Navigating Growth and Resilience

Transcript

Oriel Morrison-Higgins:Lovely to be here with you all today. We've had a couple of speakers already this morning. Minister called it a complicated world, which is clear, we're in a complicated world. Brenton said it was a wide world out there. Simon scared me with some of his statistics, I have to say quite frankly, but in saying all of that, it's not all negative. No. But there is a lot of stuff that we're dealing with in the airline industry at the moment. We're seeing costs going up, margins are being squeezed, a lot of investment out there, right, a lot of it especially in airports. We're seeing a lot of investment coming in at the moment. And on top of all of that, we've got increasing government regulation. None of this is an Australia-specific issue, none of this is a regional issue, this is an international issue that airlines are faced with. So I wanted to ask the 4 of you to help me set up our conversation today by talking about, out of all of those things, what is the biggest tension that we're facing right now? Stephen, let me start with you.

Stephen Pearse:Thanks. It's, uh, what we call the wave of costs. So if you look globally, whether it's increased fuel prices, whether it's new government regulation, uh, here in Australia recently we've seen an increase in the passenger movement charge, The AusCheck security background checks for aviation workers went from $92 to $262 per employee. Um, we're seeing just every twist and turn additional cost being added to the system. Uh, we've got sustainable aviation, uh, measures coming, which we totally support. We get why we need to do that. Uh, but again, it is an additional cost into the system, double-digit rates of inflation across many of our inputs. And what the worry is, is that we don't want air travel to be something only the well-heeled can do. I remember as a kid, only, you know, well-to-do families flew. The rest of us caught the McCafferty's bus from Townsville to Melbourne. I don't recommend doing it. But what is fabulous these days is everyday Australians and New Zealanders have now got the option to fly, to reconnect with family and friends, to tick off their bucket lists, and it's great for jobs in the economy.

Matthew Schroder:Mm.

Oriel Morrison-Higgins:Mm. So costs?

Stephen Pearse:The wave of cost and additional regulation, and, you know, our aviation ombudsperson, Sam, who we work very closely with, we have a new customer regime coming in over the top. So things that airlines struggle with is additional complexity, Greater regulation over their operations, but in a very competitive market. And I think we've got more than 60 airlines that, that compete for business around Australia. Competition is vital, but there's just continual lead in the saddle. And you saw airfares are particularly flat, but these costs keep growing, and that rubber band is getting stretched further.

Oriel Morrison-Higgins:Something's got to give. Stephen, jump in here because I know this is something you're passionate about too.

Stephen Beckett:Yeah, absolutely. Look, um, and I, and I think, you know, it's just a sort of overarching context. It's worth reminding ourselves, um, IATA had its global AGM just recently, and overall airline profitability is essentially halved as a result. You know, the forecast for 2026 from about only $9.60 per passenger down to half of that. Um, you know, about $4.60, I think, is the, is the estimate. Um, and so in that context, and in terms of some of the stuff that, um, Simon was putting up, where price continues to be the main driver driving discretionary air travel, it's absolutely right that we've got sort of, you know, structurally a very strong industry, interest in travel. Australia is well positioned both as a destination and also in terms of the local market. But, you know, it's very sensitive and it's— everything is fine until it's not fine. And so all these little chips away, and Stephen is exactly right, you know, there's a wave of above-inflation costs chipping away into what drives the cost of airfares. And at the end of the day, the passengers have got to pay. So right now we've had the Middle East crisis on top of everything else, and obviously that's put a lot of volatility and sensitivity into the market. It's been weathered well until now, but you've got this kind of crunch, and I think, you know, the— look, I'm optimistic, but also in the sort of short term, it's the next— the second half of this year and going into sort of, you know, depending on what happens obviously in the Middle East, second half of this year going into the first quarter of next year is going to be quite instrumental, I think, in terms of where exactly that trend goes in a sort of shorter term before, you know, long-term macro, yes, it will still grow, but sensitivity in the meantime, because obviously if capacity is reduced, then all of a sudden the numbers don't look quite so great.

Oriel Morrison-Higgins:So just before I move on from you, Stephen, um, you have an interesting perspective looking at Australia, but also from the international side. How different is it here versus what's happening out there? Is it very different?

