Review of demand forecasts - BARNZ · new visitors bring against any costs of providing these...

Review of demand forecasts Assessment of InterVISTAS Wellington International Airport Air Traffic Forecasts

NZIER report to Board of Airline Representatives of New Zealand

February 2016

About NZIER NZIER is a specialist consulting firm that uses applied economic research and analysis to provide a wide range of strategic advice to clients in the public and private sectors, throughout New Zealand and Australia, and further afield.

NZIER is also known for its long-established Quarterly Survey of Business Opinion and Quarterly Predictions.

Our aim is to be the premier centre of applied economic research in New Zealand. We pride ourselves on our reputation for independence and delivering quality analysis in the right form, and at the right time, for our clients. We ensure quality through teamwork on individual projects, critical review at internal seminars, and by peer review at various stages through a project by a senior staff member otherwise not involved in the project.

Each year NZIER devotes resources to undertake and make freely available economic research and thinking aimed at promoting a better understanding of New Zealand’s important economic challenges.

NZIER was established in 1958.

Authorship This paper was prepared at NZIER by Dr Kirdan Lees and reviewed by John Ballingall and Peter Clough.

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© NZ Institute of Economic Research (Inc). Cover image © Dreamstime.com NZIER’s standard terms of engagement for contract research can be found at www.nzier.org.nz.

While NZIER will use all reasonable endeavours in undertaking contract research and producing reports to ensure the information is as accurate as practicable, the Institute, its contributors, employees, and Board shall not be liable (whether in contract, tort (including negligence), equity or on any other basis) for any loss or damage sustained by any person relying on such work whatever the cause of such loss or damage.

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Key points

Objective and scope • NZIER was commissioned to provide an independent review of InterVISTAS’

forecasts of visitor demand associated with a potential lengthening of Wellington airport’s runway.

• Timing constraints precluded us from preparing our own set of forecasts, so we have restricted our assessment to reviewing the reasonableness of the modelling approach and input assumptions, and evaluating the likelihood of new routes opening up.

Baseline forecast too bullish – China’s tourism growth will wane • Many of the underlying market forecasts are reasonable when assessed

against other market forecasts and rules of thumb for visitor growth. • But the forecasts for China and Other Asia do not account for the future

decline in income growth predicted by the OECD and other forecasters. • That means the forecasts for the key Asian markets, that might otherwise

be expected to provide new demand, are overstated. • Even using InterVISTAS’ demand equations combined with the OECD

forecasts suggests demand for China is likely to be half that forecast and demand from Other Asian markets is likely to be consistent with the low scenario rather than the central baseline forecast.

Airline economics casts doubt on viability of proposed new routes • Additional visitor growth from the InterVISTAS runway extension is centred

on the addition of five new routes. • The strategies of individual airlines will vary but the airline economics that

might support long-haul routes from Wellington are far from clear. • A risk weighted assessment of these new routes materially impacts on any

additionality that a runway extension might generate.

Narrow demand driven framework needs supply-side and price effects • Any runway extension will require additional revenue to generate a return

on the investment in the asset. Our view is the number of additional passengers is unlikely to be sufficient to cover the Airport’s view of costs.

• If the number of additional passengers is insufficient to cover the airport’s additional costs, then prices on other services will need to rise: Wellington International Airport has commercial incentives to increase prices.

• For the development of a business case that assesses any costs and potential winners and losers, clarity is required with regard to where the airport’s view of additional costs of the runway extension will be recouped.

• At a minimum we would expect clarity with regard to how the price increases might be expected to impact on volumes of existing services in the report.

NZIER report – Review of demand forecasts i

Market-by-market local-regional-national impacts assessment required • Potential funders need to know the benefits at the private level (Wellington

International Airport) the local level (Wellington City), the regional level (Wellington City, Hutt City, Porirua, Upper Hutt, South Wairarapa District, Carterton District, Kapiti Coast, Masterton District) and the national level.

