View Full Version : SMH article on the Cost of Flying in Australia

21st Sep 2018, 09:04
No surprises here when you have no competition with airports going flying gets expensive and funnily enough we have 4 of the most profitable airports in the world.


Qantas boss Alan Joyce is fond of pointing out that it's never been more affordable for Australians to fly.While this might be the case, airfares becoming drastically cheaper over the past couple of decades doesn't mean that flying is always cheap.In fact, there's a mile-high bunfight going on right now between Australia's airlines and airports over exactly who gets charged for what, who is gouging whom, and whether it all means Australians pay more to fly than they otherwise might.Airlines maintain that, ever since the country's largest airports were handed from government control to private owners about 20 years ago, the airports have gradually strangled them with higher and higher fees for the use of their runways and other facilities.The airports, in turn, say these fees are needed to fund the building of infrastructure to accommodate the ballooning number of travellers wheeling suitcases through their terminals (a number that's risen from 76 million to 159 million over the past 15 years). The airlines are simply seeking to transfer airports' profits to their own coffers, the airports say.While disputes between airlines and airports over fees are common worldwide, a few factors make the Australian situation particularly testy – including that each of our capital cities are essentially serviced by a single airport, all of which have been privatised. Nearly all airports in the US are still government owned while many major cities abroad have multiple airports.Our two major airline companies, Qantas and Virgin Australia (which own the budget airlines Jetstar and Tigerair, respectively), say they can't negotiate with airports over fees fairly because they don't have the option of landing anywhere else.The Australian Consumer and Competition Commission (ACCC) reports annually on the airports' profits to see if they are misusing their market power, and says they need to be more closely regulated.Meanwhile, the federal government's policy advisory committee, the Productivity Commission, is currently revisiting the issue. It found, in 2012, that there was no systemic misuse of market power by the airports – but it did say an eye needed to be kept on things. Now it is examining whether or not new rules are needed to stop airports ripping off airlines – and by extension, the public.So where does the truth lie?

The Cost Of Drop-Off
Before you step inside an airport, the bill starts adding up.
Airports own the roads in and around their terminals and charge taxis, buses and trains for what they call “landside access”.
That means they pay a fee to drive up to the terminal to drop-off or pick-up passengers, or use waiting areas, which are passed directly on to passengers. At Melbourne Airport, for example, taxis pay $3.60 per pick-up (compared to $1.50 eight years ago) while ride-share service such as Uber pay $4 and private vehicles pay $4.40. At most airports, extra charges kick in as “congestion fees” if the vehicle has been waiting for longer than 10 minutes.Australia's four largest airports (Sydney, Melbourne, Brisbane and Perth) made a combined $48 million from landside access fees in 2017 – almost double what they made in 2010.

Parking Your Car
This is where airports make between 10 and 15 per cent of their revenue, charging from between $15 and $17 for up to an hour and up to $138 for a week in their long-term car parks.It's a lucrative business too: for every dollar passengers pay for parking, Sydney Airport keeps 72 as profit and Melbourne keeps 60.Travellers can get cheaper rates at the independent car parks that pop up around airports and ferry passengers to the terminal by minibus.But some of these operators say it is hard to compete because they are being gouged on the access fees when they drive their customers to the terminal.

Inside The Terminal
That bottle of water you paid $6 for? The airline’s lobby group reckons most prices are 25 per cent higher at shops in airport terminals than elsewhere.
Renting out space to shops, cafes and fast-food outlets made up almost a quarter of Sydney Airport's revenue last year, which was growing at a rate of 12 per cent annually.
Qantas leases and operates its own terminals at Melbourne, Brisbane and Perth airports, while Virgin operates its own in Brisbane. The rest are run by the airports themselves, meaning they are responsible for providing toilets and other facilities for travellers.And how do they do? The ACCC tracks passenger and airlines satisfaction surveys that show Sydney, Melbourne, Brisbane and Perth have all maintained a rating of between “satisfactory” and just below “good” over the past 10 years, with only Perth showing a significant improvement – despite all four significantly increasing their fees.
Arm Doors And Cross-Check
Airports make most of their money from airlines through what they call “aeronautical charges”.These are fees airlines pay to use runways, parking bays, aerobridges, navigation equipment, security services and other infrastructure.On a one-way flight from Melbourne to Perth, for instance, these fees costs an airline an average of $29.20 per passenger. Here’s a break down, provided by the airports' lobby group the Australian Airports Association.