Stephen Beckett:Look, I think it is in many respects, and I think again, I think some of the perspective that Simon Elsegood from CAPA put up there shows that they're really kind of two distinct markets, right? You've got the domestic market in Australia driven by a lot of more sort of local factors, the state of the Australian economy. Obviously that's plugged into international, but Australians' So the propensity to travel is very high, driven by a sense of wealth, you know, a lot of it driven by housing, you know, how people feel, price of iron ore, etc. All the usual stuff sort of here in Australia. When you flip that out and think of Australia as a destination, then you've got many, many more variables because you've got all the different markets in terms of how they look at Australia. So the cost, it's not just the airfare cost, it's actually the cost also of travel and, you know, your accommodation.

Matthew Schroder:Yeah.

Stephen Beckett:accommodation, everything else you do in Australia. Australia is an expensive destination. So, you know, we talk about the way we're costing aviation. It's also a general cost that makes Australia quite a challenging market. It's an attractive market, but it's also quite a challenging market.

Oriel Morrison-Higgins:So, Simon, you come from a slightly different perspective as well. Talk to us about what you're viewing when you're looking at the overall industry and what you're struggling with.

Simon Westaway:Look, there's tensions and costs everywhere. Right, um, from households right through.

Oriel Morrison-Higgins:Mm-hmm.

Simon Westaway:I mean, airports, I, I don't want to— I'm going to talk a little bit, a little bit of a different perspective here as well, but there's also a tension around growth and the opportunity, right? 62 international airlines service this country now, 13 international airports around the country, and it'll be 14 when Western Sydney kicks off in October with their international flights. That's pretty amazing if you think about that. Many of us in this room have been around a long time, like 14 international airports are Australia facilitates traffic. Now, I know some of that is more punching travel up into Bali, but that's still, that's still international travel, and very much so. So I think it's— we've got to put a bit of perspective around it. I mean, one of the things the airport sector has been really focused on is how we best facilitate the growth. I mean, one of the titles of this session is around resilience, and I think we're an incredibly resilient sector, but I think there's some real learnings that came out of COVID around the way that Australia takes a lot longer to recover. And I guess I've probably been a bit of a— was a bit of a personal critic myself during the COVID years in terms of just how quickly we could get back and recovering, because we're at the end of the line, um, to, I guess, to Stephen's point. Um, but, you know, the Australian public's made a decision that that bucket in their, in their household budget is going towards travel.

Oriel Morrison-Higgins:And, and that looks like, if anything, it's probably grown, not reduced, despite the, despite the COVID It's interesting because airlines and airports have quite a complicated relationship, shall we say, when it comes to pricing.

Simon Westaway:A bit like second cousins.

Oriel Morrison-Higgins:Are you feeling uncomfortable being surrounded by—

Simon Westaway:No, not at all. No, look, and I think quite frankly it's become a very mature discussion. Look at the announcement last Friday with the Qantas Group in Melbourne, and I was there. Obviously we had the A350 come in. It was nice to get a late invite and watch, watch the prototype come in. It was pretty amazing, and that's a real step change in aviation, not just for the Qantas Group, but I think for Australia in terms of long-haul travel. But I mean, that deal that was struck between Melbourne Airport and, and the Qantas Group over a 15-year deal, it's aligned to the infrastructure build that's happening there— the new runway, the new terminal facility, the new gates, the new hardstand for all those 350s that are going to come on and be based somewhere. So I think Qantas gave a pretty good smoke signal as to where they see the future for that aircraft in Melbourne. So I think really, you should have commercial tensions every day of the week. You have it in your own home, you have it right around the place. And, and the reality is we've got a really good light-touch economic regulatory model. The PC, the Productivity Commission, has done 4 investigations into this over the best part of the last 2 decades, and we continue to see the status quo as the best way to move forward. And I think the stats that Simon threw up before— resilient, growing, I argue the 5th pillar of the Australian economy is the broader visitor economy. So happy to have a debate over a good South Australia red anytime, or whether or not that's the right way to go.

