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MEMOTo:    Sam Haddad, Director-General, NSW Planning and InfrastructureFrom: Jonathon Flegg, Strategy and Planning Unit, ...
Western Sydney. Our cost-benefit analysis over the next 50 years shows building a new secondairport at Badgery’s Creek cou...
Sydney because of both growth in the city’s population3, and because the deregulation of theairline industry in Australia ...
Commission (ACCC). Price regulation only ended in 2001. Operational regulations are alsooverseen by the Civil Aviation Aut...
5. developing the current site to permit more flight-movements; or finally    6. the development of a high-speed rail netw...
me an area that is not going to end up causing enormous grief to people who currently livearound it10.”This cost-benefit a...
well-organized “No Aircraft Noise” Party running at elections12. The political situation iscomplicated by the different po...
price of avoiding the costs associated with living near an airport. Figure 3 shows the affectedpopulation living within 5k...
a new airport will bear a total social cost of A$1.1 billion and those within the 5-10 kilometrerange will incur A$1.2 bil...
To evaluate the cost increase in flight delays the PSU projected the trend in flight delays into thefuture. In the period ...
Project                                        Estimated Cost               Airport and Runway                            ...
Firstly the PSU compared a number of other single-runway airports within Australia. Fourcomparable single runway airports ...
Sydney Total Passenger-Movements Projections90000000800000007000000060000000500000004000000030000000       Total Sydney Ai...
With a reasonable volume of retail space the PSU projected that a new Sydney Airport wouldfacilitate employment of between...
project risk22. Moreover sensitivity analysis of the discount rate shows that building a new airportis preferable over a w...
Political AnalysisAs explained above, the politics of airports in Sydney is complicated, polarized and salient. Thekey sta...
Western Sydney residents if they: (a) understand the economic benefits; and (b) can be partiallycompensated for the additi...
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Cost-Benefit Analysis of Sydney's Second Airport

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  1. 1. MEMOTo: Sam Haddad, Director-General, NSW Planning and InfrastructureFrom: Jonathon Flegg, Strategy and Planning Unit, NSW Planning and InfrastructureEmail: j.c.flegg@nus.edu.sgDate: 20-Jun-2011Re: Evaluating a Proposed Second International Airport for SydneyExecutive SummarySydney’s Kingsford-Smith Airport is Australia’s major international and domestic air transporthub. 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 currentairport will reach capacity within the next 10 years. Capacity is current limited by a physical lackof 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 thestatus quo; (2) seek the removal of the regulatory constraints limiting traffic at the currentairport; or (3) build a new secondary airport at the most promising site of Badgery’s Creek in
  2. 2. Western Sydney. Our cost-benefit analysis over the next 50 years shows building a new secondairport at Badgery’s Creek could be completed between 2017 and 2018 and is estimated toprovide 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 WesternSydney and through time savings associated with relieving the capacity constraints atKingsford-Smith Airport. The most significant costs associated with the proposed project are theloss of the alternative use of the site and the costs of congestion and aircraft noise affectinglocal residents. The result is robust for any social discount rate below 10.0%. Removing theregulatory cap on traffic through Kingsford-Smith is not a socially efficient policy solutionaccording to our analysis.The political situation is complicated, polarized and salient to voters. The PSU analysissuggests that with the right strategy a number of key stakeholders could move closer to aposition of support for such an infrastructure project. Passengers and residents of WesternSydney are both large and politically-significant groups that could mobilized if given the rightinducements, such as better access to public transport.Problem StatementIn 2007 31.9 million passengers moved through Kingsford-Smith Airport, and this is forecastedto increase to 78.9 million by 20291. The capacity of the current site is quite limited and thereare major concerns that the current airport is reaching capacity. Occupying a site within only 10kilometres of the Central Business District, it is surrounded by relatively dense residentialdevelopment, the Port of Sydney, and Botany Bay (see Figure 1). The last major capacityincrease was the parallel, or “third”, runway that was completed on reclaimed land in BotanyBay in 1994. Booz and Company consultants recently reported that by 2020 if the status quo ismaintained 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 projectedincrease in demand for air travel services? On the demand-side, air travel continues to grow in1 SAC. 2009. “Aviation Activity Forecasts 2009”. In Sydney Airport Master Plan 2009 Retrieved from:http://sydneyairport.com.au/ .2 th Bennett, A. and V. Morello. 5 April 2011. “Fed, NSW govts at odds over second airport”. The Age.Retrieved from: htttp://www.theage.com.au/ .
