Auckland Airport extends suspension of second runway

16 July 2010

Auckland Airport announced today that it will further delay the construction of a planned second runway. The decision follows extensive consultation with the airline industry and a review of capacity management on the existing runway.

Earthworks on the second runway commenced in late 2007 but construction was suspended in August 2009 due to a fall in air travel demand from the global economic downturn and the uncertain regulatory framework.

Auckland Airport chief executive, Simon Moutter, said that since then, by working closely with Air New Zealand and the Board of Airline Representatives (BARNZ), more effective means of managing peak-time capacity on the existing runway have been agreed which meant it could handle expected growth for a few years longer than earlier envisaged. Additionally, although passenger volumes were now growing again, the growth trend was still behind where it was anticipated to be when construction of the second runway began.

“A second runway has been part of the Auckland Airport master-plan since the 1960’s and will definitely be needed before too long,” Mr Moutter said. “However, by working with our airline partners to improve existing runway efficiency, we can defer significant capital expenditure for a few more years. This will reduce cost pressures on our airline customers and on travellers using Auckland Airport. This is a sensible outcome for everyone.”

Mr Moutter added, “This move is also consistent with our focus on cost efficiency and capital productivity, which is a key element of our strategy to drive growth in shareholder value.”

BARNZ Executive Director, John Beckett, said “We welcome this commonsense decision. While we recognise that a second runway will one day be needed for Auckland, it is important that the cost of this infrastructure is not borne ahead of time by the airlines and by passengers. Auckland Airport has worked closely with us to find a solution that maximises the utilisation of the existing infrastructure.”

Auckland Airport chief operating officer, Tony Gollin, said a second runway would ultimately be essential to New Zealand’s long term growth in travel, trade and tourism. “Auckland Airport is committed to ensuring the runway is ready in time to deliver that long term growth. This decision is a matter of responsible and sensible infrastructure delivery timing. We have been very focused on increasing the utilisation of existing airport infrastructure across the business, for example through the introduction of SmartGate and Lean Six Sigma methodologies, and this decision is consistent with that focus.”

Mr Gollin said the decision to further delay construction was also influenced by 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. 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 will continue to closely monitor both the evolving regulatory environment and growth and demand trends in air travel. As substantial foundation and earthworks has already been completed for the second runway (to the north and parallel to the existing runway), construction could be accelerated fairly quickly when justified by growth, commercial returns, and economic circumstances, Mr Gollin said.

Mr Moutter stressed the runway decision did not reflect any lessening of Auckland Airport’s growth ambitions.

“We are firmly focused on growing air services into Auckland as strongly as possible. Much of the air services growth we are chasing in key markets such as Asia would involve runway use during non-peak periods and will actually assist us in increasing the utilisation efficiency of the existing runway infrastructure. Auckland Airport also has plenty of international terminal capacity for passenger and aircraft movement growth and to support our ambitions for New Zealand tourism and trade.”