 2 Bennett, A. and V. Morello. 5

th April 2011. “Fed, NSW govts at odds over second airport”. The Age.

Retrieved from: htttp://www.theage.com.au/ .

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Sydney because of both growth in the city’s population3, and because the deregulation of the

airline industry in Australia between 1990-95 has caused strong domestic competition to

emerge on key routes. For example, the Sydney – Melbourne route has now emerged as the

fourth most travelled air corridor in the world, and Sydney – Brisbane is twelfth4. The supply-side

problem is an issue of capacity constraint:

Physical constraint. The physical limits of the current infrastructure and the difficulty of

building future capacity at the current site.

Regulatory constraint. In 1995 the Federal Government responded to noise concerns by

passing the Sydney Airport Curfew Act which capped flights to a maximum of 80 flights

per hour and an aircraft curfew between 2300 and 0600 daily.

Substitution constraint. Unlike many other developed economies, Australia lacks a fast

land transport network between its disparate major population centres.

Figure 1: Site of Sydney Airport and Surrounding Suburbs

Addressing any of these supply-side constraints requires a public policy intervention. While the

Federal Government privatized major airports in 1994, as major infrastructure critical to the

Australian economy they remain heavily regulated by the Australian Competition and Consumer

3 Sydney’s population of 4.6 million people consists 20% of the nation’s total and it is growing

rapidly, by around 85,400 in the year 2008-2009.

4 Wikipedia. 2011. “World’s Busiest Passenger Air Routes”. Retrieved from: http://en.wikipedia.org/ .

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Commission (ACCC). Price regulation only ended in 2001. Operational regulations are also

overseen by the Civil Aviation Authority. The decision to build a second airport would require the

support of the Federal Government and the NSW Minister for Planning. State Government

transport and rail authorities would also be required to provide transport links to the site. A

decision to relax the regulatory constraint could be achieved through an Act of Federal

Parliament without the involvement of NSW Government. The development of a major land-

based mass transportation alternative would require the involvement of a number of

governmental actors.

As a single piece of infrastructure Sydney Airport has national economic significance. Sydney is

Australia’s major commercial centre and is the most-travelled gateway to the nation. Every year

Sydney Airport facilitates A$8 billion of indirect economic activity, which is roughly 2% of

national GDP5. Of all international arrivals, 43.5% arrive through Sydney Airport alone.

Moreover as traffic through the Airport reaches the 80 per hour limit, delays permeate

throughout entire domestic network, making this an issue of national economic significance.

The constraint issue must be resolved in the long-term before Kingsford-Smith Airport reaches

its capacity. If the Australian and NSW Government can agree to a course of action, tendering

for a construction contract could commence in 2012, with the majority of construction being

completed between 2015 and 2016. A new airport could be operational at the earliest by 2017.

On current projections maintaining the status quo will result in serious failure to cope with air

traffic volumes between 2019 and 2022.

Policy Alternatives

Each of the three constraints to the supply suggest an alternative policy response, and each has

their proponents. Possible policy interventions to this problem include:

1. maintaining the status quo and relying on the current infrastructure to accommodate the

increased demand;

2. changing the legislation to permit either the removal of the curfew or allow more than 80

flights an hour to land;

3. building a new secondary airport at the Badgery’s Creek’s site in Western Sydney;

4. building or developing at a site outside the Sydney Basin;

5 SAC. 2009. “Aviation Activity Forecasts 2009”. In Sydney Airport Master Plan 2009 Retrieved from:

http://sydneyairport.com.au/ .

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5. developing the current site to permit more flight-movements; or finally

6. the development of a high-speed rail network linking the major Eastern seaboard

population centres.

Sydney Airport Corporation advocates removing the regulatory cap on traffic through their

facility. In a recent submission to the Productivity Commission SAC argued6:

The arbitrary limit of 80 aircraft movements in an hour is below the demonstrated capabilities of

Sydney Airport and artificially limits the effective capacity of the airport. As a consequence:

The theoretical long term capacity of the airport is limited

Strategic slot hoarding by airlines in the morning and evening peaks results/occurs

Capacity constraints increase in morning and evening peaks, when the majority of

international and domestic services wish to arrive at and depart from Sydney Airport.

