Semisi Taumoepeau TAL Report 2011

Tonga Airports Limited

(Photo courtesy of TAL 2011)

A report on additional opportunities on extended

operational hours for Tongan airports

Semisi Taumoepeau

semisit@ais.ac.nz

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Table of Contents

Page

1.0 Findings and Recommendations 3

2.0 Role of Aviation and Tourism in the economy 6

2.1 Tonga Airports Limited 8

3.0 Current Air Transportation and Tourism Issues 10

3.1 Sunday Observance and Travel 10

3.2 Air Transportation and Tourism 12

3.3 Air Services Review 15

3.4 Tourism Review 18

3.5 Reasons why airlines are important for Tonga 21

4.0 Seven day operation for Air Transportation essential service 23

4.1 Current Position of Government on Sunday Operation 23

4.2 The Case for Seven Day Operation 24

4.3 Financial and Economic Analysis 25

List of Tables and Figures

Table 1.1 Forecast of key Tourism Parameters for 2015 5

Table 3.3 Number of Seats per Sector per week-June 2011 17

Table 3.4 Number of Air Visitors to Tonga 2008-2010 19

Table 3.5 Available Seat Capacity, Flights and Passengers 1990-2015 20

Table 3.6 Air Visitors Purpose of Visit by Market 2010 20

Figure3.2 Australia and NZ Short-Term Departures to Tonga 1992-2010 13

Figure3.4 Visitors Trend from Major Market Areas 18

Figure3.5 Reasons why regional airlines are important for Tonga 21

Appendices

Appendix 1. Methodological Approach 28

Appendix 2. Economic Impact Analysis of extended operational hours. 31

Appendix 2.1. Tonga Airport Visitors, Residents Arrivals Forecast 31

Appendix 2.2. TAL Financial Forecast 32

Appendix 2.3. Economic Impact Analysis 2011-2015. 32

Appendix 3. Religious Tourism 34

Appendix 4. List of People Consulted 36

Appendix 5. International Schedules-July 2011 39

Appendix 6. Terms of Reference 40

Appendix 7. Outline of the World Bank and Tonga Government Aviation Projects 42

Appendix 8. List of References 46

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1. Findings and Recommendations.

With the current Sunday restrictions on public transportation in the Kingdom, any

effort to ease up or amend these travel restrictions may best be handled through a

series of consultations with the general public, stakeholders and various church

leaders in order to gain a clearer understanding on which direction to proceed

forward with this issue. However, notwithstanding this matter, the following

recommendations are made:

1. International airlines, the domestic carrier and key stakeholders are supportive of

a partial opening up of flight operations on Sundays. Not only there is enough

capacity in terms of airport facilities and infrastructure, and in the accommodation

sector and services but also there is potential demand from both the VFR and the

leisure market from Australia and New Zealand to support new additional capacity.

2. Recommend restricted airport and flight operations on Sundays as follows:

Domestic flight service hours

Fua‘amotu Airport: Open for aircrafts operation as from 12 noon onwards.

Lupepau‘u Airport: Open for aircrafts operation as from 12 noon onwards.

Salote Airport: Open for aircrafts operation as from 12 noon onwards.

Kaufana Airport: Open for aircrafts operation as from 12 noon onwards.

Mata‘aho Airport: Closed (except for emergency operation)

Lavinia Airport: Closed (except for emergency operation)

International/Regional flight service hours

Fua‘amotu Airport: Open for aircrafts operation as from 12 noon onwards.

Lupepau‘u Airport: Open for aircrafts operation as from 12 noon onwards.

3. Following on from Recommendation 2 above, it is expected that the number of

international flights will increase up to 20 per week during 2015.

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From New Zealand (Auckland)

Ten services a week

Pacific Blue operates three per week

Air NZ operates seven per week

From Australia (Sydney)

Pacific Blue operates five per week

From Fiji (Suva and Nandi)

Air Pacific operates two from Suva and three from Nandi per week

With these anticipated increases in services, both the airport infrastructure and facilities

(50% underutilised in 20111) and accommodation facilities (national occupancy rate of

50% in 20112) in Tonga could adequately accommodate and handle the additional influx

of traffic. Airlines will be averaging about 70% load factor.

The partial opening up of these airports on Sundays would give flexibility for airlines for

their scheduling, depending on travel demand and of course on other factors such as air

service rights, financial sustainability and on few other logistics. Partial opening of the

domestic air fields would enable link flights from Vava‘u, Ha‘apai and ‗Eua connecting

into the international flights and also accommodating domestic traffic demand.

4. Economic implications of extended operational hours (Appendix 2 and Table 1.1).

Annual rate of increase for the holiday market segment (leisure and VFR) is expected to

increase annually at 11-12% (up to 76,000 for calendar year 2015) as against a ‗business

as usual‘ scenario of 3-4% annual growth (up to 55,273 for calendar year

2015)(Appendix 2.1). It is expected that the length of stay will increase from the current

average of 9 nights to 12 nights, thus visitor nights would be increased as about 80% of

the air visitors traffic are from the VFR and Leisure holiday market. Additional new

traffic of about 400 a week due to flexibility and attraction of a 7 day operation.

1 From the 2011 domestic and international airlines schedules, which showed only 26 international

movements a week. The domestic schedule showed 2 return flights a day between Tongatapu and each one

of the main destinations of Vava‘u, Ha‘apai and Eua with weekly flights to the Niuas. 2 World Class Tourism survey of accommodation facilities during the period May-June 2011.

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It is expected that the tourist expenditures reach TOP136.8m in 2015 as against a

‗business as usual‘ scenario of TOP74.6m (Appendix 2.3 and Table 1.1).

It is estimated that these figures would generate at least TOP218.9m to the local economy

as against ‗a business as usual‘ scenario of economic impact level of TOP119m

The estimated number of standardised travel/tourism related jobs could reach 6840 during

2015, as against an estimated 3731 standardised jobs under the ‗business as usual

scenario‘ (Appendix 2.3). The current estimate of standardised travel/tourism related jobs

for 2010 was 2900.

The direct revenue to government coffer is estimated at TOP27.4 m for 2015 as against

TOP14.9m under the ‗business as usual scenario‘

Table 1.1. Forecasts of Key Tourism Parameters for 2015

Tourists

76000 55273

length stay

12 9

visitor nights

912000 497457

spend/night

150 150

expend

136800000 74618550

economic multiplier

.6

82080000 44771130

Economic Impact

218880000 119389680

job multiplier

6840 3731

Govt. multiplier

27360000 14923710

Air freight of exports (which is currently handicapped due to limited capacity and

infrequent services) would produce additional economic benefits and open up new market

in Pacific Rim countries.

5. Financial Implication to TAL

Financial revenue to the TAL (as more than 80% of its revenue is from aeronautical

related activities) and other services it provides at the airport is expected to exceed

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TOP9.0m for the calendar year 2015, an annual average growth rate of 8.4% as against an

estimated average of 4% annually on a ‗business as usual scenario ‗during the same

period. It is estimated that Vava‘u, Ha‘apai and Eua airports would have all achieved

positive EBITDA by 2015. Expenses are expected to rise on average by 6% in the next

five years. The main cost components are occupancy expenses, utilities, insurance and

fuel. It is expected that the ‗green airport effect‘ would have a moderation impact on

operational expenses (Appendix 2.2).

Potential economic benefits from cruise ships should they be allowed to dock on Sundays

in Tongan ports, estimated at TOP60,000 per cruise ship visit, is not discussed under this

report, even though the potential to further promote cruise-fly packages could further

increase yield to airlines and associated businesses at the airports.

The analysis does not take into account the new air service proposals from Interisland

(American Samoa) and Air Pacific (Fiji). If approval is given these new additional

services could bring in the following net benefits to the sector:

Annual net revenue to TAL of about TOP40000 from 2013- 2015

Additional 4700 visitors during 2015 with additional TOP8.5m in tourism revenue.

2.0 Role of aviation and tourism in the economy

Tonga‘s economy is still recovering from the effects of the global financial crisis. This

situation is made worse with a current high public debt situation of more than

$390 million or 56% of the GDP (Ministry of Finance 2011). The continual decline in

remittances from Tongans abroad, the significant drop in exports over the years and

having to address problems caused by rising fuel prices and climate change issues are

some of the major problems currently faced by the country.

The Tourism sector, on the other hand, has been identified by the Government and other

stakeholders as a key economic sector, with substantial potential for growth in investment

and employment. The Tourism Industry is Tonga‘s largest foreign exchange earner,

higher than any other productive sector, with an estimated high of T$58 million in 2010

(Reserve Bank of Tonga, 2011). Tourism has also become the largest contributor to GDP,

increasing from 6% in 2001 to about 27% in 2011.

