Regional Connectivity and Accessibility

Transcript

Simon Eselon:We're all perked up with enough caffeine circulating through our system. It's my pleasure to be hosting the Regional and Domestic Aviation Panel, where we're going to dive into some of the issues that are impacting Australian aviation. Domestic aviation with a sort of particular view to look at regional and remote services. I'm really honoured to be able to present my panellists. We've got Paul Doherty from Alliance Airlines, Scott from Jetstar Airways, Rob from the Regional Aviation Association of Australia, Gytis from Skytrans, and John from Solomon Airlines. Now, CAPA has a Slido system that you can scan with your QR code. If you do want to ask any of our panellists questions, please put them in the Slido app, and I can ask them to our panellists. There will also be microphones that will be floating around, so we'll probably open the floor up a little bit to questions if we have time at the end.

Paul Doherty:Thank you, Simon.

Simon Eselon:At the end. But anyway, to sort of dive into it, I think with the Middle East crisis going on and some airfares starting to creep up and the Productivity Commission inquiry underway, I might turn to you, Rob. And regional carriers, remote carriers face a particularly difficult situation. Do you want to maybe—

Paul Doherty:Yeah.

Simon Eselon:illuminate some of the reasons why airfares and sticker shock is happening on regional and remote routes.

Rob Walker:Yeah, no, thanks, Simon. And, you know, obviously, good morning, everybody. Great to be back at another CAPA again with such an august panel like this. So, um, yeah, it's, uh, I think we were hearing in the previous session, um, that obviously there are a lot of challenges at the moment, Particularly around cost and those cost sensitivities. And I think the— it's obvious to, to many that regional and remote aviation is hypersensitive to any sort of fluctuation or movement in, in base— the base costs of an airline operator. You alluded, obviously touched on the, the issues around fuel. If we look at the recent fuel crisis, as as one component of that. It was a challenge on multiple levels for regional aviation. Rather interestingly, diesel fuel was a real challenge as well, because you need the diesel for the trucks to get the fuel out to the remote locations.

John Woperis:Mm-hmm.

Rob Walker:And interestingly, the approach the government took, there was the mention of the mandatory stock obligations we do have for 32 days. Interestingly, we had 32 days for most of the initial phases of the fuel crisis. We didn't see any real issues with stockout or stockouts in regional areas, but the challenge there was very much around the price, and unfortunately the price sensitivity is still there.

Scott Zeglin:Mm-hmm.

Rob Walker:That does flow through. You mentioned the Productivity Commission. There's obviously an inquiry afoot at the moment that many of us are participating in. From an RAAA perspective, we're in their boots and all. We see this as a real, not so much an opportunity, but a really important time, particularly through that process with the PCC, to be able to shine a torch into some of the, let's call it, the dark corners of aviation businesses. Because I think generally the travelling public don't really, really appreciate exactly where every dollar goes on the cost of an airline seat. And in the regional and remote context, where you don't have the volume or the scale that you do have in other larger mainline operations, that price sensitivity is really accelerated. And also further complicated by the fact that in many instances, some of the base costs that a regional airline operator have actually exceed those of our larger metropolitan counterparts. As an example, security charges.

Simon Eselon:Yeah, I was going to—

Rob Walker:Because the scale's just not there.

Simon Eselon:Going to ask the— there was a— Stephen mentioned on the panel earlier that Jetstar was earning about $50 out of a $200 fare. So what are the components there in that $150? Well, $50 goes to the airline. Where does the rest of it sort of go?

Rob Walker:I'm happy to keep going. If you break the cost of the airfare down, there's certain, what I describe as a fixed cost, that are non-negotiable for any airline operator. It doesn't matter whether it's Jetstar or Alliance or Skytrans. There are fixed costs there. And in the current operating environment, a lot of those are government and regulatory related. We've obviously heard in the previous session some inputs from the ACCC. Airservices Australia have released their— oh, sorry, the ACCC has released Airservices' draft notification for the long-term pricing agreement. That is going to see an increase of 12% year on year for the next 5 years on air traffic control fees and charges. So for terminal charges and en route, that's another impost, another cost that we're already inheriting. So you look at airport charges, with the greatest respect to the airport operators as well, they have their overheads that they need to meet, but a cost of landing fees is generally on the upward trend. You've also got fuel, as we've mentioned. When you actually break down, if you imagine a schematic of a regional aircraft that might be carrying 40, 42 seats, or 34 seats of it's a Saab. By the time you go through all those fixed costs, the margin, the profit margin is the back row, the last row of seats of aircraft. I mean, that is that thin on many regional routes. So if the aircraft's full, great. If it's not, there is no profit there and you're going backwards very quickly.

