Tony Webber April 12, 2012
Nothing splits public opinion more than a debate about a second airport in Sydney.
Ask Sydney or Canberra airports, and the people living under the flight path of the proposed second airport, and they will tell you that the idea of a second airport in Sydney is a bad one.
Ask the airlines and freight forwarders and they will tell you it's good for airport competition.
And ask the punters on the street and they will tell you they want it because they fly but they don't want it in their own backyard.
Debate since 1970
Debate about a second airport in Sydney has been raging since the 1970s.
During the early debate Wilton or Badgerys Creek came up as options, with the latter pursued more aggressively than the former.
Since then, the debate has been in and out of vogue, and the number of potential sites expanded to include Canberra, Newcastle, Bankstown, Holsworthy, the Southern Highlands, Camden, and Richmond. As the potential sites have expanded the number of rejected sites has expanded at the same pace.
Given the length of time any serious debate has raged, one can't help but think that Sydney and NSW can go another couple of decades without a second airport.
Sydney airport has throughput in excess of 26 million passengers since 1985, which is well after the debate about a second airport started. Perhaps the airport can cope with another 26 million.
Let's add some numbers and aviation understanding to this view.
Points of constraint
Firstly, there are at least three major constraint points at airports - landing slots, gates and the terminal.
Landing slot and gate constraints are primarily driven by the number of landings and take-offs while the constraint inside the terminal is driven by the number of passengers.
The most pressing constraint at Sydney Airport is likely to be the landing slots.
Secondly, constraints by definition only occur at the peaks - in the early morning and evening.
In response to the most pressing constraints, aircraft manufacturers, led by Airbus, have built bigger planes.
The big bopper, the Airbus A380, was built specifically to circumvent slot constraint and gate congestion at airports.
Using bigger planes during peaks is a strategy that airlines have used for years to overcome slot constraints. Aviation analysts call this up-gauging (the gauge of the aircraft is the number of seats on it).
Sydney airport has seen the average number of passengers per flight increase at 2.6per cent per annum since 1985 in the case of domestic; at 5.7per cent per annum for regional travel; and at 1.3per cent per annum for international.
But the easiest way to see up-gauging in action is to book a flight with, say, Qantas, from Sydney to Melbourne in the morning or evening peaks and identify the aircraft change compared with the off-peak period.
Eight out of 11 weekday QF flights that fly between 6am and 9am from Sydney to Melbourne use the B767-300 aircraft (254 seats), with the remaining flights using the B737-800 (168 seats).
All of the QF flights after 10am and up to 14.30 use either the B737-800 or the B737-400 (144 seats).
Like any infrastructure debate, the ultimate test involves an assessment of public benefit.
There are a number of considerations and quantifications necessary to support the debate, but the one that seems most important is the disutility of congestion and capacity constraints versus the disutility of capital expenditure. Let me explain.
When an airport reaches a capacity constraint everything takes longer, including getting to and from the airport, check-in, security, negotiating the terminal and boarding and disembarking the plane.
Longer queues represent congestion costs that are born by passengers. They don't seem like a cost because there is no cash outlay but the costs are material.
Rigid capacity constraints also drive up prices - if no more can be supplied then prices must go up to deter more being demanded. This inflation hits the cash balance of air passengers.
Paying for capital
When a new airport is built or an old airport is made bigger, the capital expenditure must ultimately be recovered from passengers through higher airfares.
A second airport should be built if the disutility caused by congestion and inflation costs at the existing airport exceeds the disutility generated as a result of paying higher prices to pay for capital expenditure to build a new airport.
On the basis of these disutility comparisons, there will be a cross-over point in time at which the public finally becomes better-off by building a second airport.
The forces that must be considered to identify the cross-over point are difficult to quantify, and will depend on the extent to which passengers can be persuaded to switch travel from peak to off-peak and the amount of congestion and queuing that people are willing to put up with.
When economic times are tough or uncertain, it always seems better to put up with more congestion than to lay more cash on the table.
Tony Webber was Qantas Group chief economist between 2004 and 2011. He is now managing director of Webber Quantitative Consulting and Associate Professor at the University of Sydney Business School, and contributed this article to BusinessDay