Land Development Surrounding Christchurch Airport and Competitiveness

 
Land Development Surrounding Christchurch Airport and Competitiveness
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       Land Development Surrounding
  Christchurch Airport and Competitiveness

                                     Briefing Paper for
                   Christchurch International Airport

                                           31 July 2013

Copyright Castalia Limited. All rights reserved. Castalia is not liable for any loss caused by reliance on this
                 document. Castalia is a part of the worldwide Castalia Advisory Group.
Land Development Surrounding Christchurch Airport and Competitiveness
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Table of Contents
1      Introduction                                                   1
2      Competitive environment for airports                           2
3      How do airports compete                                        6
4      How can an airport improve its competitiveness                 7
5      Why development that assists airport competitiveness also
       benefits the city                                             17
6      Conclusions                                                   20

Tables
Table 4.1: Comparison of New Zealand and Australian Airports
and their Development Plans                                          13
Table 4.2: Conditions relevant to choosing airport model for
development                                                          15

Figures
Figure 4.1: Examples of Relevant Literature                           7
Figure 4.2: Determinants of Airport Competitiveness                   8
Figure 4.3: Models of airport development                            10
Figure 4.4: CIA location in the wider context of Christchurch City   15
Figure 4.5: Industrial employment and land uptake distribution in
Christchurch                                                         16
Figure 5.1: Relationship between the Airport and Its Surrounding
Area                                                                 18

Boxes
Box 4.1: Examples of adopting a mixed airport model                  11

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1       Introduction
This Briefing Paper considers the role of industrial and commercial development at
Christchurch International Airport Ltd (CIAL) and associated land holdings in terms of
underpinning the competitive position of the aeronautical services at the Christchurch
International Airport (CIA). CIAL wishes to understand whether a strategy to improve
its competitiveness through land development is consistent with international experience
and compatible with the Christchurch City Council’s (CCC) City Recovery and the City
Plan.
CIA’s aim, like all international and domestic airports in New Zealand, is to recover the
costs of aeronautical services through charges to airport users. Revenue from commercial
development does not contribute to the costs of the core aeronautical services.
However, whilst commercial and industrial development of the surrounding areas of CIA
is not intended to cross-subsidise the provision of core aeronautical services, it is
nevertheless crucial to CIA’s competitiveness: that is, its ability to grow volumes and
recover aeronautical costs at reasonable charges.
Our key insight—both from our experience advising other airports and from the relevant
literature—is that CIA is not a passive recipient of origin-and-destination travel to the
Canterbury region. CIA competes in its own right, and has the ability to promote its
aeronautical services through developing an increasingly sophisticated commercial and
infrastructure offering in response to similar developments by its competitors.
In the rest of this paper we:
         Establish, in Section 2, the analytical framework for considering the
          competitive threats and opportunities facing an airport and apply this to CIA.
          We show that CIA has to respond to competition from other airports such as
          Auckland and the airports on the eastern seaboard of Australia
         Explain, in Section 3, how airports compete with each other. We set out the
          broad distinction between price and quality competition
         Examine, in Section 4, how an airport can improve its competitiveness for a
          given level of airport charges. We show the significance of spatial factors—
          such as the commercial development around the airport—on competitive
          positioning. We also consider the experience of major international airports
          and the implications of that experience for commercial development around
          CIA, including consistency with the City Recovery and the City Plan
         Discuss, in Section 5, why development that assists airport competitiveness
          also benefits the city. We make a distinction between the realisation of
          agglomeration effects and optimisation of transport infrastructure
         Present our conclusions in Section 6.

