Submission to the Senate Rural and Regional Affairs and Transport Reference Committee’s Inquiry into the Operation Regulation and Funding of Air Route Service Delivery to Rural, Regional and Remote Communities

Overview

Queensland Airports Limited (QAL) welcomes the opportunity to provide a submission to the Senate Rural and Regional Affairs and Transport Reference Committee’s inquiry into the operation, regulations and funding of air route service delivery to rural, regional and remote communities, particularly given how this important issue impacts most of the communities where we operate.

In its submission, QAL has addressed the specific areas of interest identified by the Committee, while also highlighting the company’s future growth plans and contribution to the communities where its airports are located.

QAL would welcome the opportunity to further discuss with the Committee the issues addressed in this submission.

Background

QAL is an Australian owned, -based company that owns and operates Gold Coast, , Mount Isa and Longreach airports.

QAL is a privately-owned company and its shareholders include superannuation and investment funds.

Last calendar year more than 8.4 million passengers were welcomed by QAL’s four airports, which was an increase of 2.3 per cent on the year before. is the sixth busiest airport in Australia and services the popular northern NSW and the Gold Coast tourism regions.

Mount Isa and Longreach airports are located in rural Queensland, while Townsville Airport is a larger regional airport that connects with some capital cities and several other smaller regional and remote airports.

Gold Coast and Townsville airports deliver a combined economic impact of $715 million annually to the communities where they operate. QAL employs about 200 people directly, while indirectly creating tens of thousands more jobs across Queensland and NSW.

QAL also plans to make significant investments at Gold Coast and Townsville airports. Besides airport growth projects (which are referred to under section J), consultation has started for a $50 million, 192- room hotel earmarked for Gold Coast Airport precinct. Work is underway to install the Instrument Landing System, which will assist pilots to land aircraft in inclement weather.

Expanding existing and new air markets is a key priority for QAL, and the company continually liaises with its airline partners regarding potential new routes in and out of its four airports.

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Key points of QAL submission

▪ QAL is strongly committed and closely connected to the regional communities where it operates, and as such, understands the significant value these towns and cities place on affordable, regular air links. ▪ At our airports, our focus is on increasing the volume of passengers, and it is volume that delivers greater benefits to rural, regional and remote communities. ▪ QAL believes an unregulated airfare system works well on most routes around the country, with the market delivering the best long-term outcomes for the industry and its customers. ▪ QAL supports the Queensland Government regulated routes scheme on the basis it delivers necessary, affordable, sustainable air services to residents living in remote areas where passenger demand is not high enough to create healthy competition among airlines, or to even attract one airline to service the route. ▪ There has been recent recognition by the airlines about the impact of higher than average airfare prices on residents and, as a result, discount resident fare schemes have been introduced by and Rex in some locations. ▪ The State Aviation Attraction Fund (AAIF) has successfully assisted airports like Townsville to attract additional routes in Queensland that benefit regional and metropolitan communities, and QAL would support a new fund being established to assist Outback Queensland towns like Longreach to attract more flights. ▪ Airport charges are derived from the capital costs of delivering and updating airport infrastructure that is both necessary and legally required, and represent a small portion of the airfare. ▪ It is necessary to finalise airport charge agreements with the major airlines prior to airports undertaking large capital works, to enable funding to be secured. ▪ The redevelopment of Townsville Airport is a high priority for QAL and the Townsville community, with widespread support about the need to provide a facility that can accommodate increased passenger volumes and improved efficiency. These plans have been unable to progress because of a lack of commitment from one airline, despite the fact the project would require a modest increase in airport charges after many years of minimal or no increase.

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A. Social and economic impacts of air route supply and airfare pricing

Market forces

QAL believes an unregulated system works well for airfare pricing on most routes around the country, with the market delivering the best long-term outcomes for the industry and its customers.

Discounted fares schemes

QAL – the largest regional airport operator in Australia – is part of the regional communities where it operates and regularly communicates with city leaders and other passengers who fly in and out of Townsville, Mount Isa and Longreach. Therefore, the organisation is well aware of the high economic and social impacts that can flow from a lack of affordable and regular air links for the community, while also appreciating the benefits of increased services.

