Speech to the Australian Airports Association Conference
I am very pleased to have the opportunity to speak to stakeholders in Australia’s airport sector about the Turnbull Government’s agenda for Western Sydney Airport.
This project is of great importance for Western Sydney, for Sydney, and for the entire nation.
When it opens in 2026 it will be the first new capital city airport in Australia for more than forty years.
In my remarks today I will start with an update of progress on Western Sydney Airport. Next, I want to speak about how WSA Co will procure the design and construction of the airport.
Thirdly, I will discuss the economic and market impact that Western Sydney Airport is likely to have once it opens in 2026.
Progress Update on Western Sydney Airport
Let me turn first then to the progress we are making on Western Sydney Airport.
Five years ago, the Sydney Morning Herald ran a series of articles on the question of a second airport for Sydney, with headlines like “Airport debacle stuck in eternal holding pattern” and “Airport chaos imminent but the cockpit's vacant”.
The author, Lenore Taylor, described it as “a decades-long story of political myopia and cowardice.” She noted the difficulties then Transport Minister Anthony Albanese faced on the issue following Labor’s 2003 decision to rule out an airport at Badgerys Creek.
That all changed when a Coalition Government came to power in 2013 – and in 2014 took the decision to proceed with the new Western Sydney Airport at Badgerys Creek.
It was a decision with a very strong policy rationale.
The 2012 Joint Study on Aviation Capacity found that Kingsford Smith Airport does not have enough capacity to meet rapidly growing demand for air travel to and from Sydney. By 2027 there will be no more slots available at Kingsford Smith; by the mid-2030s there will be no additional capacity.[1]
A review of the potential sites for a second Sydney airport, which examined 80 sites across 18 locations around the Sydney region, found that the site at Badgerys Creek – where nearly 1800 hectares of land was purchased by the Hawke Government decades ago – remained the preferred location.[2]
Since that 2014 decision, we have covered a lot of ground.
We have prepared and issued a draft Environmental Impact Statement, and in September last year a final Environmental Impact Statement.
We have prepared and issued a draft Airport Plan, and in December last year a final Airport plan, which provides the formal regulatory approval to build an airport at Badgerys Creek.
In May this year we completed the process with Sydney Airport Group under its right of first refusal to build and operate a second airport in the Sydney basin.
Following Sydney Airport Group’s decision that it would not take up the opportunity, we established a government owned company, WSA Co, to build and own the airport.
We announced in the May budget that the Turnbull Government would inject up to $5.3 billion of equity into WSA Co to fund construction.
The first four directors of the company were appointed in August this year.
The chairman is prominent businessman Paul O'Sullivan, the current Chair and former Chief Executive of Optus, and the other directors are Fiona Balfour, former Chief Information Officer at Qantas; Tim Eddy, former Managing Partner at EY and Christine Spring, a civil engineer and aviation infrastructure expert.
I can announce today the appointment of a further three directors, taking the board to its full complement.
Mr Vince Graham AM, is a lifelong Penrith resident who brings a wealth of infrastructure and public transport experience. He is a former CEO of RailCorp NSW and of NSW Government energy businesses.
Mr John Weber is a highly experienced transport and infrastructure lawyer, and former Managing Partner of DLA Piper.
Ms Anthea Hammon, a mechanical engineer by profession, is co-Managing Director of Scenic World, a major tourism business in the Blue Mountains, and also lives in the Blue Mountains.
I am particularly pleased that there will be residents from Western Sydney and the Blue Mountains on the board of WSA Co.
The Government has established a community consultation mechanism, the Forum On Western Sydney Airport (FOWSA), chaired by Professor Peter Shergold AC, Chancellor of Western Sydney University.
We have announced that WSA Co will establish its offices on Scott Street in Liverpool; staff will locate there before the end of this year.
All of the tenants who formerly occupied the 1800 hectare airport site at Badgerys Creek have now left, and the site is being readied for construction.
Last month the Western Sydney Airport Obstacle Limitation Surface (OLS), was declared, to protect the airspace in close proximity to the airport.
This is essential to ensuring and maintaining a safe operating environment and to provide for future growth in the surrounding area.
How we will approach Procurement
Let me now turn to speak in a bit more detail about how WSA Co is approaching its task of procuring the work required to design and build Western Sydney Airport.
The company has a clear focus on meeting the Government’s expectation for construction to start in 2018 and for the airport to begin operations in 2026 – and it is moving quickly.
