Managing risk in a volatile global climate

Transcript

Keith Tonkin:So there's a fair bit going on in the world, that'd be fair to say, and the topic of this discussion is around risk, and we've heard a lot of talk about opportunities, and there's a real positive vibe from the guests, from what I've heard and what's been discussed. Yeah, I think that's a fair point. so far, and I just wonder if you could each take a turn to speak to the biggest risk that you're seeing, um, and also talk to the geopolitical situation in big picture terms to, to situate the rest of the conversation.

Matthew Schroder:Um, thank you. Um, and thank you to all of— well, we're in Northern Queensland— all of yous for being here. Um, I think we are facing the— so the ACCC's role is to make markets work. Um, and that's a bit of a challenge at the moment. I think we're— we have the confluence of 4 sort of megatrends, and they interact with each other. Um, geopolitical issues, uh, you know, we're obviously seeing, uh, major wars in multiple continents. Uh, we've seen political instability. We've seen the United States take a large swing in a different direction. Um, breakdowns in global, uh, trading systems and the like, uh, geopolitical things both Uh, economic and kinetic, so wars and the like causing oil prices to go up, um, commodities moving around, um, a lot. So there's a lot of uncertainty there in, in the geopolitical space, and I think aviation, because it's so internationally connected, is, is affected more than many industries in that way. Um, the second one is, uh, AI and general technology changes. Um, those are amazing opportunities for the industry, but also, you know, really big challenges as well.

Race Strauss:Yeah.

Matthew Schroder:Um, I think the third thing is, uh, the environment and, uh, the energy transition. So again, aviation issues around noise, issues around the overtourism of certain places. If you go to Amsterdam in summer, there's been protests in Spain and Greece and the like, and those sort of things. Um, I think, uh, for this industry, there's the issue of, um, Flugskam, which is the shame of flying and the social licence around aviation. There's the issue there that if we can't get sustainable and affordable aviation fuels, what, you know, SAF, what happens then and how is the social licence for aviation going to be affected? And I think the other major factor is demographics.

Andrew Barr:Yeah.

Matthew Schroder:Uh, so, uh, the ageing of the population, that changes the profile of markets.

Race Strauss:Mm-hmm.

Matthew Schroder:It changes, um, the nature of the products that people want. Um, but it also, uh, reduces the size of some of our markets. Australia's 3 biggest export markets, China, Japan, and the Republic of Korea, are all 3 of the fastest and, um, shrinking countries in the world. Um, so that, that's a challenge. But demographics also means older populations, which means an impact on budgets, which means an impact on taxation. But it also means an impact on, um, the demand and supply of funds, and so it means higher interest rates. And so I think those are— it's the confluence of those things that are facing challenges. There are opportunities with technology and energy transition and the like, but those are the challenges that we face, I think.

Andrew Barr:I'd probably identify the Australian political system's capacity Uh, to respond to those issues, uh, and put in place the right policy frameworks and regulatory environments, uh, that will support economic growth and opportunity is the biggest risk. Some of that, uh, has been, I guess, addressed at a national level with a reasonably decisive, uh, federal election result earlier this year. What that has led to is continuity in policymaking in terms of Australia's international engagement, but also particularly the Australian government's engagement with each of the states and territories. I've been in my role for more than a decade, and I've been the Tourism Minister for the ACT for nearly 20 years, so I've seen a little bit of the best and the worst of the Australian political system. My message today is Uh, is one of degree of confidence now that the policy frameworks are well thought through and consistent, uh, and are being supported at all levels of government. The Prime Minister through the National Cabinet, the Federal Minister for Tourism, Trade and Investment, uh, Don Farrell, through that Ministerial Council, uh, and the Tourism Ministerial Council are coordinating and working with all of the states and territories, and our key international partners in a way that I haven't seen, uh, for, for some time. It is consistent. We know the direction that we need to pursue, uh, and hopefully that execution will be there over, uh, the next 4 or 5 years, because I think to address many of the risks that have been identified, we do need all levels of government in Australia to be working well. together. And I think that, that opportunity is there, guided of course by important and timely engagement with relevant industry sectors and stakeholders. And so from an aviation perspective, clearly changing technologies, some challenges in terms of visa processing, for example, are ones that we're looking to address. And as I look across the, the different parts of Australia, the alignment, for example, of policies around international students, around visas from some of our target markets, we do need to do a little more work to coordinate that, because clearly for this sector to grow, getting those policy alignments right.