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The provision and maintenance of regular, reliable and competitive air services is crucial

to tourism expansion in the South Pacific region, Tonga included. Global changes and

issues in the transport sector, including an increasingly competitive market, rising fuel

prices, new international safety and security requirements, and strong competitions for

the tourist revenue in the region, have significant implications on air transportation and

distribution of tourist traffic in the South Pacific Islands.

Thus the Tongan islands depend on a viable air transportation system and aerodromes for

its continual economic growth. Air transport and tourism development in Tonga are inter-

dependent of each other, and need each other for further growth. Despite the great

potential to bring in more social and economic benefits to the people of Tonga, these two

sectors are currently facing stagnant growth period, both in the number of bona fide air

visitors visiting the Kingdom as well as trying to maintain an underutilised international

airport, associated infrastructure and tourism superstructures.

Despite the millions of pa‘anga that these two sectors (and the only financial saviour

within the immediate horizon) are bringing into the country annually, their specific and

unique requirements seem to be neglected, despite the continual emphasis spelled out in

various national development strategies and plans.

They could channelled in more foreign exchange for the country, more revenue for the

government departments and create more jobs for Tongans. The average annual hotel

room occupancy is estimated at just under 50% (Ministry of Tourism 2011) and the

multi-million dollar investment in the 6 airfields of Tonga are greatly underutilised and is

closed for any operations from midnight Saturday to midnight Sunday, this period being

the most popular time for travel for Tongan nationals and tourists alike.

In a recent study, Taumoepeau (2008) highlighted some of the reasons why many airlines

in the region are not financially sustainable (and others have gone bankrupt) and they

include:

Remoteness and length of distances between islands and airfields

Limited size of the markets and low volume

Very high operational costs made worse by recent hike in fuel prices

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Restrictions on Sunday operations of some airports and air services

High airport charges

Traditionally low load factor and some necessary thin sectors are not

economically sustainable

Soft currency (local currency) is earned regionally with payment for aviation fuel

and aircraft lease, always in high US currency (US $)

Thus airlines flying in the region are obviously struggling to remain sustainable. A recent

example is the withdrawal of the Air New Zealand weekly service earlier in the year

which links Los Angeles with Samoa, Tonga and Auckland.

For Tonga to remain a sustainable tourist destination to fly to, Tonga needs to ensure that

strategically policies, plans and infrastructure are in place to continue to create and

enhance high travel demand at all times.

2.1 Tonga Airports Limited

Tonga Airports Limited was established on July 2nd 2007, under the governing

legislation of the Public Enterprises Act 2002, and the authority granted by the

Instrument of Delegation under section 5 of the Civil Aviation Act 1990.

TAL operates the 6 airports of Tonga, and is held accountable to the standards and

regulations of the Civil Aviation Act 1990, to New Zealand Civil Aviation laws and the

International Civil Aviation Organization guidelines. It is a member of the Airports

Council International. During the past 12 months, new navigational instruments and

equipments were installed or acquired, such as a new PAPI (Precision Approach Path

Indicator), back-up emergency generators for Fua‘amotu and Vava‘u,, new Category 8

Rescue Fire vehicle, new navigational equipment DVOR/DME and are looking for major

funding to support major runway projects at Fua‘amotu, Vava‘u and Ha‘apai airports. A

major regulatory compliance milestone was the Part 139 aerodrome certification, vital to

their safety management system. These are some examples of ongoing investment and

very high cost maintenance operation going on weekly at the 6 airports throughout

Tonga. Extension of opening hours especially at Fua‘amotu airport will certainly attract

new flights and much needed revenue for TAL.

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The domestic air service is struggling to operate financially due mainly to escalating fuel

prices and rising operational cost from its fleet of different aircrafts and a stagnant

domestic market, except the tourist market. TAL is faced with limited capital resources,

asset deterioration due to low maintenance funds available, and financial and

administrative constraints, that have been exacerbated by both the recent global financial

crisis and increasingly rigorous international security requirements.

International air services to Tonga have somehow maintained capacity level but

frequency has decreased due to the use of bigger aircrafts. A recent cancellation of an

Auckland to Los Angeles weekly service via Samoa and Tonga by Air New Zealand, due

to persistence losses and lack of financial viability of the route has cut capacity (and

revenue for Tonga) even further. Recent forecast for the immediate future and the next

five years look grim for Tonga‘s aviation scene unless there is a drastic change in travel

demand from neighbouring metropolitan countries.

The Tongan six airports has been struggling financially (airports revenue has been

decreasing) during the past 5 years due mainly to financial instability within the domestic

airlines sector as well as the company having to invest much of its resources on major

repair and maintenance compliance works. Construction of major facilities and

runways/air fields are normally funded under bilateral and multilateral aid programmes

but the actual ongoing operational cost, repair and maintenance and compliance

responsibilities are the responsibilities of the Tonga Airports Ltd. Financial returns and

revenue sources hasn‘t increased or broadened, caused by trends outlined above and also

due to an overall decrease in the frequency and capacity of both domestic and

international services.

Currently on Sundays, TAL has airport staff from AvSec Aviation Security and ATC as

required, these are part of normal weekly shifts, it is currently minimal staffing. All full

time staff work 40 hours per week, Sunday shifts are part of the 40 hour week. Utilities

costs cover 7 days, rather than just 6 days, at the airport. Currently the aeronautical

revenue is about 88% of total revenue with the non-aeronautical revenue at 12% of total.

Aeronautical revenue is derived from 70% of PSC and 30 % from landing charges. TAL

collects the upper airspace charges, and this goes towards the running and technology to

support the service, also when TAL was set up it was to offset the outer island operations.

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Tonga aviation has been a signatory to ICAO and PASO and is committed to its

aeronautical roles and responsibilities and the continual uphold of safe and reliable

aviation practices in Tonga and in the region.

The Tonga Transport Sector Consolidation Project (TSCP) sponsored by the World Bank

have identified the aviation and airport sector as a priority area, in recognition of the key

role of air transport in the economic future of Tonga. A short brief of this important

project is appended in Appendix 7.

3.0 Current Air Transportation and Tourism Issues

3.1 Sunday Observance and Travel

Christianity is the main religion in Tonga and observed by most Tongans. The law for the

observance of Sundays where it prohibits many business transactions and many other

activities besides worshipping has been progressively relaxed over the years, enabling the

country to embrace the incoming global economy tide. It is noted that public

transportation and air services are not restricted, however, in the two most Holy days of

the Christian faith, Christmas day and Easter Friday.

In 1992, the Tonga Tourism Advisory Board, under the chairmanship of the then Crown

Prince (HRH Tupouto‘a), now the present monarch (HM King Siaosi V), directed a study

of the Israel tourism industry, and how their government was able to successfully

combine and blend in tourism development and growth, religious activities and the

Sabbath Law resulting in a thriving tourism industry. Foreign carriers are allowed to fly

in on Sabbath hours and restaurants and cafes are opened up for visitors. The outcome of

that study, conducted by the author of this report, was subsequently approved in principle

and was left with the government and parliament at the time to work on logistics and

legal requirements to pave the way forward.

It was felt at the time, and still is, that the inability to operate and serve travel and tourist

services seven days a week is a major constraint on the further development of Tonga‘s

ailing economy. Successive tourism and economic plans have similarly identified the

same constraint, with recommendations for some partial opening up of public travel and

air transportation services.

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Unless necessary services such as transportation and restaurants can be excluded from the

Sunday observance laws (as they do in all Christian nations including Israel) and treat as

essential services, major increases in tourist expenditure are not likely to occur. This is

translated into loss of income, under utilisation of tourist facilities, high expensive

maintenance of airport facilities and asset management throughout Tonga in order to

remain ICAO compliance, and less attraction of Tonga as a tourist destination.

The absence of flights on Sundays has a demonstrable adverse effect on the scheduling of

tourists travel. Airline schedules and air travel planning require complex planning daily.

Both the International Civil Aviation Organisation (ICAO) and IATA (International Air

Transportation Association), the two principal international organisations primarily

responsible for the safety, security and sustainability of all air transportation system

globally do operate 24 hours daily, ensuring the safety of all travelling passengers on

aeroplanes and airports worldwide.