There has been recognition publicly by the airlines about the impact of regional airfares on residents recently. Qantas introduced a discounted fares scheme for residents of selected regional cities in Queensland and Western Australia late last year, which included flights from Mount Isa to Townsville and , and from Cloncurry to Townsville. As part of the 12-month trial, discounts of between 10 and 30 per cent were offered by Qantas. According to a Qantas media release issued at the time, Qantas introduced the fares because of an understanding about how the “economics of air travel to these communities can be severely impacted by their remoteness, levels of demand and high operating costs”. Qantas Domestic CEO Andrew David went on to say: “regardless of the reasons, we know the higher relative costs can be frustrating for residents when they need to travel, especially at short notice. Providing a discount for residents helps to offset some of these forces that can push fares on some flights to levels that become unaffordable”.

Regional Express (Rex) followed suit and introduced a new Rex Community Fare Scheme for its direct Mount Isa- route in late January. The $198 Rex Community Fare will be made available on up to 30 per cent of seats on every direct flight between Mount Isa and Cairns if booked at least 30 days prior to departure. Rex State Manager for Queensland Steve Jones said last month: “Residents of regional communities are more reliant on, and exposed to higher transport costs than those living in larger population centres. Rex’s primary mission is to provide safe and reliable air transport at affordable fares to regional Australia; the Rex Community Fare helps to achieve this and will bring significant socio- economic benefits to the residents of the beneficiary communities”.

QAL assisted these two discounted fare schemes to get off the ground by delivering a reduction in airport charges to Qantas and Rex.

QAL applauds the airlines for introducing these initiatives and would support the introduction of more discounted fare schemes targeted towards residents, with a view to easing financial hardship for regional and rural customers (particularly those required to travel at the last minute).

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B. Different legal, regulatory, policy and pricing frameworks and practices across the Commonwealth, states and territories

Regulated routes scheme

The Queensland Government has operated a regulated routes scheme for more than 20 years that includes seven multi-stop routes around the state. Under this scheme, subsides are delivered for certain routes, while other routes are limited to a sole operator. Longreach, Mount Isa and Townsville are all ports in the regulated routes, which include Central 2 (Brisbane-Barcaldine/Blackall-Longreach), Northern 1 (Townsville-Winton-Longreach), Western 2 (Brisbane-Townsville Charleville-Quilpie-Windorah- Birdsville-Bedourie-Boulia-Mount Isa), Northern 2 (Townsville-Hughenden-Richmond-Julia Creek-Mount Isa) and Gulf (Cairns-Normanton-Mornington Island-Burketown-Doomadgee-Mount Isa). As part of the regulated routes scheme, the operator is required to disclose any residents, capped fares, route financials, meet minimum service standards and consult with communities.

QAL supports the regulated routes scheme on the basis that it delivers affordable, sustainable air services to regional and remote residents where passenger demand is not high enough to create healthy competition among airlines. The most obvious example of this in 2017 on the regulated routes (listed above) is the Western 2 route (Brisbane-Toowoomba-Charleville-Quilpie-Windorah-Birdsville-Bedourie- Boulia-Mount Isa), which had an extremely low load factor of 7 per cent on the Boulia-Mount Isa leg.

The requirement for community consultation is a key part of the scheme and this aspect is valued by residents since it allows them to influence the system and potentially improve service delivery.

It is also worth noting that the scheme would not work effectively on routes where passenger demand was high and market forces could instead more efficiently regulate prices. In addition to this, it is worthwhile stating that the system needs to be well managed to ensure it delivers high quality airline options.

State Aviation Attraction Fund and similar schemes

Another scheme influencing the aviation industry in Queensland is the State Aviation Attraction Fund (AAIF). This Queensland Government fund has successfully assisted airports to attract additional routes, giving airlines the necessary confidence to invest in a route, while knowing that demand might take some time to build and requires investment in marketing to assist. An example of this is the Townsville- Melbourne Tigerair flight that started in June last year, with marketing investment from QAL, Tigerair, Townsville Enterprise Limited and Tourism and Events Queensland through AAIF. Since the entry of Tigerair to the Melbourne-Townsville market, the number of passengers flying between Melbourne and Townsville has grown by 51%, with more than 200,000 seats available per year. The introduction of Tigerair has also significantly boosted tourism in the Townsville region, with about two-thirds of passengers coming from Victoria.

On the back of the fund’s success, QAL believes there could be value in establishing a separate and similar scheme to support Outback Queensland. This location has long been identified by the Queensland Government and industry bodies as a key tourism market and, given the fact there is a limited number of flights currently, an outback aviation attraction fund could go a long way towards convincing airlines to 4

expand their offering. Local residents would also benefit from a scheme like this, with additional services and potentially lower prices on offer.

C. How airlines determine fare pricing

QAL understands that airline pricing is generally market driven and as previously stated, supports this approach because it delivers the best overall outcomes for the Australian industry as a whole and its customers.