Simon Eselon:Paul, I might turn to you. With Alliance Airlines, you guys do a lot of FIFO regional routes, remote routes. Can you give us a sense of sort of how that market is developing at the moment? What's, what's going on there?

Paul Doherty:They're very distinctly different markets. So FIFO is still very resilient. So mines are actually the backbone of the economy. They're very aware that they need people, and to get people, they've got to provide services that get them in. So that's what we do. But it's It's very much a growth industry. Mines are still developing and they're getting themselves forward. A little bit different in the regional areas because the regional areas are very price sensitive. It's a very different profile. And while we've seen big jumps in costs and like from COVID unfortunately, as a, as the anchor point for all this, what was a typical 3-4% increase in cost, we're seeing 15-20% jumps. Some of our OEM providers for parts for the aircraft, rotables, etc. It's not unusual to see a 25% to 30% jump year on year. So it makes it very difficult, particularly when you've got a small fleet. We've got a bit of scale, and we've got a lot of in-house capability which we try and get around that cost. But the actual driver for us is like we've got to provide the services, and quite a few of these remote areas, the mine will have its service, and they will actually open up seats on the flight for for the local community as part of that payback to the community to give them some access, which provides other issues because then you've got the security and everything else that we were just talking about. Makes it quite complex. For us, it's simple to sell the aircraft. It's more complex to sell the ticket. So a lot of that complexity is there, and it's just trying to get the mix and understanding of, okay, fuel has jumped, and there is arrangements for different contracts for fuel, but if you're directly in the market, and particularly Particularly, you know, in the Pacific or any of the smaller regional ports, you're fully exposed. You don't have the access to hedging that you might have in the bigger organisations. So you really are constrained by what you can do. And I think Rob and I were talking to another airline that's reasonably sizeable, can't hedge, and their fuel price jumped by 100% in one month. And that's the type of jagged change that you were talking about earlier. In that you can sort of step people up through a change in cost that's consistent, but where it's jackknifing every month and every week becomes very complex, and demand then takes the hit. But the regions then do need it. It's like a— it's a social activity. Like if you're going to live in a remote area, um, you do expect connectivity. People don't expect not to be cut off like in my father's generation. Now we're going back some time.

John Woperis:Um.

Paul Doherty:to get from A to B without jumping on a car or a bus. I think we talked about a bus earlier. Yes, I've done that too. Mount Isa to Brisbane, 2 days, beautiful. But it is the direct opposite these days. People have a higher expectation of what the community will do for them and the country will do for them.

Simon Eselon:Yeah, well, sort of mentioning that, um, Scott, I might talk to you. You represent, uh, Australia— 2 of Australia's largest airlines with Jetstar and Qantas. Um, regional development Development-wise, what sort of network growth focus are you looking at? Are you connecting major cities? Are you connecting regional destinations to other regional destinations? What's the sort of development strategy there?

