A long-term play

And we don’t seem to do them cheaply either, with the government setting aside as much as $6 billion to build the new airport. With that sort of price tag it’s easy to understand why Sydney Airport Corporation knocked back its right of first refusal to build Badgerys.

We don’t know what Sydney Airport’s own estimated cost for developing Badgerys Creek would have been. But if it was in the order of $6 billion, it is not surprising it declined, noting the commercial risks in developing the new airport would be “considerable and endure for many decades without commensurate returns for our investors”.

$6 billion seems a hefty sum of money to build an airport initially sized about the same as Canberra or Gold Coast airports and serving one million passengers a year. It is certainly a sum that John Wagner, whose family company built Brisbane West Wellcamp Airport for around $200 million, says is too high.

“We just can’t see that it would cost that much and the high level work that we have done internally on it here indicates it shouldn’t cost that much,” he told ABC radio on May 8.

Badgerys will be an order of magnitude larger in scale than Wellcamp. Its runway will be around 1,000 metres longer, while its terminal will be much larger.

And other airport development projects around Australia serve to highlight how much airport infrastructure costs to build.

Brisbane Airport, for example, is spending $1.3 billion building its new parallel runway (admittedly involving substantial ground works thanks to the site’s extremely soft soil), while Sydney Airport’s international terminal refurbishment which opened in 2010 cost around $500 million.

Looking at those two projects alone it is easy to see an all-new airport would have a price tag in the several billions.

Whatever the final figure it is a lot of sunk cost for an airport that won’t generate any revenue for another nine years.

And in its early days too Badgerys seems most likely to be attractive to low-cost carriers such as Jetstar, Tigerair and AirAsia X, given time-sensitive business travellers will want to fly into the existing Sydney Airport with its proximity to the city’s CBD. Further, both Qantas and Virgin would be loathe to operate too many flights to Badgerys so as not to diminish the role of Sydney Airport as their primary hubs.

Western Sydney Airport then is a long-term play that won’t generate a commercial return for many years.

But it will generate an economic return for Western Sydney and the entire Sydney basin, generating jobs and reducing the throttle on growth that a movement cap constrained Sydney Airport will soon represent.

It is here that the rationale for government investment in the new airport starts to add up.

Qantas Group CEO Alan Joyce has spoken publicly in favour of the airport, noting the additional aviation capacity will be needed given that Kingsford Smith will soon be “full”.

“Having competition is always good. We see it in the aviation industry here in Australia and around the world,” Joyce said on May 10.

Said the boss of Sydney Airport’s biggest customer, “… Kingsford Smith needs competition and I think this will be a great long term investment for the federal government.”

(It is worth noting that Badgerys will provide airport competition for the Sydney basin, something that Melbourne – thanks to Avalon – and Brisbane – with Gold Coast, Wellcamp – already enjoy.

Certainly competition regulator the ACCC believes a second international airport competing with Sydney Airport could yield significant benefits to consumers and airlines.)

Noted Joyce: “It will pay more when that airport is eventually sold than the investment costs and I think there will be a great economic benefit to the country and to the state.”