\ Airports v airlines: disharmony in the air – Committee For Sydney

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Airports v airlines: disharmony in the air

January 15, 2019

Source: The Australian
Author: Robyn Ironside

15 January, 2019

Conflict in the aviation industry comes to a head next month when the efficiency experts at the Productivity Commission deliver a report on the economic regulation of airports. For the PC, it’s a technical issue but one likely to influence how much travellers pay for their tickets.

The inquiry is looking at whether the Australian Competition & Consumer Commission’s “light-handed” supervision of airport service prices — which feed into airline costs — still makes sense for the major airports of Sydney, Melbourne, Brisbane and Perth.

Predictably airports and their investors such as superannuation funds want the status quo maintained or even eased. They argue that billions of dollars in investment in airport infrastructure shows the charges they collect are being used responsibly and for the greater good of Australia and its economy. Airports insist it is carriers such as Qantas that wield the greater market power, with 65 per cent of the domestic market and the biggest share of international traffic in and out of Australia.

Every day in Australia, almost a half-million people pass through an airport and more than 4000 aircraft take off or land. Federal government statistics show in the year to October, 163 million passenger movements were recorded at international and domestic terminals, up 3.1 per cent on the previous year. In the same period, almost 1.5 million aircraft movements were recorded — or 4026 a day.

To put it in perspective, Sydney Airport chief executive Geoff Culbert says it’s like moving two grand final crowds a day through the three terminals at Kingsford Smith. It’s a huge logistical exercise fraught with many variables.

There is security to think about, sophisticated computer systems, a massive workforce, cleaning and maintenance, tenants and a reliance on the rest of the aviation network to work in synchronisation. Weather events can cause significant disruption, as can security breaches, aviation incidents and industrial relations episodes.

On Monday it was a fire alarm in Melbourne’s air traffic control tower that sent flight schedules into disarray, with more than 50 domestic and international flights delayed or diverted — affecting thousands of people. On average, between 15 and 25 per cent of flights arriving or departing from Australian airports are late, in a performance that has us trailing airports in countries such as El Salvador and India.

Some airlines fare somewhat better, with Qantas ranked 13th in the world for its 85.7 per cent on-time performance and Virgin Australia 37th (81.1 per cent); this includes their record at overseas airports.

With 23 per cent of its flights arriving or departing behind schedule, Jetstar came in at 67th, while Tigerair was not included in the table compiled by air travel data collection agency OAG.

Of course airlines could not operate without airports and vice versa but their relationship is less than friendly and they blame each other when problems arise. In what is thought to be a first in Australian aviation, Perth Airport has launched legal action in the Supreme Court of Western Australia to recover $11.3 million in unpaid aeronautical fees from Qantas. Other airports are watching closely, with Qantas also resisting increased fees and charges in Darwin, Alice Springs, the Gold Coast, Townsville and Melbourne.

Qantas Group executive And­rew Parker says the airline has ­always been willing to pay reasonable charges but has an obligation to ensure passengers receive value for money through competitive airfares. Airport pricing is a consumer issue and it is under examination by the PC for the fourth time since the privatisation of Australian airports in the period from 1997 to 2002.

Brisbane Airport Corporation chief executive Gert-Jan de Graaff says he’s been surprised by the “aggression” in the airlines’ submissions to the PC inquiry and the occasional distortion of the truth. “I don’t understand what the problem is. Airlines are more profitable than ever and airports are also doing well,” says de Graaff, who returned from overseas last year to run Brisbane Airport.

“Ticket prices are historically low and the best news is passengers are getting a quality experience in Australia.”

Melbourne Airport CEO Lyell Strambi, a former Qantas executive, shares his view. “The regulatory system is fine. We’ve just got to use it properly as an industry to actually deliver the next step change of infrastructure,” Strambi says.

As with almost anything to do with aviation, the cost of upgrading airports and associated infrastructure is prohibitive. In its PC inquiry submission, the Australian Airports Investor Group points out that in the last decade $11.5 billion has been poured into capital projects to increase capacity, ease congestion and improve customer service levels. The lion’s share of the funds has gone into aeronautical investment such as Melbourne’s southern precinct development, Brisbane’s international northern concourse expansion and domestic apron expansion and Perth’s Terminal 1 domestic pier and international departures.

In the next 10 years, more than $20bn in capital projects is planned, including Brisbane’s new parallel runway, Melbourne’s third runway and Perth’s second runway. Australian Airports Association chief executive Caroline Wilkie says it’s all a sign the current monitoring regime is working well and delivering improved ­efficiency for “airline partners and airport operations”.