Total aeronautical fees: $29.20 A trip from Perth to Melbourne would have fees of $36.The airports estimate their charges represent about 8 to 10 per cent of an average full-service domestic airfare, and about 7 per cent of the cost of an international fare.But that proportion becomes bigger for budget airlines that offer lower fares, meaning airport charges could represent 30 or 40 per cent of a discount Jetstar or Tiger ticket.Qantas says airport expenses are equal to 14 per cent of it and Virgin’s revenue compared to 9 per cent in Europe and 6 per cent in the US.The ACCC's monitoring shows that airports have increased aeronautical charges per passenger significantly in real terms (ex inflation) over the past decade: up 31 per cent at Melbourne Airport, up 59 per cent at Perth Airport, up 36 per cent at Brisbane Airport and 15 per cent at Sydney Airport.These increases across the four airports represent an additional $1.3 billion in payments from airlines over that period.While discounted airfares have fallen by 41.4 per cent in real terms over the past decade, the ACCC says they would have fallen further if it wasn't for these rising airport fees.The fees are negotiated on but the airlines say they are held over a barrel because of the airports' monopoly powers.This applies at airports both big and small. Qantas, for instance, has been locked in particularly acrimonious disputes with Canberra and Townsville airports.(From a traveller point of view, the government takes its cut as well, with the 10 per cent GST automatically applied to all fares and a $60 departure tax added to each outbound international ticket.)

Cruising At Altitude
Sydney Airport (which is publicly listed so we have a better insight into its finances) last year made 51 per cent of its $1.4 billion revenue from aeronautical operations last year, 23 per cent from retail, and 15 per cent from property, hotels and car rental, and 11 per cent from parking and ground transport.On aeronautical services, airports are making around 40 to 50 per cent earnings before interest, depreciation and amortisation (EBITDA) profit margin, which has been fairly stable over the past decade.This puts Sydney, Melbourne, Brisbane and Perth all in the top-10 most profitable airports in the world, according to Qantas.

Qantas itself had an profit margin of only 10 per cent last year – one of its most profitable years on record.

So who's benefiting?Australian superannuation own about 47 per cent of the equity in our private airports, and the government Future Fund sovereign wealth investment vehicle owns about 9 per cent, according to the Australian Airports Association.Another quarter is held by private Australian investors - including some major players such as the Snow family, who control Canberra Airport - and about 19 per cent is owned by foreign investors.Qantas, meanwhile, is 43 per cent owned by foreign investors (the Qantas Sale Act caps it at 49 per cent) while Virgin is more than 90 per cent foreign owned, with Singapore Airlines, Etihad Airways, and China's HNA and Nanshan groups owning about 20 per cent each and Richard Branson's Virgin Group owning about 10 per cent.

Airports in the Upright Position
The airports argue that rising fees are needed to fund a combined investment of $10 billion in airport upgrades over the past 15 years.This work - such as longer runways for larger aircraft - has made it possible for new international carriers to start flying to our shores, which have brought lower airfares with them.(Airlines say some of the upgrades they are being asked to fund is "gold plating", in excess of what is actually necessary, and object to being asked to pay higher fees for upgrades before they're actually built.)The airports dispute any strong link between their fees and airfares. Fees contribute less than 10 per cent of domestic airfares, they say, so cutting them in half would only see fares fall by 5 per cent – if the airlines even passed it on to customers rather than keep it as profit.Meanwhile, they've also highlighted that domestic airfares have been creeping up over the past couple of years as the truce to Qantas and Virgin's airfare and capacity war holds – symptoms of a comfortable duopoly.Routes with similar passenger demand in the US and Europe have four or five airlines competing for customers on price, whereas Australia has only two companies.

