Investing in Airport Infrastructure to Support Tourism and Job Growth
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1 KAMLOOPS AIRPORT AUTHORITY SOCIETY Investing in Airport Infrastructure to Support Tourism and Job Growth By YVR Airport Services Ltd. and InterVISTAS Consulting Inc April 2005
2 Executive Summary: Investing in Airport Infrastructure to Support Tourism and Job Growth The Problem. Tourism operators like Sun Peaks Resort are fuelling job creation throughout the Thompson-Nicola region, but visitor growth is constrained by inadequate runway length at Kamloops Airport. Tourists travelling to the region find it difficult to reach because it lacks long-distance air traffic. The Kamloops Airport Authority Society seeks to facilitate the rapid tourism sector growth the region is experiencing. The Market Potential. Visitors would prefer to fly directly to Kamloops. Resort investment in the airport catchment area has been strong over the last decade. Nearly $200 million has been invested in Sun Peaks Resort since 1992, and it is B.C. s second largest resort. Resort areas can grow rapidly. During the 1990s, Whistler s annual growth rate averaged 5.5% in bed units and 9.2% for skier visits. If Sun Peaks achieves the level of growth experienced by Whistler, annual skier visits could reach 561,000 and bed units could increase to 8,400 by The new visitors would spend at least $30 million on tourism services. Achieving the forecast depends on Kamloops Airport being capable of handling large charter jet aircraft, and accommodating about 207,000 passengers by 2010 about 50,000 above Potential impacts. The current economic impacts of Kamloops Airport and regional tourism businesses could grow by 744 direct jobs with airport and tourism expansion. The largest employment benefits of airport and tourism expansion will be in the tourism sector. The incremental growth in airport and tourism economic impacts that could result if the best case forecast is realised would amount to: an additional 549 person years of direct employment (744 direct jobs) in the region; wages of almost $18 million. The incremental direct GDP and economic output associated with optimistic scenario employment growth are $26 million and $43 million respectively. Regional tourism growth is constrained by inadequate runway length at Kamloops Airport. Potential new visitors would: spend a minimum of $30 million on tourism services support 744 direct jobs (549 person years) pay $18 million in wages generate $11 million new tax revenue. The increased regional employment is expected to generate over $11 million in government tax revenues. The provincial share of these tax revenues is expected to be in the order of $2.7 million on an annual basis (25%), with the federal share coming in at over $8 million annually (75%). Facility Requirements. Kamloops Airport needs $16.6 million in facility expansions to accommodate charter aircraft: a 2,000 ft runway extension, to 8,000 ft; taxiway and apron expansion; navigation aid improvements; and terminal building expansion and renovation. Community Request. The Society can carry debt financing to cover one-third of the expected runway and terminal expansion costs, and is seeking B.C. and Canada contribution of two-thirds, or $11.1 million. Without government support, the Society would be unable to afford the capital infrastructure needed to accommodate an increase in visitors the region s growing resort capacity and aggressive marketing can attract.