The Federal Government, with the support of a number of federal agencies such as the ACCC,

has recently renewed pressure to build a new airport. The International Air Traffic Agency also

supports this position7. Generally this position is substantiated by concerns over the misuse of

the Airport’s monopoly over Sydney air services. In March 2010 the ACCC released their 2008-

09 Airport Monitoring Report8. It expressed concerns about monopoly pricing for car parking and

also observed that Kingsford-Smith Airport had increased profits at the expense of the quality of

services. In April 2011 the Federal Minister for Infrastructure, Anthony Albanese said in a press

conference on the matter: “'I can understand Sydney [Kingsford-Smith] Airport wanting to

maintain its monopoly position but the truth is a global city such as Sydney needs a second

airport9.”

Finally the newly elected NSW Government leader, Barry O’Farrell, has argued against a new

airport in favour of a new high-speed rail network connecting the major population centres on

the Eastern seaboard. “'Whether the central coast, the south-west or the western suburbs, find

6 SAC. 2011. “Economic Regulation of Airport Services - Submission to the Productivity Commission

Inquiry”. Retrieved from: http://www.pc.gov.au/ . 7 Saulwick, J. 11

th April 2011.”Call for ACCC inquiry into Sydney Airport”. The Age. Retrieved from:

http://w http://www/theage.com.au/ . 8 ACCC. 2010. “Airport monitoring report 2008–09: price, financial performance and quality of service

monitoring”. Retrieved from: http://www.acc.gov.au/ . 9 Sky News. 5

th April 2011. “Another Sydney airport a must – Albanese”. Sky News. Retrieved from:

http://www.skynews.com.au/ .

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me an area that is not going to end up causing enormous grief to people who currently live

around it10.”

This cost-benefit analysis will compare in detail the leading first three proposals. This is for

efficacy purposes and to not clutter the comparison with proposals that will ultimately prove

physically or politically infeasible. Finally, cost-benefit analysis is complex and predicting the

impact of the final three proposals is beyond the scope of this memo. Specifically, Proposal 4 is

less preferable than Proposal 3 because of the immense distance any other site has to

overcome in connecting with Sydney. Proposal 5 is also physically infeasible given the current

space restrictions and inability to reclaim more land in Port Botany. Finally Proposal 6 to build

high-speed rail almost 2,000 kilometres between Brisbane, Sydney and Melbourne is not a

practical solution because it will not be able to be achieved within the given timeframe, or at a

reasonable cost.

Decision Criteria

The Kaldor-Hicks criterion is the basis of cost-benefit analysis. It states, “A policy should be

adopted if and only if those who will gain could fully compensate those who will lose and still be

better off11.” It is a method designed to achieve the most allocative efficient public policy

proposal. It is most suited to infrastructure project appraisal as it allows for a systematic

consideration of all potential impacts of an appraisal, both positive and negative. The major

downside of cost-benefit analysis is that it does not consider equity considerations, for example

the issue of equity in building a new airport in the lower socio-economic Western suburbs to

avoid noise and congestion impacting wealthier residents in Sydney’s East and Inner West. The

Policy and Strategy Unit (PSU) argues that while cost-benefit analysis is certainly the most

appropriate way of appraising infrastructure projects, the NSW Government should also

consider compensation, where necessary, as a method for achieving a more equitable policy

solution.

Additionally, all proposals must be considered within the light of political feasibility. Part of the

reason why all new airport proposals since the 1970s have failed is because of the political

saliency of the issue to the electorate. NSW is perhaps the only jurisdiction in the world that has

10 Saulwick, J. and K. Munro. 6

th April 2011. “O'Farrell calls for high-speed trains instead of second

Sydney airport”. Sydney Morning Herald. Retrieved from: http://www.smh.com.au/ . 11

Boardman, A. E et al. 2011. Cost-Benefit Analysis: Concepts and Practice (4th ed.). Pearson: Upper

Saddle River, NJ. Page 253.

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well-organized “No Aircraft Noise” Party running at elections12. The political situation is

complicated by the different positions taken by the Federal and State Governments.

Analysis of Alternatives and Decision Matrices

The following will address the methodology the PSU adopted for cost-benefit analysis of the

three proposals. Cost-benefit projections are made over the period 2013-63.