Race Strauss:Yeah, good morning. From, from a Virgin, from an airline's perspective, we're obviously a predominantly domestic airline, and quite frankly, the Australian aviation domestic market is one of the best markets in the world. With so much going on, Australians love to travel, and with the geopolitical issues going on, maybe people are travelling more domestically than they are internationally. So in a funny way, we get a benefit of some of this. The geopolitical risk does give us 2 issues. Of course, fuel. What's going on with fuel creates a major risk for us. Luckily, we do have a very strong hedging program which mitigates a lot of that risk. And of course, what may or may not happen with tariffs. You know, a lot of aviation costs are US dollar based. So any impact on airlines, on spending, spare parts, on maintenance, that's going to be a big risk. Now, at this point, we haven't seen particular cost increases in that space due to tariffs, but that, that's a risk area that, that we need to keep very, very focused on.

Richard Barker:Yeah, I think as an optimist, I need to sort of temper my natural enthusiasm. So I immediately gravitate to Dave Emerson's earlier comments around people's latent desire to travel. It doesn't really show any propensity to diminish. And we have 3.5 billion Asian middle class emerging on our doorstep. Recognising the demographics of some of those countries, I think it's really important for us, what we're doing as an airport, is looking to diversify the international markets that we serve. I think there were a lot of— a lot of Australia and a lot of countries around the world were heavily focused on China, and China is still a really important trading partner and source of tourists and visitors to our country, but we've actively sought to not only restore some of our partnerships in China, but also to diversify to other markets.

Matthew Schroder:Mm-hmm.

Richard Barker:Um, you've got a, you know, Indonesia on our doorstep, um, hundreds of millions of people. Uh, you've got Vietnam as a rapidly emerging, India is much talked about. So how can we work with our partners like AirAsia and Singapore Airlines to access into some of those other markets We're diversifying the markets we serve because you only have to look out the window behind you. There is— we live in uncertain times and there's, you know, real geopolitical risks and things could just change overnight. I was at a presentation a few months ago and the presenter was in North America. The presenter said he doesn't even bother preparing his slides ahead of time because he just looks on what Truth Social says, and he was an economist. and makes his comments based on what has been tweeted that morning. And so we really do have to be nimble and flexible. And so from us, diversifying our markets and being sensible with our investment, recognising the long-term macro trends are really encouraging. We need to invest sensibly for growth, but we try to do it in a prudent way so that our airline partners can be successful. And we are diversifying our risks by looking at how we can use technology to make the passenger experience better for people travelling through our airports, but equally how we can take costs out of the business. So, yeah, we're trying to be sensible and prudent, and diversifying things is how we're looking to, to manage our risk.

Keith Tonkin:Thanks, Richard. Thanks, gents. Uh, just a reminder, if you wanted to ask some questions, you can use Slido, or we'll take questions at the end as well. The next question is around strategic alliances, um, and they can extend an airline's reach, increase its customer base and bring new opportunities, but there might be some challenges as well. And I wonder if you could just individually speak to what they bring and what challenges need to be considered when considering them, specifically around the Qatar-Virgin arrangement.

Matthew Schroder:Um, so the ACCC has a formal authorisation process where it will enable, uh, agreements that would otherwise breach the competition laws It gives it an authorisation so that they can occur if it's in the net national interest. With Virgin and Qatar, there's issues around what we're looking at is competition, and it would be the case that those agreements would be less competitive, except in the case of Virgin and Qatar, you're adding competition that wouldn't otherwise be there. And so that Uh, agreement was approved by the ACCC. The authorisation went through. Um, I think, well, one of the issues with aviation, and particularly with international aviation, is that we're bound by, um, these treaty documents that occurred soon after World War II and need to be negotiated. And you might have seen some controversy a couple of years ago when the minister, um, prevented Qatar from flying additional services into the East Coast and the like. Um, those are because the rights are, um, restricted by those bilateral agreements. From the ACCC's point of view, we're an anti-monopoly, pro-competition agency. Um, as you would expect, we would prefer to have more competition, and we'd prefer to have more liberal air services arrangements, and we've made our— made our views known. Um, so I think, uh, those agreements, um, are a—

Race Strauss:Excuse me.

