Aaa Submission Wa Legislative Assembly Economics and Industry Standing Committee Inquiry Into Regional Airfares in Western Australia
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REGAIR Submission 70 Recv'd 28 July 2017 1982 • 2017 YEARS AAA SUBMISSION WA LEGISLATIVE ASSEMBLY ECONOMICS AND INDUSTRY STANDING COMMITTEE INQUIRY INTO REGIONAL AIRFARES IN WESTERN AUSTRALIA 28 JULY 2017 REGAIR Submission 70 Recv'd 28 July 2017 ABOUT THE AUSTRALIAN AIRPORTS ASSOCIATION The Australian Airports Association The AAA represents the interests of The AAA facilitates co-operation among (AAA) is a non-profit organisation that over 380 members. This includes more all member airports and their many and was founded in 1982 in recognition of than 260 airports and aerodromes varied partners in Australian aviation, Australia wide – from the local country whilst contributing to an air transport the real need for one coherent, cohesive, community landing strip to major system that is safe, secure, environmentally consistent and vital voice for aerodromes international gateway airports. responsible and efficient for the benefit of and airports throughout Australia. all Australians and visitors. The AAA also represents more than 120 aviation stakeholders and The AAA is the leading advocate for organisations that provide goods and appropriate national policy relating to services to airports. airport activities and operates to ensure regular transport passengers, freight, and the community enjoy the full benefits of a progressive and sustainable airport 2 industry. REGAIR Submission 70 Recv'd 28 July 2017 CONTENTS Executive Summary 2 Introduction 3 Regional tourism in Western Australia 4 Western Australian aviation markets 5 Figure 1: Annual Passenger Movements – Perth Airport 5 International 5 Interstate 6 Figure 2: Interstate routes to/from Western Australia 6 Intrastate and Regulated Routes 6 Figure 3: Intrastate routes in Western Australia 7 Western Australian airports 8 Figure 4: Top 10 Western Australian Airports 8 Perth Airport 8 Regional Airports 9 Investment in Western Australian Regional Airport Infrastructure 11 Pricing and economic regulation of airports 12 Figure 5: Cost cycle of airport infrastructure investment 13 Airline costs and airfares 14 Figure 6: Airline Cost Structure 15 Regional Western Australia and Queensland – a comparison 16 Figure 7: Western Australian regional routes cost breakdown – Virgin Australia 17 AUSTRALIAN AIRPORTS ASSOCIATION Figure 8: Western Australian regional routes cost breakdown – Qantas 17 Figure 9: Queensland regional routes cost breakdown – Virgin Australia 18 Figure 10: Queensland regional routes cost breakdown – Qantas 18 1 REGAIR Submission 70 Recv'd 28 July 2017 Executive Summary Tourism is an important part of the Rather this would simply result in a transfer of returns Australian and Western Australian to airline shareholders from airport shareholders economies and will play an important and rate payers who underwrite Western Australia’s regional airports. role in the economic adjustment of Western Australia and its regions as they The comparison of airfares between different markets transition to the production phase of is highly problematic but some difficulties can be eliminated by comparing routes of similar length the mining boom. and patronage within a similar broad jurisdiction. During the mining construction boom, Western As such, regional routes in Queensland seem to Australia’s aviation industry grew at unprecedented present the best comparator for regional routes rates. This growth led to Perth Airport investing $320 in Western Australia. It does seem that regional million in new terminal infrastructure, including airfares in Western Australia are higher than those the only purpose built regional terminal at a major in Queensland and whilst airport charges are also Australian airport, and implementing new operational higher, they in no way account for the difference in procedures to manage runway congestion prior to the airfares. Given fuel, labour, capital and other costs are construction of a second parallel runway. Regional likely to be similar, it may be the case that regional airports also responded with a range of investments routes are more profitable in Western Australia than costing around $200 million, in particular to meet Queensland. the security requirements of the Commonwealth However, given the demand for air travel is a derived Government and to ensure assets continue to meet demand – very few people purchase air tickets safety standards. Airlines expanded their service because they like to fly in planes – such differences offerings in terms of destinations, frequency and in airfares and profitability can only be properly aircraft size. understood from a detailed analysis of the demand But in recent years since 2013, whilst international