Cost to Local Residents

There are many social costs associated with living close to an airport, including noise pollution

and increased traffic congestion. The most straightforward method for assessing all these costs

is by using the hedonic regression method. The PSU constructed a dataset of 107 suburbs

located within 1.0 to 14.0 kilometres of Kingsford-Smith Airport, combining:

all median house sale price data for the last 24 months from www.domain.com13;

the direct distance of the suburb from the Kingsford-Smith Airport and the Central

Business District; and

a dummy if the suburb is on the coast, Sydney Harbour, Port Botany or Port Hacking.

Households reveal a preference for paying more for properties closer to the CBD and for those

on the water, while paying if closer to the airport. The PSU performed the following hedonic

regression14:

The results for all three independent variables was highly significant. Figure 2 shows property

prices improved by A$73,000 with every kilometre further away from the airport, while moving

closer to the CBD improves prices by A$59,000. Coastal status causes prices to jump

A$282,000.

The co-efficient β1 for distance from the airport can be used for assessing the social costs of the

proposed new airport on residents around the Badgery’s Creek site because it captures the

12

In 1995 State Election the Party managed to achieve 39.55% in the electorate of Marrickville (Reference: http://www.noaircraftnoise.org.au/). 13

www.domain.com is the major online residential property search engine, combining data on all publicly available property sale data. 14

For simplicity the functional form is assumed to be linear, however in reality it is likely the relationship between distance and property prices is of a quadratic form.

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price of avoiding the costs associated with living near an airport. Figure 3 shows the affected

population living within 5km, 10km and 20km of the proposed site15.

Given the PSU assumed the social costs to be linearly associated with distance, we evaluate

the social cost affecting values within a 10 kilometre threshold. Residents within 5 kilometres of

15

Webb, R and R. Billing. 2005. “Second Sydney Airport – A Chronology”. Parliamentary Research Paper (Economics, Commerce and Industrial Relations Group). Retrieved from: http://www.aph.gov.au/ .

Figure 2: Hedonic Regression of Distance from the Airport Against Median House Price Figure 2: Hedonic Regression of Distance from the Airport Against Median House Price

Figure 3: Affected Populations Surround Kingsford-Smith Airport and Badgery's Creek Figure 3: Affected Populations Surround Kingsford-Smith Airport and Badgery's Creek

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a new airport will bear a total social cost of A$1.1 billion and those within the 5-10 kilometre

range will incur A$1.2 billion. It is assumed this figure is the discounted net present value of all

future social costs and is borne by present owners, so is incorporated at the start of the project

in 2013.

If the federal legislation was changed at Kingsford-Smith Airport to permit the airport to avoid a

regulatory constraint on flight-movements, the PSU can model the effect by the following

method:

1. Find the total net present value of the cost on property prices for the current limit of 80

flights per hour (A$48,243 million).

2. Find the annual discounted cost to property owners over the long-term (A$3,260 million).

3. Multiply this discounted cost by the amount Kingsford-Smith Airport is projected to

exceed the 80 per hour limit every year. This equals A$33,700 million.

Cost of Flight Delays

As Sydney Airport approaches capacity it will create costs to passengers of flight delays.

According to projections performed by consultancy Tourism Futures International and

independently reviewed by Booz Allen Hamilton16 the daily flight movement on a typical “busy

day” will look something like Figure 4, with the 80 flights per hour constraint being reached from

around 0730 to 1230 and briefly at 1900.

16

SAC. 2006. “Aviation Activity Forecasts 2006”. In Sydney Airport Master Plan 2006. Retrieved from: http://sydneyairport.com.au/ and SAC. 2009. “Aviation Activity Forecasts 2009”. In Sydney Airport Master Plan 2009 Retrieved from: http://sydneyairport.com.au/

Figure 4: Typical "Busy Day" Traffic Projection in 2023 Figure 4: Typical "Busy Day" Traffic Projection in 2023

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To evaluate the cost increase in flight delays the PSU projected the trend in flight delays into the

future. In the period 2005-10 the proportion of on-time flights decreased from 85.8% to 79.7%,

averaging a 1.46% decrease per year. The PSU projected a similar trend until 2029, with the

trend slowing to -0.05% thereafter. Average length of delay is held constant at 20 minutes. This

is a conservative estimate of the delay profile if the status quo is maintained, as the congestion

that is likely to occur around peak times will certainly increase the average length of delay. The

annual percentage of delayed passengers is then multiplied by the projected number of

passenger movements through Kingsford –Smith Airport and the average length of delay to

arrive at an estimate of total passenger-hours lost each year to flights delays.