• A starting point for assessing these benefits includes any additional revenue new visitors bring against any costs of providing these services, net of New Zealand residents holidaying overseas rather than in New Zealand

• At a minimum, a business case requires assessment of the economic value of each type of additional visitor and recognition of cannibalisation of existing routes.

NZIER report – Review of demand forecasts ii

Contents 1. Context ................................................................................................................... 1

2. The baseline ........................................................................................................... 2

2.1. Modelling approach ..................................................................................... 2

2.2. Global demand ............................................................................................. 3

3. The extension scenario .......................................................................................... 7

3.1. Airline economics ......................................................................................... 7

3.2. Route assessment ...................................................................................... 12

3.3. Supply and pricing impacts ........................................................................ 20

References ................................................................................................................... 22

Figures

Figure 1 China will grow and then flatten when the market matures ......................................... 3 Figure 2 Chinese population and income growth will wane slowing inbound visitors ................ 4 Figure 3 Expect half as many Chinese visitors by 2060 ............................................................... 5 Figure 4 OECD growth suggests low scenario is most likely for Other Asia................................. 5 Figure 5 InterVISTAS numbers overstate business-as-usual outlook .......................................... 6 Figure 6 Outbound airport shares have not changed that much ................................................ 8 Figure 7 Share of Inbound visitors just hasn’t changed that much ............................................. 8 Figure 8 Auckland services a large range of cities direct precluding a second leg within Asia .. 10 Figure 9 Most Asian destinations will require a second leg within Asia .................................... 11 Figure 10 Singapore-Wellington could cannibalise existing Singapore Airlines routes ............. 12 Figure 11 Hong Kong-Wellington route undermines existing Auckland route .......................... 13 Figure 12 Los Angeles-Wellington not sustainable all year round ............................................ 14 Figure 13 Melbourne-Wellington is not a long haul flight ......................................................... 15 Figure 14 Kuala Lumpur-Wellington cannibalises existing route .............................................. 16 Figure 15 Additional visitors dependent on route viability ....................................................... 18 Figure 16 Our assessment suggests far fewer additional visitors.............................................. 19

Tables

Table 1 Airline economics undermine route viability ................................................................ 17 Table 2 Potential regulatory impacts on price ........................................................................... 21

NZIER report – Review of demand forecasts iii

1. Context NZIER were asked by BARNZ to review forecasts by InterVISTAS that will be used as inputs into a cost-benefit analysis of a runway extension at Wellington International Airport.

Given timing constraints, rather than provide separate modelling analysis we have provided context on where the forecasts provided are likely to substantially differ from what we consider reasonable rules-of-thumb based on our assessment of both the baseline demand and any additional passengers generated by a runway extension.

We focus heavily on the forecasts for inbound international demand since it is additional spending from these visitors that would deliver most of the economic benefits to the region and country.

We also make some comments with regards to the modelling methodology provided by InterVISTAS and how the forecasts might best be structured to inform a cost-benefit analysis where accounting for the winners and losers at the local, regional and national level is critical.

NZIER report – Review of demand forecasts 1

2. The baseline Any cost-benefit analysis needs to assess likely demand for any additional airport services a runway extension might provide. Assessing any extra demand requires first providing a baseline or business-as-usual projection.

The baseline matters since the impact of new infrastructure, such as a runway extension, likely has a multiplicative impact on the propensity to travel rather than simply accommodating a fixed number of extra visitors each year. So the volume of visitors in any initial baseline outlook helps determine the number of new visitors a runway extension might bring.

InterVISTAS provide a baseline they refer to as the “most likely” outcome and also high and low scenarios. Then InterVISTAS provide an evaluation of the additionality that might accrue from extending the runway. Before turning to our assessment of any additionality, we first assess the baseline in this section.

2.1. Modelling approach InterVISTAS (2015) describe the modelling approach as “a combination of statistical analysis, market and industry outlook plus professional judgment.” Appendix A provides some rudimentary information on the extent of statistical analysis, but the information raises material questions about the overall approach.

