Auckland’s Second Runway Delayed Further

Last month, following extensive consultation with the airline industry and a review of capacity management on the existing runway, Auckland International Airport Limited (AIAL) announced that it would further delay the construction of a planned second runway.

Earthworks for the second runway commenced in late 2007 but construction was suspended in August 2009 because of falling air travel demand resulting from the global economic downturn and the uncertain regulatory framework.

Simon Moutter, the CEO of AIAL, said that since then, AIAL has been working closely with Air New Zealand and the Board of Airline Representatives (BARNZ) to establish more effective means of managing peak-time capacity on the existing runway. As a result, it is now considered that the existing runway will be able to handle the expected growth for a few years longer than was previously envisaged. Although passenger volumes have begun to grow again, the growth trend is still behind where it was anticipated to be when construction of the second runway began, according to AIAL.

Mr Moutter said that while a second runway has been part of the Auckland Airport’s master-plan since the 1960s—and will definitely be needed before too long—he said that by working with AIAL’s airline partners to improve existing runway efficiency will allow AIAL to defer significant capital expenditure for a few more years. He said that the delay would reduce cost pressures on airline customers and travellers using Auckland Airport, and described it as “a sensible outcome for everyone.” Mr Moutter added that the move was consistent with AIAL’s “focus on cost efficiency and capital productivity”, which he said was “a key element of our strategy to drive growth in shareholder value.”

The executive director of BARNZ, John Beckett, said he welcomed AIAL’s decision, which he described as “commonsense.” He said that while BARNZ recognised the eventual necessity for a second runway at Auckland, it was important that its cost not be borne by airlines and by passengers ahead of time.

Tony Gollin, Auckland Airport’s chief operating officer, said a second runway would ultimately be essential to New Zealand’s long-term growth in travel, trade and tourism, and added that Auckland Airport was committed to ensuring the runway was ready in time to deliver that long-term growth. However, he described the delay as “a matter of responsible and sensible infrastructure delivery timing.”

Mr Gollin also said that another reason for the decision to further delay construction was the uncertainty relating to the future regulatory environment, as currently proposed by the Commerce Commission in the Draft Determination on a new regulatory regime for New Zealand’s major airports.

“Investing in any large-scale essential New Zealand tourism infrastructure requires confidence in the return,” he said. “The development of a second runway is an enormous investment which can only be justified if there is sufficient confidence that our shareholders can achieve a reasonable return on that investment. The Commerce Commission’s draft approach, in particular to the issue of land held for second runway use, may increase the risk that a fair return will not be commercially achievable.”

Auckland Airport says it will continue to closely monitor the evolving regulatory environment and growth and demand trends in air travel. The fact that a significant start had been made on preliminary work on the second runway will enable construction to be accelerated fairly quickly when it becomes justified

Mr Moutter stressed that the runway decision did not reflect any lessening of Auckland Airport’s growth ambitions. He added that AIAL was “firmly focused on growing air services into Auckland as strongly as possible.” According to Mr Moutter, much of the air service growth being pursued by the company at present is in key markets such as Asia. He said this would involve runway use during non-peak periods and would actually assist the company to increase the utilisation efficiency of the existing runway infrastructure. Mr Moutter also said Auckland Airport had “plenty of international terminal capacity for passenger and aircraft movement growth, and to support our ambitions for New Zealand tourism and trade.”