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, Queensland-based company that owns and operates Gold Coast, Townsville, 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. Gold Coast Airport 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. 1 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 Qantas 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. 2 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 Brisbane, 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-Cairns 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). 3 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