Appendix A details simple univariate equations that relate total traffic from a market segment to GDP in that market segment. But such an approach suggests that supply-side factors – such as new routes as a result of new airport infrastructure – are not significant and not materially important for describing visitor demand. Instead, additional routes that provide additional flexibility and reduce the real time cost of travel, and prices, can influence demand from that region. Integrating these effects into a model of both supply and demand would enable identification of separate supply and demand impacts.

The single equation estimation results presented in Appendix A are also spurious regressions, because the mean and variance of both visitor arrivals and GDP increase over time (see for example, Granger and Newbold 1974, Johansen 1988 and Hamilton 1994). While the coefficient estimates are unchanged, the correct distribution theory that underlies these coefficients means we take little from the T-Statistics (sic) presented in Appendix A. Nor can we attach much weight to the report’s 𝑟𝑟2statistic.

We have little faith that these single equations capture the relationship between visitors and the relevant economic factors. This is disappointing since using simple methods such as estimating relationships between growth rates rather than levels would help here.

Moreover, there is no information on how well these equations perform in terms of out-of-sample forecast performance.1 So the Wellington City and other Councils, and

1 See for example the range of methods in Athanasopoulos et al. (2011).


other stakeholders, should have little faith in the numerical analysis used to support these projections.

2.2. Global demand Appendix A tells us that the forecasts are driven by global demand. While the InterVISTAS forecasts for many advanced economies are plausible relative to predictions for economic growth in advanced economies, the forecasts for China and Other Asia grossly overstate likely visitor arrivals by understating the maturing of these markets that will occur well before 2060, 2050, 2040 or even 2030.

For example, Figure 1 shows that the experience with visitor arrivals to New Zealand from Japan and South Korea has been one where visits grow strongly before flattening off when these markets have matured.

Figure 1 China will grow and then flatten when the market matures Visitor arrivals to New Zealand, selected countries

Source: Statistics New Zealand

China and other Asian markets, alongside Australia, underpin a large fraction of the baseline growth projections. These forecasts are too bullish relative to the rates of population and income growth in China that will wane as the population ages. For example, Figure 2 shows that rates of growth in the number of households in China are projected to fall from 7.4 percent in 2015 to 2.0 percent in 2035. Moreover, growth in GDP per capita, a measure of spending power, is expected to halve between 2015 and 2035.

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Figure 2 Chinese population and income growth will wane, slowing inbound visitors Households and GDP per capita, growth rates

Source: Global Demographics

To construct a baseline forecast with a solid grounding for China and other Asian markets, we take OECD forecasts for GDP to 20602 and apply InterVISTAS’ own forecast equation from Appendix A of their report – InterVISTAS (2015).

Notwithstanding the issues with regard to accounting for both supply and prices, these forecast equations show a starkly lower projection for China visitor arrivals than InterVISTAS. Aligning visitor growth to GDP growth cuts the expected number of visitors from China in half (see Figure 3).

2 See https://data.oecd.org/gdp/gdp-long-term-forecast.htm

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Figure 3 Expect half as many Chinese visitors by 2060 Chinese visitors, InterVISTAS “most likely” vs visitors implied by OECD growth rates

Source: InterVISTAS, NZIER

Overstating emerging market demand also impacts on the InterVISTAS forecast for Other Asia. When we combine OECD growth forecasts with InterVISTAS own demand equation in Appendix A of their report, visitors from Other Asia sit almost directly on the low scenario – much lower than InterVISTAS “most likely” case would suggest.

Figure 4 OECD growth suggests low scenario is most likely for Other Asia Other Asia visitors, InterVISTAS “most likely” vs visitors implied by OECD growth rates

Source: NZIER

Reducing demand for these two markets reduces international demand in the baseline by about 10 percent. An alternative gauge on the plausibility of the InterVISTAS

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numbers can be obtained by taking the Ministry of Business, Innovation and Employment’s (MBIE’s) international forecasts to 2021 and using Wellington’s visitor penetration, on a market-by-market basis, to construct the outlook for visitors to Wellington. Figure 5 shows that this approach suggests the InterVISTAS baseline overstates likely growth.