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2       Competitive environment for airports
Airports have evolved over the last 20 years
The traditional view of airports as monopoly infrastructure passively serving origin-
destination demand generated by factors outside the airport’s control is no longer valid as
a general proposition, although it may still apply to some minor airports. Over the last
twenty years, there has been tremendous change in the aviation sector. Wide ranging
changes encompass deregulation of airline markets, more cost focussed airline business
models, and technological developments which have increased the operational
flexibilities of airlines as well as the information and choice available to passengers. These
changes, in turn, produced more commercially focussed airports, seeking to respond to
the challenges posed by the new competitive environment.
The development of low cost, point-to-point airline models has dramatically reduced the
“stickiness” between airlines and airports. In combination with aircraft technological
developments which have increased the flying options available to airlines (such as
reduced dependence on local weather through ground-based guidance), this has led to a
greater willingness by airlines to change their route structure in quick response to
economic incentives.
Growing incomes and lower airfares have also led to a fundamental change in how
people make their discretionary journeys: airline and airport services drive demand as
much as they respond to it. Many travellers make a two-step choice: the first decision is
to undertake a journey. The second choice—where they will go and how they will get
there—will often depend on airline prices and schedules. This has led to a fierce airline
competition for passengers, which has implications for airports too. Airports must now
compete with each other for both passengers and airlines which have significantly more
choice than in the past. The result is a more competitive and dynamic airport market.
This resulting competitive pressure on airports has to be seen in the context of the
economic nature of those businesses. Airport costs are largely fixed, partly as a result of
investment in infrastructure but also because of associated operating costs, including
those on safety and security, which vary little with scale of traffic. This gives airports a
natural incentive to attract traffic to defray those costs. To put it simply, airports are a
volume game: airports with small traffic volumes have costs that are only marginally
lower than airports with much larger volumes. Airports that seek to recover their costs
from small volumes end up with unsustainably high unit charges. In fact, few small
volume airports are financially viable.
Overall, airports are two-sided businesses, engaging in a commercial relationship with
both airlines and passengers. Airports, therefore, have to respond to increased passenger
and airline choice by competing to both retain and attract traffic.
The key question is what it is that airports can do to respond to more footloose airlines that
are willing and able to take their business elsewhere if service, price and market
conditions are more favourable and more footloose passengers making informed decisions
about their journeys.
The main response has been for airports to become more pro-active, offering a greater range of
commercial services. Every traveller is aware of the increased commercial services being
offered within terminals, and the importance of such services for the attractiveness of an
airport. However, the “arms race” between airports has spread well beyond the terminal.
Airports have become more than a terminal for air transport.

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The success of an airport—and its ability to serve as a strategic asset for a region—has
increasingly become dependent on the ability of an airport to position itself as a hub in
the broadest sense: a hub for transport, commerce and industry.
Overall, there is an important inter-relationship between the attractiveness of a region
and the competitive positioning of an airport. Of course, the intrinsic attractions and the
population base of a region will create its own base-line of origin-destination travellers.
However, a competitive hub will generate additional traffic, which in turn, will lead to
greater frequencies and more competitive pricing by airlines. Such increased
connectedness will then make the region more attractive to travellers, creating a virtuous
cycle.
Competitive rivalry with other airports is a key challenge for CIA
CIA is not primarily an origin-destination airport for Christchurch and the Canterbury
region. The South Island visitor economy and production industry depends on CIA to
connect with international markets. In 2012-13, the airport was used by over 5.5 million
passengers and approximately 30,000 tonnes of goods were imported and exported.
Nearly 60 per cent of international visitors who arrived at CIA came for a holiday.1 CIA
is used by over 85 per cent of international visitors to the South Island.2
However, while CIA is the only commercial airfield in the South Island able to take long-
haul flights, it has no physical monopoly on the hub role:
             Long-haul travellers are able to reach various points in the South Island by
              connecting via Auckland, Sydney, Brisbane or Melbourne
             Travellers from Auckland have a variety of travel options for various South
              Island destinations
             Trans-Tasman travellers are able to choose direct flights to Queenstown.
To put these choices into context, we can look at competition faced by Christchurch to
act as a hub for traffic to Queenstown. Passengers destined to Queenstown can instead
fly directly from other competing airports:
             7 daily flights from Auckland
             3 daily flights from Sydney
             2 daily flights from Melbourne
             2 daily flights from Brisbane.3
In contrast, there are five (5) daily flights from Christchurch to Queenstown.
To provide a more systematic analysis of competitive pressures, we apply M.E. Porter’s
(1979) five forces framework of competitive analysis (see Figure 2.1).

1   International visitor Survey (IVS) of the Ministry of Business, Innovation and Employment (MBIE).
2   www.nzairports.co.nz
3   Information sourced from various airport websites and search engines. The number of flights to Queenstown is
     based on a one week sample for July 2013.

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Figure 2.1: Porters Five Forces Framework

The framework draws upon industrial economics to derive five forces that shape
competition in an industry. Below we consider these forces for CIA (where relevant):
        Threat of new entrants—Threat of new competing airports is generally low
         because of the large investment which is needed for new infrastructure and
         because of the stringent planning and regulatory processes which have to be
         followed before approval of any new development is given. While completely
         new airports are unlikely, significant investment in an existing airport can be
         thought of as new entry. For example, the upgrade of the Queenstown
         Airport effectively created a new entrant in the South Island market. If
         Wellington Airport proceeds with investment to enable long-haul flights, it
         would also become a competitor
        Threat of substitutes—Other transport modes represent substitution
         threats. With respect to leisure passenger traffic, CIA both compliments and
         competes with land transport. Travellers who wish to explore the South Island
         by car have the option of commencing and terminating their journey at a
         number of South Island airports, as well as the ferry terminal in Picton. Sea
         and road transport may be substitutes for air freight
        Power of buyers—The relative strength of airlines can vary significantly. This
         power may influence the charging practices of the airport. Airlines do not only
         open and close individual routes. They also open and close bases – or vary
         their size – at individual airports. An airport can strengthen its commercial
         position with respect to airlines by deepening commercial links with the
         region, and enabling the airlines to benefit from such links
        Rivalry amongst existing airports—The amount of rivalry varies
         considerably. If the airport is focused on point to point traffic, such rivalry
         may be limited. However, if the airport is also competing for hub or transit
         traffic, the degree of rivalry will be intense. CIA falls into the latter category.
         In its role as the Gateway to the South Island, Christchurch competes with
         Auckland, Brisbane, Melbourne or Sydney. As the gateway to the South
         Island, it effectively competes with Queenstown, Dunedin (which is seeking to

