NEWCASTLE Airport should be established as a major international terminal, with quicker links to Sydney, to help bolster a lagging NSW tourism industry, a report has found.

A comprehensive review of tourism, commissioned by the Premier Morris Iemma, has also recommended the expansion of Newcastle Airport's domestic operations and consideration of a fast train to Sydney.

The report by John O'Neill warns that NSW is progressively losing market share of Australian tourism and has spurred the Government's announcement of a $40 million strategy.

The Hunter Regional Tourism Organisation acting chief executive officer Sheridan Ferrier has said the expansion of the airport could create countless jobs and generate many millions of dollars for the local economy.

The report says a medium- to long-term expansion of the airport would open the region to new tourist markets, but ground transport links would need attention.

However, the report also warns such an expansion would be unlikely if Newcastle Airport Ltd remained in the hands of Newcastle and Port Stephens councils.

It stated the business was unable to borrow money to finance capital works and its owners were also restricted in their capacity to borrow.

"The ability for the airport to access sufficient funds is important if it is to reach its full potential," it states.

"This is unlikely if ownership remains with the two councils, despite the excellent job they have done to date."

Newcastle Lord Mayor John Tate said the State Government could clear the way for Newcastle Airport Ltd to be allowed to borrow in its own right, freeing up capital.

A more important concern, Cr Tate said, was whether the Royal Australian Air Force would allow such an expansion.

"The Department of Defence will have a view about how much civil aviation will occur there," he said.

"I would say the chief constraint is the lease."

The spokesman for Federal Transport Minister Anthony Albanese, Jeff Singleton, said the report's findings would be considered as part of the white paper into aviation, which is expected to identify NSW's second international airport.

Federal Defence Minister and Hunter MP Joel Fitzgibbon has said he is not in favour of a major expansion of Newcastle Airport.

"The viability of the RAAF base would be undermined by a major international airport at Williamtown," he said.