Are We there yet?
The airlines are calling on the government to level the playing field when negotiating with the airports.
They want an “arbitrator” to be established, which could step in and make a final ruling on disputes between airlines and airports over fees and other terms.
Secondly, they want the ACCC to change how it monitors the airports' profits.
The competition watchdog tracks only earnings from aeronautical fees and not the other ways airports make money, which they say misses the full extent of their market power and the excessiveness of their profits.
The airports have warned an arbitration model could have a “chilling effect” on investment, and say that airlines already have an arbitrator they can appeal to - the National Access Regime, which Virgin used to get a better foothold at Sydney Airport back in 2005. The Productivity Commission will release its draft findings early next year.

21st Sep 2018, 09:59
Sydney reached a new low when Tiger had to take them to court (and won) for the poor infrastructure and available bays available for what they were charging. Says it all really.

21st Sep 2018, 11:14
Read this little number from Hansard in 1999:

Earlier this month the Productivity Commission published a paper on privatisation by two specialists in the field: Professor Stephen King of Melbourne University and Dr Rohan Pitchford of the Australian National University. The two gentlemen effectively belled the cat on privatisation in this country—indeed, the privatisation of public assets by governments in general. These are just some of the comments made by the two academics:

Privatisation can create a new range of government bureaucracy and control that exceeds any burden under public ownership.

It is simply stated that public ownership is less efficient than private ownership. But there is little analysis of the source of this efficiency or any potential benefits that public ownership may create which could offset this inefficiency.

They also found that:

Much of the debate on privatisation involves rhetoric rather than research. When private and public sector managers have similar incentives and objectives, performance differences are less obvious.

The gentlemen said that governments were forced to intervene more regularly and introduce more regulations to control privatised public assets as competition had failed to protect consumers. They concluded in their investigation that:

If it is difficult to regulate a privatised firm and this firm can engage in undesirable practices, then public ownership, possibly with an alternative level of private sector involvement, may be preferred.

Governments in this country—both at state and federal levels and of both political persuasions—have been guilty in the past of rushing headlong into privatisation for the sake of it. Common thought had been—and still is, I might add—that public ownership was an inefficient anachronism while privatisation meant saying goodbye to suffocating government regulations and outmoded business practices and really saying hello to increased productivity and efficiency.

But, if you take a closer look, you will see the figures do not always tell the same story. As the Sydney Morning Herald's Ross Gittins wrote about the sale of Telstra recently:

Selling a profitable asset such as Telstra may reduce net debt, but it does nothing to increase the Government's net worth. And it may or may not improve the Government's future net income flow.

An article on this subject in the Australian Financial Review reached a similar conclusion:

Privatisation is not a cure for human fallibility, and . . . assumptions about the inherent superiority of the private sector are untenable.

Most ordinary Australians would find themselves agreeing with Ross Gittins and the Productivity Commission's King and Pitchford with regard to their views on privatisation. They would agree not through any academic or high-minded analysis of the economic problems associated with privatisation but by really basing their opinions on plain commonsense.

They know that, in order for some services to be delivered fairly and effectively, the government must retain chief control, if not full control, of the particular public asset. They know what can happen when public assets become the victims of ill-considered privatisation. They know because they are the ones that are often on the receiving end of poor service and higher prices when privatisation in this country goes wrong.

They know that some public assets and some government services should be considered sacrosanct when it comes to private sale. For example, while the sale of Telstra may have sent a minority of Australians racing off to find their chequebooks, the majority of Australians are still against the full sale of the telecommunications network. Most Australians want the government to retain majority ownership of this utility while there is still a chance to do so. Most Australians recognise that Telstra performs essential services for all Australians. For the foreseeable future at least it dominates massively the telecommunications industry in this country. Why shouldn't it continue to make money for all Australians? Why should it make money for just those shareholders lucky enough to have the finances or the wherewithal to invest in it?