3 1.0 The Kamloops Region Market Opportunity In recent years, the provincial and regional tourism industry has been hit by a series of market shocks including 9/11, terrorism and the war in Iraq, SARS, forest fires and BSE (mad cow disease). However, recent data show the tourism industry in B.C. is improving. The number of international overnight visits to B.C. from Europe and the Asia-Pacific is increasing again Tourism and Economic Activity The level of regional tourism activity can also be measured using room revenue. As shown in Figure 1, room revenue in Kamloops and the Thompson-Nicola Regional District increased by 11% and 7.4% respectively year-to-year in This compares to a 1.3% decrease in room revenue for B.C. as a whole during the same period. Figure 1: Year-to-Year Change in Room Revenue 12% 10% 8% 6% 4% Kamloops Thompson-Nicola B.C. Total 2% 0% -2% Year Source: B.C. Stats, B.C. Tourism Room Revenue. Resort investment in Kamloops and the airport catchment area has been strong over the last decade. Nearly $200 million has been invested in Sun Peaks Resort since 1992, which offers year-round recreational activities, from skiing and snowboarding in the winter, to biking and golf in the summer. 2 The resort has launched Phase 2 of its master development, which includes $285 million in resort expansion, new ski runs and lifts, expansion of the golf course, and real estate development. 1 Tourism B.C., Overnight Customs Entries to B.C. and Canada. 2 Venture Kamloops, Kamloops Community Profile (2003). 1
4 Other major regional tourism developments that may support the development of air transportation at Kamloops include initiatives at Valemount and Blue River, both to the north along Highway 5. These trends combined with the region s proximity to winter and summer tourism growth in the Okanagan show that the region has significant tourism capacity and plans for growth. For example, the Okanagan region (not directly included in this analysis) has three additional resorts with significant bed units/capacity Apex, Big White, and Silver Star as well as a significant conference, summer resort, winery and other tourism products. A 2002 report issued by KPMG ranked Kamloops as the second most cost effective city in which to do business in the Pacific North America Region. 3 By , the new Thompson Rivers University will have an estimated enrolment of 10,000-11,000 students, including 1,500 international students. The majority of international students are expected to be from Asia Growth Potential Tourism in the region is expanding rapidly. The largest resort in the Thompson-Nicola area, Sun Peaks Resort, has plans to add over 17,000 bed units over the next years. This will quadruple the bed unit capacity at the resort to over 23,500 units. Table 1 compares Cranbrook bed units with Sun Peaks. At the time of master plan build out, Sun Peaks will have more bed units than the existing Cranbrook area resorts combined. Table 1: Bed Units and Skier Visits with Master Plan Build Out Major Ski Hill Bed Units (2004) Bed Units with Master Plan Build Out Sun Peaks 5,800 23,500 Cranbrook Region Approx. 8,000 18,652 During the 2003/04 season, Sun Peaks hosted approximately 30,000 air visitors, a 30% increase from the previous year (although it should be noted that the tourism market in 2003 was affected by SARS and terrorism). As demonstrated by Whistler in the 1990s, rapid growth is possible for ski resort areas. During that period, Whistler s rate of growth outpaced all other ski resorts in North America, averaging annual increases of 5.5% in the number of bed units and 9.2% for skier visits. If these rates are applied to Sun Peaks Resort, the number of bed units and skier visits could increase to about 8,400 and 561,000 respectively by If Sun Peaks achieves the level of growth experienced by Whistler skier visits per year could reach 561,000 bed units could increase to 8,400 by KPMG, The Competitive Alternatives-A Comparison of Business Costs in North America, Europe and Japan (2002). 4 University Press Releases. 2