As the most important airport hub in the country, delays at Kingsford-Smith Airport also flow-on

to have significant delays at other airports around the domestic network. Welman et al17 in an

extensive empirical study calculate the propagation multiplier for cost-benefit analysis to be

consistently around 0.50. Therefore to capture the time lost in passenger delays at other

airports we multiply the Kingsford-Smith delay figure by this propagation multiplier.

Finally, the PSU assessed the economic cost of these flights delays. We assessed the cost only

to passengers, however in reality costs would also be borne by the airlines. Taking the average

annual salary of A$57,324 would suggest an average hourly wage of A$19.60 based on a 8-

hour working day. This figure is used as our estimate of the economic cost of lost hours through

delays, resulting in a total cost projection of A$11.37 billion over the next 50 years18.

Capital Costs of a New Airport

Estimates of capital cost are mainly derived from the NSW Government submission to the

Federal Government Environmental Impact Assessment conducted in 199919. The major costs

associated with building the new airport are shown in Table 1. These costs are factored into the

analysis as spread evenly over the construction phase from 2014-2016.

17

Welman, S., A. Williams, and D. Hechtman. 2010. “Calculating Delay Propagation Multipliers for Cost

Benefit Analysis”. Retrieved from: http://www.faa.gov/ . 18

Or A$1.47 billion discounted at a rate of 5.5% per annum. 19

NSW Government. 1999. “Submission by the NSW Government to the Commonwealth Minister for the Environment and Heritage Concerning the Environmental Impact Assessment for the Proposed Second Sydney Airport”. Retrived from: http://badgerysacpnp.homestead.com/files/NSWGOVSUB.htm .

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Table 1: Projected Construction and Associated Costs

Alternative Land Use at Badgery’s Creek

The Badgery’s Creek site, while located a significant distance from Sydney’s CBD, is still

valuable for its outstanding access to major road transport networks and as a potential site of

future urban intensification as the Sydney metropolitan area expands. The PSU have valued

these alternative uses at A$180 million annually, based on comparable land uses in the vicinity

of the site.

Welfare Gain for Passenger Increases

A new airport at Badgery’s Creek provides the opportunity for more passengers to fly in and out

of Sydney, presumably at cheaper prices. The PSU evaluated the welfare gain to passengers of

a new airport by estimating the following alternative scenario to the status quo projections.

Project Estimated Cost

Airport and Runway A$1.5 – 3.0 billion

Upgraded Rail Link A$1.6 billion

Road Upgrades and Connections A$1.4 billion

Water Connection Upgrade from Warragamba

Dam - Sydney

A$120 million

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

Annual Passenger Movements in Selected Regional/Secondary Airports

CANBERRA GOLD COAST HOBART TOWNSVILLE

Figure 5: Comparable Regional and Secondary Airport Passenger-Movements, 1985-2010 Figure 5: Comparable Regional and Secondary Airport Passenger-Movements, 1985-2010

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Firstly the PSU compared a number of other single-runway airports within Australia. Four

comparable single runway airports in Australia would be Hobart, Townsville, Canberra and Gold

Coast. The former three are large regional airports, while the Gold Coast caters to both as an

international holiday destination and as Brisbane’s second airport. Since the end of price

regulation in 2001, annual growth rates in passenger movements have varied between 7.5%

(Canberra) to 14.9% (Gold Coast). Given the latent demand expected to be satisfied by a

second Sydney Airport, the PSU forecasted annual growth in excess of the regional airports

(10.3%) but below that of the Gold Coast (14.9%), as initially at least it will not be conducting

international services. Initial movement numbers would start between 1,200,000 and 2,000,000.

Single-runway airports are currently effectively limited to absolute maximum of 35 million

passengers annually20.