An early priority is the relocation of a high-voltage powerline that currently runs across the site. Last month the Commonwealth and WSA Co signed an agreement with the powerline’s owner, TransGrid, to underground the line, with work expected to commence later this year.
There are two key stages of procurement for work on the airport site – Early Works (or enabling activities) and the Main Airport Works.
Early Works
The Early Works focus on preparing the site before Main Airport Works can occur. This includes site de-contamination and initial bulk earthworks.
In addition, investigative work is being undertaken to inform the design of the airport, such as land surveys and geotechnical work. Other activities are required to meet conditions placed on the Airport Plan, such as air and noise monitoring.
WSA Co has already issued requests for tenders for geotechnical and land survey works, with further procurement for Enabling Activities to follow in the coming months, prior to procurement of the Main Airport Works.
The land survey works include a cadastral surveyand a topographic survey, as well as geometrically corrected aerial photography – in which the image accurately represents true distance.
The geotechnical work will further investigate the characteristics of the earth ahead of the construction of the terminal.
It also includes some more detailed geotechnical investigation in the terminal area, around detention basins and to explore reuse of site-won material in pavement subgrade layers.
Before the end of this year WSA Co will go to market with an initial bulk earthworks package. Site decontamination work will go to tender early in the new year.
Main Airport Works
Earlier this month WSA Co announced its procurement strategy for the Main Airport Works.
The Company will structure its procurement around three primary packages of work.
The first and largest of these three packages will encompass first stage earthworks, drainage and airside pavements.
Expressions of Interest for this first package will be released in February 2018.
The second major package will be the terminal building and associated airside and landside interface works.
The third package will include the landside roads, carparks and associated works.
WSA Co will hold an industry information session on Tuesday 5 December to provide further detail on the upcoming WSA works.
WSA Co decided to structure the Main Airport Works procurement as three packages for a number of reasons.
An important consideration was maximising competition in the market and to achieve value for money for taxpayers.
Of course WSA Co is led by a Board of directors with deep commercial experience; deciding on a procurement strategy is exactly the kind of decision where that experience is of great value.
It is expected that the Main Airport Works will commence during 2019.
How Western Sydney Airport Will Impact the Australian Market
I have talked about the work we have underway to get the airport built.
Now I want to turn to look at the impact that Western Sydney Airport is likely to have once it is in operation.
National Economic Impact
Let me start with the overall economic impact of Western Sydney Airport.
Building a major new airport is one of the most important economic policy decisions any government can make.
Here for example is what the Davies Commission – appointed to consider the question of expanding aviation capacity for London – said in its 2015 report:
Good aviation connectivity is vital for the UK economy. It promotes trade and inward investment, and is especially crucial for a global city like London. The service sector, whether the City, the media industry or universities, depends heavily on prompt face-to-face contact. There is strong evidence that good transport links, and especially aviation connectivity, make an important contribution to enhancing productivity...[3]
I think there is a strong case that Western Sydney Airport will deliver a substantial boost to the Australian airline sector and the airport sector – as well as a broader economic boost, including through stimulating activity in other industries such as tourism, education, agriculture and manufacturing.
Consider the economic impact of just the air transport and tourism sectors. The air transport sector added around $9.5 billion to the Australian economy in 2016-17.[4]
There were 156 million passenger movements through Australian airports in 2016-17, contributing to a tourism sector that added $53 billion to Australia’s GDP. And there is significant growth expected – with international tourism demand projected to grow by 4.5 per cent per annum.[5]
I have seen repeated evidence of the economic significance of airports on visits to Changi Airport in Singapore, Incheon in Korea, Heathrow, Gatwick and Luton in London, Schiphol in the Netherlands and Dallas Forth Worth in the US.
Changi generates over 5 per cent of Singapore’s GDP. Heathrow provides 25 per cent of the jobs in the communities around the airport.
Dallas Forth Worth Airport generates $37 billion a year in total expenditures and 228,000 jobs, mostly in the north central Texas area.[6]
Similarly, we can expect Western Sydney Airport to have a major impact on its surrounding community. Economic modelling from consultants EY projects that by 2031 Western Sydney Airport will have delivered an estimated 28,000 additional jobs – both direct jobs at the airport and downstream jobs.