Oriel Morrison-Higgins:I don't think anybody would argue with you there. Good South Australia red every time. Matthew, we're coming to you in a second, but Stephen, you wanted to—

Stephen Pearse:Look, yeah, Simon's touched on some things. The light touch is probably a little bit featherlight for our liking, but in terms of working together, Uh, there— we often do work together much more closely than people expect. Just today, uh, Airlines for Australia and New Zealand and, uh, the Australian Airports Association, we've both written to the CEO of Airservices Australia today saying, what is going on? We're talking about resilience. Uh, we are constantly seeing an inability to staff the air traffic control towers around the country. Uh, and that is leading to disruption and considerable disruption for airlines, for our passengers. And it's not just a one-off. It's, uh, 15th of January this year, more than 60 flights were cancelled because 3 people called in sick. There were, um, then, you know, more than 100 flights delayed. People missed international connections. We know that there are many factors why disruption occurs. But this is ongoing. It's persistent. And it unhelpfully came— listen, the most recent one on the weekend most helpfully— unhelpfully happened the day after they announced they were going to double their fees. So we want to be collegial. We do want to work together. Everyone has to do their bit. But come on.

Stephen Beckett:Yeah.

Stephen Pearse:You know, there has to be some restraint, and there has to be some decent service provided before you can double air services fees.

Oriel Morrison-Higgins:Well, let me bring you in here, Matthew. We've laid the scene quite nicely, but of course the ACCC has been quite vocal when it comes to pricing, you know, on many different levels.

Stephen Beckett:How—

Oriel Morrison-Higgins:can you give the room a little bit of insight of how you actually work out whether a price rise is justified? And is this in fact the biggest issue that you from the ACCC side is dealing with at the moment within the industry? Yeah, look, I think it's a really good question.

Matthew Schroder:So just very quickly on the industry, um, I am optimistic about the industry. Um, I think it has a great future. It's a growing future, as the previous speakers have said. Um, I was at this forum last year in Cairns and said 2 of the issues facing this industry in particular is its sensitivity towards rising geopolitical conflicts and energy fluctuations. That aside, I mean, these are— the current conflict is temporary. Brent oil prices went down $9 today, so, but who knows what that is, and we are in a very uncertain world. But I think it does have a really big future. One of the things when we're looking at pricing, you have to acknowledge that this is an industry stack, as they call in tech, or an ecosystem.

Oriel Morrison-Higgins:Yeah.

Matthew Schroder:Ecosystem, if you want to be organic about it. You know, you've got aircraft, airlines, fuel, airports, Airservices Australia, and Border Force. And all of those businesses need to be profitable. They need to get return on their capital. They need to have the money to be able to invest. And so there's a lot of investments going on. The airports are investing heavily. The airlines have been investing heavily in new aircraft and the like. Airservices has been investing in technology and in increasing staff. So what pricing we would set is one that's commensurate with— if we're regulating a private industry, it's what's commensurate with their commercial risk, gives them a rate of return that's commensurate with the capital they're deploying and their risk profile, but isn't excessive, but enables them to be profitable and make those investments. So that's where we start.

Oriel Morrison-Higgins:Does the ACCC need more power, in your view?

Matthew Schroder:Do we need more power? No. In total, I don't think we need more power. I do think, and I disagree respectfully with Simon here, while I believe that it should be light-handed, I believe that there should be more regulation of the larger airports. And I've got to say, there is a difference. A whole bunch of airports, a lot of regional airports are losing money. So this isn't a— all airports are making a lot of money.

Simon Westaway:It's worth a chip in on that. We can tick-tack about the big 4, and there's a big 5. We've allied numbers. There's a lot of growing airports. But I mean, we did some work with Basil Allen. We put in a pretty significant sub into the— there's a productivity commission going on at the moment into the determinants of regional airfares, which is a bit of a punchline if you think about it. But the reality is 3 quarters of regional airfields are losing a lot of money. These are airports run by local government, so it's the ratepayers that are subsidising these. Um, the median loss is $520,000 a year and growing. This is their data, not our data, um, and we've had it all verified. And most, pretty much every single regional airport has put on the back burner any type of, in many cases, necessary capital infrastructure and uplift. Yeah, well, what does all that mean? I mean, around about 20% of Australians fly in and out of regional communities. Pretty much every single regional airfield supports either a rural flying doctor or some type of emergency air ambulance, depending on the state territory setup. There's military use, obviously commercial use in that as well. So we've got a few different speeds when it comes to aviation in this country, and it's a really, really important point. And Rob, from regional airlines will be on later on, and I think we've got a cigarette paper between us in terms of some of the issues.