Figure 6: Annual Passenger-Movement Projections, Second Sydney Airport 2017-2029

A certain amount of passengers at the new airport are expected to be substituted travellers from

Kingsford-Smith Airport. The PSU conservatively estimated 80% of passenger-movements at

the new airport will be substituted away from Kingsford-Smith. The additional new passengers

are thought to be dominated by price-sensitive domestic passengers, non-connecting flight

passengers and residents of Sydney’s Western suburbs. A new airport can be expected to

facilitate 1.3 million additional annual passenger-movements through Sydney by 2029.

20

London’s Gatwick Airport is the busiest single-runway airport in the world and facilitated 31,375,290 in 2010.

0

2000000

4000000

6000000

8000000

10000000

12000000

2017 2019 2021 2023 2025 2027 2029

Projected Annual Passenger Movements, Second Sydney Airport

LOW HIGH EXPECTED

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Figure 7: Total Sydney Passenger-Movement Projections, 2007-2029

Economic Stimulus for Western Sydney

The most difficult benefit to value is the economic stimulus a major new airport project will

provide to Western Sydney. Direct full-time equivalent employment rely on a number of

functional aspects of an airport, such as international, defense or aerospace facilities and the

quantity of retail space. For the purposes of comparison the PSU collected direct employment

data from airports’ most recently published 5-year master plans.

Table 2: Selected Australian Airports and Full-Time Equivalent Employment Figures

30000000

40000000

50000000

60000000

70000000

80000000

90000000

Sydney Total Passenger-Movements Projections

Total Sydney Airports (with New Airport) Total Kingsford-Smith Airport (without New Airport)

Total Kingsford-Smith Airport (with New Airport)

Airport Direct FTE Equivalent Employment

Annual Passenger-Movements (thousands)

Sydney (Kingsford-Smith) Airport 36,882 32,346

Brisbane Airport 16,000 18,721

Melbourne (Tullamarine) Airport 12,542 24,448

Canberra Airport* 8,000 3,062

Perth Airport 5,960 9,359

Adelaide Airport 5,070 6,784

Darwin Airport 1,641 1,539

Wellington Airport (NZ) 1,361 5,021

Sunshine Coast Airport 900 917

Newcastle Airport 383 1,173

Launceston Airport 319 1,127

Hobart Airport 250 1,869

*estimate includes defence and aerospace staff.

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With a reasonable volume of retail space the PSU projected that a new Sydney Airport would

facilitate employment of between 3,000-3,500 FTE staff on the average Australian salary. For

the effect on indirect employment and spending in Western Sydney, the PSU then used a

conservative multiplier of 2.021. The economic effect of the construction phase is also difficult to

project depending on whether there are cost or time over-runs. The PSU projected total

economic stimulus to Western Sydney to total between A$49.0 - 66.4 billion from the present

until 2029 based on low passengers and late construction and high passengers and early

construction (see Figure 8).

Figure 8: High and Low Economic Stimulus to Western Sydney

Social Discount Rate

For the social discount rate the PSU adopted the standard NSW Government Treasury rate of

7.0%. This compares favorably with the average rate for 10-year Australian Government bonds

of 6.0%. Long-term NSW Government bonds rates are quite similar to federal rates.

Government bond rates reflect the actual cost of financing such infrastructure projects in the

long-term; however it is acceptable with such a project to raise the rate higher to account for

21

California Aviation. 1988. “Determining Your Airports Economic Impact”. Retrieved from: http://californiaaviation.org .

0

100

200

300

400

500

600

700

800

900

1000

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Projected Economic Stimulus to Western Sydney

High Economic Stimulus Low Economic Stimulus

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project risk22. Moreover sensitivity analysis of the discount rate shows that building a new airport

is preferable over a wide range of discount rates. Given that most of the benefits of a new

airport accrue over the long-term, the lower the discount rate the higher the potential benefits. A

new facility is preferable for all discount rates of 9.9% and below.

Decision Matrices

The following decision matrix is a comparison of the cost-benefit analysis of the three policy

options. Figures are discounted by 7.0% from the year 2013.

Policy A (Status

Quo)

Policy B (Remove

Movement Cap)

Policy C (New Airport)

COSTS

Costs to Local

Residents

No additional. High cost to

residents ($33,700M)

Moderate costs to

residents ($2,400M)

Costs in Flight

Delays

Moderate cost to

passengers ($907M)

No additional. No additional.