Matthew Schroder:ERSAT's way of having Global competition that you would normally have with multinationals competing. You know, people around this room would know a lot of this, that, you know, you can't have Delta Airlines flying between Perth and London because under those international agreements they're not allowed. I think those— the agreements provide a good product for consumers of seamless travel and points and lounges and the things that consumers want, and sort of work like you would have an international multinational competing. And so where the benefits of it outweigh the costs, we're all for it. There are times when you have, you know, only 2 competitors on a route, and if they were to do a very, very tight codeshare, that would be a reduction in competition.

Keith Tonkin:Thanks.

Andrew Barr:Well, and we were very grateful for the ACCC's decision to allow that Qatar-Virgin strategic partnership, and the result of that will be a daily flight from Canberra. to Doha starting in, in December. So there's a practical benefit for a, you know, not a first-tier airport in Australia from that pragmatic decision. I think the more strategic alliances that, that can be struck that see new services to different parts of Australia, the better our aviation and tourism industries will be. I have a very simple objective. I want to make it cheaper and easier for people to get to and from Canberra, and so these sorts of arrangements can deliver some quite practical outcomes for us. And healthy competition at a domestic level as well is important. Canberra is the meeting place of the nation, and it is important that the national capital is connected to as many domestic and international ports as possible, and that's what we're striving to achieve, and through alliances and partnerships, I think we can get there.

Keith Tonkin:Thanks.

Race Strauss:I must say we're quite grateful as well that the ACCC approved it. So look, if you look at this through a few lenses, first from the customer, I mean, this brings in $3 billion to the Australian economy. It gives the Virgin customer Tremendous international access. Now we've got fantastic alliances with Singapore Airlines, with Air Canada, with Air New Zealand, but this deep relationship with Doha now gives 170 international destinations for all of our customers. And we're deeply proud, we are deeply proud that the best airline in the world wanted to buy 25% of Virgin. The customer also gets tremendous velocity benefits, our frequent flyer. So the customer benefit is significant. The Australian consumer benefit is significant. If you then look at our employees, our employees also get benefit. You know, Dave talked earlier about secondment opportunities. So we can actually provide our people with opportunities they just couldn't get before, which is great for their development. It's great for their engagement. And then as a company, of course, it's a tremendous benefit. You know, the, the having the one of the world's biggest airlines is a deep engagement. We can actually get synergistic benefits, which allows us to compete more effectively, which allows prices to ultimately get lower, which again creates that cycle of benefit for the consumer. So for us, it's a win-win-win across the board.

Matthew Schroder:Thanks.

Richard Barker:I think my opening position is that competition is good, and so the more competition the better, the more consumer choice we have, and we— yes, we need our airline partners to be viable, but more choice is ultimately good. So I think the strategic— I mean, it was, I think it was a masterstroke actually pulling off that deal. It was a great piece, and it's good for the Australian consumer. I'm taking advantage of it myself in a few months' time, so the degree of self-interest there So strategic partnerships that open up opportunities that otherwise would be closed, and, and that's where I think the ACCC has an important role with understanding that the overall benefits of these kinds of deals and, and evaluating the ones which may restrict competition. And you could potentially argue in some other markets and areas where partnerships don't necessarily work in the best interest of the consumer. So at my heart, I was started out as a consumer marketer, and so— I was going to say, Competition and consumer choices, ultimately, if that benefits, then so be it.

Keith Tonkin:Thanks, gents. The next question, or the topic I guess, is around the IPO. Race, while you're here, we'll ask you some questions. And I know that there's some airlines in the room that are going through capital management or restructuring, and no doubt there are lots of different things to consider. And I know we also mentioned earlier, or it was mentioned earlier, about the flights that Qatar was flying that were disrupted on the day of the IPO. So there must have been a nightmare to wake up to that, but there must have been a lot of work that happened before then. And I wonder if you can just give us a bit of a short description of that and the things that you were thinking about to get there.