Matthew Schroder:So, going back to your question, no, I don't think that we should be involved in most of the airports. For the major airports, yes. Our position is that they do have monopoly power. Now, that could be changing with Western Sydney and—

Simon Westaway:But that's not— the PC, the last 4 inquiries, has not said that. So I hear where the Commission's coming from on the argumentative, but at the At the same time, we have an organic ecosystem, as you— a great word you used before, which is working, working well for broadly for the sector. I mean, you're seeing more Australians travel than ever before. There's a great stat Simon put up before that what, almost 60% of the country travels each year some way, shape, or form by air, be it on a turboprop, not many of them left, but in terms of a regional jet or a larger aircraft, or they're taking the kids off to Bali. I think we've got to look at our— look at this ecosystem and go, where are we going? We struggled out of COVID really badly on a range of fronts. And I think as an industry, we all needed to step up. So I'll probably get in trouble for this, but I think it's very, really important that we do know that there's this competitive dynamism in the aviation sector. Look at the Melbourne Airport Qantas agreement last Friday. If that wasn't demonstration of 2 big parties working together for the betterment of travellers, again, I'd argue the point.

Stephen Beckett:I'm going to sort of jump in and also beg to differ, because I think, as has already been discussed, it's not a case of one size fits all. So 94% or 92%, I can't remember the exact figure, of international visitors to Australia come into the 4 majors, and that figure hasn't really changed over 20 years. Oh, it's changed.

Simon Westaway:That's a shocking—

Stephen Beckett:No, it has. It's been pretty stable for 20 years. If you go back and look at the It can go up. The point being, right, and whether it goes to 93%, 94%, it doesn't change the argument, or goes down rather. The major airports, and I think, you know, Matthew used the word ecosystem, let's stick with that. You've got a whole travel ecosystem here, and if too much value accretes in one sector, that can distort the overall aim, which is for all of us, which is to try and promote aviation growth. That is the kind of situation that we have at the moment with respect to the major airports where there's considerable value accretion in that sector in particular. So coming back to regulation, coming back to is it one size fits all? No, it's not, because regionals are, as you rightly point out, Simon, they're struggling.

Simon Westaway:It's more than struggling.

Stephen Beckett:And I think that morphs into another sec— into another part of the conversation, which is, okay, well, what's the What's the role of government here? Because airlines, if you only look at every single sector of the passenger journey in isolation and say everyone's got to sort of do its bit, you perhaps lose some of the perspective, which is aviation is also an economic multiplier.

Stephen Pearse:Mm-hmm.

Stephen Beckett:By its very nature, as soon as you get an air service into a region or a city, now on behalf of internationals, it's about $700,000 dollars per widebody, every single one that comes in, of added economic value add from the spend from the visitors. And that's not the airfare, that's just their spend coming in. So you can take that into the regions, same thing. You put an aircraft into a marginal route in regional Australia, the airport may lose money, the airline may be struggling, that service is going to stay stimulate that local economy. So I think, you know, in terms of government and the industry, that's where you've got to take a bit more of a holistic view and say, okay, well, we need that service, so how do we support it, right? It's not necessarily just the players in there that can do that job on their own.

Matthew Schroder:So the ACCC doesn't want to set the prices at airports. Firstly, um, and I think I was the first to point it out, a lot of airports are losing money, and a lot of regional airports, so we don't want to get involved in that at all. Where there is a power imbalance, then we want to have as light-handed approach as possible. So what we would want is not to set the prices. We'd want there to be commercial negotiations. That's how the ecosystem works most efficiently, and that's how a free market system works. But where there is, or if there is, I should say, if there is an abuse of market power, then you want to have recourse to something. And so—

Simon Westaway:Correct.

Matthew Schroder:Our position has been for a number of years that you would have recourse to commercial arbitration if they couldn't come to a commercial deal. So if Qantas comes to a commercial deal with Melbourne Airport, that's fantastic. If people are applying the aeronautical principles, pricing principles, and that works out, that's great. But if they're not, then it goes to a commercial arbitrator. But that would only be for the biggest airports.