5 1.3 Optimistic Airport Growth Scenario To examine the potential for passenger growth at Kamloops Airport, an optimistic case growth scenario was developed. The scenario is based on the following assumptions: The frequency of seasonal charter jet traffic from Central Canada increases as the region s attractions pull more visitors to the area; Transborder traffic (U.S.) improves as demand and awareness of the existing service increases; WestJet begins flights between Kamloops and Calgary, servicing both the growth in domestic demand as well as the demand generated from tourism; Development of additional seasonal sunspot charters within 5 years. Kamloops Airport, in the optimistic scenario, is forecast to handle about 207,000 passengers by 2010, reaching 366,000 passengers by With the optimistic scenario, approximately 50,000 total incremental visitors are anticipated, spending a minimum of $30 million on tourism services. Kamloops Airport, in the optimistic scenario, is forecast to serve about 207,000 by 2010, reaching 366,000 passengers by
6 2.0 The Expansion Project s Potential Economic Impact On-going operations at Kamloops Airport (YKA) and the region s tourism industry make considerable contributions to local employment, as well as the provincial and national economies. The airport serves communities in the Thompson- Nicola, Squamish-Lillooet, Cariboo, and Columbia- Shuswap Regional Districts. On-going operations support 11,839 direct jobs in the Kamloops area, representing 9,565 direct person years of employment. 2.1 Existing Economic Impacts In round numbers, the direct economic impact of YKA and regional tourism employment on the British Columbia economy is estimated at: $440 million in gross domestic product (GDP); $728 million in economic output; and $308 million in wages. Including indirect and induced effects, and in round numbers, the total provincial impacts of ongoing operations at businesses related to the Kamloops Airport Catchment Area (ACA) are: 5 12,834 person years of employment, representing nearly 15,900 jobs; $633 million in GDP; $1,148 million in economic output; and $429 million in wages. The in-province economic impacts of on-going operations within the Kamloops ACA business community are summarised in Table 2. Table 2: Total Airport and Tourism Economic Impacts in Kamloops ACA Business Community Type of Impact Jobs Person Years Wages ($ millions) GDP ($ millions) Economic Output ($ millions) Direct 11,839 9,565 $308 $440 $728 Indirect 2,504 2,023 $76 $121 $287 Induced 1,543 1,246 $45 $71 $133 Total 15,885 12,834 $429 $633 $1,148 Note: Columns may not add to totals due to rounding. 5 Multiplier effects must be interpreted with caution. The existence of multiplier effects is questionable since they diminish as the economy nears full employment and its productive capacity. 4
7 On-going operations at YKA and at related businesses off-site generate almost $124 million per annum in government tax revenues. The federal government was the largest recipient of tax revenue, receiving $90 million in The British Columbia government received approximately $34 million in tax revenue in Economic impact related analysis estimated the current contribution of the YKA business community to government revenues through various taxes to all levels of government as shown in Figure 2. Figure 2: Estimated Annual Tax Revenues to Government Breakdown of Tax Revenues by Government Provincial 28% $34 million Total: $124 million Federal 72% $90 million 5
8 2.2 Potential Economic Impacts The current economic impacts of Kamloops Airport and regional tourism businesses could grow by 744 direct jobs with airport and tourism expansion. The largest employment benefits of airport and tourism expansion will be in the tourism sector. The incremental growth in airport and tourism economic impacts that could result if the optimistic forecast is realised would amount to an additional 549 person years of direct employment (744 direct jobs) in the region; paying wages of almost $18 million. Incremental increases in passenger traffic resulting from airport development could support: 744 direct jobs (549 person years) almost $18 million in wages The incremental direct GDP and economic output associated with best case employment growth are $26 million and $43 million respectively. The total impacts, including indirect and induced impacts across British Columbia would include: an additional 739 person years of employment (1,003 jobs); paying $25 million in wages; creating $37 million in GDP; and $67 million in economic output. The increased regional employment that would result from airport expansion, assuming the best case forecast for air traffic growth, is expected to generate: over $11 million in government tax revenues; of which the provincial share would be in the order of $2.7 million on an annual basis (25%); with the federal share coming in at over $8 million annually (75%). Incremental expansion of the airport and tourism could result in a major increase in taxes paid by visitors: visitor spending could generate 37% of incremental tax impacts versus 11% of current tax impacts. 6
