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Wellington Airport

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The Rock, New International Terminal Wellington Airport

www.wellington-airport.co.nz
Infratil acquired its 66% interest in Wellington Airport when the Crown sold its shareholding in 1998. Wellington City Council owns 34%. The Airport is 8 kilometres from the centre of Wellington City on a 110 hectare freehold site. Wellington Airport is the hub of New Zealand’s domestic aviation network and the international airport and gateway of the Capital and the surrounding regional population of approximately 500,000 people.The Airport currently hosts about 4.7 million passengers a year and 7 million visitors in total. 4.1 million of the passengers were domestic and 0.6 million international.The main airline users of Wellington are:

www.airnz.co.nz
www.qantas.co.nz
www.pacificblue.co.nz.
The Airport also hosts a RNZAF terminal and hanger and a number of General Aviation, Aeroclub, air ambulance, and maintenance operations.

Business Model & Activities

In keeping with most airports, Wellington has three areas of particular business focus.

The core aviation activity:

The provision of airfield, terminal and other directly related services and facilities.

These activities are heavily regulated by the Civil Aviation Authority as to safety and Ministry of Transport as to price. Recently the Minister of Commerce announced that the regulation of airport prices was to shift to the Ministry of Economic Development and was to be subject to a series of reviews which are expected to influence the way in which prices are next reset, which is expected to occur in 2012.

Normally the Airport’s aeronautical charges are reset every 5 years. At the last reset, July 2007, average aeronautical charges rose 2.5%pa.While fair pricing is a key responsibility of the Airport, even more important is efficient and safe operation of facilities and investment in capacity.

Passenger services:

The second leg of the Airport’s business is the provision of services to passengers and “meeters and greeters”. Carparking and bus/taxi facilities, food and beverage, shops, lounges, advertising.

Wellington has been very successful in these fields. Unlike many airports which tend to a bland international brands look, Wellington has made a conscious effort to attract the best of its city and region. Wellington City is famous for its coffee shops and two of them are now located at the airport. Icebreaker is an iconic Wellington product and opened its first ever shop at Wellington Airport.

The local ambience, especially with its smell of fresh coffee, has been effective at encouraging Airport visitors to take advantage of the services and goods on offer.

Property:

Although Wellington Airport has a small site, at 110 hectares, it still has about 20 hectares of land which can be developed for non-aeronautical use. Recognising that some of this land can only be placed into uses from which it can later be recalled as airfield or terminal areas need to be expanded because of increased air traffic. Traditionally land around airports has tended to act as a buffer because of aircraft noise. Quieter aircraft and better management of noise has made it possible to start bringing the buffer property into more productive use. Wellington’s first major redevelopment was of 5 hectares of warehousing which was used for such low-rent purposes as storing the Wellington Christmas parade floats. This site now hosts a substantial retail complex with stage two under development. Wellington Airport also owns an outdoor advertising company, ISite, which is an expansion of the Airport’s own billboard activities. In presentations of its income, Wellington counts its own billboard income as part of its passenger services revenue while ISite’s EBITDA is included as part of the Property income.

Air Services

The Airport currently hosts about 4.1 million domestic and 0.6 million international passengers a year. A report on the users of Wellington Airport is available here 1.25MB

Domestic is a mixture of turbo prop regional and jet trunk services. Over the last decade passenger numbers have grown about 3%pa. AirNZ is the main carrier. Qantas and Pacific Blue provide competition on the links with Christchurch and Auckland.

International is mainly to east coat Australia. AirNZ and Qantas share most of the market with Pacific Blue operating services to Brisbane. Over the last decade passenger numbers have grown about 5%pa.

Growth

There is however no “natural growth rate”. Increased use has occurred in steps, reflecting the intermittent nature of airline competition and hence increased seat availability and lower prices. Air New Zealand is the main user of the Airport with occasional competition from Ansett, Origin Pacific, Qantas and recently Pacific Blue. During competitive periods airlines have added capacity and have discounted fares to sell seats.

A constraint on growth has been the ability of aircraft to use Wellington’s runway to fly further than east coast Australia. A long-haul aircraft such as a B767 needs approximately 30 tonnes of fuel to fly from Wellington to Hong Kong. With this load of fuel and Wellington’s 2 kilometre runway, the aircraft would be restricted as to its ability to carry passengers and freight. Technology is providing a solution. Boeing’s B787 and Airbus’s A350 are relatively small aircraft (200 to 250 passengers) and are made from lighter materials. Consequently they will be able to fly to Asia or America from Wellington’s existing runway with a full load.

Wellington anticipates a daily link with at least Asia (Hong Kong, Singapore, etc) will be established over the next 5 years which would mean an additional 130,000 to 150,000 international passengers a year. A report on Wellington’s growth prospects is available here 2.3MB

Investment in capacity, services and facilities

Infrastructure is prone to ownership where little is invested in enhancement and use of capacity is eked out. Government owners frequently adopt this model when caught between a desire to maintain social spending and to limit tax. A similar result also comes from “financial” owners who need every cent of free cash flow to service debt.

Infratil is an entirely different type of owner to those looking to merely extract cash. Its businesses are in infrastructure sectors with growth prospects, where additional investment in services and capacity is warranted. Since acquiring its Wellington Airport interest Infratil has supported investment of $191 million in improvements. Projects currently underway will take this sum to over $250 million by the end of 2008.

Investment has been in aeronautical and passenger facilities and in property development. The former has been controversial as Wellington’s dominant airline user appears to perceive improvements to runway safety and better and larger terminal capacity as opening the way to greater competition. There is some justification to their concern as evidenced by Pacific Blue’s recent commencement of domestic services. These would not have been possible but for Wellington’s investment. The wider benefit of this occurring are apparent with domestic air fares significantly lower due to competition, which was no doubt a consideration in the preference for the status quo in some quarters. If Wellington Airport ceases to invest in facility improvements past its current projects, and passenger numbers and other variables grow to forecast, it is likely that airport charges would be lowered by about 10% at the 2012 reset. However, were this to happen the Airport would reach a capacity ceiling which would choke off further growth and competition. A further $100 million investment increases charges by roughly 10%. There is an inextricable link between: growth – competitive airlines – better services and fares – investment – aeronautical charges.

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