Recorded at CAPA Global LCC Summit, 1-2 Mar 2018

Avalon Airport CEO Update

Avalon Airport CEO Justin Giddings talks about the new AirAsia X service from Kuala Lumpur and the construction of a new international terminal. A simple terminal design has been selected that enables construction in only about six months, enabling AirAsia X to move from Melbourne Tullamarine by the end of 2018. Mr Giddings discusses the possibility of the new terminal eventually accommodating other international routes from AirAsia X such as Bali as well as other foreign airlines. Avalon is also confident it can attract more domestic services, given the very high load factors on its existing services and the ease of travelling to/from the airport with the new SkyBus service.


Justin GiddingsWe first started speaking to AirAsia back in 2007. So it's been a long haul, however it's gone and come and go a little bit, but we really approached them again probably at a CAPA function actually last year, around about August or September in Sydney. We met with Ben Ismael, the CEO, and Bev and we had a good chat to them and yeah, so it's been a really quick ride in the last few months for sure.

I think that they were finding the pressure at Tullamarine pretty hard in terms of space and availability. There's one example where they actually fly in and have a three hour layover because they can't get check in desks for example. So operationally it works, of course cost wise it works as well for them. But I found it was my challenge to make sure that we can actually, they would trust us that we're actually able to deliver this and that's what we're able to do. So we're in plane stages of constructing a terminal, this is a small terminal and it's going to be done very quickly. In fact by the end of the year, but it's going to be good and it's going to provide a really efficient service for their passengers.

The other thing I like about it is it's almost a residual reinvestment by AirAsia into Australia, so they've had ups and downs a little bit. But I was able to convince them that coming into Avalon will give them a really high brand profile, which is something that I think they needed at this time.

So we've had lots of different terminals designs, depending on which airline we've been speaking to. This is one that we had designed for another airline and it's one that we can do quickly. We don't interfere with the current operations, which would have been difficult, would have slowed us down. So it was AirAsia that came to us last week and said to us, suggested some changes, which we've incorporated. So I like to think it's a partnership and a genuine partnership. I mean they're taking a risk by doing what they're doing, but so are we, and so we both need this to work. I'm really happy with the product, it's going to be a really easy flow terminal. It's going to be small but I think people will like that.

What my suggestion would be is that we are a very strong leisure and visiting friends and relatives airport, we're right on the doorstep of the Great Ocean Road. But also a lot of the passengers from our region want to go to Bali and places like that. So I could see ... I'd be sort of asking them in the future to consider places like Bali, maybe into Thailand as well, I think that'd be really good destinations for us. But also feeding off from China, and that's the big thing I like about AirAsia is it's not just about KL but it's the 130 behind destinations that it can actually pull through and bring into Avalon down on the Great Ocean Road for example.

Well right now if we go by what Jet Stars doing the majority of people do go to Melbourne, so we are Melbourne Avalon airport. It is about Melbourne for sure. I mean Melbourne's got four and a half million people, Toolongs got 200,000 so it's always going to be that Melbourne market. But what's the advantage? What we're seeing the growth in the Chinese visitation is all the Chinese who can come down to Avalon without a stop light, get down to the Great Ocean Road, without having to drive through the Melbourne peak traffic. So I think that's really important, so it's a bit of combination of both and that's where we have to be really careful with how we brand this because the Great Ocean Road, five point one million visitors a year is a huge carrot for them. But I also understand that a lot of people do want to have that Melbourne experience. So it'll be branded as Melbourne Avalon but certainly we'll have people on the ground encouraging people to go down the Great Ocean Road, go to Julong, go to regional Victoria and look around.

I think it'll be the same mix, especially in the inbound, I mean inbound I don't think people really mind where they fly to. I don't see there'll be a big change there at all. It's predominantly an inbound market so inbound people want to go to Melbourne, they'll see Melbourne Avalon, as long as we've got the connections right, which we have. We've got Skybus operating now who are taking people directly from Avalon into the Melbourne CBD. Exactly the same services what's offered at Tullamarine, I don't think there'll be any difference on inbound. What I've got to really concentrate is convincing people from Melbourne to drive down to Avalon to utilise that service without deteriorating the yield for the airline. That's what my big challenge is, and that's why we really have invested a lot in a marketing programme to encourage people from Melbourne to use the service.

So they've ordered double deckers on the back of this and I think they're coming in at about April or May this year. So it's already happening, the Skybus have been tremendous, they're putting a depot out there. The numbers have just gone up, our load factors on airlines have just gone up incredibly ever since we introduced Skybus. It's probably been the biggest single change for growth at Avalon since my time, and I've been there nine years. So Skybus is a really good brand, it's a strong brand, it interconnects with 50 hotels in the Melbourne CBD. We've actually now introduced a Skybus service down to Julong and to the Great Ocean Road as well, so it's a really important part of this story.

