Calls for policy reform for regional air travel in Australia

1 March, 2018

In Nov-2017, Australia's Senate Standing Committee on Rural and Regional Affairs and Transport announced plans to investigate airline pricing methodologies in regional and rural areas and issue a report on its findings to the Australian Parliament by Mar-2018. The deadline for submissions was 05-Feb-2018 and included some of the most prominent organisations and bodies in regional aviation.

Qantas Airways: Regional aviation in Australia is 'operationally and commercially difficult'

In its submission, Qantas described regional aviation in Australia as "operationally and commercially difficult", given the inelastic demand profiles of many regional markets due to low populations and limited tourism appeal, as well as the high costs associated with flying to regional airports. Qantas stated: "Airports continue to exercise monopolistic power over airport charges and, contrary to some commentary, this has a direct impact on the price of travel for consumers and challenges the commercial viability of regional air services", adding: "Regional airports - particularly in regional Queensland and Western Australia - are by far the most expensive in the group's network, charging significantly more than their capital city equivalents". It also noted: "Whilst airfares in regional Australia may be higher than between major population centres, due to the confluence of supply and demand challenges, these services are not significant profit centres for the group".

Virgin Australia: Regulation restrictions, high airport charges restrict regional connectivity

Virgin Australia believes regulatory restrictions and high airport charges are impediments to operating more services to regional communities. The carrier also noted that "there is a critical role to be played by all levels of government in supporting regional air services".

Key points within the submission included:

  • Economic challenges: Virgin Australia said regional services were more challenging from an economic perspective compared with routes between capital cities, given the difficulties of achieving economies of scale;
  • Sydney Airport slots: Virgin Australia noted Sydney Kingsford Smith International Airport slots as an issue, stating: "In 2017, during Sydney Airport's morning peak period (07.00-09.00) and afternoon peak period (17.00-19.00) there were 42 fewer slot pairs available for regional services compared with 2001 (a decline of 10%). This has created a situation where the availability of slots at Sydney Airport for NSW regional services in the morning and afternoon peak periods is extremely limited;
  • Airport charges: Virgin Australia stated regional airports "should be encouraged to seek funding from the Commonwealth and/or state/territory governments to support investment in infrastructure";
  • Airport security: Virgin Australia said rising aviation security costs represent an "ongoing challenge to the sustainability of regional air services".

Sydney Airport: 'Permanent Regional Services Series' slots disincentivises regional services

Sydney Kingsford Smith Airport stated 28% of slots in the morning peak between 06:00 and 11:00 and 35% of slots in the evening peak between 15:00 and 20:00 were allocated to regional services. The airport also said that although the 'Permanent Regional Services Series' slots was designed to support regional aviation, it had the unintended impact of disincentivising airlines to operate regional services. This was because while a domestic airline was able to move from operating an interstate flight to a regional flight, once it did so it was unable to move to once again use that slot to operate an interstate route. "Therefore, a disincentive exists to use the slot to operate the regional service in the first place, as doing so limits the airline's ability at a later point in time to use that slot in line with demand and where they will achieve a commercial return", Sydney Airport said.

A4ANZ: Airport charges represent 'significant proportion of airfares' especially on regional routes

Airlines for Australia and New Zealand (A4ANZ), noted airport charges represented a "significant proportion of airfares", particularly on regional and rural routes. A4ANZ said Australian airports collected more revenue per passenger and generated significantly higher profits than their international benchmarks. A4ANZ stated: "In some cases the charges add more than 30 per cent to the base ticket price. Indeed, one of biggest roadblocks to the airlines' ability to introduce new and grow existing routes is high airport charges. Greater oversight by government to encourage and, where required, force constructive, commercial engagement is needed to minimise the negative impact of the airports' monopoly powers. The threat of regulation would result in a genuine commercial negotiation, greater investment by airlines and improved efficiency in the allocation of resources".

Broome International Airport: Airport charges 'not material to the price of regional airfares'

Broome International Airport stated its airport charges are "not material to the price of regional airfares to Broome" for regional public transport (RPT) routes. According to the airport, the aeronautical fee per RPT passenger for a turnaround service into Broome on a Boeing 737-800 is approximately AUD60 (USD47.05), consisting of:

  • Security Fee: AUD13.24 (USD10.38) (departing passengers only);
  • Landing Fee: AUD6.00 (USD4.70) per passenger (based on 80% load factor, AUD23.65 per tonne [USD18.54] for a 737-800);
  • Terminal Fees: AUD40.74 (USD31.94) (AUD20.37 [USD15.97] per passenger departing and arriving).

Based on an AUD800 (USD627.31) return fare between Perth and Broome, the airport reported this represents 7.5% of the ticket price.

Mount Isa City Council: Benefits of Australian aviation reforms since the 1990s not benefited regional areas

Mount Isa City Council believes the benefits of Australian aviation reforms since the 1990s have "by-passed air services to Mount Isa" as they have for other regional areas. The council stated:

  • Discount airfares do not exist for airline services to and from Mount Isa, and airfares to and from Mount Isa are between two to three times higher than east coast Australian routes;
  • High airfares act as a significant brake on business in Mount Isa and limit the ability of the local economy to expand and diversify;
  • Passenger numbers at Mount Isa Airport remain at the same level as 30 years ago;
  • Mount Isa is increasingly being serviced by ageing aircraft with poorer on-time and cancellation performance;
  • The Australian Government "must reinsert itself as a central player in implementing policy reforms" to reduce the costs of operating airlines in regional and remote Australia.

Don't forget to join us at the 2018 CAPA Canberra Aviation & Corporate Travel Summit, register at the following link.