The NSW Premier, Barry O'Farrell, has proposed to use a high-speed rail line from Sydney to Canberra in place of a second Sydney airport. Canberra's airport could then be used for Sydney. This is technically feasible, but it might be necessary to extend the rail line to Melbourne to make it viable. Also I suggest the use of broadband to make new settlements along the route viable and to pay the cost of the rail line.
European experience suggested that a rail service between Sydney, Canberra and Melbourne would replace most air travel. Broadband access on the train would also make this form of travel more attractive and something much harder for an aircraft to provide. This would free up the existing Sydney airport for longer trips. Also some international passengers who currently land in Sydney and transfer to Canberra or Melbourne by air, would then instead land in Canberra or Melbourne.
Sydney to Melbourne is the second busiest passenger air route in the world, with 950 aircraft movements per week. A high-speed train could be expected to replace 90% of flights between Canberra and Sydney and 80% between Sydney and Melbourne. Assuming that also 20% of the international flights to Sydney were replaced with ones to Canberra and Melbourne, this would free up significant capacity in Sydney. The use of larger A380 aircraft will also increase Sydney's capacity.
The high-speed train could make new and expanded settlements in inland NSW viable, reducing infrastructure pressure on Sydney. The sale of improved land in the new settlements would be sufficient to pay for the rail line. Broadband Internet could be used to provide jobs and services quickly and at low-cost in the new settlements, making them more attractive to residents. As an example, shared offices could be provided for workers to telecommute from. New schools, TAFEs and university campuses could be built with computer equipped classrooms, allowing access to global education. Medical facilities with instant on-line access to remote specialists could be provided.