Figure 5 InterVISTAS numbers overstate business-as-usual outlook

Source: NZIER

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3. The extension scenario

3.1. Airline economics Precursors for new routes

Airlines are big businesses that often require material chunky capital investments. So an airline will undertake extensive analysis typically over an extended period of time before deciding where to deploy assets that cost upwards of $200 million and are highly mobile.

Key parameters include flight distance, populations at the origin and destination and onward connections. A rough rule of thumb is that running a wide-bodied plane on a daily basis requires about 100,000 passengers each way, per year. To find those passengers, airlines will first look to passengers from the local regions of the two airports. Then the airline considers any additional connecting passengers that might be used to build demand on the route. Since these passengers are not flying directly to their destination often they will be more price-sensitive. Often airlines struggle to pass on cost increases to these passengers and retain demand.

Tourism 2025 defines the key features of new markets that airlines evaluate when looking at new routes:3

• A healthy state of economy at both ends of the route • Strong city to city demand • Good country to country demand (with good domestic/regional

connectivity) • Strong partners with deep networks at the each end of a route • Segments which can be targeted to gain competitive advantage.

There are strong precursors required before airlines invest in new routes. The investment hurdle is high and requires long-term commitment rather than the routes that have dropped in and out of New Zealand in recent times. Tourism 2025 note:

For airlines to operate routes that are sustainable in the long-term, they require consistent demand from passengers who will fly at a price that

covers costs and delivers a profitable return on investment. Maintaining and growing demand for passengers to travel to New Zealand is a critical factor in airlines maintaining or increasing the capacity they operate to

or from New Zealand.

Local factors

Airports are big operations with economies of scale that can drive efficiencies in service provision. New Zealand’s geography impacts on the location of airports and our population base drives the size of the airports. It’s worth noting that over a long period of time, these factors have driven stability in the market share of both outbound New Zealand residents (see Figure 6) and inbound international visitors (see

3 See Tourism Industry Association (2014), available at: http://tourism2025.org.nz/


Figure 7). The figures shows that while some smaller airports have had international services come and go, geography and economies of scale have driven stability in market share over a long period of time.

Figure 6 Outbound airport shares have not changed that much Share of New Zealand resident departures


Figure 7 Shares of Inbound visitors are also fairly stable Share of inbound visitor arrivals


When assessing the potential in a new route into New Zealand, Auckland is the first choice by far, not only because of its large population base but also because of

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proximity to tourist attractions in the northern half of the North Island, including the Bay of Islands and Rotorua. If traffic then builds, airlines will typically increase flight frequency (particularly to daily flights) before targeting new routes. Daily flights help reduce the time cost of travel, reducing uncertainty and increasing convenience and choice of travel schedules.

Historically Christchurch has trumped other cities in New Zealand as a second destination of choice after Auckland because Christchurch serves the international tourist market attracted by the South Island’s scenery that consistently features highly in self-reported reasons why visitors choose to visit New Zealand. Rightly or wrongly, Wellington simply does not have the same attraction for international visitors.

In addition, many travellers fly into New Zealand through Auckland, travel south (often through Wellington) and then leave from Christchurch, or vice versa. For airlines, this factor works in favour of first building capacity on routes to and from Auckland, especially to daily flights, and then to and from Christchurch.

Historically, New Zealand has seen some new routes start up but then falter when demand hasn’t proved sufficient to maintain the route. The entry and subsequent exit of AirAsia X on a Christchurch-Kuala Lumpur is a prime example. Tourism 2025 captures some of the reasons when and where new routes are likely to be sustainable.

