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Macquarie's plans for a shopping and leisure complex at the Sydney hub could be a model for the future

Sydney Airport, according to its advertising billboards, is not just an airport but a 'wonderland,' and that may have something to do with being operated by Australia's Macquarie Bank and Spain's Grupo Ferrovial.

Since paying A$5.6 billion ($32.3 billion) in 2002 for a 99-year lease on the 905 hectares of land at Australia's premier gateway, the new operators have done everything they can to expand the site's operations beyond aviation and into businesses such as retailing and leisure.

Macquarie Bank subsidiary Macquarie Airports, which has rapidly become one of the world's major private airport operators, has a majority share in Sydney Airport while Ferrovial is a minority stakeholder.

There are rumours that Macquarie may also join up with Ferrovial and Singapore's Temasek Holdings for a A$35 billion bid for Britain's BAA, one of the first private airport operators in the world.

Sydney was the jewel in the Australian government's airport privatisation plan that reaped A$8.5 billion for 22 government-owned airports between 1997 and 2003 and is fast becoming the epitome for the new model of the privatised airport.

Recent plans for a new 60,000 square metre precinct for Sydney reveal the scope of the new model. It would have included a 1,500-seat cinema, an office block and a supermarket and retail area bigger than any shopping mall in this region of Sydney. The new development would, at the busiest point in the day, have attracted another 3,000 cars to the airport.

But the strength of the opposition to the plan, from retailing competitors and government agencies, has forced a rethink and a scaled down proposal is expected to be released later this year.

Despite this setback, Sydney Airport is determined to become a destination for pursuits other  than aviation. Already, cars can be bought and serviced at the airport.

Analysts such as Peter Harbison, executive chairman of the Centre for Asia-Pacific Aviation, agree that Australia is 'right up there' with the world trend of generating additional profits from airports.

But not everyone is enthusiastic about the transformation. The  Westfield property group, for example, would have made  a very forceful argument against any major retail development.

'I think they'll have to hand out earmuffs at the front gate if they want to drive into the mall near the runway,' was the comment from Frank Sartor, the Planning Minister in the New South Wales government.

The lord mayor of Sydney is also an opponent and has threatened legal action.

The airport operators continue to extract profits from the facility. Pretax profits have risen from A$226 million in 2000-01 to nearly A$500 million in 2004-05.

'The past year has continued to demonstrate the attractiveness of airports as an investment class,' said the company's chief executive Kerrie Mather.

Revenue per passenger at Sydney Airport has increased by 18 per cent in the first three years of private ownership but that has been boosted by a raft of unpopular price increases,  from a A$2 tax surcharge  to a 46 per cent jump  in retail rents since privatisation.

And at the same time there are ongoing complaints that Sydney Airport is not performing well enough in its core business of getting passengers on and off aeroplanes efficiently. Those numbers are forecast to increase from about  30 million a year today to almost 70 million by 2024.

Freight operators are claiming their services are being sacrificed for the retail grand plan and there are  complaints about poor service from baggage handlers and long  immigration and taxi queues.

Privatisation may have delivered profits but the jury is still out as to whether it has delivered better service and whether the airport is the best location - from a community point of view - for Australia's next mega-mall.



Airport owners on retail runway