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          expand its trans-Tasman connectivity) and Nelson (which is well linked to the
          North Island and provides an attractive entry/exit point on a land journey
          encompassing the West Coast and Queenstown).
On Porter’s five forces framework, CIA comes out as being tightly constrained by
competition. This has significant implications for CIAL’s commercial strategy, and in
turn, for deciding what investments CIAL should be allowed to make.

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3           How do airports compete
Airports compete on price and service. Service can cover elements such as the location,
accessibility, quality and size of the aeronautical, as well as the surrounding commercial
or industrial facilities.
Airports set aeronautical charges to recover efficiently incurred costs and earn a
reasonable return on investment. However, pricing by an airport is also constrained by
competitors—an airport that does not offer a competitive product, or is not able to
attract sufficient volume of traffic to utilise its facility, may need to charge below full cost
recovery charges to stay competitive. This competitive tension is particularly relevant
when one airport competes with another rather than subsidise prices, such as Dubai, or
Malaysia Airports that have held landing and parking charges constant for the last 19
years.4
The level of airport charges depends on the scale of the airport. If quantities can be
increased, price can be maintained or made more competitive. Therefore, CIAL needs to
create an environment for increasing traffic volumes.
One way to do this is to improve the service quality. In section 2 we described how
airlines have a choice of airports and routes they can service and this is no different at
CIA which is competing against Auckland and Australian airports. For a given level of
aeronautical charges, other factors, such as the quality of the overall airport service
including development of areas around the airport, affect the attractiveness and
competitiveness of the airport in terms of attracting airlines, and accordingly passengers
and freight.
In other words, improvement in the overall airport product—that is price and quality of
services—leads to a virtuous cycle: increase in traffic allows airport charges to be lowered
(or to be kept from rising) as costs are spread over higher traffic or passenger volumes.
This, in turn, contributes to airport competitiveness, and hence leads to further growth in
volume.
This means that retaining existing—and attracting new—traffic is not the passive
outcome of an airport just being there, but rather is an outcome of competitive strategy
that includes actions to improve the price and the quality of the product.
Such a strategy may result in an increase in non-aeronautical revenues. Aeronautical
services are not isolated from non-aeronautical revenues—airport experience (such as
leisure or retail) is essential to the quality of an airport.

4   Amadeus, “Reinventing the Airport Ecosystem”, May 2012

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4            How can an airport improve its competitiveness
What makes an airport more or less competitive?
Various studies around the world have shown that there is no one single determinant of
this. There is an existing body of research and analysis regarding what determines the
connectivity and competitiveness of airports—Figure 4.1 provides a few examples. The
key point is that the studies in the literature can be divided into spatial and temporal as
well as into local hub and global network analyses. The spatial approaches consider only
whether connections exist and not when it is offered. Temporal examinations take into
when connections are made. Local hub analyses take the perspective of the analysed
airport with its incoming and outgoing flights. The global network perspective however
takes the whole air traffic network into account.
Figure 4.1: Examples of Relevant Literature

One of the few studies that cover an area beyond a single country is an analysis of the
competitive strengths of eight major international airports in Asia (Park, 2003). This
study used a multi-decision criteria approach for the analysis. Deriving from Porter’s
‘Five Forces’, Park examined five core-factors that determine the competitive advantage
of an airport. Park identified spatial factors, facility factors, demand factors, service
factors and managerial factors5:
              Facility factors—The facility at an airport is the most visible attribute of its
               competitiveness. Airports are competing to build new facilities and are
               investing in strong marketing highlighting their state-of-the-art facilities. There
               are two types of infrastructure associated with airports: air-side and ground
               infrastructure. Air-side infrastructure includes the facilities which are directly
               controlled by the airport such as aircraft parking stands, runways, terminals
               and so on. Ground infrastructure consists of the transportation networks
               which connect the airport to the metropolitan areas in the region

5   Park, Y. (2003): An analysis of the competitive strength of Asian major airport. Journal of Air Transport Management, Vol
     9.