Stephen Pearse:And we tend to agree, commercial arbitration, having an independent, you know, voice that has a look between the power of, you know, an airport and Uh, an airline, and it's not like if you're having a barney with one airport, you, you know, you go from the Telstra airport to the Optus airport. Um, it's, it's a monopoly, right? And, you know, not all members, not all your members, but we've seen some pretty blunt negotiating, uh, instruments used during negotiations, like, um, an airline that didn't have an agreement being sweated and refused access to aerobridges.

Matthew Schroder:Mm-hmm.

Stephen Pearse:So that people with disabilities, pregnant women, in wet season had to go down the stairs. And that's the stuff we don't want, that sort of abuse of power. And that's why I think we are very supportive of the ACCC. And we think the ACCC is the expert independent body that should be making these decisions. And to your point, it's not all the same. Regional airports are very, very different. to the big ones. Same in aviation. You know, the— a value carrier or a low-cost carrier, if you have a one-size-fits-all approach, we know it's the value carrier and the low-cost carrier that will struggle with those additional fees and charges. So what we do like about the ACCC's approach is in recognising it doesn't want to be be involved. It does recognise the commercial failure when somebody has market power and there's no alternative to go up the road to someone else.

Oriel Morrison-Higgins:Simon, what's the answer when it comes to regionals?

Simon Westaway:What's the answer for regionals?

Stephen Pearse:Yep.

Simon Westaway:I'm a regional guy, um, quite frankly, and I used to work in a significant regional airline in the last decade— century is now, not year. I think you've almost got to reset it. In some respects. We have a significant problem in this country. Once you get beyond about the top 20 airports, I'll take your point about the growth, like these 92%, 93%. I mean, I think Adelaide, Gold Coast, Cairns, there's a whole bunch of others reducing that. You can fiddle with numbers all day. But in terms of the regional airports, we have a real challenge. Your Dubbos, your Mildurahs, they're all doing 200,000, 250,000 packs. They've all got to stay compliant. You know, they've got to have decent fence lines, um, because Home Affairs wants them to have that and all the rest of it. So it's an issue. And there's some different models around the country which are working quite well. I think— I mean, WA is lucky because they've got the resources built, um, and not that, you know, the resources, um, and the, um, the rebates have come through. Um, but you've got to probably got to have a look at some of these different models, which the PC is doing now. And it could well be that, like, they have We have fare subsidies in the west, fare subsidies in Queensland and New South Wales, combo of regulated routes with only one operator, or a milk run can be operated, and therefore you have your, your sort of your fares underwritten. Yeah, I mean, we may have to— we'll get to that, because you also got to think about air ambulance, you've got to think about rural flying doctor, you also got to think about the military. The military increasingly using all these airports for testing and also to protect us. Sounds of freedom. And so I think it's a broader issue. You're not going to nut it out in the next 15 minutes, but it's one that I think hopefully as an industry we can talk a bit about more because it's really, really important to us. We have 350 airport members. Obviously they're not all Sydney, Melbourne, Brisbane, Perth, and Adelaide, so there's a whole bunch of other airports out there.

Stephen Beckett:I mean, could I just— one each. So regional Australia is, you know, much as I often don't like to sort of say how Australia is unique to the rest of the world, in the context of regional aviation it is a little bit unique though, however, because ironically, you know, if you go to and you look at some of the models supporting regional aviation in the US, for example, you've got cities of 400,000 people where services are being dropped because they're not economic. You know, it's a whole level of different scale in Australia where, you know, 400,000 is virtually a capital city. I mean, there's very few regional cities with populations even north of 100,000, let alone that.

Simon Westaway:Interesting.

Stephen Beckett:And so when it comes back to sort of taking that sort of holistic and potentially sort of saying, okay, we need aviation service to generate economic activity, you've got to look at it through that different lens, which is, you know, on its own there is not enough, not enough market to sustain it. I think as you rightly point out, WA is an interesting example where you've got Generally, you know, contested routes won by— and not necessarily fixed fares, but sort of, you know, within a range, because those markets don't stimulate in the way that competitive major routes or international routes get stimulated with price and other factors.

Simon Westaway:There is a flip side to this. So one of the things in Simon's chart was that growth in the small remote airports. So that's FIFO. That's charter. That's growing 3 times on the numbers in terms of what's occurring in the domestic market. So pretty amazing what's going on there in terms of just, you know, the Iron Triangle. It's a great after-dinner conversation thing, talk about the Iron Triangle. 16% of the country generated out of the Pilbara, and there's what, 10 going to probably 15 airfields within that area, which is an issue as well around, you know, we're in lockstep with the airlines around this, around air services.