9 3.0 Project Description 3.1 Facility Gaps The project will address three key facility deficiencies which limit Kamloops Airport s ability to service projected demand: runway length available; reliability of airport access for safe operations; and capacity of supporting facilities -- air terminal building, terminal apron and taxiway system. 3.2 Runway Length Based on analysis detailed in the February 2005 Project Definition Report 6, a runway length of at least 7,500 ft is required to service projected traffic. An 8,000 ft runway would allow A320 high density services to Central Canada and would provide a higher degree of safety for winter operations. Although Northern European traffic would probably be funnelled through Central Canada until 2015, an 8,000 ft runway would permit year round Boeing B767 services to Northern Europe in Air Canada s low density configuration. The option of a 9,000 ft runway to accommodate a wider variety of aircraft and seating configurations to more destinations in Northern Europe was rejected due its additional $14.1 million cost. An 8,000 ft runway does not preclude an eventual 9,000 ft runway if demand materialised in the long term. The ability of an 8,000 ft runway to accommodate charter-configured A320s outweighs its $3.3 million incremental cost over the 7,500 ft option. Figure 3 describes the airport site and immediate environs. It shows how extension of Runway is constrained to the east by proximity to the river, the main access road to the south side of the airport and the community of Brocklehurst. Figure 4 shows how Runway can be extended into City-owned farmland to the west, potentially to a 9,000 ft length. All issues associated with western extension to 8,000 ft can be resolved: A north-south dyke just west of the runway end must be breached. Kamloops Airport will maintain constant readiness to construct a temporary dyke. Preliminary assessment indicates loss of approximately 24ha ALR land used for effluent irrigation and farming can be mitigated by substituting alternate land parcels on the airport. Federal and Provincial environmental review obligations can be satisfied. An 8,000 ft runway would allow A320 high density charter services to Central Canada and would provide a higher degree of safety for winter operations. Local government legislation for revised Obstacle Limitation Surfaces could be enacted to provide the same protection as federal airport zoning regulations. 6 PDK Airport Planning Inc (PAPI), Project Definition Report, Kamloops Airport Expansion Project, with InterVISTAS Consulting, Urban Systems Ltd and Ulrich Laska Architects. 7
10 Figure 3: 8
11 Figure 4: 9
12 3.3 Reliability of Airport Access Current navigation aids at Kamloops Airport are inadequate to service the projected jet traffic: Jet aircraft, especially in the winter months, will require sufficient navigation guidance to operate in inclement weather, down to ceiling height of 200 ft and visibility of 0.5 miles. With the difficult terrain due to the location of the airport in a narrow valley, aircraft operators require adequate assurance that an aircraft in an engine-out emergency will be able to safely exit the valley. Sufficient ground navigational aids are required to provide this assurance and enable contingency routes to be developed. Largely due to terrain, a conventional CAT I Instrument Landing System may not provide sufficiently reliable access. The precise nature of the navigation aid solution will be determined in the pre-tender design stage. 3.4 Support Facilities Ideally, the parallel taxiway would be extended to reach from the terminal building to the new runway end. The conceptualized design, shown in Figure 5, will require minimal aircraft travel on the runway and will avoid the need to acquire private land. Passenger traffic projected in the market study will require expansions to the terminal building. The proposed concept for meeting these requirements is illustrated in Figure 3.3. Key features include: expanding the holdroom to the airside; extending the public waiting area and locating it for convenience of greeters seeing passengers off and for meeters waiting for passengers to arrive; adding a second baggage claim device and expanding the arrivals area; constructing permanent yearround Canadian Border Services Agency facilities; and completely updating the look and feel of the building to create a facility all residents can be proud of -- one which reflects the history and natural beauty of the Kamloops area. 10