Tonga is a signatory member of ICAO and was a member of IATA (under RTA when it

was still flying). As part of its obligation to ICAO and other aviation organisations, TAL

maintains a monitoring service at the Fua‘amotu airport and continually assists with

emergency matters and communicates with users of Tonga airspace on Sundays. All CRS

(Computer Reservation Systems) and travel related telecommunication services now

operate in Tonga 24 hours seven days a week giving necessary service to the Tongan

travelling public. Tonga‘s geographical location also makes it problematical for air

transport scheduling with airlines struggling for sustainability and to ensure continuation

of safe air services for Tonga. Visitors will choose not to travel to Tonga if their

schedules require arrival or departure on Sunday.

Food is a basic need of mankind, as such opening of free standing

restaurants on Sundays would be on the same principle as buying

bread on Sundays.

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The stringent enforcement of the Sunday law in relation to transportation serving the

general public and tourists alike is counter to the effort of the people of Tonga and

Government to improve the economy of the Kingdom, and it doesn‘t adversely affect the

essentials of Christian principles. Travelling on weekends (especially on Sundays) for

religious purpose is practised in all countries of the world (Appendix 3). Views expressed

by some church leaders interviewed seem to favour the easing up of restrictions on both

land and air transport to enable and facilitate movements of Tongans and visitors alike.

3.2 Air Transportation and Tourism

Despite the forecast of steady increase aviation traffic to Australia and New Zealand, the

growth level to the neighbouring islands will be dampened by low yield, slow economic

growth and lack of improved infrastructure and tourism investment in the region

(Taumoepeau 2010). As briefly mentioned in the previous section, airlines are very

sensitive to economic fluctuations and high oil prices. Most Pacific airlines pay out major

expenses such as aircraft leasing, spare parts and maintenance costs and fuel in US

currency but their earnings are in very soft currencies in the region. A direct result is a

very low profit margin for Pacific airlines.

Given the unique features of air services in the region (Section 2.0), and for airlines to be

economically sustainable and to support the viability of airports, the aviation sector

demand flexibility in operational hours, scheduling, and to dovetail to mainstream traffic

demand.

As most passengers flying into the islands are predominantly tourist and VFR market

their main choice of travel would be on the weekends to gain maximum value for their

travel time. Main leisure and VRF traffic between NZ and Australia are in the weekends

and would tend to travel back to their holiday destinations on Sundays.

During the past few years, the Low Cost Airlines such as Pacific Blue, Jet star and Air

New Zealand (operating a similar model since its merged up with its low cost subsidiary

Freedom Air) has played a significant role in bringing in VFR and leisure traffic to the

islands of the South Pacific

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An example could be witnessed in Samoa, where in just eight months since Polynesian

Blue was launched in October 2005, visitor arrivals to Samoa increased by more than 18

percent compared to an average annual growth over the prior 10 years of just 3.9 percent.

Despite their deep commitment to the Christian faith, which can be seen throughout

Samoa on Sundays, they still managed to allow seven day operations at Faleolo Airport.

As from the beginning of 2012 Samoa will be on the same side of the International

Dateline as with Tonga and New Zealand and they expect to witness more air services

flying to the Samoa airports on Sundays, transporting both residents and tourists to their

respective destinations.

The increased visitor numbers to these islands translate not only to a significant and

tangible return to the community through increased tourism and economic benefits, it has

also prompted renewed interest from developers keen to invest in infrastructure, such as

in hotel chains, to support the growing tourist numbers in the region.

As stated earlier, a positive milestone to South Pacific aviation was the entry of the Low

Cost Carrier model airlines (such as Pacific Blue) to the South Pacific in mid 2005.

Figure 3.2 below shows the impact of the LCC model on visitor numbers to Tonga from

the main market countries, Australia and New Zealand when Pacific Blue started flying

into Tonga mid 2005. In the course of this study, Pacific Blue indicated that they are

willing (depend on travel demand) to fly daily to Tonga from the Australian and the New

Zealand market. Other regional airlines have also given their support to allow flexibility

for scheduling into Fua‘amotu airport.

Figure 3.2. Australia and New Zealand Short-Term Departures to Tonga

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Source: Australia and New Zealand Statistics Report.

Operating under the same philosophy and low cost base as its sister airlines, Virgin Blue

and Pacific Blue, the start-up outlay for Polynesian Blue was kept to a minimum and

within 10 months of its launch the airline announced a modest profit.

Previously the Government of Samoa had contributed over WST 200 million into the

nation‘s flagship airline over the past decade, money which is now being progressively

re-directed to health, education and other essential community services throughout

Samoa. Polynesian Blue has been enjoying a profitable service whilst making air travel

affordable for ordinary Samoans seven days a week.

Tonga doesn‘t have a home based national carrier any longer, and all international flights

originate from outside airports such as Auckland and Nandi, meaning all weekend flights

need to be scheduled to leave for Fua‘amotu during Saturday afternoon or late on Sunday

night to arrive on Monday morning. These are unacceptable hours for the mainstream

traffic and also for airlines that treat Tonga services as being marginal in terms of

financial yield.

The main international gateways for Tongan travellers, Nandi and Auckland operate 24

hours and enable Tongan outbound passengers to safely fly to their respective

destinations (in mosts cases on Sundays) after arriving from Tonga on Saturdays.

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Airlines consulted on the course of this study expressed the same view and they see this

as a way of facilitating travel demand. They will reschedule their services over a seven

day period to dovetail to their seven day timetable already operating in the region.

Neighbouring islands such as Fiji, Niue, Samoa, Rarotonga all open up their airports

seven days a week.

The destination of Vava‘u (so are the Ha‘apai and the ‗Eua islands) has got potential for

tourism growth and to further contribute to the economy of Tonga and some form of air

connections on Sundays would certainly assist with the growth of the industry in these

respective islands.

Air cargo has often been identified as an area where there is great potential to grow given

more accessibility and affordability to major market gateways. Exporters from Tonga of

perishable products have expressed frustration with limited weekend capacity and

frequency. Air cargo users, unlike air passengers, make large purchases of services to

obtain lowest cost and guarantee timely uplift of their perishable products to connect to

main gateways into Pacific Rim markets. To a large extent, air cargo markets are already

competitive. Freight forwarders and large shippers tranship freight from one gateway to

another to seek the lowest cost to the ultimate destination. If cargo rates from Nandi to

Tokyo are high relative to Tonga-Tokyo, then freight forwarders will tranship all but the

most time-sensitive shipments to Nandi. Liberalisation of air cargo would be less

harmful to national carriers due to the smaller role it plays in the total revenues of an

airline. This could be an area where industrial benefits from liberalisation are strong,

with significant benefits in other sectors of the economy. Air cargo liberalisation might

be especially beneficial to the least developed economies. The markets on many

occasions bypass the Tongan products due to frustration and subsequent increases in cost

caused by restrictions in cargo space and fewer flights.

3.3 Air Services Review

Domestic Air Service

Tongan domestic air services were operated by several airlines after the collapse of Royal

Tongan Airlines in 2004. Operators such as Fly Niu, Peau Vava‘u and Airlines Tonga

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were given licenses to operate. All airlines ceased operation due to financial reasons and

at one time due to a ‗one airline‘ policy.

In April 2008, Chathams Pacific , a subsidiary of Air Chathams Ltd., had commenced

operation domestically and by September of the same year became the sole air service

operator. The airline serves six airports; Vava‘u, Ha‘apai, ‗Eua, Niuatoputapu and

Niuafo‘ou.

Chathams Pacific has a fleet of six aircraft-one Convair CV580 and one Metroliner

(operating to Vava‘u), one DC3 (operating to Ha‘apai), two Queen Airs (to Niuafo‘ou

and Niuatoputapu)), and one Islander (operating to ‗Eua).

Inter Island Airways is working to expand its regional destinations to Tonga, Fiji and

Niue in early 2012. The airline is planning to operate air services from Samoa to both

Vava‘u and Tongatapu utilising a 30-seat Dornier 328-100 aircraft.

Air Pacific is also working to be able to fly domestically within Tonga and also operate

their ATR42 directly between Nandi and Vava‘u towards the end of 2011.

International Air Service

Royal Tongan Airlines (RTA) was the national airline of Tonga operating successfully on

both international and domestic routes as from 1980s until its collapse in mid-2004.

International and regional services were operated using a Hawker Sidley, Shorts 360,

twin otters and leased B737-200/300s From 2002, the Airlines Board at the time leased a

Royal Brunei Airlines B757 aircraft which proved to be offering excessive capacity and

was underutilised with no operation on Sundays. These factors led to its demise and cost

millions of dollars to Government and the people of Tonga. Since the collapse of RTA,

international services to Tonga have been operated by foreign-owned airlines. By year-

end 2004 international services were being provided by four airlines-Air New Zealand,

Polynesian Airlines (later became Polynesian Blue/Pacific Blue), Air Pacific and Air Fiji.