Oriel Morrison-Higgins:Yeah.

Simon Westaway:services and better coverage and that up there is, you know, it's fuelling the nation in terms of all the iron ore that we're still pulling out of the ground.

Oriel Morrison-Higgins:Commodity prices are surging.

Simon Westaway:Spot on.

Stephen Pearse:And look, it's part of— we know thin routes, marginal routes tend to be on regional connections because very high fixed costs spread over fewer passengers. And it's part of the message we have for the Australian government, for example. When you increase a fee or charge, it hits different routes differently. And we know a $10 fee can change the dynamic of a route, which we've just seen recently. You know, I find it extraordinary, and we've seen, you know, Jetstar recently review some of their schedules. They published a flight from Sunshine Coast, I think it was to Auckland. Their sale fare was $209. The bit that Jetstar got was $50.60. Nearly $160 went in fees, charges, taxes and otherwise. And I think ordinary Australians would be absolutely shocked to understand—

Stephen Beckett:Yeah.

Stephen Pearse:just how much they are paying in fees and charges on their airfare. And as a result, that route is now suspended. Those small charges of $10— well, they're not small collectively. To your point, the average seat's earning about $4.50 globally. You put a $10 fee on it, it changes the economics for some of these routes. Same thing for Cairns. So those routes are off. Sunshine Coast and Cairns are absolutely tourism economies. And trans-Tasman travel's our number one inbound source.

Oriel Morrison-Higgins:Mm.

Stephen Pearse:So understanding just how you can apply a fee, a charge, or a regulation, and it will impact the regions much more differently than it will the Triangle, is all part of good public policymaking. And that's why I think, to the ACCC's point, we have to have a particular view about the big— the bigger—

Simon Westaway:We also have to have a particular view about the modernising the border and all that stuff too.

Stephen Pearse:Great.

Simon Westaway:Like, I think you just got to look at this holistically. Okay, I'm obviously representing the airport sector here, the bigs and the littles, right? We've got both. But I think the work that's been done on that border modernisation, and that's why I said thank To the early question, Oriel, around what's the challenge, is like managing this growth. I mean, the growth is there. I mean, we're going to go from an international visitation trips from 45 million now a year, the numbers there, will go up to 86 million by year 2040. We're not making those figures up. This is exactly where we're going to go. So you think about that. You think about all the extra people punching through all these airports. We'll have more than 14 international airports by 2040, I can tell you that.

Stephen Pearse:Yeah.

Simon Westaway:Uh, and in Australia, which is great news. And I think the point is, how do we facilitate, manage that growth, do it obviously safely, securely, and all the rest of it? Sorry, Matthew.

Oriel Morrison-Higgins:And affordably.

Simon Westaway:And affordably.

Matthew Schroder:Yeah, spot on. Building on what, um, Simon was saying, and Stephen as well, um, looking through the ecosystem or stack, part of that is government. And so, you know, we've talked about airports, we've talked about airlines. Aircraft is a problem. There's only 2 major producers and there's shortages, and that plays to costs and the viability of businesses and all that sort of thing as well. Fuel, we've talked about already. And then you get down to things like Airservices Australia and Border Force. I won't talk that much about Border Force. We don't have a responsibility there. But Border Force adds cost to that that should be as efficient as possible. With Airservices, where the ACCC does have a role in reviewing Airservices Australia, we need to make sure that—

Stephen Pearse:That's right.

Matthew Schroder:Um, the investments that Airservices have made are efficient and timely. What we would expect is that Airservices doesn't charge users for inefficiencies. They should be able to get a reasonable return on their capital, again, as we said, commensurate with risk, though their risk is lower as a government-backed agency. But they do need to make investments, and so they need to have a reasonable return on their capital. Um, return on those investments. But where they have been inefficient or those investments aren't appropriate and the like, then they shouldn't be expecting the users to pay for that. That's something where a government entity has done, and that's a decision for government to make. And so the government would have to pay for those rather than users. So one of the things that we'll be looking as we're doing the assessment of their pricing, and that's just the draft pricing because of the nature of the legislation It's not great legislation, but the role that we'll be taking is to review everything that they have to make sure that those are efficient costs and only efficient costs are passed on to the users.