D. The determination of airport charges for landing and security fees, aircraft type and customer demand

Airport charges

Airport charges are generally decided by the market, in a system that aligns with international best practice and ICAO guidelines. Airport charges are derived from the capital cost of delivering and updating airport infrastructure that is both necessary for service delivery and legally required. Specifically, passenger charges are calculated based on these capital and operating costs, divided by forecast passenger numbers. It is important to note that many airports, including those that are part of QAL, are privately financed businesses that are also required to generate fair returns for their investors and airport charges have a role to play in delivering these returns.

These charges are generally reviewed when airports are considering the upgrade or redevelopment of facilities to accommodate airport growth. Extensive stakeholder consultation is conducted when an increase in charges is being considered. QAL is planning major redevelopments of Townsville and Gold Coast airports, which will have significant capital costs associated. It has therefore been liaising with its airline partners about an adjustment to airport charges for these two airports.

Other key facts about airport charges include: ▪ Airport charges are typically about 5-10 per cent of the average airfare ▪ Charges do not increase or decrease with demand, as airfares do and in some cases remain unchanged for years at a time ▪ Charges are typically broken down into three main categories: o Terminal charges for the provision of passenger terminal facilities and services o Aeronautical charges for the provision of , taxiway and apron facilities o Security and screening charges as required by law ▪ The set charge is collected by airline operators as part of the ticket price before being paid to the airport ▪ The airport receives the collected charge after the flight has been taken, despite the fact the airline will typically have collected that charge many months earlier.

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QAL publishes standard airport charges (‘rack rates’) on its airport websites. It is important to note that for the larger airlines, separate commercial-in-confidence negotiations about airport charges are typically undertaken and charges are generally lower than published rates as a result of these discussions. In addition, airport fees are often heavily discounted for the provision of new or expanded capacity, and are often locked in for several years to support the introduction of these services and provide airlines with an element of ‘risk sharing’.

Airlines often comment about the fact that airfares are higher in regional and remote areas compared to larger centres because of a lack of scale and the high costs of operating in remote locations. For the same reasons, airport charges may be higher in these locations as well. Based on how airport charges are levied, if passenger numbers are higher, the airport charges paid by the airlines will typically be lower as there are greater numbers to amortise the cost of infrastructure and operations.

It is also worth noting that regional markets in south-eastern Australia typically have sector lengths that can be operated by turboprop aircraft and as such, require lower investment in infrastructure compared to ports in Queensland and Western Australia (that are typically servicing longer sector lengths and require full jet aircraft facilities). Additional infrastructure investment associated with jet aircraft include extra runway length, width and strength, taxiway and apron strength, and terminal facilities.

Security charges

Security charges are imposed at all QAL airports to meet obligations under the Commonwealth Act. The charge is calculated to recover the capital and operational costs required to provide the service. They are also charged on a per passenger basis and recovered through the ticket price, therefore for smaller airports, the per passenger cost of security is relatively high when benchmarked against larger airports.

It is worth noting that airport security standards for Australia’s domestic terminals are currently under review by the Federal Government. Measures like identification checking, liquid restrictions and body scanning could be introduced to domestic terminals based on this review. It is unknown at this point how the costs associated with any changes will be levied and any changes could ultimately impact on passengers.

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E. Pricing determination, subsidisation and equity of airfares

As previously stated, in general the market successfully determines the level and price of airfares around the country and where demand warrants it, increased competition on a route tends to deliver lower ticket prices for passengers.

Where that is not the case, the Queensland Government regulated routes scheme assists in providing an affordable air link to residents who live in regional and rural Australia. A brief analysis below of the maximum economy airfares currently offered to and from various regional and remote locations in Queensland show the benefits that can be delivered by a regulated scheme to passengers, in terms of a lower maximum price typically available for travel at short notice.

Maximum economy fare, unregulated versus regulated routes

Route Full economy fare Route length Operator Status BNE-LRE $460 991 km's QF Regulated TSV-ISA $873 778 km's QF Unregulated CNS-ISA $598 782 km's REX Unregulated

QAL understands that unregulated markets have a much wider spread of airfare price points than regulated markets, and while the maximum fares are typically higher for unregulated markets, in many cases the lowest fares available on unregulated markets are cheaper than regulated markets.

F. Determination of regulated routes and distribution of residents’ fares across regulated routes

Regulated routes scheme

As stated previously, QAL supports the Queensland Government regulated routes scheme because of the positive benefits it can have for people living in regional and remote communities like Longreach.