Race Strauss:Yeah, sure. Look, it's a great story, and I would summarise it, it's a story of resilience and great teamwork, because it wasn't actually just an IPO, you know, between the Qatar deal and the IPO, it's 2 years of my life that I've— in one, on one side I've loved it, on the other side it would have been great to see my family. So, so what happened? Of course, we— the instruction certainly I was given is get the business ready for an IPO. You might recall the IPO market wasn't open. There was a lot of things going on a couple of years ago. So it was about getting the business ready. And that in itself creates a lot of teamwork, great collaboration. And doing all of this whilst ensuring that you're running an excellent operation. And as we mentioned, we've had the best OTP in the industry, we've got the best NPS scores, and we've delivered record financial results. And doing all of that whilst doing this IPO. And then when you do the IPO, let's think about what that actually entailed. You get the business ready, you're ready to go. Bain Capital says hold, we hold. They change CEO, slight disruption to the business. We then slightly divert, we do a 25% deal with Qatar. No problem, excellent deal. Back on the IPO journey, going, going, interest out there, everyone's loving it. Liberation Day. Creates huge panic throughout the investment community. Risk mitigation, you take them through the fuel hedging, you take them through the strength of the Australian market, everybody calms down. Back on track. Ready to go. Date launched, 24th of June, 23rd of June, middle of the night phone call as Dave mentioned. Unfortunately, the conflict creates a whole heap of—

Keith Tonkin:Chaos.

Race Strauss:Jitters in the market, but again, managing investors through, via risk mitigation, why it won't affect us, how our fuel hedging is strong, how our domestic market demand is robust, where the risks are and where they aren't. That risk mitigation to me was the biggest learning and keeping everybody resilient. And then of course— The IPO happens and it was oversubscribed. So the demand on the business, we are so proud that there was so much demand on the business. And of course the price launched at $2.90 and of course it's gone higher since then. So it was really a lesson in resilience, risk management, and teamwork. And people ask me, would I do it again? Probably not in a hurry.

Keith Tonkin:Thanks, Race. Um, we've— we had a little bit about connections. The Minister mentioned it, and, and Richard, I think you talked about that as well. And we want to talk about network development or route development and some of the considerations that, that you're working through when you're developing customers, um, the routes that you need to develop, the airlines that you want to attract or, or motivate to serve those other destinations? And I'll start with you from the other end.

Richard Barker:Yeah, so I think route development's really important to take a balanced kind of view. So I think arguably pre-COVID, my view was sometimes airports almost got in competitions to sort of boast about how many new airlines you've got, and there was some friendly rivalry between the network development teams, and sometimes you ended up with new airlines flying on on routes that weren't sustainable. And, and so one of the things we deliberately did during COVID and it was around risk mitigation, was when I started in the role, was in our case, um, reframe our purpose as a business, which is sustainable aviation growth for the purp— for the benefit of our community. And that sustainable aviation growth obviously has a sustainability lens, but also means that we want to grow at a rate that enables our airline partners to be successful, because arguably We had a long 25-year relationship with Cathay Pacific, for example, that we lost pre-COVID because there were 2 carriers that came in on that route and there simply wasn't— we're a small city, it's a long skinny route, and it fundamentally wasn't viable for 3 people, 3 airlines to be in that same pond. And so we're quite well recognising we want— you have my earlier comments around competition is good, we also need to balance it with the need to— can our airline partners on those routes be profitable? And successful. So it's a fine balance of domestically I'd like more competition and then understand the issues that we have with aircraft availability, etc. But when we're looking at our international network, we are quite thoughtful in how we partner. We pay a lot of attention to— Singapore Airlines is a good example where they took a big punt on us and moved from a 737 to an A350. They could have deployed that aircraft in multiple cities around the world.

Race Strauss:Yeah.