Internationally, New Zealand is vulnerable to reductions in air capacity due to the small volume of airlines based in New Zealand and New

Zealand’s low population limiting the growth in outbound traffic. All carriers want routes to be profitable and will shift capacity if a route is under-performing. It is much easier for foreign carriers to move their

capacity to other countries since they do not have a full base (domestic hub, engineering, head office, etc.) in New Zealand. A change that shifts air capacity to other markets has negative flow-on impacts for the New Zealand aviation industry, the wider tourism industry and the economy

as a whole.


Consumer preferences

Consumer preferences also play a key role in generating demand that allows airlines to fill the plane. Consumers want to get where they are going on low fares and with lower journey times through reduced connections.

For New Zealand residents Auckland provides many direct connections to cities in Asia that include Singapore, Hong Kong, Guanzhou, Shanghai, Tokyo, Seoul, Bangkok, Kuala Lumpur and Taipei. For Auckland residents – one third of the population – that means direct flights to many destinations. For other New Zealand residents that means access to many cities via a New Zealand connecting leg before a long haul flight (see Figure 8). The option of flying to Sydney also opens up an even wider range of long haul destinations in Asia.

Figure 8 Auckland services a large range of cities direct precluding a second leg within Asia

Source: NZIER


But a single long haul leg from Wellington is very limiting in the range of cities that could be accessed in Asia. New Zealand residents would require a connecting second leg within Asia to access the same range of cities afforded by direct connections from Auckland (see Figure 9). These connections are much longer than connections to Auckland, and are less direct than connections via Sydney.

Figure 9 Most Asian destinations will require a second leg within Asia

Source: NZIER

A similar consideration applies to tourists from other Asian cities coming to New Zealand. They will have to connect to the Asian city at the other end of the new route first when there could be a direct flight available for them to Auckland or Sydney from which they can connect to Wellington. That suggests that consumer preferences for minimising the number of legs work against any long haul route operating from Wellington. Tourism 2025 suggests:

Route economics, be it existing services or new direct capacity being planned, are reliant on strong demand profiles which are built over a


long period of time. Ongoing investment in markets is necessary to ensure the supply of air connectivity remains sustainable.

3.2. Route assessment To help quantify the importance of airline economics on the likely impact of a runway extension, we step through the key routes and airlines (see InterVISTAS 2014, 2015) that underpin the extension scenario. According to InterVISTAS (2015) at least seven key routes are key.

1. Singapore-Wellington (Singapore Airlines)

A Singapore-Wellington route presents the best chance of developing a long-haul flight into Wellington. Singapore offers a range of connecting flights into both Europe and Asia and is popular with outbound New Zealand residents. Singapore also represents the closest Asian hub to New Zealand, helping to keep full journey airfares low relative to other options.

Singapore Airlines currently operate double daily into Auckland and daily into Christchurch. This indicates the strength of the pull of Singapore as a hub into a range of other cities in Europe and Asia. While a Wellington-Singapore route would be likely to cannibalise some traffic from Auckland and Christchurch routes (see Figure 10), on balance, this route looks plausible, and more likely to be implemented than any of the other routes.

Figure 10 Singapore-Wellington could cannibalise existing Singapore Airlines routes

Source: NZIER


2. Hong Kong-Wellington (Cathay Pacific)

Hong Kong also offers strong connectivity with a range of connections to Europe and Asia and would be likely to draw outbound New Zealand residents. Hong Kong also offers connectivity for international inbound Chinese visitors. Cathay would be the most likely entrant on a Hong Kong-Wellington route.

But while a Singapore-Wellington route might be plausible for Singapore Airlines, the possibility of accessing the South Island makes a Hong Kong-Christchurch route much more appealing than a Hong-Kong-Wellington route. Moreover, a Wellington route would undermine Cathay’s existing Hong-Kong-Auckland route (see Figure 11). On balance we think that this means the Hong Kong – Wellington route would not even be considered until a Christchurch-Hong-Kong route reached daily frequency – a stretch given the weaker outlook we suggest is appropriate for emerging markets.