  3. 3. Sydney because of both growth in the city’s population3, and because the deregulation of theairline industry in Australia between 1990-95 has caused strong domestic competition toemerge on key routes. For example, the Sydney – Melbourne route has now emerged as thefourth most travelled air corridor in the world, and Sydney – Brisbane is twelfth4. The supply-sideproblem 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 SuburbsAddressing any of these supply-side constraints requires a public policy intervention. While theFederal Government privatized major airports in 1994, as major infrastructure critical to theAustralian economy they remain heavily regulated by the Australian Competition and Consumer3 Sydney’s population of 4.6 million people consists 20% of the nation’s total and it is growingrapidly, by around 85,400 in the year 2008-2009.4 Wikipedia. 2011. “World’s Busiest Passenger Air Routes”. Retrieved from: http://en.wikipedia.org/ .
  4. 4. Commission (ACCC). Price regulation only ended in 2001. Operational regulations are alsooverseen by the Civil Aviation Authority. The decision to build a second airport would require thesupport of the Federal Government and the NSW Minister for Planning. State Governmenttransport and rail authorities would also be required to provide transport links to the site. Adecision to relax the regulatory constraint could be achieved through an Act of FederalParliament without the involvement of NSW Government. The development of a major land-based mass transportation alternative would require the involvement of a number ofgovernmental actors.As a single piece of infrastructure Sydney Airport has national economic significance. Sydney isAustralia’s major commercial centre and is the most-travelled gateway to the nation. Every yearSydney Airport facilitates A$8 billion of indirect economic activity, which is roughly 2% ofnational 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 permeatethroughout 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 reachesits capacity. If the Australian and NSW Government can agree to a course of action, tenderingfor a construction contract could commence in 2012, with the majority of construction beingcompleted 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 airtraffic volumes between 2019 and 2022.Policy AlternativesEach of the three constraints to the supply suggest an alternative policy response, and each hastheir 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/ .
  5. 5. 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 theirfacility. 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 ofSydney 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 alsosupports this position7. Generally this position is substantiated by concerns over the misuse ofthe 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 andalso observed that Kingsford-Smith Airport had increased profits at the expense of the quality ofservices. In April 2011 the Federal Minister for Infrastructure, Anthony Albanese said in a pressconference on the matter: “I can understand Sydney [Kingsford-Smith] Airport wanting tomaintain its monopoly position but the truth is a global city such as Sydney needs a secondairport9.”Finally the newly elected NSW Government leader, Barry O’Farrell, has argued against a newairport in favour of a new high-speed rail network connecting the major population centres onthe Eastern seaboard. “Whether the central coast, the south-west or the western suburbs, find6 SAC. 2011. “Economic Regulation of Airport Services - Submission to the Productivity CommissionInquiry”. Retrieved from: http://www.pc.gov.au/ .7 th Saulwick, J. 11 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 servicemonitoring”. Retrieved from: http://www.acc.gov.au/ .9 th Sky News. 5 April 2011. “Another Sydney airport a must – Albanese”. Sky News. Retrieved from:http://www.skynews.com.au/ .