Currently, direct international services to Tongatapu are operated by three airlines-Airs

New Zealand from Auckland, Air Pacific from Fiji, and Pacific Blue from Auckland and

Sydney. A weekly Air New Zealand service connecting Tongatapu and Apia with Los

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Angeles was terminated at the end of January 2011 due to the service not financially

viable.

Regional seat capacity, flights and passengers

Table 3.3 below shows the current level of service, capacity, frequency and regional

airports that link into Fua‘amotu airport. It should be noted that all regional airports

shown here operate seven days a week with the exception of Fu‘amotu airport, thus

affecting some logistic issues with scheduling and also airlines are not operating on the

most

popul

ar

time

when

travel

dema

nd

are at its highest,i.e. on Sundays as all Tongan airports are closed. This restricted

operation is also made worse with the seasonality of travel to and within Tonga, high fuel

price and escalating operation costs of the Tonga flights.

Table 3.3 : Number of seats per sector per week June 2011

No. of seats per sector per week June 2011 13 flights

Flights DJ NZ FJ Ave. no. seats

From 360 900 1260

The future development of the Tongan economy is likely to be

highly geared to the development of tourism, particularly from New

Zealand and Australia, and that the air transport and tourism

industries must work hand-in-hand.

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AKL From SYD

360 360

From SUV

68 68

From NAN

300 300

Total 720 900 368 1,988 Aircraft types

A320 171 seats

738 180 seats

767 230 seats

ATR42 42 seats

Domestic

Conviar 50 seats Vava‘u, Ha‘apai

DC 3 27 seats Ha‘apai

Metroliner 19 seats, restricted Ha‘apai 10 to 12 seats Vava‘u/Ha‘apai

Queenair 8 seats Eua, NTT, NFO

Islander 6 seats Eua

From New Zealand (Auckland)

Seven services a week

Pacific Blue operates two per week

Air NZ operates five per week

From Australia (Sydney)

Pacific Blue operates two per week

From Fiji (Suva and Nandi)

Air Pacific operates two from Suva and two from Nandi per week

A weekly TBU/APW/LAX service operated by Air New Zealand ceased operation in

January 2011.

3.4 Tourism Review

The international tourist demand for Tonga as a holiday destination has slowed down

during the past couple of years, mainly caused by the recent global recession which

seems to affect the island economies more than their larger Pacific neighbours like

Australia and New Zealand. Lack of suitable infrastructure, non availability of saleable

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good standard accommodation facilities (standard of the biggest hotel in Tonga has

deteriorated during the past 2 years) and lack of further investment in the sector will

affect growth of the industry in the next 5 years or so.

Figure 3.4. Visitors Trend from Major Market Areas 1993-2009

With the growing importance of the tourism industry in Tonga (especially from Australia

and NZ -75% of all traffic), this demand for weekend travel will grow and destinations

that doesn‘t offer flexibility for such air services will suffer in the future. The overall

number of air arrivals remains stagnant at the 50,000 level during the past 3 years as

shown on the Table 4.4 below. The Australian and New Zealand visitors accounted for

just over two-thirds of all visitors by air in 2010. As Australian and New Zealand resident

travel to Tonga has increased at a rate faster than that of the other visitor markets, their

share of the Tongan visitor market has also increased. Furthermore, around two-thirds of

Tonga‘s total international travel market (visitors plus residents) is accounted for by

travel to and from Australia and New Zealand. During 2009/10:

• Australian and New Zealand residents travelling to Tonga as visitors accounted for

around 40% of arriving and departing passengers at Fua'amotu Airport.

• Tongan residents departing Tonga and travelling to Australia or New Zealand accounted

for a further 26%.

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A further 34% of arriving and departing passengers were North American and other

visitors, as well as Tongan resident travel to destinations other than Australia and New

Zealand. 38% of the Australians and New Zealanders travelling to Tonga travelled for the

purpose of Visiting Friends and Relatives (VFR). An additional 39% of Australians and

35% of New Zealanders visited for holiday purposes. Business travel accounted for a

small 9% of Australians and 15% of New Zealanders. The New Zealand and Australian

markets have grown strongly over the period 1992 – 2010. The North American market

has suffered most from the effects of the Global Financial Crisis (GFC).

Australian and New Zealand resident travel to Tonga, dominated by VFR and holiday

travel, has responded to the capacity growth and fare discounting which followed the

entry of the Low Cost Carrier, Pacific Blue, onto the route towards the end of 2005

(Figure 3.2).

Table 3.4. Number of Air Visitors to Tonga 2008-2010

Table 3.5 shows that over the years, there seems to be ample seat capacity available but

with no significant increases in the number of incoming passengers. Further analysis of

arrival statistics seem to suggest that the VFR market tends to be limited (depend on the

level of economic activities) but the potential for growth would be on the tourist market

segment. This leisure market travel pattern is price driven as well as frequency and more

than 70% of the leisure market would prefer weekend departures and prefer to spend

maximum time in their holiday destinations.

Country 2008 2009 2010 % Share 2010 arrivals

% change 09 - 10

USA 5,825 6,659 5,808 12.78 -12.78

Canada 354 404 359 0.79 -11.14

Australia 11,431 11,598 10,214 22.48 -11.93

New Zealand 22,835 22,678 21,415 47.14 -5.57

Fiji 2,099 1,671 1,540 3.39 -7.84

Pacific Islands 1,635 1,264 1,353 2.98 7.04

United Kingdom 947 1,360 674 1.48 -50.44

Germany 771 883 719 1.58 -18.57

Other European 1,760 2,005 1,608 3.56 -19.80

Japan 522 664 524 1.15 -21.08

China 387 643 628 1.38 -2.33

Asian Countries 590 619 418 0.92 -32.47

Other Countries 244 197 170 0.37 -13.71

Total 49,400 50,645 45,430 100.00 -10.30

21

Table 3.5: Available seat capacity, flights and passengers 1990-2015 (Refer

Appendix 2.3)

Years

end June

30

Available seat

capacity

(est.)

No. flights

Arrive &

Depart

Arriving Pax

(residents &

tourists)

Seat Factor

%

1990 60,840 1800 31,873 52

1995 56,000 1241 41,210 74

2000 90,000 1826 51,980 58

2005 100,000 1664 64,801 65

2010 167,500 1664 70,096 42

2011 103,376 1560 72,314 (est.) 70

2015 146,536 2080 103,127(forecast) 70

Source: Taumoepeau 2007, TAL2010, Appendix 2.

The seven day operation could also open up more domestic connections in Australia and

New Zealand. Facilitate another East West connection such Tahiti, Rarotonga, Nandi.

Auckland, Sydney. Enable and facilitate connections into LAX flight from Nandi, to

Hong Kong, as well as connections from Auckland, to mainland China, Hong Kong and

other South East Asia gateways

Table 3.6 Air Visitors Purpose of Visit by Market 2010

Hol/Vac – Holiday/Vacation VFRs – Visiting Friends & Relatives OPI – Other Pacific Islands O/Eur – Ohter European Countries O/Asia – Other Asian countries O/C – Other Countries (ie, Africa, Carribean, Middle East etc)

3.5 Reasons why regional airlines are important for Tonga

The travelling public were surveyed (n=820 passengers)(Taumoepeau 2007) at

Fua‘amotu Airport during 2002 on their perception on why they think airlines are

important for Tonga. The reasons were ranked in order of importance below. On family

reunion benefit, 168 passengers (31.7%) ranked this as very important. Enable visits to

Purpose of Visit

USA Can. Aust NZ Fiji OPI* UK Ger O/Eur. Japan China O/Asia O/C* Sub- Total

% Share 2010

Transit 4 1 12 58 1 2 0 1 0 0 0 7 0 86 0.19

Hol/Vac* 1,958 272 4,133 7,799 251 183 522 566 1,397 307 329 212 123 18052 39.74

Business 446 26 1,225 1,618 637 367 62 94 112 115 152 104 20 4976 10.95

VFRs* 3,087 53 4,242 10,772 404 396 75 45 79 72 128 71 23 19447 42.81

Conference 295 5 479 986 198 388 12 7 16 24 6 24 2 2444 5.38

Studies 11 0 71 45 7 7 0 0 0 0 0 0 0 141 0.30

Employment 7

2

52

137

42

10

3

6

4

6

13

0

2

284 0.63

Totals 5,808 359 10.214 21,415 1,540 1,353 674 719 1,608 524 628 418 170 45430 100.00

22

outer islands, 260 passengers (49%) ranked this as very important. Help Government

carry out their duties and services, 211 passengers (39.8%) ranked this as very important.