Figure 11 Hong Kong-Wellington route undermines existing Auckland route

Source: NZIER


3. Los Angeles-Wellington (United Airlines)

There are many factors that make a United Airlines Los Angeles-Wellington route very unlikely. United Airlines is about to recommence a service to Auckland and will want to build to daily and double-daily on that route (see Figure 12) before initiating a second route to New Zealand. A second route would also be very likely to be to Christchurch rather than to Wellington.

While growth in tourists from America has been strong, Asia is likely to hold stronger growth in the medium term. Our assessment is that a United Airlines leg is extremely unlikely to be profitable and InterVISTAS also expresses doubts about the sustainability of the leg on anything other than a seasonal basis.

Figure 12 Los Angeles-Wellington not sustainable all year round

Source: NZIER


4. Dubai-Melbourne-Wellington (Emirates)

While Emirates operates a major hub at Dubai for connections into Europe and Africa we don’t understand how this route would be enhanced by a runway extension. Such a route (see Figure 13) could be serviced by narrow-bodied aircraft that currently operate from Wellington to Melbourne. Traffic on any Wellington-Melbourne-Dubai route simply does not require a runway extension. So we exclude these passengers from our assessment of additional passengers generated by the runway extension.

Figure 13 Melbourne-Wellington is not a long haul flight

Source: NZIER

5. Kuala Lumpur-Wellington (Malaysia Airlines)

Kuala Lumpur does not have the same hub connectivity that Singapore provides. That makes the economics that would sit behind a Kuala Lumpur-Wellington route far less viable than a Singapore route. If Malaysia Airlines wanted to increase connectivity into New Zealand, a Christchurch route that opens up tourism to the South Island would look like a better candidate than a new Wellington route.


Figure 14 Kuala Lumpur-Wellington cannibalises existing route

Source: NZIER

6. Bangkok

InterVISTAS (2015) also include a Wellington-Bangkok route not analysed in InterVISTAS (2014). Given the airline economics of these other routes, to destinations like Singapore and Hong Kong that have better connectivity, it’s unlikely that a Bangkok-Wellington route would be profitable.

7. Adelaide

InterVISTAS (2015) also include increased traffic from a Wellington-Adelaide route that could be serviced by existing aircraft and does not need an extension of the runway, although an extension could increase load factors on the route.

Table 1 summarises our assessment of the routes InterVISTAS (2015) suggest are viable.


Table 1 Airline economics undermine route viability

Route Airline economics Overall assessment

1. Singapore-Wellington

Singapore Airlines

Good connectivity but expect existing Auckland and Christchurch traffic to fall

Possible

2. Hong Kong-Wellington

Cathay Pacific Existing Auckland routes would be cannibalised

Unlikely

3. Los Angeles – Wellington

United Airlines

Full year service not sustainable Unlikely

4. Dubai – Melbourne – Wellington

Emirates Not a long haul route enabled by runway extension

N/A

5. Kuala Lumpur-Wellington

Malaysia Airlines

Christchurch likely to be better match to consumer preferences

Unlikely

6. Bangkok Thai Airways, not specified

Bangkok route highly speculative, Unlikely

7. Adelaide Wellington-Adelaide not a long haul flight of six to twelve hours. Aircraft already operating at Wellington could reach Adelaide without the runway extension

N/A

Source: NZIER

Impact of route viability on forecasts

Our view on the viability of the routes suggested as most likely by InterVISTAS (2015) is clearly very different to theirs. Combined with the lower baseline and weaker outlook for emerging markets – where many of the new routes are situated – we construct a forecast based on our assessment of the viability of new routes using the underlying market-by-market demand profile from each route from InterVISTAS (2015). Figure 15 shows how the InterVISTAS (2015) demand profile for enplaned/deplaned passengers builds from each route.