Richard Barker:And so our goal was to make sure that they were successful, that they filled business class, and I would rather have that increase that frequency to Singapore than necessarily just go and chase another airline for the sake of it. So they're doing well, and so, you know, if you look at Cairns as the centre of a clock, yeah, we're gradually filling in the hour hands on that, but I'm sort of quite deliberate and thoughtful. So I think there's a role there because often Yeah, we know of airlines out there who chase rebates and things, and as soon as those rebates ran out, they pulled out, and that doesn't help anybody. So slow and steady, bit of the tortoise thing, um, but, you know, ultimately we think it's going to be successful.

Keith Tonkin:Great, thank you. Race, did you have any thoughts on that?

Race Strauss:No, look, I think certainly long-term partnerships for us is the key. We, we want to partner with all of the— all of our airports, I think it's key. It is about sustainability. You know, it's not about chasing a short-term dollar. It's about making sure that we can provide to our customers a great service, taking them where they want to go with a route network that delivers at the right price. Now, the biggest issue that we, we have to manage is keeping our costs down. Now, there were 2 big drivers that are, that are Costs, let's say, above inflation. Now, one of them is maintenance, which is outside of everybody's control. As Boeing and Airbus has had particular issues, as everybody knows, that has ultimately required everyone to extend their existing fleet. That's led to higher maintenance costs. The second cost base for us, our third biggest cost base, is airports. We have to keep our costs contained so that we can give the consumer the best value. So, you know, I'm always pushing, and a lot of colleagues out in the audience know this, we will only invest where we can get a benefit, where our consumers get a benefit. You know, we need to manage these costs. We need to work in partnership so that we can provide these routes. But it's important, we believe, that there is level playing fields here. That, that the aeronautical pricing principles are mandated. And we do believe there should be a negotiate-arbitrate model, because when you do get into these long drawn-out discussions, nobody wins, and it slows down where you can actually set your, your networks up to. It slows down what we can provide to the consumer. So if we can address that, then I'm completely where Richard is, and that Developing the partnerships and further expanding the routes is, is the way of the future.

Matthew Schroder:Sure thing.

Keith Tonkin:Andrew?

Andrew Barr:Look, the challenge for smaller cities is, I think has been outlined for Cairns, is to be strategic.

Race Strauss:If the funda—

Andrew Barr:the economics and the fundamentals of a, of a new route are just not there, then even the best efforts of governments, airports, tourism authorities, you just can't quite bridge that gap. So it is, it is about being strategic. You can't get every airline flying everywhere you would possibly want.

Race Strauss:Mm-hmm.

Andrew Barr:So you do need to understand your markets and where the growth potential, uh, is going to be. And to the extent that from a, a government perspective, you can shape that a little through both policy and regulation and get a sense of, uh, at a national level where, uh, where the Australian government, uh, would see future interests and opportunities and, uh, where Tourism Australia is focusing, uh, its resources. Uh, so it's quite clear we are re-engaging with China in a way that, uh, absolutely necessary, uh, repairing quite a lot of damage that was done, uh, more than 5 years ago. There's also a significant step up in ASEAN, uh, and in the Pacific, uh, and as far As far as I'm aware, we are seeing record numbers of travel between Australia and Japan. So we can see where those strategic opportunities are. They're going to differ a little for different parts of Australia, depending on what your core, your core travel business is. But for, for a city like Canberra, we are going to have government, defence, national security, higher education, uh, are all going to be major drivers of passenger movements, and on top of that, we want to add a strong leisure market. Put that together, and it's what we think a reasonably attractive proposition, but we need also to work with airline partners and destination partners to ensure there's two-way travel. That's our focus.

Keith Tonkin:Thanks. Matthew.

Matthew Schroder:So with markets, global markets and Australian markets, It's definitely risk-on, uh, and I think one of the, the solutions, or the way that you deal with risk, is diversity. Um, I think it's important to have, uh, diversity of markets. Um, we should be, um, trying to attract all the markets that we can as a country and as businesses. Um, but overreliance on one single market can be very, very damaging at a time when Global trade agreements are changing and geopolitical things are changing and non-economic factors are coming into play as well, and so you don't know how those will go. Sentiment in countries can change as well over geopolitical issues and changes of leadership and the like, and we're seeing that. There's less inbound tourism into the United States based on a political decision that the American people made. So I think diversity of markets Are really important. I think, um, diversity of, uh, your, um, supply is really important as well. Um, as, um, Race was saying, uh, the issues that Boeing has— I mean, one of the issues, again, you'd expect this from a, uh, competition regulator, um, one of the challenges is there's a duopoly of major aircraft, and so, uh, it's a less diverse system. Um, Boeing has its issues, but Airbus has its issues as well.