  6. 6. me an area that is not going to end up causing enormous grief to people who currently livearound it10.”This cost-benefit analysis will compare in detail the leading first three proposals. This is forefficacy purposes and to not clutter the comparison with proposals that will ultimately provephysically or politically infeasible. Finally, cost-benefit analysis is complex and predicting theimpact of the final three proposals is beyond the scope of this memo. Specifically, Proposal 4 isless preferable than Proposal 3 because of the immense distance any other site has toovercome in connecting with Sydney. Proposal 5 is also physically infeasible given the currentspace restrictions and inability to reclaim more land in Port Botany. Finally Proposal 6 to buildhigh-speed rail almost 2,000 kilometres between Brisbane, Sydney and Melbourne is not apractical solution because it will not be able to be achieved within the given timeframe, or at areasonable cost.Decision CriteriaThe Kaldor-Hicks criterion is the basis of cost-benefit analysis. It states, “A policy should beadopted if and only if those who will gain could fully compensate those who will lose and still bebetter off11.” It is a method designed to achieve the most allocative efficient public policyproposal. It is most suited to infrastructure project appraisal as it allows for a systematicconsideration of all potential impacts of an appraisal, both positive and negative. The majordownside of cost-benefit analysis is that it does not consider equity considerations, for examplethe issue of equity in building a new airport in the lower socio-economic Western suburbs toavoid noise and congestion impacting wealthier residents in Sydney’s East and Inner West. ThePolicy and Strategy Unit (PSU) argues that while cost-benefit analysis is certainly the mostappropriate way of appraising infrastructure projects, the NSW Government should alsoconsider compensation, where necessary, as a method for achieving a more equitable policysolution.Additionally, all proposals must be considered within the light of political feasibility. Part of thereason why all new airport proposals since the 1970s have failed is because of the politicalsaliency of the issue to the electorate. NSW is perhaps the only jurisdiction in the world that has10 th Saulwick, J. and K. Munro. 6 April 2011. “OFarrell calls for high-speed trains instead of secondSydney airport”. Sydney Morning Herald. Retrieved from: http://www.smh.com.au/ .11 th Boardman, A. E et al. 2011. Cost-Benefit Analysis: Concepts and Practice (4 ed.). Pearson: UpperSaddle River, NJ. Page 253.
  7. 7. well-organized “No Aircraft Noise” Party running at elections12. The political situation iscomplicated by the different positions taken by the Federal and State Governments.Analysis of Alternatives and Decision MatricesThe following will address the methodology the PSU adopted for cost-benefit analysis of thethree proposals. Cost-benefit projections are made over the period 2013-63.Cost to Local ResidentsThere are many social costs associated with living close to an airport, including noise pollutionand increased traffic congestion. The most straightforward method for assessing all these costsis by using the hedonic regression method. The PSU constructed a dataset of 107 suburbslocated 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 thoseon the water, while paying if closer to the airport. The PSU performed the following hedonicregression14:The results for all three independent variables was highly significant. Figure 2 shows propertyprices improved by A$73,000 with every kilometre further away from the airport, while movingcloser to the CBD improves prices by A$59,000. Coastal status causes prices to jumpA$282,000.The co-efficient β1 for distance from the airport can be used for assessing the social costs of theproposed new airport on residents around the Badgery’s Creek site because it captures the12 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 publiclyavailable property sale data.14 For simplicity the functional form is assumed to be linear, however in reality it is likely the relationshipbetween distance and property prices is of a quadratic form.
  8. 8. price of avoiding the costs associated with living near an airport. Figure 3 shows the affectedpopulation living within 5km, 10km and 20km of the proposed site15. Figure 2: Hedonic Regression of Distance from the Airport Against Median House Price Figure 3: Affected Populations Surround Kingsford-Smith Airport and Badgerys CreekGiven the PSU assumed the social costs to be linearly associated with distance, we evaluatethe social cost affecting values within a 10 kilometre threshold. Residents within 5 kilometres of15 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/ .