“It has also seen facilities and services upgraded to meet the evolving needs of passengers and changing technology,” Wilkie says. She even believes the ACCC could stop monitoring how much carpark revenue airports collect, because that income stream is not quite what it used to be — thanks to greater transport options such as ride-sharing.

In its PC submission the Canada-based Airports Council International says the price of inputs feeding into airport services has been historically high in Australia because of our small population, low density of settlement and the remote locations serviced.

Australia is the fourth most expensive country for economic inputs in the OECD, the ACI says. “It is inevitable that increased prices for the key economic inputs result in higher price for final (airport) services, though partially offset by efficiency gains,” it says.

As the biggest single source of airport revenue, airlines are not keen to see any reduction in price monitoring and want the ability to go to independent arbitration when negotiations break down.

In the past year, Sydney, Melbourne, Perth and Brisbane airports made $758m in operating profits from aeronautical activity, helping them achieve a combined record profit of $2.1bn.

The Board of Airline Representatives Australia says a survey of its 32 members found 69 per cent did not believe they were getting value for money from airports in terms of facilities and services. Of considerable concern was the “unplanned and greatly expanded bussing operations” at Sydney Airport, which airlines describe as chaotic.

“Members also report ongoing concerns that Sydney Airport does not have enough understanding of how airlines conduct their operations at the airport,” BARA’s submission to the PC inquiry says. “Adequate space for ground services equipment and airfield foreign object debris (such as rocks and other safety risks) are also key concerns for airlines.”

In the case of Melbourne Airport, BARA’s submission suggests that bussing operations are so ­inefficient that flights are being ­delayed.

Also in the airlines’ corner is the consortium headed by former ACCC chairman Graeme Samuel and known as Airlines for Australia New Zealand (A4ANZ).

Representing Qantas, Virgin Australia, Air New Zealand and Regional Express, A4ANZ’s 237-page submission paints a confronting picture of the charges collected by airports from the carpark to the tarmac.

According to the submission, airports make up to $27 profit on every vehicle using their carparks, along with every taxi, bus and hire car. Then there’s the elevated cost of food and pharmaceuticals at airports, as much as 25 per cent more than retailers a few kilometres away. The submission also highlights the increase in aeronautical revenue collected by the four major airports, amounting to 25 per cent more per passenger compared with 10 years ago.

A4ANZ chief executive Alison Roberts says if such increases are allowed to continue airlines won’t be able to shield consumers.

“It’s time for the airports to be part of a genuinely collaborative approach,” Roberts says.

Another organisation keen to see airports and airlines work more collaboratively is Tourism Australia, which is only too well aware of the critical importance of the “airport experience” to visitors.

Managing director John O’Sullivan says by and large Australian airports are very good but there is always room for improvement.

“If you look at the really good airports around the world, I think (Singapore’s) Changi is always the one that you hold up as the standout,” O’Sullivan says.

“You don’t feel like you’re anywhere in the world. You’ve got ­visuals, the facilitation experience is very quick and it leaves a great impression.”

Under the guidance of Sydney Airport CEO Culbert, there are plans for a makeover of Sydney Airport’s international terminal so that arrivals are in no doubt as to where they have landed.

O’Sullivan applauds the move although others in the industry ­believe there would be more benefit to Sydney in easing some of the restrictions on the airport such as the 80 flights an hour cap and the seven-hour nightly curfew.

The Sydney Business Chamber, Committee for Sydney and Tourism & Transport Forum are among those urging the PC inquiry to review the constraints on Sydney Airport.

TTF’s submission points out the curfew does not take account of the fact that “noise compliance standards have become increasingly stringent over time, encouraging airlines to deploy quieter and more cost-efficient aircraft”.

Wilkie says the operating restrictions in Sydney can have implications for the entire airport network and make it difficult for airlines to recover from weather events.

“A more flexible approach following disruptions is needed,” she says.

There is general agreement that the new Western Sydney Airport at Badgerys Creek, due to open in 2026, presents an opportunity to create the most efficient gateway to date — a terminal where airlines and airport coexist in harmony.

Western Sydney chief executive Graham Millett says to “repeat the mistakes of Kingsford Smith would be tragic”. Critics point to Sydney Airport’s poor planning and inflexible curfew.

“Our intention is to eliminate the pain (for airport users) by using advanced technology that’s still in the laboratory phase,” Millett says.

“We’re incorporating advanced robotics in the baggage- handling systems, and the terminal is being designed for 5G with subsequent upgrades to 6G.

“That will enable us to provide an unparalleled service for the first time in this country.”

The Productivity Commission will release its draft report on the economic regulation of airports next month, with public hearings to follow. A final report is expected mid-year.

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