Race Strauss:Mm-hmm.

Matthew Schroder:Partly because, you know, if you're moving away from Boeing, there's only one other choice. And so I think diversity of supply is important as well. And the third element of that diversity of markets, diversity of supply, is diversity of staff. Having a diverse team means that you get more broad perspectives and you have different ideas and you have alternative solutions to some of the issues that we face. So I think those are the The trifecta of diversity that I think helps in, in the, this current environment. I'll just pick on it, pick up on one other thing, um, that was mentioned before by Race. Um, the, with the increasing cost of capital and with the concerns over cost of living and, and prices increasing, and, you know, companies are trying to keep their costs down, it is also important that, um, monopolies get regulated appropriately. So we have, uh, Price oversight responsibility for air services. Australia's monopoly services for aviation, uh, for, uh, aeronautical, um, uh, air navigation charges and firefighting charges and the like. It's important that's a government-owned entity, but it's a monopoly and it should be appropriately regulated. Um, we need to keep those prices down as much as possible and make sure that— and sorry, I should also say, um, the ACCC's position is that the major airports should be regulated as well.

Richard Barker:Yeah.

Matthew Schroder:Well, not in a heavy-handed way. We don't want to set the prices or anything like that, but just trying to redress some of the imbalance between some of the larger monopoly airports and the airlines. What we'd like to see is efficient investment is made, but it's made efficiently and where necessary. But you do want to have the incentives for those— for that investment. So the best environment for business would be one that is low regulation, pro-business, but where there are market failures through monopolies and concentration and the like, that we take into account those and try and in as light-handed way as possible balance those monopoly powers.

Keith Tonkin:Thanks. We've got a couple of questions. I might just run through them quickly. Race, this is probably for you, if you can answer it or not. Um, VA's upcoming results will no doubt show impressive profit in the domestic market chiefly. Is a RECS purchase an opportunity to do more domestically?

Race Strauss:So obviously I can't talk about our results because we're in a closed period, um, so I can't address the first part of that question. The second part of the question, the RECS purchase, look, we look at RECS like every other investment through a very disciplined capital management framework. Would it return its cost of capital over the cycle? That's the most important thing. Rex's regional business is a good business. The problem, in my view, is they didn't invest in the fleet. That means that they've got a significant capital cliff that whoever takes that business needs to address. Now, looking at the numbers of that, that's going to give an airline like us who applies that very disciplined framework an economic issue because it's It's not gonna hit the hurdles. So if, you know, that could be removed, that's a great business. It's a great business that, yes, we would be interested in, but first it needs to be in line with that capital management framework and it needs to be in line with our strategy. So you would never not look at something like that, but the way it's positioned at the moment, I can't see it meeting those hurdles.

Keith Tonkin:Thank you. The next one is, could the panel discuss cost and revenue inflation since pre-pandemic? Both seem to be up materially and propensity to pay seems to be holding up well. And I guess the corollary of that question is, are airfares going up or down? Who can answer that question?

Race Strauss:Well, I mentioned before the management of costs for us is critical. At Virgin, we've done A huge amount of taking costs out of the business. You know, we shut down the long-haul business, we shut down the Tiger business, we shut down the freight business, we restructured our debt. We have totally transformed our business and we've put in very, very strict financial discipline in where we spend our money. If the consumer doesn't benefit, then we aren't going to spend the money. It's, it's as simple as that. That has got our cost base down to a, a very competitive level. Our job is to keep it there. There are headwinds. I've talked about airports and, and I'm very positive to your comments about the, the monopoly imbalance with airports. And I've mentioned about the maintenance costs. So we have strived to keep revenue prices as low as we possibly can, but where we do have above inflationary price increases, we of course have to increase our prices. But our objective is always to give the consumer the lowest possible price for the product that they are getting.

