Speech to the Committee for Economic Development of Australia

Speech

PFS011/2016

14 November 2016

The Mantra Hotel, Parramatta

‘Western Sydney Growth—infrastructure priorities’

Introduction

I am very pleased to speak at this important CEDA event discussing infrastructure priorities for Western Sydney.

Can I acknowledge Blacktown Mayor and President of WESROC, Councillor Stephen Bali, Kevin Doherty and the other distinguished guests.

My particular focus today is on Western Sydney Airport—what it means for Western Sydney and for the nation, the economic growth it will catalyse, and the program of work we have underway towards the outcome of Western Sydney Airport opening by the mid twenty-twenties.

I want to start by discussing the economic importance of airports. Next I want to talk about the rare opportunity we have with Western Sydney Airport.

Finally I want to explain the careful work being done by the Turnbull Government, in close co-operation with the Baird Government, to capitalise on that opportunity—and deliver a very significant economic boost for Western Sydney.

The economic importance of airports

Let me turn firstly, then, to the proposition that airports are of great economic importance—to the national economy but also, crucially, to the particular geographic region in which they are located. That is why governments around the world devote considerable policy energy to airports.

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…[1]

Of course, a precondition to the decision to proceed with Western Sydney Airport was the findings of our own equivalent of the Davies Commission—the 2012 Joint Study on Aviation Capacity.[2]

This study 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.

I saw repeated evidence of the economic significance of airports in September this year when I visited Changi Airport in Singapore, Incheon in Korea, Heathrow, Gatwick and Luton in London, and Schiphol airport in the Netherlands.

Changi generates over five per cent of Singapore's GDP. Heathrow provides 25 per cent of the jobs in the communities around the airport.

The Dutch have built up Schiphol Airport over many years: its share of traffic to and from Europe significantly exceeds the Netherlands' share of Europe's population.

Korea's Government invested billions to build the massive new Incheon Airport, reclaiming land from the sea to create a 56 square kilometre site.

Importantly, there are economic benefits not just from a city's first airport, but from other airports. I was particularly interested to visit Gatwick and Luton, two of the five airports serving London.

The management teams at both of these airports highlighted the importance of their catchment areas: Luton has an advantage for passengers to the north of London and Gatwick for passengers to the south.

Similarly, Western Sydney Airport will have a natural catchment area: for around two million people it will be closer than Kingsford Smith Airport.

The chief executive of one of our local low cost carriers pointed out to me that he has customers living in Western Sydney who are paying $69 for a flight from Sydney to Melbourne—but $180 in cab fares to get to and from Kingsford Smith. This is an insight into how Western Sydney Airport will stimulate additional traffic—as the total cost of an interstate trip will now be considerably lower for a lot of people.

At Gatwick and Luton they spoke of the number of people who work at the airport and live nearby. We can expect the same with Western Sydney Airport; by 2030 it is expected to generate about 9,000 jobs, with most to be held by locals.

It is easy to understand the direct economic impact of an airport, in the jobs and activity it generates on site, and in the trips it stimulates which might otherwise not occur.

What is sometimes less obvious is the capacity of an airport to attract complementary economic development in the regions surrounding it.

As well as building Incheon Airport, the Korean Government is building a brand new city across the bay, Song-do. This has six foreign universities as well as domestic ones, and significant manufacturing areas, for example for pharmaceutical products which are exported around the world.

At Changi they are planning a new runway and the massive new Terminal 5, on some 1000 hectares of land reclaimed from the sea. The plans include extensive commercial office facilities—targeted at businesses that will value an airport location.

Schiphol has substantial office and meeting facilities at the airport—for example French multinational Danone holds company meetings there because it is more convenient and better located than any of the French airports.

At Heathrow they cite the economic clusters located around the airport, in sectors like pharmaceuticals and technology.

Of course each of Incheon, Changi and Schiphol are airports with 50 million passengers a year or more, and they are the dominant airport for an entire country. Western Sydney Airport, at least in its early years, will be much smaller scale, starting at around three to five million passengers a year.

Nevertheless, a key lesson from these and other airports around the world is that maximising the economic impact of the airport requires not just planning for the airport itself but also planning for complementary land use around the airport.

There is an increasing trend for commercial business precincts to be developed adjacent to airports. Bordered by the Western Sydney Priority Growth Area and close to the existing Western Sydney Employment Area, the Western Sydney Airport site is well positioned to capitalise on this trend.

The New South Wales Government's Greater Sydney Commission is doing a lot of work on these issues—considering how best to plan the lands around the airport site to maximise the economic benefit of the airport.

The jargon term ‘aerotropolis’ is sometimes used to describe the cluster of economic activity centred on an airport.

