Productivity Commission, Economic Regulation of Airports Queensland Airports Limited submission, September 2018 1 Contents 1.0 Executive Summary ........................................................................................................................... 3 2.0 Introduction ....................................................................................................................................... 4 3.0 Background ........................................................................................................................................ 5 4.0 The current system ............................................................................................................................ 7 4.1 The Queensland market and influence ......................................................................................... 7 South east Queensland and Northern NSW market and Gold Coast Airport .................................. 7 Townsville, Mount Isa and Longreach airports ............................................................................... 7 4.2 General factors .............................................................................................................................. 8 Airport charges ................................................................................................................................ 8 Airport leasing conditions ................................................................................................................ 9 4.3 Airport and airline negotiations................................................................................................... 10 Airport infrastructure .................................................................................................................... 10 Townsville Airport redevelopment ................................................................................................ 10 Gold Coast Airport redevelopment ............................................................................................... 11 4.4 ‘Pre-funding’ airport infrastructure investments ........................................................................ 12 4.5 Regulatory regime ....................................................................................................................... 12 Airport investment ........................................................................................................................ 12 5.0 Monitoring environment ................................................................................................................. 13 5.1 Airport monitoring ....................................................................................................................... 13 Gold Coast Airport ......................................................................................................................... 13 Townsville, Mount Isa and Longreach ........................................................................................... 13 Queensland Airports Limited ......................................................................................................... 13 6.0 Other matters .................................................................................................................................. 14 6.1 Domestic terminal leases ............................................................................................................ 14 6.2 Carparking and landside access ................................................................................................... 15 6.3 Land transport linkages ............................................................................................................... 17 6.4 Jet fuel ......................................................................................................................................... 18 2 1.0 Executive Summary A number of factors need to be taken into account when considering the market and influence of airports, including: - the competitive nature of the south east Queensland and northern NSW market, which has the Gold Coast, Brisbane, the Sunshine Coast, Toowoomba and Ballina Byron Gateway airports all operating within a less than 300km radius - the heavy reliance of many airports but particularly medium sized and smaller regional airports, like Townsville, Mount Isa and Longreach, on one airline company - the strong and necessary focus by airports in delivering efficient and effective infrastructure use - the delays that can be experienced in negotiations between airports and airlines relating to the redevelopment of airport facilities needed to accommodate growth, indicating the balance of power is not weighted towards airports Despite the often robust and sometimes drawn-out nature of negotiations, no changes are being sought to the current regulatory regime because negotiations with airlines are able to be concluded in most instances and because it is difficult to see any regulatory change occurring that would be relevant and appropriate for all airports around Australia. Given the level of investment delivered by airport owner-operators and the efficient operation of Australian airports, it appears the current monitoring system is sufficient. It is this current regime that has seen airports deliver targeted, demand-led investment to meet the needs of growing passenger numbers, changing technology and evolving customer expectations since privatisation. On the Gold Coast, about $300 million has been invested since privatisation, and in Townsville about $100 million has been invested in the past 20 years. There are plans to invest significantly more funds into these airports in the next few years, subject to reaching agreement with airlines. 3 2.0 Introduction This submission is Queensland Airports Limited’s (QAL) formal response to the Productivity Commission’s request for submissions to its inquiry into the economic regulation of airports (2018). In its submission, QAL has considered the Federal Government’s objectives, as set out in the Terms of Reference for the 2018 Review. It is worthwhile stating at the outset that QAL’s four ports are not regulated. Gold Coast Airport is a ‘second tier’ airport and is therefore required to self-report certain areas including aeronautical services charges, carparking service prices and service quality outcomes. With this in mind, QAL has addressed the relevant information requests (detailed in the Commission’s Issues Paper), focusing on the particular areas that relate to its operations on the Gold Coast, in Townsville, Mount Isa and Longreach. 4 3.0 Background QAL is an Australian-owned, Queensland-based company that owns and operates Gold Coast, Townsville, Mount Isa and Longreach airports. QAL is the largest regional airport operator in Australia. QAL is a privately-owned company and its shareholders include superannuation and investment funds. QAL employs about 200 people directly, and its airport activities facilitate thousands more jobs across Queensland and in Northern NSW. Expanding existing and new air markets is a key priority for QAL, and the company continually liaises with airlines regarding potential new routes and capacity in and out of its four airports. Last financial year more than 8.5 million passengers were welcomed by QAL’s four airports, which was an increase of 2.7 per cent on the year before and a record result. Gold Coast Gold Coast Airport, the company’s largest port, is the sixth busiest airport in Australia, and the fifth busiest international airport – servicing the popular Gold Coast and northern NSW tourism regions. Last year, a record 6.6 million passengers travelled through Gold Coast Airport, which was an increase of 1.7 per cent on the year before. The airport facilitates more than 420 flights per week, including direct links to Malaysia, Singapore, Japan and New Zealand. The estimated economic impact of Gold Coast Airport is $1.8 billion, with tourism facilitated by the airport contributing about $1.25 billion to the region. The airport acts as the key gateway for approximately one million residents in the fast-growing Gold Coast region. In order to address current infrastructure constraints and provide for the continued economic growth of the region, the Gold Coast Airport redevelopment ‘Project LIFT’ (Let’s Invest for Tomorrow), Major Development Plan was approved in 2016 by the Minister for Infrastructure and Regional Development. The total investment for the airfield, terminal expansion and refurbishment is about $370 million, with related airfield investment taking the figure to about $440 million by 2022. The terminal redevelopment includes a 30,000 sq m expansion of floor space. Development plans for Gold Coast Airport also include a $50 million hotel that will be complete by early 2020. Gold Coast Airport is the only airport in Australia with a university, Southern Cross University, included in the precinct. QAL also has acquired freehold land on the Queensland and New South Wales sides of the border, which it intends to develop in the next five to 10 years. 5 Townsville Townsville Airport, the 11th busiest airport in Australia, is the gateway to North Queensland, with more than 180 direct flights per week and 1.67 million passengers. Townsville is a regional hub of North Queensland, with direct air services to Brisbane, Melbourne, Sydney, Cairns, Darwin and other regional centres around Queensland. Townsville Airport is a major economic enabler for the area, supporting