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           Demand factors—The level of origination-destination (O-D) demand and
            that of transit and transfer traffic may be influenced by the economy within
            which an airport is situated. Relevant factors may be social (such as popularity
            of the destination), legal (air transport liberalization), or economic (country
            GDP and metropolitan population)
           Managerial factors—Economic considerations such as airport costs and
            efficiency
           Service factors—This covers levels of service to users, types of aircraft
            operations, and levels of charges. For passengers, the customer experience at a
            hub airport may form part of the decision-making process when selecting a
            travel route. Similarly, airlines will consider the hourly capacity and efficiency
            of gate departure and taxi departures. Another significant factor when
            considering the competitiveness of a hub airport are the various charges
            associated with the airport. Charges need to be set at a level which maximises
            profit and revenue for the airport but also increase the number of airlines and
            passengers which use the airport as a hub
           Spatial factors—The level of regional development around the airport, such
            as international trade zones, logistics and convention centres, aviation-related
            industrial complexes and other facilities.
This is illustrated in Figure 4.2 below.
Figure 4.2: Determinants of Airport Competitiveness

Source:   Based on Park (2003)

It can be seen that there is no simple answer to the question of what makes an airport
more or less competitive. Demand for airport services comes from a complex interaction
of origin-destination demand, the quality of the transfer product and the interaction
between the airport and the performance of the key airlines.

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Spatial factors have now become critical differentiators
As airport competition intensified over the last 20 years, airports have increasingly
responded by improving their core product—terminal services—to meet expected
standards. The initial wave of airport responses to competition focused on designing
attractive terminals, including the standard duty free shop, and providing a range of car
parking facilities. The second wave added a diverse range of retail shops within the
terminal. This was followed by an expansion of the variety of retail, leisure and
accommodation at, or adjacent to, the terminal.
As most hub airports responded to competitive pressure in a similar way, the core
offering has become increasingly difficult to differentiate. With the opening of the new
terminal, CIA has responded to the need to provide expected core product quality, rather
than succeeding in differentiating itself from its competitors.
Having exhausted the traditional strategies, airports are now using spatial development as
a key competitive differentiator. This is evidenced by a further wave of airport
development. Increasingly, we see the traditional airport infrastructure—terminals and
runways—being surrounded by a range of additional business and retail facilities, such as
business parks, industrial centres, conference facilities, hotels, sporting facilities and the
like.
In this latest wave of competition, airports increasingly find themselves in a race to gain
the first mover advantage and to introduce innovative approaches to these developments.
Major airport hubs, including CIA’s competitors in Australia and New Zealand, are
progressing with their plans to develop land around the airport for industrial and
commercial use.
Spatial factors have influenced two main models of airport development
The focus on the spatial factors has influenced academic thinking about airport business
models. The literature differentiates two archetypal models: Efficient Gateway and
Aerotropolis (or Airport city). The key difference between these two fundamental
conceptions is the degree of reliance on spatial development around the airport. In
reality, no airport follows a pure archetype. However, the two distinct concepts are useful
for understanding the role of commercial and industrial development surrounding the
airport in airport competitiveness.
The Efficient Gateway Model—exemplified by Frankfurt and Zurich—focuses on
designing and managing transport infrastructure so that travellers are drawn to the
attraction of the city or region rather than the airport and its surrounding areas. The
airport is just the gateway to the city. In this model the attractiveness and
competitiveness of an airport relies on the competitiveness of the city or region.
Therefore, policies regarding the development of airports are reliant on the development
strategies of the whole region.
The Aerotropolis concept—(see John Kasarda6)—focuses on airport’s own strategy and
attractiveness, and has been adopted by leading airports in Asia such as the hubs in
Singapore, Hong Kong, Bangkok and Seoul. An Aerotropolis consists of an airport core
which is surrounded by aviation-linked and other businesses, much like a central city core
and its commuter-linked suburbs.
Figure 4.3 shows the distinction between these models. The airport area defines the
boundary of the airport that strictly covers the aeronautical services. A narrow Efficient

6   Centre for Air commerce, Kenan Institute of Private Enterprise, University of North Carolina – Chapel Hill.

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Gateway Model would result in the focus purely on developing efficient transport links
between the airport and the main city or region. The Aerotropolis focuses on developing
a sub-metropolitan area around the airport to improve both urban and airport
competitiveness.
Figure 4.3: Models of airport development

While Frankfurt and Singapore can be thought of as relatively “pure” representations of
the respective models (see Text Box 4.1), the trend has been towards combining the
elements of both. It is critical to emphasise, however, that the trend has been one way: all
airports have been moving towards adopting commercial and industrial development
strategies.

