AAA SUBMISSION TO THE RURAL AND REGIONAL AFFAIRS AND TRANSPORT REFERENCES COMMITTEE Inquiry into the operation, regulation and funding of air route service delivery to rural, regional and remote communities 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. CONTENTS EXECUTIVE SUMMARY 2 1 INTRODUCTION 3 2 Impacts of regional services 4 2.1 Social impacts 4 2.2 Economic impacts 5 2.3 Economic contribution of regional airports 7 3 REGIONAL AVIATION SERVICES 9 3.1 Domestic regional routes 9 3.2 International services to regional Australia 11 3.3 Airlines 13 3.4 Airports 15 3.5 The airport and airline relationship 17 4 Funding regional airports 19 4.1 The financial position of regional airports 19 4.2 Investment 20 5 Airport charges 23 5.1 Determinants of airport charges 24 5.2 Structure of airport charges 26 5.3 How are airport charges set? 27 5.4 Airline cost structures and airfares 30 6 Regulation and market power 34 AUSTRALIAN AIRPORTS ASSOCIATION 6.1 Economic regulation of airports 34 6.2 Airline market power 35 Appendix A – Australia’s regional airline route structure 38 Appendix B – Entry and exit of Australian regional airlines 46 Appendix C – Regional airfares and airport charges 48 AAA SUBMISSION TO THE RURAL AND REGIONAL AFFAIRS AND TRANSPORT REFERENCES COMMITTEE 1 EXECUTIVE SUMMARY Australians are the largest per capita The Australian Airports Association (AAA) submission users of scheduled aviation services in the is made in that same spirit of openness and world. transparency. It is based on facts in the public domain and the activities and experiences of our This is a reflection of many things, including our nationwide membership of airports, large and small. affluence, high levels of urbanisation and the large Many comparisons are made between regional distances that separate our major population airfares and much cheaper fares on major domestic centres. It also underpins our cultural commitment or international routes. While there may be reasons to ensuring the 30 per cent of Australians living in for this, the AAA does not have access to detailed regional and remote Australia have access to the knowledge of the various airline operating cost same economic and social outcomes as the 70 per structures to make this analysis. As such, we offer no cent living in cities. view on the appropriateness of airfares. There has been growing concern about the cost We can, however, offer a definitive view on the of airfares for travel to regional and remote impact of the charges airlines pay for the services destinations. The Parliament of Western Australia’s they use at airports on airfares. That view, shared Economics and Industry Standing Committee recently by the Western Australian Parliamentary Committee conducted an inquiry into these issues, and struggled and the Productivity Commission, is that airport to answer the fundamental question – are airfares charges have little impact on the overall level of reasonable? The Committee noted the “general airfares. Moreover, claims that regional airfares are resistance” of airlines to provide the Committee with high because airports are “gouging” are not borne the information needed to form a view one way or out – regional airports simply lack the capacity to do another. this. On the other hand, the Committee found that airport Indeed, it is likely that for the majority of council charges, whilst varying from route to route, were owned airports, airlines are effectively receiving a relatively small component of airfares in regional a subsidy from councils (and through them their Western Australia. This was consistent with similar regional ratepayers). Many councils have not findings by the Productivity Commission on a national increased prices in real terms for many years, and are basis. The Committee also found airports and diverting general revenues to support the operation councils had been open and transparent regarding and maintenance of their airports. Further, there is their setting of charges. evidence that some airlines use their market power to obstruct investments at airports that would facilitate greater competition and generate other benefits for regional communities. 2 1. INTRODUCTION The AAA is the national industry voice for This submission concentrates on issues relating to airports in Australia. The AAA represents regional airports and their operations that affect the interests of more than 300 airports and the supply and price of RPT services to regional communities. It is structured as follows: aerodromes Australia-wide – from local » Section 2 examines the social and economic country community landing strips to major importance of RPT services in regional Australia international gateway airports. (item (a) in the terms of reference); It has a further 130 corporate members who provide » Section 3 examines the structure of the regional goods and services to airports. Of particular interest RPT sector from an airline and airport perspective; to this inquiry, the AAA represents the 150 regional » Section 4 examines issues relating to airport airports providing Regular Passenger Transport (RPT) funding (item (d)); services throughout Australia, as well as major capital » city airports where most regional services start or Section 5 examines what influences airport end. charges and how they are set (items (c), (d) and (g)); and Regional aviation provides a wide range of services » Section 6 examines legal and regulatory issues critical to the social and economic viability of regional relating to the setting of airport charges (item (b)). communities. It ensures people can access health services, businesses can access skilled labour and The AAA has no particular observations to make in tourists can visit iconic locations. However, the relation to items (h) and (i) although the operating terms of reference of the Committee’s inquiry are and capital costs associated with airports ensuring clearly directed at “air routes”. The AAA interprets compliance have some relevance to items discussed this to mean RPT services, namely those services in section 4. that operate on a regular timetable and are freely available for use in exchange for the payment of advertised fares. As such, this submission does not address a range of issues including aerial work (crop dusting, livestock management, forestry, firefighting), military aviation, the operations of the Royal Flying Doctor Service (RFDS), aviation training and manufacturing, charter operations and recreational flying. We are happy to provide information on these matters at the Committee’s request. We have defined a regional service to be any service that either starts or ends at any airport other than Sydney, Melbourne, Brisbane, Perth and Adelaide, and a regional airport as any but these five. The AAA believes that issues regularly confronted by Canberra, Darwin, and Hobart are very similar to those confronted by Cairns, Launceston and Newcastle, and as such these airports are appropriately seen as regional airports. AAA SUBMISSION TO THE RURAL AND REGIONAL AFFAIRS AND TRANSPORT REFERENCES COMMITTEE 3 2. Impacts of regional services 2.1 Social impacts In many parts of Australia there simply are no lawyers – the Chief Justice of Western Australia, the Regional aviation plays a vital role in connecting Honourable Wayne Martin AC QC, told the 2014 individuals, families and communities with the rest Productivity Commission inquiry into Access to Justice of Australia and the world. Overcoming remoteness that there were no solicitors in private practice in is one of the key challenges of sustaining regional Western Australia living between Geraldton and communities. Obviously, people’s ability to access Broome1. Access to RPT services ensures people regional aviation services depends critically upon its can travel to major centres to see their lawyers, affordability. and lawyers and courts may travel to regional communities to dispense justice and protect the Most importantly, RPT services to regional Australia rights of citizens. keep our nation together. Without access to RPT services, families and friends would become more fragmented, grandparents would see less of their grandchildren and regional Australians could not access the leisure activities available to their city cousins. Importantly, RPT services provide essential access to healthcare, education and the legal system for regional residents. Whilst acknowledging the role of the RFDS in providing