Figure 15 Additional passengers dependent on route viability

Source: NZIER

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Our view on the viability of the proposed routes is that a Singapore-Wellington long haul flight is plausible, but we attached a low probability on the other routes provided by InterVISTAS (2015). Assuming the Singapore-Wellington route goes ahead but the other routes are not viable, our assessment shows a million fewer enplaned/deplaned passengers (see Figure 16) than InterVISTAS at 2060, and an increment of only 250,000 from the runway extension at that date.

Figure 16 Our assessment suggests far fewer additional passengers

Source: InterVISTAS, NZIER

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3.3. Supply and pricing impacts The runway extension will need to generate a positive return to its owners. That means either more customers (landings and passengers) or higher prices – to cover the increased amount of capital sunk into the airport.

More customers will probably arrive at the airport if the runway is extended. The question is whether enough will arrive to generate sufficient revenue to provide a reasonable return on the investment in the proposed runway extension. If not, prices will need to rise somewhere else in the system.

Of course if prices rise, fewer customers will come. This compounds the problem of recovering costs.

Clearly consumers will have a clear preference for the more customers and lower prices option.

The worst case scenario is that the runway extension is simply not as attractive to consumers and airlines as investors thought it would be. In other words, more customers come, but not enough, so prices go up on routes that do not need the runway to be extended, and consumers are, overall, worse off.

This is a classic regulatory problem for industries with monopoly characteristics. In a more competitive market a firm will face a so-called 'hair cut' (i.e. low return on assets) if it over-invests. This is not necessarily so for industries with monopoly characteristics. In those industries, it is consumers who take the 'hair cut', through unnecessarily higher prices for monopoly services.

Regulators generally work hard to ensure that consumers are not the ones to take a 'hair cut' when investors make 'mistakes'. However, the regulatory settings for airport services in New Zealand are relatively light-handed. Airports are only subject to 'information disclosure' regulation and not price or revenue regulations, unlike industries with similar monopoly characteristics or airports elsewhere in the developed world.

To make this analysis concrete, Table 2 shows the scale of possible impacts on price – a potential $41.9 million shortfall that the airport would recover from narrow-bodied international, domestic trunk and regional services. Airlines would attempt to recoup those increased charges in ticket fares, depending on the demand elasticity of each market segment. Any economic case needs to evaluate the impacts of these price increases, including the potential impacts on the demand forecasts.


Table 2 Potential regulatory impacts on price $ millions

Item Cost

1. Initial investment $300m

2. Depreciation $7.5m

3. Return on capital (after tax) $25.2m

4. Tax $9.8m

5. Operating costs $3m

$45.5m

Revenue at $10K per day $3.6m

Potential shortfall $41.9m

Source: NZIER


References Athanasopoulos, George, Rob J Hyndman, Haiyan Song and Doris Wu, (2011), “The

Tourism Forecasting Competition,” International Journal of Forecasting 27(3), pages 822-844

EY (2014), “Wellington International Airport Limited - Economic impact of the proposed runway extension”.

Granger, C. and P Newbold, (1974), “Spurious Regressions in Econometrics”, Journal of Econometrics 2 (2): 111–120

Hamilton, J (1994), Time Series Analysis, Princeton University Press.

Intervistas (2014), “Viability assessment of long haul service at Wellington Airport”, prepared for Wellington International Airport, December.

Intervistas (2015), “Wellington International Airport Air Traffic Forecasts”, Viability assessment of long haul service at Wellington Airport”, prepared for Wellington International Airport, Draft as at 20 October.

Johansen, S (1988), “Statistical Analysis of Cointegrating Vectors”, Journal of Economic Dynamics and Control, 12, pages 231—54

MBIE (2015), “New Zealand Tourism Forecasts 2015-2021”, May.

NZIER (2015), “Review of economic analysis of the Wellington runway extension”, report to BARNZ, 31 March 2015.

Tourism Industry Association (2014), Tourism 2025, available at http://tourism2025.org.nz/


http://www.forecasters.org/ijf

https://en.wikipedia.org/wiki/Journal_of_Econometrics

https://en.wikipedia.org/wiki/Journal_of_Econometrics

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