There has already been some excellent work done in highlighting some of the possibilities that Western Sydney Airport could offer. The Sydney Business Chamber has commissioned a very useful report, ‘A Western Sydney Aerotropolis: Maximising the Benefits of Badgerys Creek’.

The author, US academic Dr John Kasarda, argues that “driven by a robust WSA, Western Sydney possesses the fundamental ingredients to become a successful aerotropolis.”[3]

He also highlights some challenges which need to be overcome to achieve this vision—including, fundamentally, that WSA succeeds in attracting a sufficient share of air traffic. In other words, if the airport is to be the core of a new cluster of economic activity, it needs to be a successful airport, attracting and growing traffic.

There are a number of reasons to be confident of Western Sydney Airport's prospects. Demand for air travel globally continues to rise steadily. Globally, international passenger traffic rose 6.5 per cent in 2015. This is well above the 10-year average annual growth rate of 5.5 per cent.[4]

In Australia, the continued growth in international scheduled passenger traffic reflects the international average—up 6.5 per cent in August 2016 on the previous year.

Currently 40 per cent of international passengers land in Sydney and international tourism demand in Australia is expected to grow by 4.5 per cent per annum.[5] Western Sydney Airport provides vital expansion capacity to meet that demand.

A related factor, as I have already mentioned, is the natural catchment area that Western Sydney Airport will enjoy. Underlying demand from the people of that catchment area—for both domestic and international travel—is expected to continue to grow.

A further important factor is the growing market share held by low cost carriers, for both domestic and international travel. Low cost carriers represented 18.4 per cent of international passenger traffic in Australia in August 2016—up from 15.8 per cent year on year.

I am confident that low cost carriers will be attracted to Western Sydney Airport, offering travel to domestic cities and also selected regional destinations such as New Zealand and Bali from the outset. It is also likely that inbound international low cost carriers will see Western Sydney Airport as offering new opportunities to add routes to Australia.

I was struck on my visit to Luton Airport north of London by the level of activity at that airport, which largely serves low cost carriers such as Easyjet and Wizz. Luton had over 15 million passengers last year and is growing strongly.

London is a good example of how demand can be shared in a multi-airport city with secondary airports supporting the total aviation capacity, including the growing low-cost carrier market.

In the mid-2030s, Sydney is expected to exceed 84 million passengers, shared across Sydney Kingsford Smith Airport and proposed Western Sydney Airport.

Let me mention one other economic impact that we can expect from Western Sydney Airport: its capacity to generate a substantial number of jobs for residents of Western Sydney.

Certainly some of that will come during construction. During the construction period (of around eight years) the airport is expected to generate 11,346 full-time equivalent jobs. [6]

But airports generate more jobs in operation than in construction.

Currently around a third of Western Sydney workers commute outside the region each day. This is unproductive time, away from work, from home and families.

So local employment opportunities are critical—and Western Sydney Airport will create jobs for thousands of workers both onsite and in the surrounding region.

Sydney Kingsford Smith Airport illustrates this point—with around 80 per cent of its workers living less than 30 minutes away.

The Western Sydney Aerotropolis paper I mentioned earlier makes that point that airports are generators of jobs at all levels of income and education:

… the economic benefits of aerotropolis development are broadly inclusive. At least as many jobs are generated for those with lesser education as for those with higher education.[7]

The rare opportunity we have with Western Sydney Airport

If airports are of such economic importance, then the opportunity to build a new one at Western Sydney is very valuable.

In fact I want to take a few moments to reflect on just why this opportunity is so rare and special. There are several factors which have come together.

The first factor is that, over many decades, successive governments, Liberal and Labor, have taken far-sighted decisions which we can now capitalise on.

In the nineteen eighties the Hawke Labor Government chose the Badgerys Creek site.[8] It also began purchasing the land; with the result that there has been a 1700 hectare site available for Western Sydney Airport for some time.

Good decisions made by previous governments mean the airport site has been largely protected from encroaching development since the 1980s. Planning restrictions have protected the airport site from noise-sensitive developments; this means that Western Sydney Airport will be able to operate without a curfew.

The Turnbull Government has committed that during evening hours, a preferred mode of operation for Western Sydney Airport will be so called ‘head to head operations’ to the southwest, when safe to do so—which is expected to be more than eighty per cent of the time.

What this means is that aircraft will both land from, and take off to, the southwest, enabling them to fly over very lightly populated areas.

Let me quote from what the Shadow Minister, Anthony Albanese, said recently on this issue:

And one of the benefits of Badgerys Creek that's been shown by study after study, this is the third EIS that has been conducted into it, is that you can actually have flight paths that don't impact at all in terms of during the night. That's the position that we put forward earlier this year, has been adopted now by the government.[9]

His characterisation of how this approach was developed is not quite right—in fact it was included in the draft environmental impact statement issued by the government last year—but the fundamental point is that we have this option available thanks to work done by previous governments over many years.