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  Box 4.1: Examples of adopting a mixed airport model
  Frankfurt Airport—Efficient Gateway adopting aspects of Aerotropolis model
  The airport initially applied the Efficient Gateway Model as it was surrounded by forest to
  its location in the Frankfurt City Forest. This meant that the area was predominately
  dominated by aeronautical activities. Thus a majority of the investment into redevelopment
  and expansion by the city of Frankfurt is spent on the city itself, further developing and
  maintaining its position as one of the largest financial districts in Europe.
  Such infrastructure includes its highly developed train and road systems which allow quick
  and easy access to the airport: the high-speed network of German Rail (Deutsche Bahn),
  regional and metropolitan train services and Germany's most important motorway
  interchange at the intersection of the A3 and A5 superhighways.
  However, Frankfurt airport has seen a shift towards the Aerotropolis model with the
  development of the Sheraton Hotel & Conference Center, the office and conference
  facilities of the Frankfurt Airport Centers, the Airport City Mall and plans for further
  commercial development, such as the Gateway Gardens to be completed by the year
  2020—this site will host offices, services, hotels, conference, trade show and exhibition
  space, recreational facilities, bars and restaurants, and retail outlets.
  Further development plans include new logistics and a distribution park for forwarders,
  logistics companies and aeronautical-related businesses. Lastly, the expansion of the
  CargoCity South over the next few years will allow it to maintain its position as Europe’s
  largest cargo hub.
  Changi Airport—Aerotropolis adopting aspects of Efficient Gateway model
  Changi airport is a major airport hub and the fifteenth busiest airport, in terms of
  passengers, in the world as well as the fifth busiest in Asia in 2012. Furthermore, it is the
  twelfth busiest cargo hub, handling over 1.8 million tonnes of cargo in 2012.
  The airport adopted the Aerotropolis Model to support the government’s focus on
  maintaining a good connection between water and air-based transportation along with its
  specialisation in business and trade industries. However, as the airport is a significant
  contributor to the Singaporean economy and due to the minute size of Singapore, the
  entire country has been planned to facilitate the Aerotropolis status.
  Nonetheless Singapore’s policy has also focused on efficient ground transport from Changi
  Airport to the existing CBD. Several modes of transportation (including public buses and
  public trains—MRT) enable travel to the CBD within 30 minutes.

Overall, we believe that the emerging pattern is economic development built around an
axis stretching from a more or less dense cluster of airport-related activities plus
commercial and industrial development around the airport to the core commercial and
industrial areas of the surrounding city.

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There is a race to promote development of land around airports
The importance of spatial factors is currently playing out in a kind of arms race as many
airports have either already strengthened their competitive position by promoting
surrounding industrial and commercial developments, or have produced master plans to
do so.
Key hubs in Asia—which set the pattern for other airports—have undertaken major
investments in commercial districts:
         The Hong Kong International Airport (HKIA) is undergoing significant
          developments through the construction of three commercial districts which
          are adjacent, or close to, the HKIA’s terminal and runways. The first of these
          districts is composed of logistic facilities. Features of this district include some
          facilities constructed and operated by an international consortium of Asian
          and European Partners, the facilitation of the world’s largest stand-alone air-
          cargo and air-express facility and a mixed-use freight-forwarding warehousing
          and office complex. The second commercial district is being developed as an
          office park, targeting regional and air travel-intensive professionals. The third
          and largest district is known as SkyCity. The district intends to be a destination
          for working, shopping, entertainment, meetings, and trading
         Incheon Airport in South Korea currently hosts several non-aeronautical
          businesses within and beyond the airport area. Such businesses include a golf
          course, casino, spa, ice skating rink and the Museum of Korean Culture.
          However the airport’s operator is further expanding and developing such
          infrastructure through the airport’s “Air City.” This feature of the airport
          includes several office buildings, logistics and manufacturing zones, shopping
          centres, hotels, entertainment and tourist districts, housing and essential
          services for airport staff and residents
         Kuala Lumpur International Airport has developed, in addition to retail and
          office developments, motor sports, an automotive hypermarket and leisure
          venues to attract both the locals and tourists, creating a dual based market.
         The Beijing Capital International Airport master plan includes non-
          aeronautical infrastructure such as shopping and entertainment complexes,
          education facilities, sports and leisure facilities, logistic and light
          manufacturing zones, finance and trading districts and housing areas.
Table 4.1 looks in more detail at how airports in Australia and New Zealand have
embraced the concept or principle of developing land for commercial and industrial use
around airports.
In particular, Auckland International Airport—the key competitor to CIA within New
Zealand—explicitly sees itself developing into an Aerotropolis through its business
district.
The Auckland Airport Business District is a commercial hub, which is growing rapidly.
The district includes warehouse and logistic facilities, recreation and heritage attractions,
an office complex with hotel accommodation and retailers for passengers and airport
workers, an entertainment, retail and education district and two cargo centres. All of
these facilities are linked to major transportation services. The expansion and
development of this business district is part of a long term Masterplan by the airport,
with the aim of improving its competitiveness and attractiveness.