Flow on impact for the Australian aviation sector
But Western Sydney Airport’s impact will not just be felt in Western Sydney. It will also have significant impacts across Australia.
To start with, it will bring extra choice – and vitally needed physical redundancy – to our national aviation market.
We know demand for international flights is growing, with increases in flights, passengers carried and, most significantly, freight.
In August 2017 international passenger traffic was up 6.3 per cent, and freight was up 13 per cent, on August 2016.[7]
Sydney is Australia’s aviation gateway, with 40 per cent of international traffic – but the capacity constraint at Kingsford Smith risks, increasingly, becoming a constraint on our entire national air travel system.
For Sydney and Australia to remain competitive, Western Sydney Airport is vital. It will add much-needed aviation capacity to the Greater Sydney region well before Sydney Airport hits capacity.
From 2026, aviation growth into and out of Sydney will be split across the two airports, with Sydney Airport retaining the largest share until it reaches capacity. From that point, all new growth in aircraft numbers will come to Western Sydney Airport.
Western Sydney Airport is not being planned to replace Sydney Airport; rather it will support the growth in demand for aviation services for the Sydney region.
Of course the operational benefits of having redundancy in Sydney will be significant as well. Today, as I hardly need tell anybody in this room, a problem in Sydney quickly cascades all around the national network. And with limited available capacity in Sydney, it doesn’t take much to create a problem.
Our network of major airports around the country operates as an integrated transport system. The addition of Western Sydney Airport as a new node into that system is going to have a very significant impact.
It will make the Australia-wide system more robust, including through helping to relieve congestion and the resulting risk of delays.
And of course it will mean for the first time that if Kingsford Smith Airport is closed, that does not mean Sydney is closed.
Clear focus on competitive segments
When Western Sydney Airport opens in 2026, you can expect that its board and management team will have a clear focus on the segments where it can have a strong competitive positioning right from the outset.
Last year I had the chance to visit Heathrow, Gatwick and Luton Airports, all of which serve London. I was interested to better understand how different airports compete in a multi-airport city.
At both Gatwick and Luton, the Chief Executive emphasised the benefit of the catchment area – people who are closer to their airport than other airports in the London area. For Luton this means people to the north of London; for Gatwick people to the south.
Western Sydney Airport will have a substantial catchment area.
Over two million people will be closer to Western Sydney Airport than Kingsford Smith, making it cheaper and more convenient for them to travel to the new airport.
Demand analysis suggests that, initially, Western Sydney Airport will be most attractive to low cost and leisure carriers, serving destinations such as Australia’s other capital cities; New Zealand; and Bali.
I have seen some commentary which criticises the idea of Western Sydney Airport as a ‘low cost’ or ‘discount’ airport. That is a misunderstanding. To be clear, from opening Western Sydney Airport will service all segments of the market; it will be a full-service airport offering domestic, international and freight, capable of handling the largest passenger plane in use, the A380.
But, in its early years, it is important to have a clear understanding of the market segments where Western Sydney Airport will have an advantage from the outset – and one such segment is low cost carriers.
Low cost carriers represent 16.5 per cent of international passenger traffic in Australia in August 2017 — up from 15.8 per cent in August 2015.[8]
In the domestic market, low cost carriers have taken significant market share on both key leisure and main-haul routes. Domestic low cost carrier market share rose from around eight per cent in 2005 to 31 per cent in 2013.[9]
Qantas CEO Alan Joyce has indicated that Western Sydney Airport could potentially be a base for Jetstar, the Qantas Group’s large and successful low cost carrier. Joyce commented that in London British Airways operates out of Heathrow and Ryanair out of Stansted, and a similar model could work for Jetstar at Western Sydney Airport.[10]
If the first segment where Western Sydney Airport is expected to have a competitive advantage from the outset is low cost and leisure carriers serving Western Sydney Airport’s catchment area, the second segment is inbound international carriers unable to secure a slot at Kingsford Smith.
It is instructive to look at comments reported in the media late last year from the local management teams of Chinese airlines. For example, Kathy Zhang of China Eastern said that because Kingsford Smith was so close to its capacity, it was hard to start new flights into Sydney, and added:
The second airport facility and infrastructure is very important if we are opening the skies.[11]
The third segment where Western Sydney Airport will be competitive immediately is freight. The lack of a curfew, together with its location in Western Sydney – close to many logistics facilities –gives the airport some real strengths.