While he was Minister, Albanese also commissioned another important piece of work: the 2012 Joint Study on Aviation which concluded Badgerys Creek was still the most appropriate site.

Of course, it took a Coalition Government to make the decision, in 2014, to proceed with building Western Sydney Airport at Badgerys Creek.

The second factor is that we have the chance to take decisions here for the long term. The opening date of mid twenty twenties gives a long enough lead time to ensure that we get this opportunity right.

Importantly, we are not just taking decisions for the opening phase of the airport. We are taking decisions which will have consequences for fifty or a hundred years.

That is why Western Sydney Airport is being planned with expansion capacity. It will open with one runway—albeit long enough, at 3,700 metres, to receive aircraft up to and including the A380—and an initial terminal, scaled to support up to ten million passengers. It is likely to take until the early 2030s before this traffic level is reached.

Beyond that point, there will be terminal expansion, and by the late 2040s, a second runway will be built. By the 2060s, the airport could have 80 million passengers a year.

The third really important factor which contributes to the scale of the opportunity here is that Western Sydney Airport is being built on a greenfields site in an area which today is largely semi-rural—but where very strong population growth is expected. In the next twenty years an additional one million people are expected to live in Western Sydney.

We have a unique opportunity to plan for optimal land use around the airport. Part of that is ensuring that land uses are consistent with the safe operation of an airport, under what is known as the National Airports Safeguarding Framework (NASF.)

This covers issues like airspace protection; noise exposure controls; building-generated windshear and turbulence; wildlife strike risk; wind turbine risk to aircraft and pilot lighting distractions.

But the bigger part of this issue turns on optimising land use planning to maximise the economic benefits of the airport, as I spoke about earlier.

Our program of work on Western Sydney Airport

Let me turn, then, lastly, to the program of work the Turnbull Government has under way to deliver Western Sydney Airport.

Firstly, there is a comprehensive and thorough process to obtain the requisite environmental and planning approvals.

In 2015 we released a draft Environmental Impact Statement (EIS) and a draft Airport Plan.

Earlier this year, we released the final EIS, which then went to my colleague Josh Frydenberg, Minister for Environment and Energy, for consideration. The EIS is the culmination of more than 700 field investigations and 19 technical studies, with almost 5,000 submissions received from the community, industry and stakeholders.

Last Friday, Minister Frydenberg MP concluded his consideration and advised me of the environmental conditions to be placed on the proposed Western Sydney Airport.

These conditions will be included in the final Airport Plan and will bind any airport developer and operator to comply with them.

I will now take the necessary time to consider these conditions and appropriately reflect them in the Airport Plan.

This needs to happen before I can make a final determination of the Airport Plan, which would authorise the Stage 1 Development of the proposed Western Sydney Airport.

The Airport Plan will guide the Stage 1 development—that is a single runway airport and facilities capable of handling up to 10 million passengers a year—which will incorporate the latest technology and embed sustainability in design, construction and operation.

The second area of work we have underway is our program of consultation with Sydney Airport Corporation Limited, owners of Kingsford Smith Airport. This company has the benefit of a ‘Right of First Refusal’, as part of the terms on which it bought Kingsford Smith Airport from the government in 2002.

Under the Right of First Refusal, there are extensive conditions which apply to the consultation process. The process will culminate in the government issuing Sydney Airport with what is called a ‘Notice of Intention.’

This will be a complete set of contractual documents, setting out everything required to regulate the arrangements under which the airport is built and operated—including, for example, a deed governing the development of the airport, a lease of the airport land, and a range of other matters. The final contractual package is expected to be more than one thousand pages!

The idea of the consultation process is that by the time it gets formally issued, Sydney Airport knows exactly what is in it—in the legal language, that it is ‘substantially familiar’ with the terms. What then happens is that Sydney Airport has a four month period in which to consider the documents, and decide whether or not it wants to take up the right to develop Western Sydney Airport.

Accordingly, the issue of the notice of intention, and Sydney Airport's response, is absolutely critical to the question of who will actually do the work of developing the airport.

The Government intends to issue the notice before the end of this year, following a lengthy consultation process. We have spent many, many days working with Sydney Airport—and we appreciate the time, energy and expertise they have brought to the process.

The third strand of activity is our close co-ordination with the NSW Government, to work to maximise the broader economic benefits of Western Sydney Airport.

Last Month, Prime Minister Turnbull and Premier Baird signed a memorandum of understanding that will pave the way for a City Deal in Western Sydney.

The Western Sydney City Deal will be a coordinated plan for growth that complements the Government's significant infrastructure investment in Western Sydney and maximises the benefits from the airport precinct.

We are well advanced on the $3.6 billion Western Sydney Infrastructure Plan, which is jointly funded by the Commonwealth and NSW Governments.