Keith Tonkin:Thanks. Richard, did you have any thoughts on that from an airport's perspective?

Richard Barker:Um, well, certainly on behalf of some of, certainly the smaller and medium-sized airports, it doesn't feel like I'm a monopoly in these conversations. Um, and, uh, and I think, you know, the cost control piece is, is obviously a real issue for all of us, and, and that is actually impacted particularly in the construction space, how we've thought about going about investing, because we apply a similar disciplined framework around getting our return on cost of capital, and there's well-documented increases in construction costs well above headline sort of inflation numbers. So we've been quite prudent about how we've gone about that. I think in terms of airfares, I think many of you, all of you travel in this room, and for me, I think yes, there is some cost impacts, but But I think it's the level of competition ultimately determines what those airfares are. And I know in capacity, supply-demand is a key driver of that. That if I look domestically, if I use the example of Cairns, before COVID 30% of our international visitors arrived by domestic flight. That is only back to about 18%. In many cases, because the loads are so high on the flights into Cairns that there's no capacity for them to buy. And so we hear anecdotal evidence from wholesalers and things of international visitors simply dropping Cairns off, off their destination. And so as aircraft fleet availability improves, I think that's going to lead to hopefully lower domestic prices because it's pretty expensive. If you've flown this afternoon back down to Brisbane, costs a lot of money. And airline charges are fixed, but ultimately then becomes down to supply-demand issue. So, you know, I think supply is going to really help fix that. The airlines we know are disciplined and focused, and we— labour's quite a high cost of things like airport security, which is a pass-through charge, high labour component. We're really mindful around how we efficiently schedule our— that airport security. So there's a good balance of efficient processing for passengers, but not at the expense of blowing out costs, which then ultimately get paid by those same passengers. So it's, it's a constant balance.

Keith Tonkin:Thanks very much. This one might be for you, Andrew. What influence do you think governments have on international travel to Australia? Is it currently an opportunity or a risk?

Andrew Barr:Well, clearly significant influence, and you can read a lot into the Prime Minister's recent China trip and overseeing the signing of the Tourism Australia partnership with Ctrip. Now, that's been a while in the making, but just sitting below that has been similar agreements that have been struck at state and territory level. So I was in China about 3 months before the Prime Minister's visit. I know a number of other first ministers at state and territory level have also been engaged. So there's No doubt that, uh, our broader, uh, international engagement framework as a nation backed by the states and territories who, uh, are the, the real doers, uh, in the, uh, in the Australian political system, um, we're the ones on the ground, uh, striking the deals and the partnerships, uh, within an overarching framework. So clearly the better Australia's international relations with our, uh, our major trading partners and our major sources of tourism, uh, clearly, uh, the, the more chance we're going to have to grow those markets. So I think it's important that that leadership comes, uh, you know, from prime ministers, uh, and first ministers at state and territory level.

Keith Tonkin:Thank you. We've got, uh, just a couple of minutes left, and I wonder, um, it's probably pretty topical given the recent events with Qantas, but does the panel think the continuous rise in cybercrime pop up in the list of risks that you're dealing with generally? Is it something that's important? Can you maybe talk to that? Matthew, have you got something to say?

Matthew Schroder:So I mean, we have the National ScamWatch Centre. Part of that is around cybercrime. I think as data becomes increasingly valuable and all pervasive, and as we increasingly use generative AI, there's going to be greater opportunities, but there will be greater risks. As the value of that increases, the bad people want to get that data and information. I think it is a really major issue for markets, because if people start losing faith in the security of the data that they're— that's held by businesses, then that breaks down confidence in the markets.

Race Strauss:Great.

Andrew Barr:Well, look, government holds a lot of data. There's a lot of risk associated with it, and it would be the nightmare of every, every organisation to have such a data breach. But just serves as a reminder to us all that any of our systems that are not appropriately secure run, run this risk. And yes, the reputational damage and just The sheer cost for organisations and governments is such that you've got to take this very seriously.