There are some interesting ideas emerging about how best to leverage Western Sydney Airport’s freight capacity. For example the NSW Farmers Federation and KPMG recently issued a report entitled Think Big Think Fresh: A Fresh Food Precinct for Western Sydney Airport. It lays out a vision for Western Sydney Airport to build a strong position in food exports, suggesting this can be enhanced by complementary investment in nearby facilities for high value food production, processing, and biosecurity.[12]
In choosing the board of WSA Co we have placed a premium on people who can craft an effective competitive strategy for Western Sydney Airport. In particular, WSA Co Chairman Paul O’Sullivan is a former Chief Executive of Optus – giving him unparalleled experience in building a successful infrastructure business competing against a well-established incumbent.
Planning for longer term growth
I have spoken at some length about the competitive strategy you can expect Western Sydney Airport to pursue in its early years. But it is important to point out that the Airport is being planned to get off to a good start in the early years – and to build very substantially over the long term.
The Airport Plan and the Functional Specifications set out the Government’s requirements for the design and construction of the airport.
It will begin with a single, 3.7 kilometre runway and the facilities to support 56,000 take-offs and landings per year.
It will have a single, integrated domestic and international terminal, with a footprint of around 80,000 square metres.
The airport will be equipped with the latest aviation technology, including a CAT III-B instrument landing system. This will minimise disruptions, by allowing airport operations to continue safely even in thick fog conditions with visibility as low as 50 metres.
Design for staged development, Western Sydney Airport will be prepared for five years of forward demand.
And the site provides ample capacity for the expansion that is expected over many decades as passenger numbers grow.
By 2050, we expect Western Sydney Airport will be serving around 37 million annual passengers.
That is the stage at which we expect a second parallel runway will be required. It is planned to be built with a separation distance of 1,900 metres, allowing for both runways to operate simultaneously and independently.
Conclusion
Western Sydney Airport is an extremely important project – for Western Sydney, Sydney and the nation.
As I have sought to demonstrate today, we are making good progress on turning this project from concept to reality.
A project of this scale has the capacity to deliver major economic and social benefits – but we need to plan carefully to capture those benefits.
In particular, unless the airport works as a business, it is not going to live up its potential to deliver major economic and social benefits.
That is why I have also spoken today about about the strong focus that WSA Co board and management will bring to building a viable competitive strategy for the early years – and on building a foundation for substantial growth over fifty, seventy or one hundred years.
Success here is not just building a first class piece of infrastructure; success will require attracting airlines, passengers and freight from the outset, and building the numbers over time.
I am confident that we can and will achieve success on both fronts - and that we are building the right team at WSA Co to deliver that success.
[1] Commonwealth of Australia. 2012. Joint Study on aviation capacity in the Sydney region
[2] Ibid
[3] Airports Commission:Final Report July 2015, https://www.gov.uk/government/organisations/airports-commission, downloaded 12/11/16, p 4
[4] Darren Chester – Safeskies Conference 2017 http://minister.infrastructure.gov.au/chester/speeches/2017/dcs012_2017.aspx
[5] Up to 9.6 million passengers in 2023. Aviation: International airline activity statistical report, BITRE, August 2016.
[6] https://www.perrymangroup.com/mwg-internal/de5fs23hu73ds/progress?id=Lig24M_nIgz23lagBL1Cgnct32k5UmVM8xPSHEQHAa
[7] BITRE August 2017: https://bitre.gov.au/publications/ongoing/files/International_airline_activity_1708.pdf
[8] https://bitre.gov.au/publications/ongoing/files/International_airline_activity_1708.pdf
[9] Western Sydney Airport EIS 2016, Volume 1, Chapter 2, p. 84
[10] Robyn Ironside, The Daily Telegraph,30 January 2017 http://www.dailytelegraph.com.au/news/national/jetstar-set-to-call-badgerys-creek-home-under-alan-joyces-vision-for-qantas-operations/news-story/3630cd4a9bcb5c230a123d901c7d9355
[11] Scott Murdoch, The Australian, December 21 2016, http://www.theaustralian.com.au/business/aviation/
chinese-airlines-stress-need-for-second-airport-in-sydney/news-story/6b8f619723b8ea0015dc3395bf515aa4
[12] https://home.kpmg.com/au/en/home/media/press-releases/2017/10/a-fresh-food-precinct-associated-with-the-western-sydney-airport-01-november-2017.html