13 Figure 5 11
14 3.5 Capital Cost Estimates The Cost Estimate reflects a conceptual level of design. The Cost Estimate is detailed in Appendix 1, and summarized in Table 3. Table 3: Cost Estimate Summary Cost Component $ Canadian 2004 Airfield Civil $9,880,439 Airfield Lighting $408,725 Navigation Aids $ 2,542,615 Terminal Building $3,074,364 Environmental Assessment To be determined Program Management $600,000 Total Costs (rounded) $16,600,000+ Note: Estimated costs do not include GST or PST Source: Prepared by PAPI An estimate for the B.C. Environmental Assessment is difficult to determine at this early stage. The B.C. government has taken measures to reduce the time involved. Public response to project publicity has been positive. However, additional studies may be required, which may have specific time windows. Little or no environmental clean-up is anticipated. 3.6 Financial Analysis of the Project Financial modelling consolidated multiple inputs, such as traffic forecasts in the market study, corresponding infrastructure improvements needed to support projected demand, revenue and cost impacts, and financing options. Results are summarized in Table 4. Table 4: Financial Modelling for 8,000 ft Runway, Optimistic Airport Growth Scenario Funding Scenario Financing Bridge Financing Interest Cost Min DSCR Level AIF Years 100 % Society $14,462,706 $2,166,721 $7,594, $ /3 Society 2/3 B.C. & Canada $4,564,743 $480,744 $1,603, $5 12 Source: Prepared with YVRAS Model 12
15 Without B.C. and Canada support, minimum debt service coverage of 1.28 indicates the Society would face a high risk of default. A $12 Airport Improvement Fee would generate public and airline resistance to the project. The Society cannot afford to finance the entire cost. With B.C. and Canada contributing two-thirds of the cost, the Society could finance one-third from a proposed $5 Airport Improvement Fee and Operating Income. The projected minimum debt service coverage of 2.74 poses a prudent risk when balanced against predicted airport and community growth. 3.7 Conceptual Schedule Respecting typical lead times in planning, design and construction, the proposed timelines are illustrated in Table 5. Table 5: Conceptual Project Schedule Runway and Terminal Project Activity Earliest Start Months Secure Funding Feb Resolve Environmental Issues 1 Nov Resolve Navigation Guidance issues Nov Preparation of Detail Design and Contract Documents Feb Issue Tender May Construction (summer months only) Jul As soon as possible given the lengthy process of detailed provincial environmental assessment Source: Prepared by PAPI 3.8 Next Steps Financial: Securing B.C. and Canada contributions and implementing a $5 Airport Improvement Fee. Aircraft Navigation Guidance: Establishing the feasibility and value of installing an ILS on Runway 26, as well as the feasibility of establishing improved overall instrument approaches, especially on Runway 08. Environmental: Preparing a screening level assessment to satisfy the federal regulations, and a provincial environmental assessment. 13
16 Appendix 1 Appendix 1-1: Civil Cost Estimate for 8,000 ft runway option Cost Component Basis Total Cost Topsoil stripping and site preparation 51,000 m $5 $255,000 Earthworks Pre-Embankment Surface Compaction 152,000m $0.50 $76,000 On-site Excavation to Embankment 16,000m $5 $80,000 Imported Embankment Soils 68,000m $15 $2,520,000 Over-excavation of unsuitable soils 500 m $15 $7,500 Import of Granular Fill in Over-excavated areas 500 m $25 $12,500 Subgrade shaping and compaction to 100% SPD 57,300 m $1 $57,300 Runway and Taxiway Subgrade drainage 150mm perforated subdrain $80 $200, mm solid drain pipe $50 $15,000 75mm Granular Sub-Base Gravel 600mm thick 50,000 m $30 $1,500, mm thick 7,500 m $15 $112,500 25mm Granular Base Gravel 230mm