Assist with emergency cases, 326 passengers (61.5%) ranked this as very important.

Improve tourism, overall economic and social development with 339 respondents (64%)

ranked this as very important. Figure 3.5 below summarises the findings from the survey

(Taumoepeau 2007).

Figure 3.5 Reasons why regional airlines are important for Tonga.

0

50

100

150

200

250

300

350

No. of responses

Improve Economy Emergency cases Enable Links Public utility

service

Family Reunion

Reasons for an air service

It could be seen clearly from this national survey that majority of the population wishes to

see Tonga aviation policy works towards the improvement of the economy, and to

facilitate domestic and international travel connections with the general public.

4.0 Seven day operation for air transportation

A seven day operation for air transportation:

would offer the International Airlines more flexibility in regard to how they

serve Tonga – an inducement for services at more convenient time of the day,

not just on Sunday;

Tonga’s economy needs and relies on a sustainable air service, both

domestically and internationally.

23

should improve the aircraft utilisation rates for domestic carriers – and that

any ensuing reduction in cost might in the longer-term have twofold benefits:

- a reduction in fares;

- higher demand for travel.

should have a positive impact on international tourist arrivals – short week-

end breaks would become be more attractive, particularly from NZ and

Australia;

should have a positive impact on domestic and international travel particularly

to ‗Eua , Vava‘u and Ha‘apai and therefore on the economies of these islands

groups – short weekend breaks will be more attractive and will not require

time-off from work (reduction in time taken off work might also other positive

economic effects)

should have a positive impact on Tonga émigré short term return visits to

friends and family – making these visits more attractive and causing them to

occur more frequently – this would also strengthen social ties between

émigrés and Tonga-residents .

4.1 Current Position of Government on Sunday Operation

Over the years the Tongan Parliament, His Majesty‘s Cabinet and Privy Council have

considered the Sunday laws and regulations. There is a genuine concern from all sectors

of the community and how the Sunday regulations would continue to affect the social and

economic advancement of the people of Tonga. The phrase ‗Sundays shall be kept

“Sunday is generally a strong demand day for travel, we would certainly

look to operate on a Sunday, because of the preference for weekend

travel, particularly by tourists, we would expect to see a greater demand

for travel to Tonga and this demand would in all likelihood help to

stimulate more traffic that would then potentially drive an increase in

frequency and or capacity via larger aircraft”. (Comment from

Regional Airline 1)

24

Sacred..‘ has been amended by the Tongan Parliament few decades ago to read ‗Sundays

shall be kept Holy..‘ and recently under the Contract Law, contract signed on a Sunday is

no longer null and void. These amendments and changes both to the Constitution and the

Laws of the country are signs of things to come in the future. They are seen as a modern

approach to embrace the inevitable trend towards a global economy.

On the 3rd

of May 2006, His Majesty‘s Cabinet directed the following regulations, which

is seen as another step towards the relaxation of the Sunday Rules to accommodate

special and urgent air transportation services to function. Details of the direction are

shown below:

1. That aircraft operations, airport and associated services in Tonga be allowed on

Sundays under the following circumstances only:

i. An aircraft accident has occurred;

ii. An aircraft is known or is suspected to have developed some defects that

may create some difficulty in effecting a safe landing;

iii. An aircraft carrying a sick, injured or incapacitated person requiring

urgent medical attention;

iv. A hospital or ambulance aircraft on a mercy mission;

v. An aircraft on a Search & Rescue Mission;

vi. An aircraft involved in Disaster Relief activities;

vii. Subject to the approval of the Aerodrome Operator, a scheduled flight that

is delayed due to technical problems and any other reason that is beyond

the control of the aircraft operator;

viii. When a manmade or natural disaster threatens to cause damage to an

airport; and

ix. When urgent remedial work are required to restore facilities or services.

“More flexibility in scheduling could give us an opportunity to gradually

build up our services to operate a daily service from our two main

market countries, New Zealand and Australia”. (Comment from

Regional Airline 2)

25

A similar direction is for the Ministry of Marine & Ports and Port Authority, to submit to

Cabinet for consideration of similar terms and conditions for ships.

4.2 The Case for Seven Day Operation

In considering a general move towards a more relaxation of the Sunday Rules the

following important issues should be considered:

1. These circumstances or services expected from aircraft operations, airport and

associated services can only be carried out efficiently and timely if the airports

(especially Fua‘amotu international airport) are allowed to remain open seven

days a week.

2. Trade (export of agricultural produce) and tourism are essential for Tonga‘s

economy (these are the only sectors that offer hope and potential for Tonga) need

capacity, frequency for transport seven days a week.

3. TAL receives much needed revenue from the Kingdom‘s air space royalties from

aircrafts using the kingdom‘s airspace seven days a week.

4. In its effort to try and remain compliance with ICAO requirements, the

expectations from government, TAL is effectively open seven days a week and is

a major drain on the company‘s and government‘s coffer without any revenue to

offset these ongoing costs. This practice is no longer financially sustainable and

could result in the airports remaining close or unable to response to more urgent

incidents or accidents.

5. Expensive airfield equipments and facilities remain idle on Sundays and are not

functioning or earning revenue to assist with the financial viability of the

company.

6. This is not a matter of a half hearted approach (and to be controlled by one section

of the society) to substantially increase our capacity to grow and strategically

position Tonga as part of the main stream circuit transportation system of the

Pacific.

7. Businesses that are dependent on fast air freight are suffering.

8. Worst hit have been those with perishable goods like flowers and fish.

It is a standard these days for all International Airports to be open for operation on a daily

basis. Scheduled services on a Sunday has the potential to make Tonga more attractive to

short term tourists who would like to take advantage of a weekend return holiday and has

26

the potential to increase tourist numbers. It would increase the flexibility of airlines to

operate services which otherwise might not be operated at all or transferred to other

International Airports e.g. potential aircraft time available on a Sunday would allow TBU

services. While long term growth strategy is primarily subject to forecast demand, a

seven day operation would help regional airlines in forming a more robust long term

growth strategy for Tonga without any limitations in terms of days of operation. It may

also help regional airlines in taking advantage of any potential short term opportunities

for additional adhoc services during peak periods such as school holidays, Christmas and

New Year period and any other long weekend periods or charters.

4.3 Financial and Economic Analysis

Appendix 1 shows the methodology and Appendix 2 gives the calculation to determine

the economic benefits from a seven day operation as compared to the current situation,

i.e. a 5.75 day operation with the airports closed on Saturday evening until early Monday

morning.

After consultation with stakeholders and regional airlines and doing research on previous

aviation and tourism and economic impact studies for Tonga, a table of figures was

processed as in Appendix 2.

Based on previous studies by the author and literature cited, the following assumptions

are being made;

Based on Table 3.4, 80% of air visitors are considered to belong to the leisure and VRFR

market.

Length of stay would be 12 nights for a seven day operation as against the current

average length of stay reported by the Ministry of Tourism of 9 nights.

Based on previous works, a conservative amount of TOP150 a night has been assigned to

daily expenditure per tourist.

Based on a previous work, the economic multiplier is assigned a value of 60%, i.e. One

TOP spend will further stimulate another 60 cents in the community (Taumoepeau 2008,

Milne 2005, Milne 1988).

Government revenue multiplier assumes that for every tourist dollar spend, government

receives (through taxes, fees, direct trading revenue etc) 20 cents. This government

revenue multiplier was calculated at 30 cents per 1 Pa‘anga in a previous study (Milne

1988) but with a lot of the trading functions being removed such as the Duty Free

27

Operation, Dateline Hotel, Royal Tongan Airline etc, and the government multiplier is

now estimated at a lower coefficient level of 0.20.

Job multiplier assumes that for every TOP20,000 tourist spend, one standardised job is

created. A previous study in 1988 (Milne 1988) estimated that for every TOP10,000

spend by tourists in Tonga one standardised job is created.

Financial revenue to the TAL (as more than 80% of their revenue are from aeronautic

related activities) and other services/businesses at the airport is expected to exceed

TOP9.0m for the calendar year 2015, an annual average rate of 8.4% as against an

estimated average of 4% annually under a ‗business as usual‘ scenario, during the same

period. It is estimated that Vava‘u, Ha‘apai and Eua airports would have all achieved

positive EBITDA by 2015. Expenses are expected to rise on average by 6% in the next

five years. The main cost components are occupancy expenses, utilities, insurance and

fuel. It is expected that the ‗green airport effect‘ would have a moderation impact on

operational expenses (Appendix 2.2).