Capital Costs None. None. Significant capital cost

($5,178M)

BENEFITS

Alternative Land

Use Benefit

Large benefit

($14,606M).

Large benefit

($14,606M).

None.

Welfare Gain

Passengers

No additional. Small benefit

($907M).

Moderate benefit

($2,827M).

Local Economic

Stimulus

No additional. No additional. Large benefit to Western

Sydney ($11,779M)

NET SOC. BEN. $1,881M $7,099M -$19,094M

The PSU recommends the development of a new secondary Sydney airport at Badgery’s Creek

as over the next 50 years Australians will realize A$5.22 billion dollars worth of social benefits,

above and beyond the status quo. Removing the regulatory cap at Kingsford-Smith is not a

socially efficient policy solution.

22

Boardman, A. E et al. 2011. Cost-Benefit Analysis: Concepts and Practice (4th ed.). Pearson: Upper

Saddle River, NJ. Page 253.

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Political Analysis

As explained above, the politics of airports in Sydney is complicated, polarized and salient. The

key stakeholders are:

1. Sydney Airport Corporation (owned by Macquarie Bank) with a vested interest in

maintaining its monopoly;

2. The Federal Government, its agencies, IATA and the airlines who would like to see that

monopoly broken for competitive reasons;

3. City residents, loosely organised by “No Aircraft Noise” and others, who strongly oppose

increases in aircraft traffic at Kingsford-Smith. They are the most currently vocal and

powerful NIMBI group.

4. NSW Government, who out of concern for an latent electoral backlash in Western

Sydney, has avoided the new airport proposal; and

5. Passengers, who stand to gain substantially from a new airport, but so far remain

unorganized and neutral.

The following political map shows the relative position of the different key actors. A possible

strategy for achieving the desired policy goal of a new airport is for the Federal and NSW

Government to work together on a join taskforce to implement the project. Passengers are also

a latent group of potential supporters who could be mobilized if they understood their full

benefits. There may be opportunities for the NSW Government to win the support of some

Strongly

Opposed

Opposed Neutral Favour Strongly

Favour

Federal Gov.

NSW Government

ACCC

IATA

Mac. Bank

SAC

No Aircraft

Noise

Activists/Party

Western Sydney

Residents

Passengers

Airlines

NSW Bus.

Chamber

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Western Sydney residents if they: (a) understand the economic benefits; and (b) can be partially

compensated for the additional congestion and noise. As the lack of public transport facilitates

in the Western suburbs has also been a long-standing political issue, compensation might take

the form of investment in better public transport and rail links.

Policy Recommendations

We make the following policy recommendations to the Director-General of NSW Planning and

Infrastructure:

Political feasibility

(1) Drop the NSW Government’s current opposition to a new airport facility for Sydney.

(2) Engage the Federal Government in a joint taskforce to implement a second airport for

Sydney at Badgery’s Creek.

(3) Make a call for tenders to develop to site by late 2012.

(4) Work towards a building and construction phase between 2014-2016, with the goal of

opening the new airport by 2017.

(5) Offer inducements to encourage an existing low-cost carrier to use the new airport as

a regional hub.

(6) Reconfirm the NSW Government’s commitment to limiting air traffic using Kingsford-

Smith Airport.

(7) Develop a communication strategy to explain the economic benefits of a new airport

to passengers and Western Sydney residents.

(8) Devise a strategy for partially compensating Western Sydney residents for increased

congestion by making a significant investment in advancing public transport in the

area.

(1) Drop the NSW Government’s current opposition to a new airport facility for Sydney.

(2) Engage the Federal Government in a joint taskforce to implement a second airport for

Sydney at Badgery’s Creek.

(3) Make a call for tenders to develop to site by late 2012.

(4) Work towards a building and construction phase between 2014-2016, with the goal of

opening the new airport by 2017.

(5) Offer inducements to encourage an existing low-cost carrier to use the new airport as

a regional hub.

(6) Reconfirm the NSW Government’s commitment to limiting air traffic using Kingsford-

Smith Airport.

(7) Develop a communication strategy to explain the economic benefits of a new airport

to passengers and Western Sydney residents.

(8) Devise a strategy for partially compensating Western Sydney residents for increased

congestion by making a significant investment in advancing public transport in the

area.