Scott Zeglin:Thanks for that, and good day everyone. It's good to be here and good to see so many familiar faces around. So really, when you think about it from at least a Qantas Group perspective, there are— when we define regional, There are multiple different pockets of regional. So Paul's talked about the FIFO, you know, sector, but you've got everything from your discretionary leisure market from your population centers going into your beach destinations and, you know, your Pacific Islands, which, you know, we all also look at as kind of a regional market. So you really have to have, at least from a Jetstar brand and a Jetstar Sorry. Jetstar business and how we, how we run the airline, you need that population center to be able to have discretionary leisure traffic to where you can then stimulate demand, to where you have the elasticity to put capacity into a market and you can really stimulate that demand. That's the core of the Jetstar business. But then when you look at the Qantas side, you have many regional and remote communities that are serviced from Uh, you know, really, you know, longer ga— you know, longer range aircraft in terms of, you know, just the distances that we, we need to get through, uh, which is very unique in Australia, but also smaller gauge aircraft. And I think that's one of the parts that has been really interesting post-COVID and arguably the biggest challenge, because as, uh, what Rob and Paul have already talked about is the cost to serve, not just the industry cost, not just the, the OEM But there's not a new technology in the market in terms of fleet to be able to go and say, right, this is the new technology. This is how we're going to then be able to reset the unit cost base. So what we have in terms of regional connectivity is the only lever we really have is gauge. And so increasing the gauge, which in turn, if you have demand that's not growing nearly as fast, as the cost inputs at a unit cost basis, that means that you're serving effectively the same market, same population, the same number of passengers on a larger gauge aircraft, and that means you have to then reduce capacity to be able to hold consistent capacity. And so that's really, I think, the biggest struggle that we've got, and it's not just within Australia, it's globally when you're talking about kind of the turboprop market. In order to, to continue serving the markets, to continue serving those long and thin missions in regional communities, the cost base is very challenging to maintain a commercial— commercially viable, viable, you know, system. And so we've talked a bit about, about those pieces, but that, that last piece in terms of having new technology that's here and now, that's been— that's able to then provide that cost discount, it's just not here at the moment. So we talk about, you know, all of the interesting new propulsion pieces. We talk about electric, you know, planes. We're still a long way off. And I think from an Australian context, the distances between ports and these regional communities, if you think about Outback Queensland in particular, it's a long way. You know, when we talk to the QantasLink pilots, they say they're going to do a long-haul service today if they're going up to the likes of Cloncurry or Mount Isa, because it's a 2-hour sector length. So that part, without having that distinct technology piece to be able to then reset the cost base, you end up in a situation where you've got a mining interest, which is, you know, makes it commercially viable, or in order to maintain the commercial viability, you've got to get bigger gauge aircraft, but potentially serve it in terms of, you know, lower frequency. to be able to just tread water, much less, you know, try to improve the commercials of the route.

Paul Doherty:Just to add to that, just because larger gauge, while it does provide the scale, I think we were talking earlier about regional airports. Regional airports, they have their limitations in the pavement, the tarmac, what's been there for years. So to go to a local council and say we'd like to bring in a larger gauge aircraft, but it requires requires a complete redo of the airport is quite a challenge. And we've seen quite a few of these where airports have got historical sort of agreements with CASA or exemptions against some of the manual of standards 139. And then suddenly we say, can we get another approach for that particular runway? And they say, yeah, we can do that. And away we go. And then CASA comes and says, sorry, we've got to redo the entire compliance base, which then just throws the cost out through the door. And we've had that with a couple of mining clients recently where they've just gone, it's too expensive. So we can't actually help you be safer because it's going to cost us dramatically more money.

Simon Eselon:Right.

Paul Doherty:So it's a real catch with some of those ones and the smaller airports. There's many examples of that.

Simon Eselon:John, I might turn to you. Scott mentioned sort of the distance involved, and in some ways there's a lot of similarities Australian remote and regional and operating in, in the South Pacific. Can you sort of highlight some of the challenges that you guys have been facing up in the Solomons, and then maybe also talk about— you have direct services into Australia and how you partner with local carriers?

John Woperis:Yeah, thank you, Simon. This is my first time speaking at CAPA and first time in Adelaide, so it's a It's a real pleasure to be here, beautiful city and a wonderful event. Solomon Airlines, yes, we are very much on the, you know, sharp end of the spear when it comes to challenges here operating in the Pacific. You know, on our domestic network, we fly mainly Twin Otters to around 20+ destinations. We have to preposition fuel, so we get the fuel on drums and we put it on ships and get it to where we need it to be. So it's quite an Expensive exercise, very challenging for us. So, but it, but, you know, it's a lifeline for these communities. It's the way where, you know, they get access to medicine. It's a way to get their loved ones home in the case of a death. It's the way we get exams down to villages. So, you know, we have to try and balance the commercial aspect of our operation alongside the community service obligation. And it's very tough, you know, when these global issues happen because there's only so many ways in which we can respond, especially when we're relying on our government as well, who are, you know, doing their best to manage a very big crisis across different sectors. So quite a big challenge for us. You know, we've had to put in place fuel levies, we've had to adjust our fare structures, we've had to reduce You know, do what we can on the schedule side of things, but it is what it is. That's the nature of the industry. And on international, partnerships is critical for us. We do, you know, connect into Brisbane especially. We fly out of Honiara to Brisbane, into Nadi as well once a week. So partnerships with Australian carriers are very important to tap into the domestic market here. We also have some new partners who we've recently signed up now that we've started flying into Port Moresby, such as Philippine Airlines and China Southern. So for a small carrier with only 2 Airbuses and currently 2 Twin Otters and a Dash 8, partnerships is critical. And balancing commercial with community service, it's a very, you know, fine act to do.

