Strategic Alliance Benefits
A message to the Queenstown Lakes District community from Queenstown Airport Corporation Limited
Queenstown Airport’s recent decision to issue shares and form a strategic alliance with Auckland Airport has provoked much discussion and interest in the local community. We think it’s important you understand the facts, the integrity of the decision behind the transaction and the significant benefits it will bring to the Queenstown Lakes District.
1. Queenstown Airport needs a partner for growth
Over the past five years, our international passenger volumes have quadrupled and domestic passenger volumes have increased 22%. We are the fastest growing airport in the country and need to invest around $40 million in facilities over the next three years. Imagine if when approached by an airline to accommodate several new trans Tasman direct flights, we had to say “sorry, we don’t have capacity”. So, given the Queenstown Lakes District Council would be unable to subscribe to new shares, the Board of Queenstown Airport considered its options for raising new capital.
2. It’s not just about the money
If it was just about raising capital, there would have been no shortage of potential partners locally and further afield. But we needed someone with similar goals and aspirations that could bring value on many levels. Above all, we needed to bring maximum value for all the Queenstown community. This wasn’t about selling something for the best price; this was about a partnership to deliver benefit for the community by supporting local tourism growth aspirations.
We saw Auckland Airport as a uniquely ideal choice for partner, for several reasons:
- 70% of New Zealand’s international visitors (and 90% of those on direct long-haul flights from Asia or the Americas) enter the country through Auckland
- Auckland Airport has strong relationships with international airlines and the travel industry which it will use to encourage more traffic into Queenstown
- Auckland Airport invests millions of dollars each year into tourism promotion, much of this will now be focused on Queenstown
- Auckland Airport has a wealth of tourism market intelligence that can supplement our own
3. The strategic alliance should significantly boost Queenstown Airport’s growth
Over the five years to 2015, Queenstown Airport has been projecting passenger volumes to increase by about 32% - that’s about 260,000 extra annual passenger movements. The strategic alliance is targeting an additional 176,000 movements on top of this – boosting the five year increase to 54%.
4. The local economy will benefit by more than $150 million each year
Additional passenger movements generated by the alliance will translate into more than 80,000 more visitors into the district. About two thirds will be overseas tourists, the rest domestic travellers. Based on average spend rates, these visitors will be worth well in excess of $150 million annually to the local economy. That’s money that would not be coming here if it wasn’t for the strategic alliance.
5. We cemented the partnership with a minority shareholding for Auckland Airport
We have issued new shares worth $27.7 million to Auckland Airport, giving it a 24.99% shareholding alongside the Council with 75.01%. The money will be used by Queenstown Airport to repay debt and finance investment in new facilities. A stronger balance sheet also means Queenstown Airport will be able, for the first time, to pay regular dividends to its shareholders. These dividends are expected to be worth around $2 million or more each year to the Council – representing an important new source of income for the local community.
6. The Council must approve any increase in Auckland Airport’s shareholding up to 35%
As part of the arrangement, Queenstown Airport may exercise an option for Auckland Airport to increase its shareholding to 30-35% at any time up to 30 June 2011. Any increase above the current 24.99% would need the approval of the Council, which would first consult with the community. A higher shareholding would give the Airport company the financial strength to pay a special dividend up to $10 million to the Council (the exact amount will depend on the final shareholding attained by Auckland Airport, as the larger the shareholding up to a maximum of 35%, the more capacity to pay a special dividend).
7. The deal gives much-needed certainty to Queenstown Airport
This decision was made by the Queenstown Airport Board, a group of independent and local people who all have interests of their own that were carefully put aside to ensure the best outcome for the development of the airport and the community. The 24.99% shareholding was negotiated and confirmed by the Board under powers included in the constitution given to it by the Council. This clause of the constitution was used exactly as designed – to allow the Board to exercise commercial judgement in the best interests of the airport and the community. In the Directors’ opinion the certainty of price, timing and partner made this a better option than a Council process. This decision means the management of the Queenstown Airport can move forward with certainty, confident that it has the capital strength to support its ongoing development and return a flow of benefits to the local community.
8. Queenstown and Auckland Airports have shared goals and objectives
Growth in passenger volumes is the lifeblood of any airport. For Queenstown, this means attracting more tourists to use the Airport when visiting the region. For Auckland, this means getting more tourists flying in and out of New Zealand. Through our strategic alliance, the country’s number one travel gateway and premier tourist destination will work closer together. We know this can be highly effective as we already have been co-operating informally with Auckland Airport in international marketing over the past year or so. We’ve had a very positive response from airlines and the travel trade from our ability to create stronger North/South Island itinerary propositions.
Earlier this year Air New Zealand, Qantas, and Pacific Blue all increased their services into Queenstown. This week’s announcement by Jetstar of additional flights into Queenstown from Auckland, Gold Coast and Melbourne is also an example of the way forward (although this deal pre-dated our alliance). Expect itineraries supporting “triangular” routes between Auckland, Queenstown and Australian airports to utilise aircraft efficiently and create better schedule options, such as morning departures to Australia.
9. We are focused on demonstrating the merits of the strategic alliance to Queenstown
The alliance has set some ambitious goals towards achieving stronger visitor growth into Queenstown. The independent directors of Queenstown Airport are convinced that this move will generate real, long-term benefits for the airport and the local economy. We appreciate there will be some sceptics who will adopt a “wait and see” approach. In the months and years ahead, we look forward to demonstrating how the strategic alliance will create lasting value for the Queenstown Lakes District community. As we believe the second phase of this transaction is in the best interest of all parties, the board will be requesting Council commences consultation in due course.
On behalf of the Board of Directors of Queenstown Airport Corporation