Oriel Morrison-Higgins:I want to take this conversation, I want to turn it in a slightly different direction here.

Stephen Pearse:Let's go positive.

Oriel Morrison-Higgins:Let's talk about potential new entrants. You know, specifically when we have a look at what's happening in the Australian market, you know, Simon talked about about it, 3 potential new entrants, and not in the, you know, distant future either. These could be happening this year, next year, the year after. Um, let's talk about it from an airport's perspective first of all. What does this mean for— obviously we've got Sydney, Western Sydney coming online, that's going to play a big part in this.

Simon Westaway:Yeah, it seems to be playing a role strategically as well in terms of— so October it kicks off, obviously there's 4 airlines that operate out of WSI. All of us in the room own this airport. It's a Commonwealth asset. And, um, yeah, that's— it's great. I mean, it's, um, great to see that level of development. And so in the Melbourne Basin, we'll have 2, 2 in— 2 international airports with Melbourne and Avalon. And obviously in Sydney, we have Sydney and WSI. I think they'll both compete well against each other. I think it's good. I mean, maybe— I don't know, I'm not sitting inside the war rooms of some of these fledgling airlines.

Stephen Beckett:Mm-hmm.

Simon Westaway:Grab me afterwards, because I used to. But I think, um, I think it's interesting, some of the discussions around WSI, um, and, and, you know, new LCCs and that sort of stuff. I think probably the bigger challenge is for all of the models is we have the breadth and depth to operate more competitively domestically. I think everyone knows it and recognises it. There's been a number of models that over the years, a couple have gone okay, most have fizzled and burned. I think the airports do definitely would embrace more, more airlines. There's no question we do embrace it internationally, and obviously domestically we'll do that. But obviously we work really closely with our major airlines as well. Let's see what the comers are like, and are they prepared, and have they got decent-sized wallets? Because I think ultimately that's the challenge, isn't it?

Oriel Morrison-Higgins:Decent-sized wallets. Yes, indeed. Stephen?

Stephen Pearse:Look, competition is a great thing. We know what it's done in Internationally. We know what more liberal skies mean.

Matthew Schroder:That's what I like to hear.

Stephen Pearse:It's good for consumers, and we think that's a great thing. But what we want are entrants into the market that have the wherewithal to stick and stay. We don't want the hope and praise of, I'm going to get a couple of 737s, I'll stick it here, we'll test and run, and then it falls apart. Because we saw that happen with Bonza and others, and it leaves a trail for your airports. Of unpaid fees, at least.

Simon Westaway:Yeah, we had fees with Rex and Jet.

Stephen Pearse:Consumers who are stranded. You know, we saw one of our members, Rex, go into administration after trying to compete on the Jet services. Competition is good, but it can't be a hope and pray strategy. It has to, in my view, service real markets. It has to be real competition. 'Cause I think these sugar-hit entrants actually provide a disservice for certainty in the industry and create a trail of destruction for others to pick up later on.

Oriel Morrison-Higgins:So you just, you just commented on Stephen saying, you know, you're glad he's saying competition is good.

Stephen Pearse:Is it not—

Matthew Schroder:Well, I'm from the competition agency.

Oriel Morrison-Higgins:You are. Yes, you are. Yes, you are. Is it not a little bit concerning though that Well, we welcome, as, you know, as consumers, we welcome, you know, competition obviously for obvious reasons. But the fact that there are 3, there's— we're not talking about one potential airline hitting the market, we're talking about 3 potentially over the next couple of years.

Matthew Schroder:Well, um, we're talking about potentially more than 3. True, but true. Um, they may not be serving the same sectors and they may not be competing in the same Mm-hmm. Um, you know, in the way that there are, um, non-scheduled flights that aren't competing with scheduled flights, as the, you know, some of the FIFO stuff is booked in and the like, and so it's not really competing with, with other areas. So you can get different types of models that aren't directly competing with others, and so that can come in. I think there have been, um, a couple of really positive things for competition in Australia. Firstly, again, as I said, I'm very optimistic about the industry. And so the industry is growing rapidly. And so what may have been, you know, it may have been the case that 30 years ago we could only have 2 airlines. And when Impulse and Virgin entered, when there was Ansett and Qantas, it ended up with 2 airlines. But that was 25 years ago. We've grown massively. The economy's grown, the population's grown, the propensity to travel has grown. Also, Western Sydney Airport has unleashed a new facility that's available. I think the slot reforms that the government undertook at Sydney Airport have been really good and helped competition because, you know, they provide a more competitive framework for obtaining slots. So I think those things are positive. We were given a monitoring role of aviation when Virgin financially collapsed, and part of that was ensuring that nothing untoward happened and to give confidence to capital to to come in. And so Bain Capital put their money in, they did extremely well, great for them. They took the risk, it's capitalism, and they got a great return. Um, we— our ongoing role will be about, you know, ensuring that people obey the rules and that competitors can come in. And I think that sends a positive signal to international capital and domestic capital about that.