  9. 9. a new airport will bear a total social cost of A$1.1 billion and those within the 5-10 kilometrerange will incur A$1.2 billion. It is assumed this figure is the discounted net present value of allfuture social costs and is borne by present owners, so is incorporated at the start of the projectin 2013.If the federal legislation was changed at Kingsford-Smith Airport to permit the airport to avoid aregulatory constraint on flight-movements, the PSU can model the effect by the followingmethod: 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 DelaysAs Sydney Airport approaches capacity it will create costs to passengers of flight delays.According to projections performed by consultancy Tourism Futures International andindependently reviewed by Booz Allen Hamilton16 the daily flight movement on a typical “busyday” will look something like Figure 4, with the 80 flights per hour constraint being reached fromaround 0730 to 1230 and 4: Typical "Busy Day" Traffic Projection in 2023 Figure 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 MasterPlan 2009 Retrieved from: http://sydneyairport.com.au/
  10. 10. To evaluate the cost increase in flight delays the PSU projected the trend in flight delays into thefuture. 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 thetrend slowing to -0.05% thereafter. Average length of delay is held constant at 20 minutes. Thisis a conservative estimate of the delay profile if the status quo is maintained, as the congestionthat is likely to occur around peak times will certainly increase the average length of delay. Theannual percentage of delayed passengers is then multiplied by the projected number ofpassenger movements through Kingsford –Smith Airport and the average length of delay toarrive 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-onto have significant delays at other airports around the domestic network. Welman et al17 in anextensive empirical study calculate the propagation multiplier for cost-benefit analysis to beconsistently around 0.50. Therefore to capture the time lost in passenger delays at otherairports 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 onlyto passengers, however in reality costs would also be borne by the airlines. Taking the averageannual 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 throughdelays, resulting in a total cost projection of A$11.37 billion over the next 50 years18.Capital Costs of a New AirportEstimates of capital cost are mainly derived from the NSW Government submission to theFederal Government Environmental Impact Assessment conducted in 199919. The major costsassociated with building the new airport are shown in Table 1. These costs are factored into theanalysis as spread evenly over the construction phase from 2014-2016.17 Welman, S., A. Williams, and D. Hechtman. 2010. “Calculating Delay Propagation Multipliers for CostBenefit 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 theEnvironment and Heritage Concerning the Environmental Impact Assessment for the Proposed SecondSydney Airport”. Retrived from: http://badgerysacpnp.homestead.com/files/NSWGOVSUB.htm .
  11. 11. 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 billionWater Connection Upgrade from Warragamba A$120 million Dam - Sydney Table 1: Projected Construction and Associated CostsAlternative Land Use at Badgery’s CreekThe Badgery’s Creek site, while located a significant distance from Sydney’s CBD, is stillvaluable for its outstanding access to major road transport networks and as a potential site offuture urban intensification as the Sydney metropolitan area expands. The PSU have valuedthese alternative uses at A$180 million annually, based on comparable land uses in the vicinityof the site.Welfare Gain for Passenger IncreasesA new airport at Badgery’s Creek provides the opportunity for more passengers to fly in and outof Sydney, presumably at cheaper prices. The PSU evaluated the welfare gain to passengers ofa new airport by estimating the following alternative scenario to the status quo projections. Annual Passenger Movements in Selected Regional/Secondary Airports 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 CANBERRA GOLD COAST HOBART TOWNSVILLE Figure 5: Comparable Regional and Secondary Airport Passenger-Movements, 1985-2010
  12. 12. Firstly the PSU compared a number of other single-runway airports within Australia. Fourcomparable single runway airports in Australia would be Hobart, Townsville, Canberra and GoldCoast. The former three are large regional airports, while the Gold Coast caters to both as aninternational holiday destination and as Brisbane’s second airport. Since the end of priceregulation 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 asecond 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 conductinginternational 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 millionpassengers annually20. Projected Annual Passenger Movements, Second Sydney Airport 12000000 10000000 8000000 6000000 4000000 2000000 0 2017 2019 2021 2023 2025 2027 2029 LOW HIGH EXPECTED Figure 6: Annual Passenger-Movement Projections, Second Sydney Airport 2017-2029A certain amount of passengers at the new airport are expected to be substituted travellers fromKingsford-Smith Airport. The PSU conservatively estimated 80% of passenger-movements atthe new airport will be substituted away from Kingsford-Smith. The additional new passengersare thought to be dominated by price-sensitive domestic passengers, non-connecting flightpassengers and residents of Sydney’s Western suburbs. A new airport can be expected tofacilitate 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 in2010.