Keith Tonkin:Sure. Race, last one.

Race Strauss:Look, on cyber, it's absolutely a risk. I mean, we spend, as does most people in this room, tremendous effort, resource, human capital, but unfortunately, as fast as we work, and we work pretty hard, they're working faster. So I'm not sure where this lands. Is— I don't know the answer to this, but something's got to change. Something's got to change because it's too attractive for them to come in. There's, there's— it's almost no regrets. They can try, maybe they get ransoms, maybe they don't. As a Virgin, we invest significant money in ensuring our systems are protected. I know everybody does. We truly value our customers' data. Um, it's a continual trend, it's a continual investment. No matter what we do, we know they're going to get better. We have to keep doing more.

Keith Tonkin:Great, thank you.

Richard Barker:Yeah, I think I'll just add one quick comment. As a piece of infrastructure, um, we're under continuous attack, and from sophisticated— and these are not just, you know, teenagers in their bedroom hacking away. These are sophisticated state actors. So it's a big deal for us, um, and we've seen examples overseas where key elements of infrastructure have been taken out, and that shuts down a lot of things. For sure.

Keith Tonkin:Got one last question for Matthew and then one for Andrew and Richard. So Matthew, what change— what needs to change to allow the ACCC to undertake a greater role in airport pricing?

Matthew Schroder:Um, so the ACCC is a law enforcement agency and a regulatory agency. We're not a policy agency. Um, what it would require is a decision of government. Um, so, um, you may want to specify I'll speak to some of my colleagues from the Department of Infrastructure who are at this forum and suggest that to them. Um, but, uh, yes, look, we think for the major airports, again, um, we think that there should be some additional form of, uh, regulation in a light-handed way that would, that would rebalance. Um, but that is a policy decision for government.

Keith Tonkin:Great, thank you. Okay, this is the last one, the pitch. So Andrew and Richard, um, If you had a buffet of destinations to connect to over the next 5 years, which new destinations would you prioritise?

Richard Barker:Well, I think an easy start would— we should be completely aligned— is direct services between Canberra and Cairns.

Matthew Schroder:It's on my list.

Richard Barker:Which we used to have. And we have a couple of former directors who live in Canberra who have holiday places up here who I know would be frequent visitors on that flight. So I think that's as the aircraft capacity comes in, there are That was, has been a seasonal route in the past. It has been profitable. It's around getting the right aircraft type with the right frequency on those routes. So domestically, there's not that many points we aren't connected to, but the Canberra is an obvious one. And then internationally, there's, you know, in our case, I mentioned earlier, long-range narrowbodies based here can reach a whole plethora of large destinations in Asia. But we also think there's a role for, you know, working with our partners like Singapore Airlines as an efficient way to connect into India, because they have a better network. We're never going to have— they have flights into 8 cities in India. We're never going to have direct flights from Cairns to 8 cities in India. So how do we work with our partners? We know Indian travellers love Singapore Airlines. So how can we use existing relationships to leverage those? But for us, it's— Asia is an obvious opportunity.

Matthew Schroder:Thank you.

Richard Barker:The Vietnams, places like that, and secondary cities in Japan, obvious opportunities for us.

Keith Tonkin:Great, thank you.

Andrew Barr:Well, domestically for us, how could I go past Cairns, but, and the Sunshine Coast? So I'm very pleased to hear the Queensland Minister announcing the Connect Queensland Fund. So that's a conversation we'll definitely want to have with the Queensland Government, with the airports, and the various tourism authorities. But Canberra-Sunshine Coast, Canberra-Cairns would be, I think, very well appreciated. Big population centres. I'd like a little bit more frequency on Adelaide, for example, and there's only currently one airline flying direct Canberra-Perth. In an international context, our priorities have been New Zealand, principally Auckland, Singapore, and Hong Kong, to build on Nadi and Doha that we, we currently have or will be having direct services from December.

Keith Tonkin:Thanks very much. Been a pretty wide-ranging discussion. I really appreciate the time that you've given and the answers that you've provided to the team. Thanks very much.

Richard Barker:Thank you.

Matthew Schroder:Thank you.

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