Simon Eselon:Thank you. Gytis, I might turn to you. You guys You're part of a much larger international aviation group that operates an ACMI operation providing capacity, and we've seen the regional fleet is getting quite long in the tooth, and we've talked about right size, the right size of capacity and the right aircraft for the market. So how does Skytrans sort of provide capacity into the— Yeah.

Gytis Gumuliaskas:Yeah, we are in, in a bit of a unique situation. Among our group, we are the smallest operator with smallest capacity, and we have turboprop, which is at the same time I see as an advantage because we are able to the market to offer both smaller and bigger capacity. We introduced last year narrowbodies, but with turboprop capacity, capacity, we are as well serving a bit of niche, I'm calling it niche RPT market in far north Queensland. Also started last year from New South Wales to operate, also to very unique and very special destination. Where also when we are, we positioned an aircraft and we have in Sydney now, by having a capacity over there, we see that some demand for this capacity also is developing to Cobourg. We started flying to Cobourg and so on. So by this we can say that it's a diversification and proposition to the market to fight different needs for capacity. Since we are serving both FIFO and RPT market in Far North Queensland, we see that regional— and it's obvious— regional Regional travel will be and is needed for sure, and long time to go. What we need to do is to pragmatically and logically invest into that market. Scott mentioned about technology and so on, which needs also to be discussed with the markets together, with the market participants together, to do it in a logic way and common sense way, because also even those security fees and so on which we are talking, we are different size of operators, so we have a bit similar problems but from different perspectives and different shapes. So for example, even the fuel crisis, yes, price doubled and so on, but when we are operating to very remote locations where the price in general is double or 4 times bigger, so in our case it's 8 times more now expensive. So you're talking about the same amount of distance, but you're paying 8 times more? And even though you need to— you're not sure if you will have that fuel available, one day you're preparing for operation and you receive a notice that fuel is not available today, so you need to reshuffle your flights and so on and so on. But there are good examples. We— some people mentioned today United States as an example about the market size and so on. But we can look to the Canadian market, which is very similar from the problematic and the size of those regional and remote locations. And they're having quite logical solutions, like even fuel subsidies where later on for the airlines to operate, where you have fuel available, managed in the proper way. Also, this grants a bit more of consumption, which later on the fees comes into revenues through more throughput through that infrastructure. So, I'm just saying that there are different problems from those rising costs, but there are some solutions which can be logically solved. And coming back to the capacity provision, we are just trying to work together with the market participants or to show those good examples of how the capacity can be used in the short-term, mid-term, and long-term needs, which I believe with some today examples and what we started last year, we are proving the case step by step.

Simon Eselon:Right. You sort of touched on regional aviation development, and it seems that it's either snowballing one way or snowballing the other, that we've got 75% of regional airports, or 75% of Australian airports, are losing money. Costs are high. They're run by local councils or, you know, local governments. Do we need some more substantial sort of regional aviation development funding? How do we trigger those— the sort of growth that will provide sustainability? Or is it a case that we just have to deal with long, thin routes being loss-making and write it off as a public obligation? Maybe Rob, you could touch on that.

Rob Walker:Yeah, no, it's, uh, I was sitting here as you're asking questions thinking yes, yes to all of the above, um, with the exception of the last part. Um, I think, uh, you know, historically you could say that we do, I suppose, just make the best of what we can do with what we've got. But I think we are at the point now where as an industry we really do need to actually come together. And it's— and, you know, we do a lot of work already amongst ourselves, believe it or not. You know, from an RAAA perspective, we work closely with BARA, we work closely with A4ANZ, we work closely with even the AAA, the Airports Association. And what I'm basically getting to is I think we're at the point where I think the word that was used earlier was a reset. We actually do need to look at a reset for regional aviation as a sector. The challenges are formidable, to say the least. If we want to get into, you know, fleet renewal and fleet replacement, there are no viable options out there. You know, there are— I'm not saying there aren't options there. You know, obviously ATR produced the 42, which is a, you know, a perfectly great aircraft. You've got Deutsche aircraft, and looking at, you know, a re-energising of the old Dornier. But they're expensive, you know, to get a new aircraft is very expensive. And I think there was another point that someone touched on earlier was, you know, how do you— do you get nervous about finance? How do you get, you know, where do you get this money from? If you were in the finance business, would you lend lend money to a regional operator, because it's— if you can get the finance, it's very expensive. So to your point, I think, yeah, definitely a reset. But I think one thing that we've been pushing from our association's perspective, which isn't unique, others are doing it as well, is there needs to be some sort of government fund.

