You can’t escape the noise in Australia on the subject of airport charges. Airlines claim they are unfair, airports claim they are essential to support infrastructure development and meet airline and passenger requirements. What is sure, it is a subject where a sustainable middle ground accepted by both sides is unlikely to be found. However, even a strained relationship is a necessity as without one another than simply cannot exist.
Ok, you could argue that an airport could ultimately gain a second life as an out of town retail centre or business park, whereas until technology permits an alternative, airlines require a runway to land their aircraft. It is major topic that last week brought the CEOs of Australia’s two largest airlines together at the National Press Club in Canberra taking the same stage to the discuss the issue.
Qantas CEO Alan Joyce described the fees and charges from monopoly airports as “excessive and damaging the economy”, with airports continuing to “reap super profits because there is no real threat of intervention to moderate their behaviour”. He reported that airports “collect 25% more revenue” per passenger “than they did 10 years ago while domestic airfares have dropped by almost 40%,” with Australia being “home to four of the five most profitable airports in the world”.
As a percentage of revenue, Mr Joyce said Australian airlines are “being slugged more than double what airlines in the US pay and 50% more than in Europe”. He also highlighted the reliance airlines have on airports and they cannot “just upstumps and fly to the next airport 15 minutes down the road” as “Australian airports are literally the only game in town” and they “have airlines and passengers over a barrel”.
Mr Joyce said he is “not suggesting for a minute that airports don’t deserve to turn a profit. Of course they do”. But with margins like theirs, “there is clearly something out of kilter,” he explained. And that is having knock-on effects to the wider economy, highlighting its ongoing dispute with Perth airport as a perfect example “of just how broken the system is” and is “holding back” its plans to launch direct flights between Perth and Paris.
With the lead times needed to launch a new route, he said he “can’t see us flying from Perth to Paris before 2022 – more than two years from now”. Had there not been this current charges dispute he acknowledged that Qantas could have been flying the route by early next year.
“Deloitte Access Economics has estimated that our Perth-London flights boosted the WA economy by AUS70 million and created 600 full time jobs in its first year of operation. This means that the Western Australian economy is missing out on more than AUS100 million of activity because of the delays to Perth-Paris caused by Perth airport,” he said.
Virgin Australia CEO Paul Scurrah argued that the Productivity Commission “has dropped the ball with its draft report” on airport charges and said “we cannot afford to wait another five years to get this right”. Mr Scurrah stated “all airlines big and small (rich and poor)” are “swimming against the tide of costs” imposed by “privately owned, monopoly airports”.
Mr Scrurah noted in one listed Airport’s 2018 Annual Report, aeronautical services revenue increased by 52% with aircraft movements decreasing 0.3% in the same period. “I argue – Australia’s aviation system simply cannot afford golden runways that support EBITDA margins north of 45%,2 he said, and called for “a lot more equity and transparency in the relationship and for a negotiate/arbitrate model to be implemented”.
In response, Australian Airports Association (AAA) CEO Caroline Wilkie stated that Qantas and Virgin Australia simply “want to squeeze competition out of the market to entrench the domestic duopoly” as the carriers “know that’s exactly what will happen if they turn the screws on airport investment”.
She highlighted that “this isn’t the first time” we’ve seen this. “Qantas was down in Canberra in 2014 asking for a handout from the Government and since then they’ve made AUD6 billion in profit,” she explained, and in the last year alone “Qantas made more profit than the four major Australian airports combined”.
The debate will continue, but just like a lovers’ tiff, the airlines and airports will remain together long into the future, more by necessity than genuine love!