Badgerys Creek, Sydney’s proposed second airport, will need a $1 billion subsidy for the first decade of its life which could be paid for with a levy on passengers, according to analysis by Deutsche Bank.
Analyst Cameron McDonald, in a note to clients, says there are concerns that forecast passenger numbers for Badgerys Creek are too ambitious.
“We conclude that it will require an ongoing subsidy or levy for the first decade of its operational life which will approximate $1 billion,” he writes.
The most likely way to finance this is a levy of about $2.50 per passenger regardless of which Sydney airport they use, Badgerys or the current Kingsford Smith.
McDonald says the Western Sydney region, with average incomes below $50,000 a year, may not be a strong user of air travel services.
The initial expectation that 5 million passengers will use the second airport equates to more than 8% of the total Sydney demand and is about the same size of Canberra Airport traffic.
The Deutsche Bank analysis indicates a shortfall of earnings of $994 million over ten years, as this chart shows:
“Without significant infrastructure connections (roads, rail) and domestic flight connections we suspect this forecast will prove to be ambitious,” he says. “However, a levy imposed on all passengers would insulate against potential downside risk.”
Overall, the Deutsche Bank analysis of multi-airport systems across the world indicate that a second airport serving the same region has benefited the airlines and the aviation industry through expansion in demand.