Simon Eselon:Mm-hmm.

Rob Walker:And we've packaged our proposal up to government as a regional aviation investment fund. That's It's not looking for handouts, and it's not looking for cash per se, but it's looking for government support. I think everyone in the room, if you say how important is regional aviation, everyone says 100%, you've got to have it. It's about getting medical supplies out, it's about getting mine workers to dig the dirt, it's about getting families home, it's about connectivity for regional remote communities. That bit's not in question. I think what we need to look at is how we're actually going about it. Because the time-old model has held us in good stead. But we're at this— we are at not so much a crossroads, but this pinch point now where if we don't think differently about the way we're going about it, regional aviation won't die. It'll always be there, but it's not going to be there the way the whole country needs it to be there. The planes will continue to fly. But I think there's huge potential there. your presentation this morning, regional is actually positive growth.

Simon Eselon:Yeah.

Rob Walker:It's, it's, it's not dying, but it is doing it differently. Uh, and we, we need to flex and respond to that. Um, you know, we mentioned in discussion around Bonza, Bonza failed for a whole number of reasons, but give it to Tim Jordan, the numbers were there. He's— they basically had $100 million worth of revenue that was a revenue stream that was being untapped that they were tapping into.

Simon Eselon:I believe it was 23 routes that they were the sole carrier.

Rob Walker:Completely. And, you know, it's not a case of build it and they will come. It was actually just looking at things differently. So wrapping all that up, definitely we need to think differently about the way we're going about things. And that's, that's behoven on all of us as an industry and a sector, but also communicate more wholesomely with the consumer to actually understand the challenges that we face. No one wants to pay for an expensive airline ticket. It's, you know, I often find it rather ironic, you know, you, you might see a Jetstar fare from Townsville to Christchurch or whatever for $200, but someone's probably spent $50 in the Uber getting to the airport.

Gytis Gumuliaskas:Yeah.

Rob Walker:They probably paid another $50 for their family member to park in car park at the airport, and then they're probably going to go in and pay their, you know, $18 for a bit of takeaway and $8 for a cappuccino or something. So it's, it's getting all those— that scalability right as well.

Simon Eselon:If we start getting into major airport market power, I think we'll be here all day talking about that.

Rob Walker:But I think, I think, yeah, wrapping that up, it's about a reset. It's about engaging with government, engaging with government, not just about the service provision with people like Airservices and Border Force, but also engaging with government around realistically how can government support a sector. And it was touched on in the— with, with Barra, you know, putting one aircraft into a regional community is X number of dollars, you know, what is that really worth to the Australian community? And how do we actually ensure that that opportunity is maximised the best way we can?

Paul Doherty:I think actually community is a really good word for this because the smaller destinations that you see on a map that none of us probably have been to, or some of them have been there, it's just going through very quickly outside the Birdsville races. But the reality is through the Pacific, and like Fiji Airways, Solomon Islands, part of my heart, as well as John's operation. Those remote communities absolutely depend on that aircraft turning up once a week. It'll have food, it'll have supplies, it'll have medicine. And some of those runs that go through, whether it be WA or particularly through Queensland, where you're doing 5 or 6 sectors with a small aircraft, 35, 40 years ago when I was flying as a— I'll say young pilot, that's being generous, but yeah, young pilot. You'd be flying something like a 402, which costs the owner $125,000 to buy, the engines cost $20,000 to do an overhaul on. These days they can't get overhauls under $100,000. So a lot of that cheap access to hardware to get the job done doesn't exist anymore.

Rob Walker:No.

Paul Doherty:So you're looking at a Cessna 7 million dollars US.