In the first 2 years flights will be redistributed from mid week to Sunday as this is the

most popular day of the week for travel. On the third year 2013, we will witness an

increase by two additional flights to 15 flights a week. The number of flights will

increase to 18 flights a week in 2014 and reaches 20 flights per week in 2015.

28

Appendix 1

Methodological Approach

(Based on successive economic impact studies: Milne 1988, Milne 2005, Taumoepeau

2008)

In order to determine the economic impact of international tourism on the national

economy of Tonga, it is necessary to measure the amount of visitor expenditure and how

it is broken down into various categories, for example, accommodation, tours, shopping,

travel and transport etc. This information is available from previous studies (Milne 1988,

2005) with the most recent data collected from a 2008 economic study conducted by

Semisi Taumoepeau. Total flows of tourist expenditure can then be calculated by simply

multiplying daily expenditure figures by total tourist nights spent in Tonga (the latter

could be extracted from figures from the Ministry of Tourism and Immigration Statistics).

While this provides information on overall tourist and visitor expenditure it does not in

itself present a measure of the real prosperity created by tourism. This is because

businesses that receive tourist expenditure will often spend a proportion of the receipts

outside the country. This process is repeated when the ‗second round‘ (businesses

supplying the tourist sector) purchase inputs and so on. Only money spent or invested

within the country will generate local income and employment. At every stage of this

process there are leakages consisting of imports and profit repatriation. It is these

leakages that limit the size of the multiplier; the larger the proportion of financial flows

that leave the country, the less the economic benefits and hence the lower the multiplier.

It is therefore necessary to have a thorough understanding of the ways in which the tourist

industry is linked to the other sectors of the economy and how much expenditure leaks

out in the form of imports or repatriated wages and profits. Conceptually, the most

complete approach that can be taken to measure these linkages involves the use of an

input-output (I-O) table. Such a method requires the construction of a working model of

the economy which includes all its interacting sectors and which is capable of measuring

the value of the flows of transactions between them.

Unfortunately I-O analysis has a number of drawbacks. Firstly the absence of

comprehensive national accounts statistics would have made the construction of such a

29

model for Tonga very difficult given the time constraints that existed. Added to this is the

fact that by the time the model is operationalised the data is often out of date.

As an alternative this study adopts an adapted Keynesian multiplier model. This approach

involves the use of a survey which asks businesses either directly or indirectly benefiting

from tourist expenditure to categorise their cost and revenue structures so that linkages

and leakage factors can be calculated. The response from the private sector to a survey I

conducted during July-August 2008 was excellent (more than 800 visitors surveyed and

completed the questionnaire) and 42 tourism related businesses responded). This

excellent response demonstrating a clear desire to cooperate with, and assist in, the

further development of travel and tourism in Tonga. Economic data from this 2008

survey is being used for this study, given the limited resource and period availed for this

study.

Through this approach it is possible to compare the extent to which income and

employment are generated by different sectors of the economy and also draw

comparisons between different types of establishments within sectors; for example, it is

possible to compare the performance of large hotels with small guest houses.

When a tourist spends money in a hotel, a part of this sum will quickly be turned into

jobs, income, and government revenue within the hotel. This is the direct impact of

tourism. The remainder of the sum will be spent on necessary supplies and services for

the operation of the hotel, and is thus passed on to the suppliers of these items. Where

these suppliers are located within the country they will, in turn, generate more

income/employment before passing the remainder onto their own suppliers (indirect

effect). Similarly, when local residents who have received this income spend their money

within the region it will create a further round of income and employment generation-the

induced effect.

By combining the total number of tourist nights, the size and pattern of visitors‘

expenditure, and the various income/employment generation capabilities of the different

sectors it is then possible to present the overall impact of tourist expenditure within the

country. Multiplier coefficients give an overall picture of income, employment, and

government revenue generation. The income and revenue multipliers are presented as a

30

proportion of an initial T$1 (pa‘anga) of visitor expenditure; thus an income multiplier of

0.60 indicates that for every T$1 spent by visitors, 60 seniti of local income is generated

through direct, indirect and induced transactions.

Employment multipliers are presented in a similar fashion except for the fact that they

relate to jobs created per T$20,000 of visitor expenditure; thus every T$20,000 of visitor

expenditure generates about 1.0 standardised job. The 2010 level of visitor expenditure

supported 2900 jobs.

It is estimated that every T$1 of visitor expenditure generates 20 seniti of government

revenue (including trading functions). The total government revenue effect of tourist

expenditure (impact of tourism on government coffers) in 2010 was therefore T$11.6m.

31

Appendix 2

Appendix 2.1

Tonga airport visitors resident arrivals forecast

status quo Visitors .4 residents.2

total arr. pax

seat capacity seat factor

2008 49400 2009 50645 2010 45430 24575 70005

2011 47247 25067 72314 103376 0.70 2012 49137 25568 74705 103376 0.72 2013 51103 26079 77182 103376 0.75 2014 53147 26601 79747 103376 0.77 2015 55273 27133 82405 103376 0.80

II &FJ 2011 0 0 0 0 0

2012 3120 1040 4160 4940 0.84211 2013 3245 1082 4326 4940 0.84211 2014 3375 1125 4499 4940 0.84211 2015 3510 1170 4679 4940 0.84211 additional 80px week

seven day operation

visitors 2011

70000

47247

2012

75000 2013

83000

2014

90000 2015

102000

tourist market 2010 2011 2012 2013 2014 2015

New Zealand 21415 21500 22000 25300 29095 33500

Australia 10214 11000 11500 13225 15208 17500 NAmerica 6197 6500 6500 7500 8500 9500 Europe 3001 3500 3500 4000 4500 5000 PIs 2893 3000 3500 4000 4500 5000 Others 1710 2000 2500 3500 4500 5500 sub-total 45430 47500 49500 57525 66303 76000

32

Residents 24575 25061 25562 26073 26595 27127 Toal Pax 70005 72561 75062 83598 92898 103127 Arr-Dep 140010 145122 150124.4 167197 185796 206254 Most 7 day operation comes from NZ-Aust market (NZ, DJ)

Appendix 2.2

TAL Financial Forecasts staff level maintained at the same level

estimate positive EBITDA for Vava'u, Ha'apai and Eua airports by 2015 main cost components are Occupancy expenses, utilities,insurance and fuel price

positive impact of 'green airport effect' on the profit & loss account by 2015

Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Revenue 6583372 6846707 7257509 7838110 8778683 9832125

1.80% 4% 6% 8% 12% 12%

Expenses 5115071 5319674 5638854 6033574 6455924 6907839

1% 4% 6% 7% 7% 7%

EBITDA 1468301 1527033 1618655 1804536 2322759 2924286

4% 6% 11% 28% 25%

InterIsland and new FJ net 40000 40000 40000 40000

Appendix 2.3

Economic Impact Analysis of extended operational hours.

Seven day air service study

7-day operation

status quo

Total no. seats

Total arrivals

Seat Factor 3% incr.

No. of seats per sector per week June 2011 13 flights

Flights DJ NZ FJ Ave. no. seats From AKL 360 900 1260

From SYD 360 360

From SUV 68 68

From NAN 300 300

Total 720 900 368 1,988 103,376 72,314 70 72,314 Jun-12 15

33

flights

Flights DJ NZ FJ Ave. no. seats From AKL 360 900 1260

4%

3%

From SYD 360 360

From SUV 68 68

From NAN 300 300

Total 720 900 368 1,988 103,376 75,062 73 74,705 Jun-13 17

flights Flights DJ NZ FJ Ave. no. seats

From AKL 360 1045 1405

11%

3%

From SYD 540 540

From SUV 68 68

From NAN 300 300

Total 900 1045 368 2,313 120,276 83,598 70 77,182 Jun-14 18

flights Flights DJ NZ FJ Ave. no. seats

From AKL 360 1045 1405

From SYD 720 720

11%

3%

From SUV 68 68

From NAN 300 300

Total 1080 1045 368 2,493 129,636 92,898 72 79,747 Jun-15 20

flights Flights DJ NZ FJ Ave. no. seats

From AKL 360 1190 1550

From SYD 900 900

11%

3%

From SUV 68 68

From NAN 300 300

Total 1260 1190 368 2,818 146,536 103,127 70 82,405

Tourists

76000

55273 length stay

12

9

visitor

nights

912000

497457

spend/night

150

150

expend

136800000

74618550

economic

multiplier

.6

82080000

44771130

Economic

Impact

218880000

119389680

34

job

multiplier

6840

3731

Govt. multiplier

27360000

14923710

Appendix 3

Religious Tourism

Religious tourism is also commonly referred to as faith tourism, is a form of tourism,

whereby people of faith travel individually or in groups for pilgrimage, missionary, or

leisure (fellowship) purposes. The world's largest form of mass religious tourism takes

place at the annual Hajj pilgrimage in Mecca, Saudi Arabia. North American religious

tourists comprise an estimated $10 billion of this industry.

