Senate Standing Committee On Rural and Regional Affairs and Transport Committee Secretariat Senate Standing Committee on Rural and Regional Affairs and Transport PO Box 6100 Canberra ACT 2600 Email: [email protected] Level 1, 9 Bay Road Mount Gambier SA 5290 Telephone (08) 8723 7310 Email [email protected] www.lclga.com.au INTRODUCTION The Limestone Coast Local Government Association (LCLGA) is formed from the seven Local Government Councils in the Limestone Coast, and leads coordination and advocacy for Local Government in the region. The Association is active on a number of regional issues, and works in partnership with other regional organisations to deliver benefits for the Limestone Coast economy and communities. We currently represent a population base of more than 65,000 residents. The Board of the LCLGA has been made aware of the Standing Committees inquiry into the operation, regulation and funding of air route service delivery to rural, regional and remote communities and the desire to seek feedback. This submission represents the views of the Constituent Councils of the Limestone Coast being: • Naracoorte Lucindale Council • District Council of Grant • City of Mount Gambier • Kingston District Council • Wattle Range Council • Tatiara District Council • District Council of Robe However, each member Council reserves the right to express their individual views direct to the Select Committee on the areas raised for comment. GENERAL COMMENTS Whilst much of our comment will be general in nature we will draw comparisons to our regional airport in the District Council of Grant - the Mount Gambier Airport. The airport is located on the Riddoch Highway in Wandillo about 9km north of the City of Mount Gambier. It is the only commercial airport servicing the Limestone Coast region of South Australia. Currently Regional Express Airlines has a monopoly in servicing the airport, with multiple daily flights to Adelaide and Melbourne with Saab 340 turboprop aircraft. Both the Adelaide and Melbourne routes are deregulated and open to other service providers. Passenger numbers at the airport reached a high of 115,365 in 2007-081 but have steadily declined to circa 78,000 in 2016-17 with a 60:40 split between the Adelaide and Melbourne routes. The significant decrease of 30% over the past ten years has often been debated and in some ways, can be answered in the context of this review. Over the years there has been a great deal of debate about regional airfares and the ‘apparent’ disparity in pricing from regional centres to that of our metropolitan cousins. Having said this we do not believe that there is a silver bullet that will address this disparity. SPECIFIC COMMENTS We congratulate the Standing Committee for the initiative to look into the operation, regulation and funding of air route service delivery to rural, regional and remote communities. Whilst we do not believe that we are experts in the operation of airlines we would like to think that as the closest level of government to regional communities we are well position to advocate and speak on their behalf. 1 https://en.wikipedia.org/wiki/Mount_Gambier_Airport Page 2 of 10 “Regional aviation is inherently more expensive than domestic or international aviation due to poor economies of scale and higher operating costs.”2 This simple statement by Regional Express Airlines appears to condemn regional air routes to higher pricing models than our capital city counterparts. Regional Express are not alone in this mindset - in the same article a spokeswoman for Qantas similarly says, “We can understand it’s frustrating when regional fares can be higher than other parts of the network, and that has a lot to do with economies of scale”. a. social and economic impacts of air route supply and airfare pricing; In responding to this question, we would like to quote Regional Express Airlines in their response to the Inquiry into Regional Airfares in Western Australia3. Regional air services linking remote and regional communities with Capital Cities are critical to the socio-economic wellbeing of Regional Australia. Regional air services are essential in the provision of business, government, medical and education related travel. Discretionary travel, including visiting friends and relatives is also very important for the social wellbeing of regional communities. As such regional communities will be severely affected if air travel is out of reach. We believe that once air travel becomes unaffordable, the entire socio-economic fabric of the regional communities will enter into a downward spiral. On the other hand, affordable fares will stimulate the economic activity of the regional cities as more industries will be attracted to set up their business there. This Western Australia submission to an inquiry applies equally to the Limestone Coast region of South Australia and reflects the importance of a reliable and affordable airline for regional communities. b. different