characteristics in each market. It can be expected passengers through Perth Airport continue to grow, that on those routes where the purpose of travel is interstate passenger numbers have stagnated at just more related to business activities than leisure, over six million and regional passenger numbers demand will be relatively less elastic and fares through Perth Airport have contracted by 17 per relatively higher. It does seem that given that cent. The number of airlines operating in Western Queensland regional centres are much larger and Australia has been reduced as a result of corporate are more developed from a tourist perspective than restructuring and reduced traffic has placed financial in Western Australia, the presence of more leisure pressures on both private and council operated travel in Queensland may be a factor in any fare airports in Western Australia. Whilst still intending to differentials. proceed, Perth Airport has pushed back the delivery Western Australia’s airports are active supporters of of its new runway. regional tourism. Perth Airport is working constantly Whilst airports provide essential infrastructure with Tourism WA to bring more international visitors services to airlines, airport charges constitute a to the state and local governments and the owners relatively small part of airline cost bases and the of Broome and Port Hedland airports are active share of the airline cost base varies substantially supporters of regional tourism initiatives. Many depending on the nature of the routes and councils do not recover the costs of keeping their airline business models concerned. However, the airports fit for purpose, and as a result have to tap relationship between airport charges and airfares their rate bases to do so. These airports would is weak – an observation made by the Productivity welcome more aviation traffic not only to reap the Commission when it last reviewed the economic benefits that additional tourism would bring to their regulation of airport services in 2011. Given the communities but also to bring some relief to their relatively low levels of competition and demand already overstretched financial resources. elasticity in domestic and regional aviation markets, any reduction in airport charges is unlikely to have a material effect on airfares and passenger demand. 2 REGAIR Submission 70 Recv'd 28 July 2017 Introduction The Australian Airports Association There is also information on how the pricing and (AAA) is the national industry voice for economic regulation of the airport sector works, airports in Australia. as well as how those costs are reflected in airfares. In the interest of providing the Committee with a The AAA represents the interests of more than 300 reasonable comparison of aviation and airline costs airports and aerodromes Australia wide – from with another jurisdiction, there is a comparative local country community landing strips to major analysis provided with routes in Queensland of international gateway airports. The AAA’s members similar lengths, densities and aircraft type. include Adelaide, Brisbane, Cairns, Canberra, Darwin, Overall this submission seeks to provide the Gold Coast, Hobart, Perth, Melbourne and Sydney Committee with data and information which airports. There are a further 140 corporate members demonstrates that airport charges are only a minor who provide goods and services to airports. Of component of an overall airfare and are not the particular interest to this inquiry is that the AAA reason for the wide variations in regional airfare costs represents the 25 regional airports servicing regular that are sometimes seen in Western Australia and passenger transport in Western Australia, as well as other jurisdictions. Perth Airport. The Charter of the AAA is to facilitate co-operation among all member airports and their many and varied partners in Australian aviation, whilst maintaining an air transport system that is safe, secure, environmentally responsible and efficient for the benefit of all Australians. The AAA represents This submission has been prepared on behalf of the AAA’s Western Australian members and seeks to the interests of more inform the Committee about the Western Australian aviation sector, in particular the role of airports. than 300 airports The submission seeks to describe the international and aerodromes and interstate aviation markets and the role of both Australia wide the major gateway airport (Perth Airport), as well as the regional airports facilitating services and driving tourism across the state. The submission also outlines the investment that has occurred in Western Australian airport infrastructure in the last decade, which has been critical to facilitating economic growth and connectivity. AAA SUBMISSION TO INQUIRY INTO REGIONAL AIRFARES 3 IN WESTERN AUSTRALIA REGAIR Submission 70 Recv'd 28