Religious tourism comprises many facets of the travel industry and some religious

tourism travels are carried out on Sundays, either before or after fellowship meetings.

Religious tourism includes:

Pilgrimages

Missionary travel

Leisure (fellowship) vacations

Faith-based cruising

Crusades, conventions and rallies

Retreats

Monastery visits and guest-stays

Faith-based camps

Religious tourist attractions

Although no definitive study has been completed on worldwide religious tourism, some

segments of the industry have been measured with the most popular time for travel being

the weekend:

According to the World Tourism Organization, an estimated 300 to 330 million

pilgrims visit the world's key religious sites every year.

35

According to the U.S. Office of Travel and Tourism Industries, Americans

travelling overseas for "religious or pilgrimage" purposes has increased from

491,000 travellers in 2002 to 633,000 travellers in 2005 (30% increase).

According to the Religious Conference Management Association, in 2006 more

than 14.7 million people attended religious meetings (RCMA members), an

increase of more than 10 million from 1994 with 4.4 million attendees.

The United Methodist Church experienced an increase of 455% in mission

volunteers from 1992 with almost 20,000 volunteers compared to 110,000

volunteers in 2006.

The Christian Camp and Conference Association states that more than eight

million people are involved in CCCA member camps and conferences, including

more than 120,000 churches.

Religious attractions including Sight & Sound Theatre attracts 800,000 visitors a

year while the Holy Land Experience and Focus on the Family Welcome Centre

each receives about 250,000 guests annually.

More than 50,000 churches in the United States with religious travel programs,

mostly during the weekends as members work during weekdays.

One-quarter (25%) of travellers said they were currently interested in taking a

spiritual vacation.

36

Appendix 4

List of people consulted:

Airlines

Air New Zealand

Air NZ Deputy CEO, Mr. Norm Thompson

Air NZ Pacific Manager, Mr. Peter Walsh

Air Pacific

Air Pacific Tonga Manager, Ms.Lavi Maka

Pacific Blue

Pacific Blue CEO, Mr. Mark Pitt

Pacific Blue NZ Sales Manager, Mr. Bruce Moffat

Pacific Blue Planning Unit, Mr. Matthew Yarrow

Pacific Blue, Tonga GSA, Mr. Kaitu‘u Fotu

Chathams Pacific

Chathams Pacific General Manager, Mr.Noel Gillespie

Tongan Government

Minister for Labour Commerce and Industries, Hon. Lisiate Akolo

Minister for Tourism, Hon. Isileli Pulu

Ministry of Tourism, Mr. Sakopo Lolohea

Ministry of Public Enterprises CEO, Mr. Inoke Vala

Ministry of Transport CEO, Mr. Tevita Tohi

Ministry of Tourism Director of Aviation, Mr.Vili Cocker

Ministry of Tourism, Vava‘u, Mr. Puluno Toke

37

TAL Board members

Hon. Aisea Taumoepeau

Mr. Shane Walker

TAL CEO, Mr. Darin Cusack

TAL, Mr.Viliami Ma‘ake

TAL Financial Controller, Mr.Poasi Tei

Tonga Tourism Private Sector

Villa Mckenzie, Managers, Kim & Judy Brabant

Leiola Duty Free Operation, Mr. Ross Chapman

Airport Terminal Services (ATS) CEO, Mr. Soane Pautolo

TTA Executive, Mr. Simote Pouliva‘ati

TTI President, Mr. David Hunt

TTI Marketing Manager, Mr. Reece Proudfoot

TTI CEO, Mr. Steve Finau

TTA Executive, Mr. Atolo Tu‘inukuafe

38

Appendix 5

International Flight schedules - July 2011

Based on schedules provided by TAL, current international airline frequencies are as

follows:

New Zealand (Auckland)

• Seven services per week.

• Pacific Blue operates two per week.

• Air NZ operates five per week.

Australia (Sydney)

• Two services per week are operated by Pacific Blue.

Fiji

• Air Pacific operates four services per week, two from Suva and two from Nadi.

A weekly Tongatapu/Apia/Los Angeles service operated by Air New Zealand ceases

operations in January 2011.

Arrivals

Date Arriving from Airline Flight # Time

Mon, Jul 4,2011

Auckland Air New Zealand NZ 970 10.10 am

Auckland Pacific Blue DJ 179 10.35 am

Suva Air Pacific FJ 271 3.45 pm

Sydney Pacific Blue DJ 183 11.05 pm

Tue, July 5, 2011

Nadi Air Pacific FJ 211 9.25 am

Auckland Air New Zealand NZ 974 9.20 pm

Wed, Jul 6, 2011

Auckland Air New Zealand NZ 272 2.50 pm

Thur,July 7, 2011

Auckland Pacific Blue DJ 179 10.35 am

Sydney Pacific Blue DJ 183 11.05 pm

Fri,Jul 8,2011

Suva Air Pacific FJ 271 3.45 pm

Sat,Jul 9,2011

39

Date Arriving from Airline Flight # Time

Auckland Air New Zealand NZ 974 1.55 am

Auckland Air New Zealand NZ 270 10.05 am

Nadi Air Pacific FJ 211 6.05 pm

Sun,Jul 10,2011

No Flights scheduled

Departures

Date Departing to Airline Flight # Time

Mon, Jul 4, 2011

Auckland Air New Zealand NZ 973 11.10 am

Sydney Pacific Blue DJ 182 11.30 am

Suva Air Pacific FJ 270 4.30 pm

Auckland Pacific Blue DJ 178 11.55 pm

Tue, Jul 5, 2011

Nadi Air Pacific FJ 210 10.25 am

Auckland Air New Zealand NZ 977 10.20 pm

Wed, Jul 6, 2011

Auckland Air New Zealand NZ 275 3.50 pm

Thur, Jul 7,2011

Sydney Pacific Blue DJ 182 11.30 am

Auckland Pacific Blue DJ 178 11.55 pm

Fri, Jul 8,2011

Suva Air Pacific FJ 270 4.30 pm

Sat, Jul 9,2011

Auckland Air New Zealand NZ 971 2.55 am

Auckland Air New Zealand NZ 273 11.25 am

Nadi Air Pacific FJ 210 7.05 pm

Sun,Jul 10,2011

No Flights scheduled

40

Appendix 6

Terms of Reference

2. Object of Project

2.1 A report for the review of TAL Management and Directors on the opportunities

that a seven day operations may provide and the necessary steps to get to this stage.

A key outcome will be to see if the project can identify benefits to TAL and the

Kingdom, but also provide greater opportunity for the growth of Tourism.

The scope of works are outlined as

3. Scope of Works

3.1 Issues:

What benefits would a seven day operation of air services could bring to TAL and

the wider tourism operators?

If there are seven day operations of air services, are we going to see more

additional flights (increase in capacity and frequency) or will the airlines just

redistribute flights.

What will be the overall economic impact of a seven day operation on the tourism

industry in Tonga?

An overall cost benefit analysis for TAL.

Will a seven day operation provides additional benefits across Tonga Pacific

Island neighbours

3.2 Scope:

1. Evaluation of the current restrictions and regulations on seven day operations,

and its current relationship with the tourism and the transport/aviation sector.

2. Assess the current and potential level of services from international and domestic

airlines if restrictions on seven day services (or variation of the current

restrictions) are lifted.

3. Assess possible additional routes that a seven day operations could bring

4. Conduct a cost benefit analysis of a seven day operation (using various

operational levels and options) for TAL.

3.3 Terms of Reference:

Desk research and consultation with the airlines in Auckland – 8 days

(commencement date 21st April 2011)

Tonga study visit for 7 days - to collect data and to conduct interviews (TAL,

Government officials, industry leaders) during the first half of May.

Auckland- write up of final draft (6 days).

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Submission of the draft report to TAL by the end of July. A final report will be

produced once comments are received from TAL on the final draft.

Study Outcome:

To provide a set of recommendations and potential actions points for TAL in terms of

Sunday operations with quantifiable potential benefits for TAL and the Kingdom of

Tonga.

Recommendations

What benefits would a seven day operation of air services could bring to TAL and

the wider tourism operators?