So one of the issues I'm finding in Australia is that the airlines domestically aren't growing that much. So the orders aren't coming through, so they're all probably trying to ramp up their yields a little bit. So our flight numbers haven't increased for a couple of years, but our load factors have grown up so much in that our numbers are up 10% last year, just on load factors alone. So last year I think we just had over 800,000 passengers through the airport, but our load factors, if I showed you the figures you'd go, wow, you really need more flights. So we're crying out for more flights. I'd love to see Tiger come back, I really would, I think that Tiger Melbourne is just sort of going okay, not really growing. I think that if they could pull that down to Avalon it would give them a little bit more profile. It would give ... It would mean that more international airlines are likely to follow them as well, which would be good for us. It also would get them away from cannabilising their virgin market, which is also probably under some pressure.

Yeah that was a Jet Star decision, I think just ultimately it was about maximising yield, so our Sydney flights are going so well, Hobart does really, really well in the peak season. But in the off peak you know the load factors were down a bit, so I would like to keep Hobart for sure, but I could understand that growing your passenger numbers without growing more flights, they had to make that decision. So I'd like to see Hobart come back again, but it was only three times a week, and it's sort of hard to make that work. You need at least a daily I think to really give people choice of being able to fly.

Yeah well Canberra is a big one, so the growth, more specifically about Julong and the service industries. We've got NDAA, TAC work, so for all these business head offices are now in Julong and they're crying out for a Canberra service. In fact just before I was reading an email, which is a briefing from an airline, smaller airline, who are looking to maybe run that service from Avalon to Canberra. It'd only be a few times a week but it'd be worked out so it picks up that business market and maybe that tourism market back the other way. So I'd love to see Canberra, I'd love to get Brisbane back, we're doing Gold Coast, the numbers are amazing and Brisbane is just crazy. But there's slight constrain, that's the other issue, you know airports again. Perth would be really, really good, with the decline of the mining boom though it's probably not as important as what it was a few years ago. But you know we are doing 800,000 passengers, we probably should be at 1.4 or 1.5 million passenger domestic airport.

Well it's about 60% inbound for Sydney for example, so 60% of the people from Sydney are coming down and they're utilising it 'cause of lower cost, or lower price fares. Jet Star will probably see that as a problem because they want to try and maximise their price. So that's one of the issues I've got, but certainly I think honestly, if we put more flights into Sydney I think we'll fill them. I definitely would like to see the Hobart introduced to a daily service, I think you'd get a better result. A lot of the complaints we would have was that, oh we want to come back on this day but there was no flight. They just think it's sold out, people think it's sold out, 'cause it's not listed, whereas we knew it was only three times a week.

Look I think definitely there is but we're building this so we can grow it too, 'cause we're building to a very strict timeframe. So we can't build the Taj Mahal in six months, but I really want to get to New Zealand, I just think New Zealand is a key for us. With a lot of the Middle Eastern airlines coming down, doing that hop across that sort of killed yields a bit. But I think that New Zealand is a key one for us, also Hawaii would be a good one. Those leisure destinations as I said before, where people can come down, they park in the car park cheaper, they can get a lower price ticket because of the lower cost environment, would be really good as well. Of course the Middle East eventually, the Middle East is important especially with all the freight operations that we have on the freight produce, because we come from a really high valued produce area, I think that would be good as well. But that's longer term.

Look we're talking to the Australian government and I'm very hopeful that they put in a full operation. It really has to, if they start operating and driving down just from Tullamarine for example, it adds a lot of cost and because we're so cost sensitive we just can't afford that to happen. So I'm hoping for a permanent presence that can be scalable. That's what we're really talking to them about, so they haven't actually told us what their presence is going to be. Obviously they're under a strict time line but I'm seeing this AirAsia as a catalyst for growth. A catalyst for new international airlines, this is not just about AirAsia, very, very important and a strong partner and we hope that they grow. But we need to make this work for other international carriers but also more domestic carriers.

Oh look it's been great, just talking to people, I was talking to some people from other airlines before. 'Cause a lot of people probably don't realise we've just become the second international airport for Melbourne. That's what I'm really hoping to present later on when I speak, is to talk to everyone, to say, look you know this is a credible alternative and save you millions of dollars a year, that's we're doing. So that's probably been the biggest opportunity for me, and it's just wonderful to meet everyone and get across to Singapore.

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