thick 50,000 m $15 $750, mm thick 7,500 m $8 $60,000 Hot Mix Asphalt 90mm thick 47,000 m $22 $1034,,000 50mm thick (stopway and shoulders) 7,500m $12 $90, mm of Topsoil and Hydroseeding 95,000 m $8 $760,000 New Security Fencing 1500 m $ 70 $ 105,000 New 200mm piping for sewage effluent irrigation $ 100 $ 45,000 Tree replanting program Allowance $ 50,000 Power pole line relocation at 26 end Allowance $ 50,000 Pavement Markings Allowance $30,000 Sub-Total $7,810,600 15% Contingency Allowance $1,171,590 Sub-Total $8,982,190 10% Engineering Allowance $898,219 Total Civil Cost Estimate for Extension to 8,000 ft $9,880,439 Source: Prepared by PAPI and USL Note: Estimated costs do not include GST or PST
17 Appendix 1 Appendix 1-2: Cost Estimate for Airfield Lighting Upgrades Cost Component Basis Total Cost Runway Edge Lights 19 $ 1,000 $ 19,000 Taxiway Edge Lights 25 $ 900 $ 22,500 Constant Current Regulator for Runway (7.5Kw) 1 $ 20,000 $ 20,000 Constant Current Regulator for Taxiway (7.5Kw) 1 $ 20,000 $ 20,000 Trenching and ducting $ 23 $ 50,600 Counterpoise $ 1.50 $ 3,300 Cabling $ 3 $ 16,200 Cabling to Field Electrical Centre (FEC) 2400 $ 3 $ 7,200 Cable pulling, damage, etc. 500 $3 $ 1,500 Runway end/threshold lights 8 $1200 $ 9,600 Relocation of approach lights (ODALS) - civil Allowance $ 6,000 - ducting/trench $ 23 $ 23,000 - wiring $ 10 $ 10,000 - tower relocation $ 600 $ 4,200 PAPI relocation - civil Allowance $ 5,000 - cable and trenching $ 29 $ 14,500 - counterpoise $ 1.50 $ installation and calibration Allowance $ 3,000 Wind sock relocation Allowance $ 3,000 Lighting Controls upgrade Allowance $ 10,000 Airfield signs $ 5,000 $ 20,000 Sub-Total $ 269,350 15% Contingency Allowance $ 40,400 Sub-Total $ 309,750 10% Engineering Allowance $30,975 Total Electrical Cost Estimate for Extension to 7,500 ft $340,725 Add 20% for additional costs for additional 500 ft $68,000 Total Electrical Cost Estimate for Extension to 8,000 ft $408,725 Source: Prepared by PAPI Note: Estimated costs do not include GST or PST
18 Appendix 1 Appendix 1-3: Cost Estimate for Navigational Aid Upgrades Cost Component Basis Total Cost Site evaluation Allowance $ 50,000 Relocate/new localizer and DME Allowance $ 600,000 Glide path for Runway 26 (if possible) Allowance $ 300,000 Associated Civil works Allowance $ 250,000 Environmental assessment (if required) Allowance $ 10,000 New NDBs (for emergency ops and non precision to 08) 4 $ 200,000 $ 800,000 Sub-Total $ 2,010,000 15% Contingency Allowance $ 301,500 Sub-Total $ 2,311,500 10% Engineering Allowance $ 231,115 Total Navaid Cost Estimate for Extension to 7,500 ft or 8,000 ft Source: Prepared by PAPI and CNSS $ 2,542,615 Appendix 1-4: Cost Estimate for Environmental Studies Cost Component 8,000 ft Agricultural Land Assessment $6,400 Assessment of the City of Kamloops Effluent Irrigation Losses Federal Screening Level Environmental Assessment/Provincial Environmental Assessment $4,800 $30,000 -??? Correspondence and Meetings $4,000 Total Estimated Cost for Environmental Studies $46,000 -??? Source: Prepared by USL Appendix 1-5: Program Management Budget Cost Component 7,500 ft 8,000 ft Project integration activities to manage the various projects $500,000 $600,000 Total Estimated Program Management Budget $500,000 $600,000 Source: Prepared by PAPI Note: Estimated costs do not include GST or PST
19 Appendix 1 Appendix 1-6: Cost Estimates for Air Terminal Building Expansion Cost Component Basis Total Cost Holdroom and Public Area Expansion - total new construction 203 m $ 2250 $ 456,750 - contingency 15% $ 68,512 -design/engineering 12% $ 63,031 Total $ 588,293 Permanent CIS - CIS office space 220 m $ 2400 $ 528,000 - industrial space 61 m $ 1100 $ 67,100 Subtotal $ 595,100 - contingency 15% $ 89,265 - design/engineering 12% $ 82,123 Total $766,489 Expand Baggage Claim Area - new public space 234 m $ 2250 $ 526,500 - industrial space 153 m $ 1100 $ 168,300 - renovate existing areas 100 m $ 1500 $ 150,000 - new bag claim device $ 300,000 - relocate existing bag claim $ 35,000 Subtotal $ 1,179,800 - contingency 15% $ 176,970 - design/engineering 12% $ 162,812 Total $1,519,582 Renovate Remaining Areas - allowance $ 200,000 Total Passenger Terminal Expansion Cost Estimate $3,074,364 Source: Prepared by PAPI Note: Estimated costs do not include GST or PST
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