QAL would potentially support additional routes being added to this scheme, particularly to and from remote locations that currently have no or limited air services, and could greatly benefit from affordable fares.

G. Airline competition within rural and regional routes

QAL ports

Gold Coast Airport is by far the largest airport in the QAL stable, in terms of flight and passenger numbers. As a result, competition is high and flights tend to be cheaper to and from Gold Coast Airport when calculated on a per kilometre basis. That is particularly true on the most popular routes – Gold Coast- Sydney and Gold Coast-Melbourne.

In terms of QAL’s other airports, Townsville Airport is serviced by all the major airlines (Qantas, Virgin, Tigerair and ) and other regional carriers (Rex, , , and Jetgo) are

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also represented. Mount Isa is serviced by Qantas, Virgin and Rex and Longreach is serviced by Qantas and Rex. Generally, the market dynamics between those servicing Gold Coast Airport and those servicing Townsville, Mount Isa and Longreach reflect differences in the passenger-segment mix and overall volumes. As noted earlier, QAL is an active participant in discussions with airlines regarding opportunities to increase passenger numbers to regional ports.

H. Consistency of aircraft supply and retrieval of passengers by airlines during aircraft maintenance and breakdown

Maintenance facilities

QAL understands that airline maintenance facilities need to be located where airline movements are most heavily concentrated because of commercial considerations. Therefore, these facilities tend to be located in capital cities or at major regional centres.

Where sufficient flight frequency exists, QAL encourages airlines to station engineers at the location.

I. All related costs and charges imposed by the Civil Aviation Safety Authority

This is not applicable to Queensland Airports Limited, with no costs paid to CASA.

J. Any related matters

Community support

As the largest regional airport operator in Australia, QAL is dedicated to the communities it is connected to and that it connects to other parts of the country. QAL is a strong supporter of local charity, community, tourism, arts and sporting organisations in regional and remote Australia. QAL supports several important events in regional Queensland including the Townsville Running Festival, Magnetic Island Race Week, the Glendi Festival (Townsville) and Mount Isa Mines Rotary Rodeo, which it has been sponsoring for 20-plus years. Last year QAL distributed more than $650,000 through sponsorships and its community benefit fund, which supported 34 community groups across Queensland and northern NSW. These groups included Townsville Hospital Foundation, Mount Isa Kindergarten and Longreach Girl Guides.

Management and staff at QAL’s four ports contribute in many ways to the cities and town where we operate – sitting on various boards and committees, and as members of several key organisations.

Future growth

Significant investment is required at QAL’s two largest airports, the Gold Coast and Townsville. For these plans to proceed, agreement needs to be reached with all airline partners involved. 8

It is important to note that it is necessary to finalise the airport charge agreements with the major airlines prior to airports undertaking large capital works because of funding requirements.

Gold Coast Preliminary work is already underway for Project LIFT at Gold Coast Airport and it is hoped that construction will move into the next stage this year. Project LIFT includes the expansion of the terminal building, additional aircraft parking stands and improved ground transport.

There is urgent need for Project LIFT because Gold Coast Airport is currently at or above capacity during peak periods, and therefore future growth in passenger numbers cannot be delivered unless the airport expands. The Gold Coast Airport Master Plan maps out how the airport plans to manage growth from 6.5 million passengers per annum now, to 16 million passengers in 2037 and Project LIFT is key to this plan. It is important to note that investment in the airport is critical for the future of the northern NSW and south east Queensland regions, as every additional visitor contributes to the local economy.

Townsville QAL is also working to progress the redevelopment of Townsville Airport. Independent advice highlights the need for this project, which will see the capacity of the departure lounge area doubled and innovative check-in and automatic bag-drop facilities installed, ensuring the airport has the capacity to grow passenger numbers.

The need for this project has only intensified in the past year, with significant passenger growth recorded at Townsville Airport. Short-term solutions to relieve congestion and increase passenger comfort have been delivered to the terminal but it is important to move ahead with the upgrade as soon as possible. This is dependent on reaching agreement with our airline partners.

Joint initiatives

QAL takes a collaborative approach and consistently engages with our airline partners, local businesses, the tourism industry and community members.

As part of this we:

• Work closely with city leaders to identify and deliver aviation opportunities • Cooperate with and drive joint marketing and digital activities.

This cooperative funding approach to marketing with airline partners has helped secure new routes and airline partners – delivering growth and success for the airports and the region.

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Gold Coast Airport Route Map

1. TownsvilleAirportRouteMap

2. Route Map

3. Route Map

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