Scott Zeglin:Mm-hm.

Paul Doherty:It's a lot of money for a small business to go out and say, OK, I'm going to replace these 2 older aircraft with $15, $20 million worth of gear. Same thing, back to the banks, or I've seen some of my friends from the leasing companies around the place. The assets that they want to deal in are the bigger assets, your narrowbodies, your 737s, So getting finance for an old Saab, quite difficult, particularly since the engines are the same as used by some militaries, so they're very hard to get. So challenges all round from that point of view.

Simon Eselon:Speaking of technology, we've got Qantas rolling out a whole lot of A220s onto regional services and also bringing in A321s for long-range So Scott, what effects— where are you deploying the A220s? And so what, what the effect is for regional aviation compared to what's being replaced, or is it for growth?

Scott Zeglin:Well, I think too, from just taking it from the Qantas perspective, it's that fleet renewal. It's having something that burns less fuel per seat. It's this new technology to work with. Where you can get that step change in terms of the cost base. But it really builds on what, you know, Qantas and the broader group, uh, you know, did coming out of COVID where we launched over 50 new domestic markets in terms of new non-stops. Now, some of those were specific to COVID as the borders were opening and closing, it seemed, every day. But that move into finding new spots and new lines was really driven by, by gauge. And having aircraft that have longer, longer range and have a smaller payload, but you can actually deliver it on a trip cost basis at an efficient level. When we look at Jetstar, it's the same thing in terms of going to A320neos. We've got 5 at the moment, scaling to 9 by the end of the financial year, and that allows for a step change in terms of same capacity as the A320ceos, but going to the neo means we're burning less gas, It means that our unit cost is able to be a bit more competitive, and that is so important from a choice model and being able to stimulate demand. We talked a little bit about regionals, and we've really focused on kind of the communities that are a long way away, that are really remote. But when we also think about some of the regional communities that actually work from the population center to an end leisure destination, but also Some of those airports that are in more of the contested catchments, you know, think about Southeast Queensland where we see, you know, Gold Coast and Sunny Coast. You know, those are areas where we've seen, you know, quite a bit, especially as population has moved around post-COVID. We've seen really positive opportunities from a Jetstar perspective to tap into kind of the changing demographics, the changing population trends to really really connect other spots on the network. And I think, you know, it was mentioned a bit earlier that there are still those opportunities there at the right cost base, with the right technology. And if we continue to have these industry cost headwinds— I mean, PMC is a fantastic example of this going internationally, you know, just $10 straight off the bat from January 2027. For an airline like Jetstar, where we are trying to provide full choice and fully unbundled product, that makes a real difference in terms of if someone, especially if you scale it to a family of, you know, 4 or 5 or 6, you know, that's not just a single, you know, cost item that they're having to deal with. That's lumped in with the size of the party. But then as we also started to talk about too, you know, the car park, going into, you know, getting a bite to eat, you know, transport to the airport and all those things, that whole end-to-end cost base, even the smallest of industry costs that come in have a real material difference in terms of if someone's going to go on holiday or not. And from the Jetstar model where we can continue to stimulate that traffic, we're going to do our best to get our costs absolutely down as much as possible in terms of cost to serve by providing that choice. And so that's where we can continue to stimulate that demand and in those pockets. But we are seeing, especially in those, those contested catchments, real pockets of opportunity. And it just would be without saying, some of the partnerships we've had with some of the state tourism operators have been fantastic. That has really helped, you know, find new markets. That's helped to, you know, get over that inertia of, you know, the, you know, starting something new versus continuing to layer in capacity into existing markets. So a real credit to And I think, you know, to, to many of you, you guys here in the audience too that have, you know, been on that journey, that partnership approach, that whole-of-community approach is how we can then, you know, be able to, you know, go through some of the, the, you know, the realistic headwinds that we've talked about. I feel like that's what our panel has been talking about is the headwinds and the challenges and the problems.

Simon Eselon:Yeah.

Scott Zeglin:But there are options out there and there are real examples of, uh, of success stories where we've been able to put new capacity in and partnership with, uh, with, with the communities and with, uh, state tourism bodies that have, uh, you know, yielded really positive commercial business cases.