legal, regulatory, policy and pricing frameworks and practices across the Commonwealth, states and territories; The aviation industry is complex but remains vital to many rural and remote areas. Whilst the sector is largely driven by demand there are many other factors that can impact on the viability of air services. Local Governments are involved in the operation of many airports and the decisions that they make impact on the cost of air travel. The over-riding question that they are faced with is what level of subsidy is their community willing to pay for a Regular Public Transport (RPT) service. Whilst some may hold the view that airports are just the same as any other piece of infrastructure that a council oversees and airports should not be seen a cash cow, Councils across Australia are continually being challenged to produce balanced budgets and often within an environment of State imposed rate capping. State Governments on the other hand have the power to introduce a regulatory environment that can strike a balance between regulation and deregulation of RPT routes. Deregulation of certain routes capable of sustaining competition can maximise the potential for industry and economic growth. In saying this, the protection of certain routes below a certain threshold could go through a tender process for the RPT service and this could lead to better outcomes for many air routes. 2 Quote by Regional Express airlines: http://www.abc.net.au/news/2017-08-03/fact-check-is-it-cheaper-to-fly- overseas-than-alice-springs/8754958 3 http://www.parliament.wa.gov.au/parliament/commit.nsf/a7b778ee55fef62a4825772700174a2c/8dcb036e75d531b14825817d002c7fde?OpenDocument Page 3 of 10 The Federal Government through a range of initiatives and incentives looks to underwrite the sustainable of RPT services in those rural and remote regionals that are considered marginal. Having said this, they need to recognise the changes in policy can have a dramatic impact on the costs of operating an airport. An example is the costs related to the installation of airport security scanning equipment and retrofitting of terminals. The capital costs are in the hundreds of thousands of dollars and the ongoing costs related to security will push up ticket prices. This is not intended in any way to imply that security at regional airports is not important. Lastly are the air service operators. There is a need for these entities to acknowledge that many airport owners operate in a highly regulated environment and that they also answer to shareholders. In the case of community owned and controlled assets their shareholders are often local communities, State and Federal governments. It is not as simple as saying that an airport is a public asset and should be run at less than breakeven when air service operators are primarily concerned with generating profits for long term viability. c. how airlines determine fare pricing; We can provide no logical response to this question. We understand and appreciate that airlines need to make a profit but when regional airports are being blamed for high costs and that they should not be allowed to make a profit that can ultimately be reinvested into regional airports that is very difficult position to support. A Case Study published in the Bureau of Infrastructure, Transport and Regional Economics Statistical Report 2017 provides the following example of some of the issues that regional airport operators are faced with. In this example the Mount Gambier Airport was used. Case Study 1 – Mount Gambier Airport Mount Gambier Airport is a regional airport owned by the District Council of Grant. The airport serves the local GA community and regular airline services to Adelaide and Melbourne with Regional Express. Regional Express provided 3,972 flights into and out of Mount Gambier Airport in 2016, carrying 76,109 passengers. The airport manager reports not insignificant costs associated with apron repairs from GA aircraft fuel spills. These spills originate either directly from the refuelling process or from aircraft fuel tanks being overfilled and then left out in hot weather to expand and overflow. These spills cause bitumen to deteriorate rapidly and need to be cut out and patched immediately to minimise spreading of the damaged area. Airport costs are recovered from airport tenants and VH- registered aircraft operators, retaining a small surplus each year which is held in reserve for airport maintenance and upgrades, when required. RAAus registered aircraft operators are not charged as their contact information is not freely available. As with most airports, the depreciation costs at Mount Gambier Airport are high, amounting to around $600,000 per year out of an annual income of about $1 million. Mount Gambier Airport operates with a level of financial independence from the Council and does not borrow funds for upgrades or maintenance. Page 4 of 10 Regional Express’ flights to Mount Gambier use 34 seat Saab aircraft.