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Table 4.1: Comparison of New Zealand and Australian Airports and their Development Plans
                                 Auckland                                  Brisbane                                       Canberra                                    Perth

Population                        1,397,300                                2,189,878                                       367,000                                   1,897,548

Runways                               1                                        2                                               2                                         2

Terminal                              3                                        2                                               1                                         3

Airlines                             22                                       26                                               3                                        28

Destinations                         56                                       72                                               7                                        51

Air movements                      165,515                                  184,288                                                                                  142,079

Passengers Per Year              14,160,640                               21,017,060                                      3,065,893                                 12,632,800

Int                               7,697,657                                4,483,094                                           0                                     3,492,160

Dom                               6,462,983                               16,516,320                                      3,065,893                                  9,140,640

Total Land Area (ha)                1,500                                    2,700                                           436                                       2,105

Total land area for              64 Hectares                            1,000 Hectares                                   12 Hectares                               997 Hectares
development

Development Zones       Passenger: Terminal Precinct    Brisbane Domestic: Commercial office,            SouthWest Precinct: Airfreight services,     Precinct 1 – 196 ha:
                         including transport, car         hotel, retail                                     catering services, maintenance, fuel          Commercial, industrial, short
                         parking, hotels, shopping,      Brisbane International: Office, commercial,       facilities, retail, office, industry,         stay accommodation,
                         entertainment, office, and       hotel, retail, cargo/ freight, warehouse          hotel/motel, warehouse                        warehouse/showroom,
                         short stay accommodation        Banksia Place: Freight, aviation, food           North-West Precinct: Transport,               recreational
                        Central: Serviced land bound     processing, business, commercial, hotel.          freight, industry, retail support, office    Precinct 2 – 238 ha:
                         by major arterial roads and     Number 1 Airport Drive: Retail, office, golf      support                                       Commercial, industrial, short
                         serviced by the northern         course, visitor centre, hotel, business, DFO,    North-East Precinct: Transport, freight,      stay accommodation,
                         expressway                       homemaker centre, tourism, health centre,         industry, community facilities, support       recreational, warehouse, aviation
                        Northern: freight and            dining facilities                                 facilities to public/tenants/staff,           commercial
                         logistics.                      Export Park: Freight, education facilities,       commercial accommodation,                    Precinct 3 - 141 ha: Industrial,
                                                          workshops, conference facilities, function        single/multi-unit dwellings.                  warehouse, showroom
                                                          rooms                                                                                          Precinct 4 - 42 ha: General
                                                         Airport Industrial Park: Light and General                                                      commercial, industrial
                                                          Industry.                                                                                      Precinct 5 - 76 ha: Natural
                                                                                                                                                          environment conservation
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                                  Auckland                                     Brisbane                                        Canberra                                      Perth
                                                              Aerotech Park: Aviation based maintenance                                                       Precinct 6 - 73 ha: General
                                                               facility.                                                                                        commercial,
                                                                                                                                                                warehouse/showroom,
                                                                                                                                                                industrial, short stay
                                                                                                                                                                accommodation
                                                                                                                                                               Precinct 7 - 233 ha: Recreational,
                                                                                                                                                                conservation.
Further Development    The rapidly growing Auckland  Plans to significantly improve its airport area  Majura Park will be the only Airport
Information              Airport Business District             such as the expansion of its domestic airport     precinct, external to the passenger
                         includes warehouse and                and a new parallel runway                         terminal retail area, with a shopping
                         logistic facilities, recreation      Plans to create a commercial hub from             centre. This precinct will form a
                         and heritage attractions, an          Airport Village to the Domestic Terminal          commercial hub for Canberra Airport.
                         office complex with hotel             and beyond over the next decade                   The vision for this precinct is for a
                         accommodation and retailers          The new Property Development Master               mixed use area, capitalising on the retail
                         for passengers and airport            Plan foresees the construction of 25 new          and office opportunities that exist for
                         workers, an entertainment,            buildings in the next 5 years which includes      the precinct.
                         retail and education district         the construction of hotels, commercial and       The Fairbairn precinct: Will be
                         and two cargo centres                 some retail space, as well as sites for           developed as a diverse mixed-use zone
                       All of these facilities are            industrial and mixed industry and business        with a large variety of different uses.
                         located near major                    use.                                              Part of the vision for Fairbairn is to
                         transportation services. The                                                            attract major security, Defence, public
                         expansion and development                                                               and private sector and other tenants
                         of this business district is part                                                       requiring such infrastructure, along with
                         of a long term Masterplan by                                                            other office tenants who may be
                         the airport and will improve                                                            attracted to the precinct. An office and
                         its competitiveness and                                                                 mixed use zone will be developed.
                         attractiveness.                                                                        Glenora precinct: This essentially
                                                                                                                 undeveloped area adjoins the access
                                                                                                                 road to Fairbairn precinct. It plays an
                                                                                                                 important role in terms of air navigation
                                                                                                                 facilities and the fire station. There is
                                                                                                                 significant opportunity to develop a
                                                                                                                 mixed use zone, which will incorporate
                                                                                                                 a wide range of uses including a general
                                                                                                                 aviation area, along with small scale
                                                                                                                 retail and office uses.