If there are seven day operations of air services, are we going to see more

additional flights (increase in capacity and frequency) or will the airlines just

redistribute flights.

What will be the overall economic impact of a seven day operation on the tourism

industry in Tonga?

An overall cost benefit analysis for TAL.

Will a seven day operation provides additional benefits across Tonga Pacific

Island neighbours

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Appendix 7

Outline of the World Bank and Tonga Government Aviation and

Airport Development Projects.

Recognizing the key place of transport in the economic and social fabric of the country,

the Government of Tonga (GoT), with IDA ESW support, undertook a series of reviews

from 2004 through 2006, including a comprehensive analysis of the multi-modal

transport sector and options for rationalizing the aviation sector. Many of the

recommendations arising from this work were adopted by GoT through the national

Strategic Development Plan. In March 2006, the Ministries of Civil Aviation and Marine

and Ports were merged under a Ministry of Transport (MoT) with additional

responsibilities for some aspects of land transport. In July 2007, the regulator and

operator functions in the aviation sector were formally separated—the regulatory

functions remaining in the Department of Civil Aviation, MoT and the operator being

corporatized as Tonga Airports Ltd (TAL). On December 12, 2008, the Tonga Transport

Sector Consolidation Project (TSCP) (Grant No. H416-TO) for SDR3.4m (~ US$5.44m)

became effective. The development objective of TSCP was: (i) to establish and

consolidate the operations of the newly-created MoT as a unified transport sector-policy,

planning and regulatory ministry; and, (ii) to improve the level of compliance of the civil

aviation and maritime subsector entities with international safety and security standards.

SECTORAL AND INSTITUTIONAL CONTEXT

The aviation components3 of the TSCP have been highly successful and the GoT has

requested the Bank to finance a number of additional high priority safety and security

requirements at the three main airports—Tongatapu Fua‘amotu International (TBU),

Vava‘u (VAV) and Ha‘apai (HPA). These investments are required to meet ICAO

standards and recommended practices, as well as airline safety standards, ensuring that

Tonga‘s access to international markets and tourism can be maintained. Moreover, the

3 The TSCP investments consisted of: (i) Aviation Sector Strategic Development Plan; (ii) TAL Airports

future investment study; (iii) Aviation sector regulatory surveillance and compliance obligations review and

support; (iv) TBU PAPI navigational aid, supply installation and commissioning; (v) provision of a TBU

fire tender; (vi) TBU hand-baggage screening X-ray machine; (vii) emergency power upgrades at TBU and

VAV; (viii) new TBU rescue fire station; (ix) TBU upgrade to passenger screening and transit facility; (x)

TBU CCTV and access control.

43

proposed investments will preserve and extend the service life of existing infrastructure

assets as well as reduce the energy consumption of the airports.

RELATIONSHIP TO CAS

The Tonga CAS presented to the Bank‘s Board on October 19, 2010, points to the need to

mainstream disaster risk reduction and climate change adaptation into infrastructure

planning and management. Addressing climate change by providing carbon-neutral

airport facilities are part of this investment program, as are investments in alternative and

sustainable energy efficient technologies. This will help ensure that the airports are

operated in an environmentally sustainable manner.

I. Proposed Development Objective(s)

PROPOSED PDO

The proposed development objective is: ―to provide safe and secure air transport

operations and environmentally sustainable and efficient airports‖.

KEY RESULTS

Monitoring Indicators: It is proposed that the success of the project will be monitored

through three indicators: (i) Certification of the main three airports in accordance with

ICAO standards and recommended practices; (ii) Implementation of the corrective action

plan following ICAO‘s safety and security audits; and, (iii) Energy consumption at

project airport terminals reduced by at least 30%.

Intermediate outcome indicators, separately reported for each airport, are proposed to

include: (i) Specific runways, taxiways, and apron areas rehabilitated (ii) Existing runway

lights replaced with energy efficient lights; (iii) Percentage of TBU power supplied by

renewable energy; (iv) Recommended air traffic navigation, surveillance and weather

reporting equipment installed; (v) Percentage of airports water needs met through rain

water harvesting; (vi) Percentage reduction in annual airport terminal power

consumption; and, (vi) Civil Aviation Agency training and equipment needs assessment

recommendations satisfactorily implemented.

44

Beneficiaries: The project will benefit the population of Tonga by ensuring that its

international air travel connections are not reduced due to the failure to provide services

in accordance with ICAO requirements. Individual travelers will benefit through the

provision of safer international and domestic air travel, and more efficient operations in

the airport terminals. TAL will benefit by having significant reductions in their operating

costs for the terminals through more energy efficient and environmentally sustainable

terminals.

II. Preliminary Description

Component A: Aviation Infrastructure Investments: This component will invest in

the aviation infrastructure at the three project airports so that they are able to meet the

ICAO standards, while preserving and extending the service life of existing airport assets.

The activities include:

Rehabilitation of airport pavements: The project will rehabilitate the runways,

taxiways and aprons and at all three airports. This will see the existing surfaces

milled (if needed) and replaced with asphalt concrete, cement concrete and/or

interlocking concrete/stone pavers as appropriate, with proper attention to airfield

drainage to prevent ponding on shoulders, aprons and other critical areas.

Provision of renewable power: Implementation of discrete photovoltaic power

source for generation of on-site power that is carbon-neutral during operation.

This will not only significantly reduce airport operating costs, but do so using a

non-polluting, renewable, and importantly, reliable energy source. Potentially,

excess energy could be supplied to the national grid, thereby reducing the diesel

fuel demands and their related CO2 effects.

Energy optimization of terminals: Improvements to terminals to reduce

electrical consumption through both passive and technological means.

Upgrading of runway lighting: The existing lighting and cabling will be

replaced with low power consumption LED fixtures, reducing the energy demand

by 90%.

Security improvements: Improved fencing, access control, building management

system, FIDS and CCTV for Fua‘amotu airport; X-ray equipment for hand

baggage at Vava‘u airport;

45

Rain water harvesting and improved efficiency: Facilities will be provided to

collect and store rain water from roof areas to significantly reduce the potable

water demand and preserve natural water resources. The water will be used to

service all sanitary demands and provide required collections for fire water for

Crash Fire Rescue demands, and ground vehicle maintenance. Water consumption

will be reduced by utilizing fixtures and valves within the terminal buildings that

are high efficiency/low consumption.

Control tower: Construction of a new control tower at TBU, along with the

necessary communication and surveillance equipment, for example an ADS-B for

Vava‘u and Fua‘amotu airports; PAPI and NDB for Fua‘amotu and Ha‘apai

airports.

Fire safety: Provision of a fire tender for Vava‘u airport; provision of fire

equipment for firemen (jackets, oxygen, etc.).

Weather monitoring: Automatic Weather Observation Stations for all three

airports.

Consulting services: (i) Procurement of design and supervision consultant; and,

(ii) Specialists for preparation of technical specifications on aviation equipment.

Component B: Aviation Sector Reform: The TSCP has contributed towards major

sector reform. The reform will continue through the project providing support to the Civil

Aviation Department (CAD) to adopt and implement the new Civil Aviation Regulations

as well as the agreed corrective action plan following the ICAO safety and security

audits. This support will likely include a civil aviation advisor to CAD.

Component C: Project Support and Training: (i) Support to the Project

Implementation Unit (PIU); and, (ii) training program for staff of the MoT and CAD to

address needs to carry-out regulatory oversight, and project support as necessary.

46

Appendix 8

List of References

Milne, S. (1988). Economic Impact of Tourism in Tonga, Tonga Visitors Bureau.

Milne, S. (2005). Economic Impact of Tourism in the South Pacific Islands, South Pacific

Tourism Organisation.

Ministry of Tourism Annual Statistical Report 2010, Nuku‘alofa.

Murray,M., Murray, K., Taumoepeau,S. (2010).Tonga Air Transport Sector Strategic

Plan Components A2 Inception Report, Ministry of Transportation, Nuku‘alofa.

Taumoepeau S. (2007). Economic Sustainability of South Pacific Airlines.

Taumoepeau S. (2008). Economic Impact of the Coronation of HM King Siaosi V.

Taumoepeau S. (2010). Economic Impact of Low Cost Carriers on Pacific Islands

Economies.

Tonga Airports Limited Annual Report 2009/2010, Tonga Airports Limited, Nuku‘alofa.

Tonga Government Strategic Tourism Plan 2010, Ministry of Tourism.

World Bank and Tonga Government Aviation and Airport Development Projects, 2010,

Ministry of Transportation, Nuku‘alofa.