Scratch most ordinary voters living in this country and you would find that they could tell governments exactly what they see as the problems associated with privatisation run amok. In fact, many of them have already had a go at telling governments just that. Recently we saw the electors in Tasmania and in New South Wales deliver sound drubbings to parties that had gone to the polls with policies heavily reliant on privatising dearly held public assets. The Victorian government, headed by Jeff Kennett—possibly the arch-proponent of privatisation in this country—was brought to the edge of defeat partly because of the public's antagonism towards his privatisation-gone-mad style of government. The same can be said about John Olsen in South Australia. It was primarily because of his government's decision to privatise South Australia's power supply that Labor was able to come within a whisker of retaking the treasury bench in the last state election.

People do not like governments simply selling public assets in order to raise money for their own coffers. They need to be con vinced of the necessity of such action. They need to be convinced, on a case by case basis, that privatisation is necessary and makes sound economic sense. Of course, privatisation can be beneficial; it can make economic sense. None of us could imagine living in the old days when governments owned butcher shops or even ran liquor stores. There are some areas of private enterprise where governments plainly have no business, but when it comes to public utilities such as Telstra, state and territory power supplies and Australia Post the public quite plainly want them to remain in their hands—not just the government's hands, their hands.

Australians deserve the right not to be treated like mushrooms when it comes to privatising and have governments tell them that they know what is best for their assets—because quite simply they do not. I believe and I reiterate that Telstra is a case in point. Adding weight to the argument put forward by King and Pitchford, Telstra has around five separate bodies currently involved in its regulation, the number of which is directly linked to the government's privatisation process.

Another problem with privatisation is the growing levels of secrecy that have sprung up and now surround the management of formerly transparent public assets. The Labor Party has been trying for over three years to get the Crown Casino tender documents from the Kennett government under freedom of information laws; it has been denied them at every turn. In South Australia, contracts setting out the services to be provided by Group 4 Correction Services, a private prison operator in that state, also detail a prisoner's rights. But the same contracts contain a clause that denies third parties—you and I, the public—other than the government and the private operator from seeing any of these details. How can a prisoner know of his or her rights if he or she is not allowed to see the contract that details their rights in the first place?

Governments in this country have rushed so quickly into privatising public assets that Australia has now reached a stage where it is one of the largest privatisers in the world. Indeed, in the six months to 30 June this year, Australia was the largest privatiser, with $7.5 billion worth of announced privatisations—15.4 per cent of the world's announced privatisations in that period. This arguably dubious honour came thanks to the Victorian government's sale of its gas, electricity and pipeline interests.

One of the most insightful observations about privatisation comes from the Canadian theorist and author John Ralston Saul in a recent lecture here in Australia. He said that privatisation essentially allowed:

. . . extremely lazy and not very imaginative people to get a hold of fully developed utilities which don't require any risk or imagination and they're able to sit there and basically clip their coupons as you flush your toilets.

By moving things like water out of government into the private sector you're bleeding real investment capital out of the private sector, you're rewarding laziness, and you're rewarding these managers who go about in capitalist drag.

Well said, Mr Ralston Saul. Australia's headlong rush towards privatisation betrays a lack of serious thought among our leaders about how to solve the efficiency and productivity problems that do exist within our public utilities. That is what we are elected to do—to come up with solutions to these problems, not sell off the family silver willy-nilly. I am sure most members of the public would agree with me. If some members of the House examined their consciences, they too would stand up and agree with me.

The Prime Minister's vision of a shareholder's democracy based upon the privatisation of public assets actually belittles the democratic process. As Ralston Saul said in that same lecture, leading a democratic society by economics—by self-interest—demotes the citizen and our civilisation to little more than a decoration. While there remain in this country assets still owned by the public, we need to work harder and think more clearly about privatisation before it is too late. We will soon have nothing left to sell.

21st Sep 2018, 14:57
Did the Qantas PR department send that copy through to the SMH? There must be so much money in running terminals that Qantas and Virgin can't wait to hand theirs back in Brisbane.