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CIA must respond to retain its competitiveness
CIAL is well positioned to respond to the emerging competitive threats through
industrial and commercial development that enhances CIA’s competitiveness while
contributing to City Recovery.
In Table 4.2 we consider conditions which the literature indicates may drive the choice of
the archetypical airport business model:
           distance from the CBD
           land use restrictions (or availability)
           quality of the road transport between the CBD and the Airport
           availability of high quality public transport between the CBD and the Airport.
It is clear that CIA is well-suited to a mix of the two models: development of both a
commercial and industrial hub to complement connectivity to the thriving CBD.
Table 4.2: Conditions relevant to choosing airport model for development
  Conditions                       Efficient Gateway                     Aerotropolis
  Distance from CBD                Near (10-20km)                        Far (>20km)
  Land use                         Possibly restricted due to            Land available for industrial
                                   environmental considerations          and commercial development
                                   (green belt or forest) or proximity
                                   to population centre
  Road highway                     Excellent                             Good
  Public Rail/Underground          Critical                              Not required
  connecting CBD to airport

While there is no doubt that CIA must continue to serve as an efficient gateway, it can
strengthen its position as a hub by anchoring air links into a growing commercial and
industrial area around the airport.
Figure 4.4: CIA location in the wider context of Christchurch City

Source:   CIA Strategy Property Vision, prepared by Urbis, 2007

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Other than planning restrictions, physical features and the availability of land around the
airport provide a basis for efficient commercial and industrial development.
A hybrid plan would be consistent with City Recovery and Plan objectives
A hybrid approach would not only allow CIAL to respond to pressure from competitors,
but also enable the City and its businesses to benefit from agglomeration effects and
optimised transport.
It would also facilitate the development of a business and transport corridor from the
airport to the CBD, leveraging the current growth of business activity in western
Christchurch—Figure 5.5 shows that there has been a significant movement of industrial
employment and take-up of vacant industrial land, towards western Christchurch.
Figure 4.5: Industrial employment and land uptake distribution in Christchurch

Source:   Plan Change 84, SPAZ Business Land Study for Christchurch City Council, Property Economics, July 2013.

Overall, given the prominence of spatial factors in airport competitiveness, the lack of
industrial and commercial development around CIA would lead to lost opportunities in
what is clearly an “arms-race” between airports. It would also mean lost opportunities for
the city and the region. The experience of competing airports shows that the
“Aerotropolis” developments do not come at the expense of linked CBDs. Rather, they
tend to strengthen the agglomeration effects along an increasingly efficient transport
corridor. We discuss this in more detail below.

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5       Why development that assists airport
        competitiveness also benefits the city
Industrial and commercial development around CIA can realise agglomeration
effects
Airport-related activities have a direct relation to air-freight and air-passenger
movements—such as industrial parks to increase freight, logistics and distribution
activities, or hotels and conference facilities. In terms of air freight, airlines attempt to
maximise efficiency by combining passengers and freight.
Airport-oriented activities choose the airport because of the image of the airport and its
typically excellent ground accessibility. The price of land and surface connectivity are the
key factors in determining those activities locating in the airport area.
For both these associated activities, the business can range from hotels, air-cargo
facilities, offices and business parks, warehouses and logistic parks, retail/wholesale
market places and recreational and entertainment districts.
There are a number of drivers which have spurred the development and creation of these
activities. One important driving force is the ability of airports such as CIA to attract
landside business development. An array of businesses have benefited from locating
closer to airport areas as airports provide significant value to these businesses by offering
quick distance market connectivity.
Locating close to CIA can be a very attractive location for a variety of companies. Being
near the airport and benefitting directly from its operation can attract further corporate
customers who benefit from relocating within the vicinity of the airport. For example,
such business locations benefit from well-developed infrastructure leading to the airport
and therefore minimize commute times/distances for its customers (for example
conference centres).
On the other hand, there are companies that benefit from the associated traffic volumes.
Their operations, therefore, become easily accessible. Airports can also attract companies
just looking for industrial development independent from the airport. This is because a
CBD is not an appropriate site for industrial businesses. Therefore, they have a choice of
location when seeking to locate their business. Locating near an airport is advantageous
because of the agglomeration effects and transport and logistics infrastructure at the
airport.
We provide three examples of the types of business located around an airport to benefit
from the agglomeration effects:
         Logistics facilities on site are often not able to completely satisfy the scale and
          complexity for air cargo. Several airports have built airport logistics parks in
          the vicinity to provide more support. The logistics parks help to promote
          quick turnaround and value-added logistics activities that are often ideal for
          high technology, high value products and fulfilment of orders through
          electronic commerce. The existence and development of nearby logistics parks
          become another influential factor when airlines, for example, select a cargo
          hub.
         Time-sensitive goods processing industries, such as manufacturing, have also
          reaped the benefits of locating themselves near airports. A manufacturer’s
          ability to meet the needs of a customer is dependent upon the existence of a
          comprehensive ground-to-air shipping network of air cargo carriers, trucking