  13. 13. Sydney Total Passenger-Movements Projections90000000800000007000000060000000500000004000000030000000 Total Sydney Airports (with New Airport) Total Kingsford-Smith Airport (without New Airport) Total Kingsford-Smith Airport (with New Airport) 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. Airport Direct FTE Equivalent Annual Passenger- Employment 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. Table 2: Selected Australian Airports and Full-Time Equivalent Employment Figures
  14. 14. With a reasonable volume of retail space the PSU projected that a new Sydney Airport wouldfacilitate employment of between 3,000-3,500 FTE staff on the average Australian salary. Forthe effect on indirect employment and spending in Western Sydney, the PSU then used aconservative multiplier of 2.021. The economic effect of the construction phase is also difficult toproject depending on whether there are cost or time over-runs. The PSU projected totaleconomic stimulus to Western Sydney to total between A$49.0 - 66.4 billion from the presentuntil 2029 based on low passengers and late construction and high passengers and earlyconstruction (see Figure 8). Projected Economic Stimulus to Western Sydney 1000 900 800 700 600 500 400 300 200 100 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 High Economic Stimulus Low Economic Stimulus Figure 8: High and Low Economic Stimulus to Western SydneySocial Discount RateFor the social discount rate the PSU adopted the standard NSW Government Treasury rate of7.0%. This compares favorably with the average rate for 10-year Australian Government bondsof 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 thelong-term; however it is acceptable with such a project to raise the rate higher to account for21 California Aviation. 1988. “Determining Your Airports Economic Impact”. Retrieved from:http://californiaaviation.org .
  15. 15. project risk22. Moreover sensitivity analysis of the discount rate shows that building a new airportis preferable over a wide range of discount rates. Given that most of the benefits of a newairport accrue over the long-term, the lower the discount rate the higher the potential benefits. Anew facility is preferable for all discount rates of 9.9% and below.Decision MatricesThe following decision matrix is a comparison of the cost-benefit analysis of the three policyoptions. Figures are discounted by 7.0% from the year 2013. Policy A (Status Policy B (Remove Policy C (New Airport) Quo) Movement Cap)COSTSCosts to Local No additional. High cost to Moderate costs toResidents residents ($33,700M) residents ($2,400M)Costs in Flight Moderate cost to No additional. No additional.Delays passengers ($907M)Capital Costs None. None. Significant capital cost ($5,178M)BENEFITSAlternative Land Large benefit Large benefit None.Use Benefit ($14,606M). ($14,606M).Welfare Gain No additional. Small benefit Moderate benefitPassengers ($907M). ($2,827M).Local Economic No additional. No additional. Large benefit to WesternStimulus Sydney ($11,779M)NET SOC. BEN. $1,881M $7,099M -$19,094MThe PSU recommends the development of a new secondary Sydney airport at Badgery’s Creekas 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 asocially efficient policy solution.22 th Boardman, A. E et al. 2011. Cost-Benefit Analysis: Concepts and Practice (4 ed.). Pearson: UpperSaddle River, NJ. Page 253.
  16. 16. Political AnalysisAs explained above, the politics of airports in Sydney is complicated, polarized and salient. Thekey 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. Strongly Opposed Neutral Favour Strongly Opposed Favour Federal Gov. NSW Government  ACCC IATA Mac. Bank SAC No Aircraft Noise Activists/Party Western Sydney  Residents Passengers  Airlines NSW Bus. ChamberThe following political map shows the relative position of the different key actors. A possiblestrategy for achieving the desired policy goal of a new airport is for the Federal and NSWGovernment to work together on a join taskforce to implement the project. Passengers are alsoa latent group of potential supporters who could be mobilized if they understood their fullbenefits. There may be opportunities for the NSW Government to win the support of some
  17. 17. Western Sydney residents if they: (a) understand the economic benefits; and (b) can be partiallycompensated for the additional congestion and noise. As the lack of public transport facilitatesin the Western suburbs has also been a long-standing political issue, compensation might takethe form of investment in better public transport and rail links.Policy RecommendationsWe make the following policy recommendations to the Director-General of NSW Planning andInfrastructure: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.

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