Major road upgrades are underway, in a $3.6 billion programme over ten years—in partnership with the New South Wales government.

The Northern Road is to be upgraded to four lanes along its entire length. There will be a new M12 which will run from the M7 to connect to Western Sydney Airport, in time for the airport's opening.

This investment in ground transport infrastructure is designed to ensure that workers, passengers and visitors can have easy access to the airport.

We are also working to make sure that the airport is rail ready. There will be a corridor across the airport site protected for rail—with provision for two track pairs—and the site planning includes a ‘station box’. This will be an excavated space close to the terminal location, into which a station can be built when ready.

As to when that time will be, that question is being examined by the Australian and NSW Governments' Joint Scoping Study on Rail Needs for Western Sydney.

The study will identify rail service options, connections, travel speeds, and types of train services to connect the Western Sydney region and service a Western Sydney Airport. The study will consider whether rail could be operational when the airport opens—or if not, how soon afterwards.

There is certainly a lot of interest in these questions. Some 123 formal submissions have been received in response to the discussion paper issued earlier this year, and more than 900 people completed the online survey. [10]

The study team is now busy digesting this input, and developing its recommendations to the two governments. We expect to receive the final study in the first half of 2017.

Conclusion

Let me conclude, then, by reflecting on the scale of the opportunity which Western Sydney Airport offers—by drawing on the observations of some critical stakeholders.

Premier Baird has described “the Western Sydney Airport at Badgerys Creek as perhaps the biggest development in Western Sydney's history”[11].

Lucy Turnbull, Chief Commissioner of the Greater Sydney Commission, sees the airport as the anchor to a new city, arguing that “Sydney must be reimagined as consisting of three great cities [Western, Central and Eastern] for its growth to be successful”[12].

I think this is both a timely and helpful contribution to the debate.

I want to close by returning to a point that was highlighted by Dr Kasarda in his report for the Sydney Business Chamber, and which was also very much reinforced to me on the visits I made to a number of global airports a couple of months ago.

Western Sydney Airport offers enormous potential economic benefit—but a necessary condition to realise that benefit is that the airport itself is a success. That means it needs to attract airlines and passengers and it needs to grow steadily over time.

In turn, it needs to have a clear market strategy—which needs to influence decisions about for example how the terminal is designed, how much airlines pay to use the airport and so on.

So there are a series of important decisions for us to get right. The design of the airport; the ground transport connectivity; land use planning around the airport; and the operational strategy of the airport management team once it opens.

If we do get these decisions right—and there is a huge amount of work going on across multiple fronts—the benefits for Western Sydney, for Sydney and the nation will be profound.

[1] Airports Commission:Final Report July 2015, www.gov.uk/government/organisations/airports-commission, downloaded 12/11/16, p 4

[2] Joint Study on Aviation Capacity in the Sydney Region 2012

[3] P29, A Western Sydney Aerotropolis—Maximising the benefits of Badgerys Creek, Kasarda J., published by NSW business chamber, p 27

[4] International Air Transport Association: www.iata.org/pressroom/pr/Pages/2016-02-04-01.aspx

[5] Up to 9.6 million passengers in 2023. Aviation: International airline activity statistical report, Bureau of Infrastructure, Transport and Regional Economics, August 2016.

[6] Environmental Impact Statement—Volume 2a, Chapter 24, p. 529.

[7] P29, A Western Sydney Aerotropolis—Maximising the benefits of Badgerys Creek, Kasarda J., published by NSW business chamber.

[8] See www.abc.net.au/news/2014-04-14/badgerys-creek-finally-ready-for-takeoff/5276540 .

[9] TRANSCRIPT RADIO INTERVIEW ABC 702 MORNINGS THURSDAY, 27 OCTOBER 2016, http://anthonyalbanese.com.au/media-centre/shadow-ministerial-media-centre/shadow-ministerial-transcripts

[10] Western Sydney Rail Needs Study Discussion Paper—www.westernsydneyrail.transport.nsw.gov.au/the-discussion-paper

[11]A letter from the Premier of NSW’, p2 of Shaping Future Cities—Designing Western Sydney, Deloitte. December 2015

[12] Media Release 19 Oct 2016—‘Lucy Turnbull sets vision of three great cities at annual Bradfield Oration’ : www.greatersydneycommission.nsw.gov.au/News/2016/Lucy-Turnbull-sets-vision-of-three-great-cities-at-annual-Bradfield-Oration?page&itemsPerPage&keyword&from&to . See also, news article at: www.dailytelegraph.com.au/news/nsw/bradfield-oration-lucy-turnbull-outlines-shift-of-state-power-as-threecity-concept-takes-shape/news-story/44928c32035d8a9f55ac04b2e98d25ef