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           companies, freight forwarders and logistics providers. Due to close proximity
           of an airport a ground-to-air network is established which allows the
           manufacturer to minimize their inventories, shorten production-cycle times
           and allows them to quickly access innovative inputs for custom products
           which in hindsight create additional value.
         Providers of commercial services such as retailers, hotels, entertainment
          facilities, health and fitness centres and so on. Not only can they attract
          employees of various businesses operating at the airport, but travellers too,
          thus establishing a dual customer base.
These types of businesses can reciprocate the benefits which they have gained by
generating additional passengers and cargo for the airports through this improvement in
business. This symbiotic relationship improves the airport’s competitiveness and
attractiveness.
Figure 5.1 represents this process. The core “airport” consists of aeronautical
infrastructure (runways and terminals) as well as and the most immediately airport-related
businesses such as retail shops, and car parking. The airport’s accessibility, quality of
infrastructure, and connectivity to customers helps attract businesses around the airport.
In turn, those businesses can generate an increase in both passengers and cargo which
contributes to the airport’s attractiveness and competitiveness on a local and global scale.
Figure 5.1: Relationship between the Airport and Its Surrounding Area

This demonstrates that agglomeration benefits can be achieved from co-locating
industrial and commercial development and the airport’s key activity. As a logistics hub,
the airport will increase the efficiency of the businesses located in its vicinity, while the
existence of a significant commercial and industrial development on the edges of an
airport increases its efficiency as a transport hub.
Industrial and commercial development around CIA can optimise transport
infrastructure
There are significant infrastructure efficiencies from co-locating industrial and
commercial development with the core airport activities. In order to remain competitive,

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an airport requires high quality reliable access. However, if that infrastructure only serves
airport’s core needs, it is likely to be under-utilised.
By co-locating industrial and commercial development with an airport, a region can
minimise its infrastructure investment requirement and maximise the value of high
quality infrastructure:
         An airport is itself a key transport corridor and incorporates major local
          transport corridors
         Development around an airport is most likely to integrate land use and
          infrastructure benefits
         Such developments provide a buffer between communities and airport noise.
For example, Auckland is currently investigating an airport rail link. Such a link is not
feasible only to carry airport users. However, due to the commercial and industrial
development around Auckland airport, a rail link that serves both the airport users and
workers in the surrounding area is likely to be feasible.

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6       Conclusions
Significant changes in the aviation sector have led to fierce airline competition for
passengers. This has implications for airports—airports must now compete with each
other for both passengers and airlines which have significantly more choice than in the
past.
CIA is no different. It competes with Auckland and Australian airports for long-haul
traffic, with through connections to other South Island entry points. Queenstown, in
particular, is a direct competitor as an entry point into the South Island.
The competitive pressure on CIA has to be seen in the context of the economic nature
of the businesses. Airport costs are largely fixed, partly as a result of investment in
infrastructure but also because of associated operating costs, including those on safety
and security, which vary little with scale of traffic. This gives airports a natural incentive
to attract traffic to defray those costs.
Although there is no single factor that can improve CIA’s competitiveness,
standardisation of airports over time (around a generally high level of service) has
increasingly required airports to focus on other competitive factors.
In CIA’s case, commercial and industrial development can provide a key competitive
differentiator. For example, commercial and industrial development around the airport
can help anchor wide-bodied services which rely both on passengers and freight. Such
services will encourage airlines to promote Christchurch as the gateway to the South
Island, and will discourage them from cannibalizing these services by encouraging
alternative gateways.
More broadly, such development appears compatible with CCC’s City Recovery and City
Plan. We expect there to be a virtuous circle between airport industrial and commercial
development and the CBD. As increased frequency of services into CIA becomes
underpinned by the industrial and commercial development in the surrounding area,
increased promotion of Christchurch as a destination will feed into CBD development.
While industrial and commercial activity can locate anywhere on the edges of the city,
there are advantages to locating it around the airport. There are significant infrastructure
efficiencies from co-locating industrial and commercial development with core airport
activities. In order to remain competitive, an airport requires high quality reliable access.
However, if that infrastructure only serves an airport’s core needs, it is likely to be under-
utilised. By co-locating industrial and commercial development with an airport, a region
can minimise its infrastructure investment requirement and maximise the value of high
quality infrastructure (and more to the point, enable the development of such
infrastructure).
As competing airports implement their development plans, CIAL faces a stark choice to
either take part in this race to maintain its competitiveness or be left behind.
The consequences of being left behind are decreased competitiveness and lower growth
potential, foregoing the benefits of agglomeration effects and optimisation of transport
infrastructure. It also significantly increases the risk of losing business of footloose
airlines and reduces the ability to tap into the lucrative routes, such as the Chinese
market.

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