Stephen Pearse:Yeah.

Matthew Schroder:Um, so I agree it would be unfortunate if an airline came in and went out, but it's very hard to I know, you know, when Virgin came into the Australian market back in the late '90s—

Simon Westaway:Late 2000s.

Matthew Schroder:It was— sorry?

Simon Westaway:2000.

Matthew Schroder:2000? 2000, I'll say.

Stephen Beckett:So very late '90s.

Matthew Schroder:So when Virgin came in, you know, there was a question about— there's Ansett, there's Qantas, both of them were very established carriers with all the bells and whistles and all that sort of stuff. Was Virgin going to go out? Was, you know, Impulse was a much smaller A smaller player, but, you know, who was necessarily going to go out? So, um, we don't pick a side. Um, what we want to have is the preconditions for competition, and so we do have, um, very liberal rules around ownership. You can have foreign ownership in Australia of an airline and everything like that, um, the capacity available and no restrictions, and then hopefully people will take their chances, deploy their capital, and succeed.

Oriel Morrison-Higgins:Hopefully.

Simon Westaway:Yeah, the building blocks are still there, Oriel. I think it comes to the time. Like, um, all of the airports have common user facilities, right? I think this, um, back in the days in the late '90s, early 2000s, um, when Impulse kicked in and then Virgin and then Ansett, and we had 4 domestic airlines that quickly moved back to 2. Um, the shell of Impulse, as you know, became Jetstar in terms of the ACC. Um, and there was a lot of route development out of that period that's, that's kicked on. I think The airports, I think, have come a long way, and we're working through what that looks like better too. So I think the building blocks are there. Look, it's ultimately about these business models and how they're going to make them run, and the strong management.

Oriel Morrison-Higgins:And there's a lot of investment coming into the airports as well, which brings me to my question for you, Stephen, because obviously, you know, it's not just what's happening domestically, it's also on the international front. And what are your members saying about Western Sydney?

Stephen Beckett:So just one, one, one, just one comment on regional, obviously. I can't really comment about sort of local startups to serve the Australian market, apart from the fact that actually international carriers would of course welcome that, because about 10% of all international travel essentially goes to and from the regions. So it's not a major driver, but it's a reasonably significant piece of that. And obviously more competition in that space allows for more dispersion, more visitation Western Sydney, look, great news that there is more capacity in the Sydney Basin. Yeah, the macro forecasts are very good. We've obviously been dealing with Western Sydney, you know, as BARA for a couple of years, you know, getting everything set up for carriers to be able to make their own individual commercial choices. Look, I think the first I mean, if I'm frank, I think the next 5 years are going to be quite challenging, because aviation is a network game. It's probably going to be slow to build. I think one can look out 10 years, 15 years, and say for sure, there's no question WSI will be successful, will be busy. Getting to that point is not going to be without some challenge, because you've got a lot of other factors That sort of influence the degree to which, you know, particularly international operators would choose to develop another service, another airline. You know, they've got to stand up essentially a separate operation to service a different airport. So it's not without challenges. Western Sydney will, as I said, certainly, you know, service is a great market and we've spent a lot of time with them, but, you know, In terms of some of the master plan forecasts out there, I'll reserve my judgment.

Oriel Morrison-Higgins:Okay, okay. All overlaid, of course, with technology, which is moving so incredibly quickly, and AI and all of those things. But unfortunately, we are out of time. What a fabulous conversation, gentlemen. Thank you so much for being such great sports, for speaking your mind. It's really appreciated, and I know the audience would appreciate that too. Please put your hands together for our amazing panel.

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