SYDNEY (Reuters) - Australia has approved a $2.4 billion (1.4 billion pounds) project to build a long-awaited second airport for Sydney, likely boosting near-term investment and jobs in a bet that the city's air travel demand will grow enough to justify a surge in terminal capacity.
Prime Minister Tony Abbott announced the plan on Tuesday, saying he expects work at the Badgerys Creek site in Western Sydney, 60 kilometres from the city centre, to begin in 2016. The A$2.5 billion (1.4 billion pounds) project will be funded mostly by the private sector, he said, with first flights expected in the mid-2020s.
A second airport for Sydney was first proposed over 50 years ago, but became mired in political debate before Abbott promised to build one in last year's victorious election campaign. He was voted in on a ticket pledging he would be an "infrastructure prime minister", targeting infrastructure projects to revive economic growth that sagged as Australia's mining investment boom faded since 2012.
"It is essentially going to be an infrastructure package for Western Sydney, a long overdue infrastructure package for Western Sydney, that does also involve an airport," Abbott told reporters in Canberra.
While the project is designed to bring a straightforward injection of investment and jobs to the area in the near term, implementing it and making efficient use of the extra capacity it brings in the longer term may be more complex.
Sydney's current sole airport is Kingsford Smith, operated by Sydney Airport Holdings Ltd in the Mascot suburb, 10 kilometres southeast of the city centre. Under rules governing its privatisation in 2002, Sydney Airport has the right of first refusal to develop and operate a second airport in the city.
"Basically it's the first right to develop and operate a second airport, but it's something that would be subject to lengthy discussions," Sydney Airport's spokeswoman Laura Stevens told Reuters.
Talks between the government and the airport operator may be complicated by the fact that Sydney Airport already has an existing 20-year plan to upgrade Kingsford Smith. That plan was devised to meet forecast demand of 74 million passengers in 2033, nearly double 2013's 38 million passengers.
The time frame for consultations will be "a minimum of a year and a maximum of two years", Infrastructure Minister Warren Truss told reporters in Canberra. "If they (Sydney Airport) choose not to do so, then that opportunity will be offered to others," he said.
As airlines like the country's flagship carrier, Qantas Airways Ltd, welcomed the move to increase capacity, analysts said Sydney Airport would either have to adapt its existing expansion plans or face the consequences of being shut out of a major development that could be suited for low-cost carriers keen to grow.
"I don't see how they could avoid that (working with the government)," said Michael McCarthy, chief market strategist at CMC Markets. "They (Sydney Airport) operate under government auspices anyway, and taking an antagonistic or competitive approach, I think would ultimately work against them."
The site at Badgerys Creek may lack the appeal of Kingswood Smith's greater proximity to central Sydney, but McCarthy said the new airport could be developed to be a hub for budget airlines appealing to customers who prize good deals over convenience of access.
The likelihood of a less restrictive curfew on flights in and out of Badgerys Creek would be a further positive for airlines willing to operate in less convenient hours. "On the issue of noise, I don't believe this is going to be anything like the problem at Badgerys that it has been at Mascot," Prime Minister Abbott said.
Michael Heffernan, an economist at brokerage firm Lonsec, said a second airport was just what Sydney needs.
"The reason we're getting two airports is because it's basically needed, so I don't think there's any necessarily adverse impact given the fact that we've got 10 years to go and population increases." According to the latest statistics available, Sydney's population stood at 4.7 million in June 2012, nearly a third higher than 2006's 3.6 million.
Shares in Sydney Airport fell nearly 1.0 percent, against a 0.6 percent rise in the broader market.
(Additional reporting by Thuy Ong; Editing by Clarence Fernandez and Kenneth Maxwell)