I’d like to begin by acknowledging the traditional owners of the land on which we meet, the Ngunnawal people, and pay my respects to their elders past, present, and emerging.It is a pleasure to be here with Paul. And I want to acknowledge our other partners in Airlines for Australia and New Zealand or A4ANZ. The Deputy Chairman of regional airline Rex, John Sharp is here as are representatives from Air New Zealand.
We are also joined by a coalition of retailers, rental car operators, car parking businesses and the ride share industry, who also feel the brunt of airport monopolies.
The first question many of you may be asking is why have the CEOs of Qantas and Virgin – competitors in the strongest sense of the word – come to Canberra to speak together at an event like this.
The answer is pretty simple. Consumers are being charged a lot more than they should by Australia’s airports and it is holding back productivity in this country.
The outcomes of monopoly
It probably won’t come as a surprise to many, but airports are really, really, expensive places.
It costs more to buy a coffee. It costs more to rent a car. It costs more to get a taxi. And, as you can imagine, it costs a lot more than it should to land an aircraft. In fact, airport charges are the fourth highest expenses for airlines, after fuel, aircraft and wages.
To give you some global context, consider these alarming statistics:
– Australia is home to four of the five most profitable airports in the world. Funnily enough, they don’t rank nearly that highly when travellers rank the world’s “best” airports.
– As a percentage of revenue, Australian airlines are being slugged more than double what airlines in the US pay and 50 per cent more than in Europe.
Closer to home, airports collect 25 per cent more revenue for every passenger today than they did 10 years ago while domestic airfares have dropped by almost 40 per cent.
And the Grattan Institute classified almost 50 per cent of the profits from our big four airports as ‘super profits’.
This compares to 17 per cent at the big four banks.
As a businessperson, I’m not suggesting for a minute that airports don’t deserve to turn a profit. Of course they do. We want to them to be profitable and to re-invest. But with margins like theirs, there is clearly something out of kilter.
You can see that from the advice an investment bank gave their clients last year about one of the big four. To quote: “the airport has an unregulated revenue stream in a monopoly environment.”
An unregulated revenue stream in a monopoly environment.
How does that not ring alarm bells?
Impact on the Australian Economy
It should certainly ring alarm bells for the broader economy.
Air transport is a big driver of economic activity. Distortions in this space have big side effects.
High airport fees ultimately mean airfares are higher than they should be. Fewer people can fly or they fly lessoften.
When you consider that most of Jetstar’s fares were sold for under $100 it’s not hard to see how $50 in airport
fees can kill a destination altogether.
Frontier Economics found that properly regulating Australia’s monopoly airports would unlock more than $1
billion in economic activity each year.
These issues aren’t confined to capital cities.
Whyalla , in regional South Australia, proposed a 250 per cent increase in passenger charges from next year to fund infrastructure that is not required for our customers and that we have not been consulted on.
And the reality is that there this type of approach happens at airports across the country – in major cities and in smaller regional towns.
In fact, fewer than half of regional airports currently consult with their major customers – the airlines – when planning major capital upgrades, some of which simply cannot be justified based on forecast passenger numbers.
It is also not uncommon for airports to make a profit off implementing Government-mandated security arrangements.
No mechanism to resolve disputes
You would think that if a monopoly exists, there would be a straightforward dispute resolution system as a safeguard. That’s how it works in other parts of the economy.
Instead we are left with disputes that cost millions of dollars over many years – making it an inefficient system.
Our dispute with Perth Airport is a perfect example of just how broken the system is.
After 18 months of negotiations that frankly went nowhere, Perth Airport sent us a bill under their new fee structure. This structure would see the charges paid by Qantas increase by almost 40 per cent over five years.
We asked Perth Airport to have the dispute resolved by an independent expert, such as an economist, but they refused.
Instead they went to the Supreme Court of Western Australia.
Some 9 months later – and more than two years since we started negotiating – the case is yet to be heard by a judge. Many other industries with monopolies – like gas infrastructure – have resolved these types of disputes within four months yet we don’t even know when we will have our day in court, let alone how long the hearing will take and how much it will cost.
All of this has a direct impact on Western Australia – holding back the launch of direct flights between Perth and Paris. What business would make a big investment like that while there is so much uncertainty about the costs it faces?
With a court date now unlikely until 2020, and the lead times needed to launch a new route, I can’t see us flying from Perth to Paris before 2022 – more than two years from now. Had we not had this dispute we could have been flying the route by early next year.
Deloitte Access Economics has estimated that our Perth-London flights boosted the WA economy by $70 million and created 600 full time jobs in its first year of operation.
This means that the Western Australian economy is missing out on more than $100 million of activity because of the delays to Perth-Paris caused by Perth Airport.
It’s not in anyone’s interest for this dispute to drag on – least of all the people of Western Australia.
The rebuttals This debate has been running long enough for us to know what the main rebuttals to our position are. So, let’s jump to that and save some time.
The main one is that airlines – especially Qantas – have plenty of commercial leverage they can use with airports.
Ask yourself: would Paul and I be here today if that was the case?
Australian airports are literally the only game in town. Their business model is based on it. We can’t just upstumps and fly to the next airport 15 minutes down the road. They have airlines and passengers over a barrel.
I’ve also heard people say, ‘You’re an airline CEO, of course you want airports to drop their fees. You will just pocket the difference and boost your own profits.’
Well, the difference between Qantas and the airports is that we actually face real competition. We competeevery single day with Virgin, Rex, Air New Zealand and in some cases dozens of airlines for customers.
We compete on the price of every single seat of every flight. And it’s this competition which ultimately sets airfares. So, if there is a cost advantage, history shows that airlines will use it to sharpen fares. That’s why they’ve dropped so much over the past 10 years.
Conclusion
Clearly, the status quo isn’t working: fees and charges from monopoly airports are excessive and damaging the economy.
And airports continue to reap super profits because there is no real threat of intervention to moderate their behaviour.
The good news is that there is a relatively simple solution, which we believe will help resolve deadlocks between airports and airlines, unlock investment, and drive increases in productivity. And other businesses operating at the airport – retailers, car rental companies and uber drivers – have backed the proposal.
The Business Council of Australia met in Canberra today and a number of chief executives commented that they were heartened to hear the Treasurer recently say that tackling market power misuse will help ensure the most efficient allocation of resources and the most productive outcomes.
We would suggest there is no better place to start than tackling the misuse of power by Australia’s monopoly airports. The Government could make this happen by introducing the reforms recommended by the ACCC.
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