Simon Eselon:Sort of speaking of positive stories and development, and there are a series of regional aviation development schemes that state governments have been running. Have they been— they seem to have been successful. Have they been successful? Have they actually managed to, to stimulate traffic and, and grow Most definitely.

Rob Walker:And I think they're very, very much welcomed and very much appreciated, not just in terms of the actual dollar ticket price, but in what it actually means in terms of the ongoing service provision that they're being provided. It's been mentioned before, the Western Australian government with their, you know, their fare CAPA and subsidy schemes, some of those regulated routes where it guarantees the service does continue to run, because there are still parts of the country that are very seasonal. You know, that was one of the biggest challenges for some of my members with the fuel crisis was the fact that people just weren't going to travel. You know, if you look up, up north in the wet season, You know, that's not the time to travel. Dry season is whenever the grey nomads want to get out, and I can say that because I've got grey hair. But, you know, this year they just weren't booking and they weren't coming. And so it would be nice, let's say, but it would also be hugely beneficial if those sort of state-based schemes were able to continue to evolve and grow and provide the level of support they do. But I still come back to that proposition that at the federal level, the Commonwealth Government needs to, I suppose, take that more overarching position about supporting the sector, and not rely on the states as they do in many cases to provide that level of support. If— the whole system needs to work together. to work effectively, but a lot of those state-based systems are really the difference between a service existing or not existing. And, you know, obviously in the FIFO sector as well, making seats available if there's spare capacity on a FIFO charter, making that available to local communities as well. I think that's where this level of collaboration will continue to grow and should grow.

Simon Eselon:Yeah, there's a Actually, a very good question on the Slido here is, what's one thing your airport and tourism stakeholders can do to best help stimulate incremental demand for regional destinations? So what's that, as the internet would have us say, that one weird trick that will help sort of get more passengers into regional areas?

Scott Zeglin:For me, it's that aligned approach in terms of having everyone on the same Everyone in terms of visibility of what is the opportunity, how does that opportunity stack up. And I think one of the challenges in the past is if you are coming from a particular airport or a particular community, that oftentimes it's, I'm looking at it from my lens only. But taking the step back and saying, how do I fit within the broader scheme, and how do I fit in terms of different airline partners that I'm looking to partner with for this opportunity, the best thing that you can do is having an aligned approach, consistency all throughout the different stakeholder pieces, because that gives confidence to airlines and to especially the network planners to have confidence that they can stick their neck out for a new opportunity, you know, which may have a bit more risk on it than, you know, existing, you know, markets and existing, you know, capacity and how it's How it's being served. That's the part that we've got to be able to get over is that initial inertia, but that team, that aligned team approach and full understanding of the system and how it works. And then having the conversations to where you understand, you have that common ground understanding of what is it that is the measure of success. If we put this in, how do we know it's doing well? How do we know it's not doing well? And leveraging each other on both sides of the equation to be able to have open, honest, and direct conversations. Because not everything we— that we're going to try together, despite all best business case intent, is going to work. And so I think really having that aligned approach, though, the open and honest communication to understand what success looks like, that inevitably is, is kind of what, uh, what we on the airline side really, really value. And And value that part of the relationship.

Simon Eselon:It's a bit difficult to measure some of the intangibles, service provision and that sort of stuff. So how do we go about analysing that kind of thing?

Paul Doherty:I think there's impact. So just getting back to Pacific and also some of the communities that are quite a way out of town, unique experience. So people are looking for unique experiences. A lot of us here have travelled quite a lot, and travelling from you know, here to LA and all the rest of it, it's a big city. There's some— sure, there's some things there, but it's very different to travelling to the islands, travelling to Fiji, travelling to places that, A, you might not have seen before, very different experience, different, different type of thing. And it's the same as if you go up to Kurumba or any of those smaller towns. You'll meet some very interesting people, very different, and very—

John Woperis:Yeah.

Paul Doherty:Sort of completely different slant on life. But it's, it's getting people to understand that there's more than just the big destinations. There's other places to go and see. There's other things to do. And for us with the mines, they're very keyed into community because while they do fly all their people in and out as a rule for most places these days, which has changed dramatically from say 30 years ago, the reality is they're trying to create that community in places where where sometimes there is a satellite town, and providing opportunity, and giving people something to work with. We don't all want to be miners. Some people see an opportunity to run something that might be a tourism service that you never would have thought of before, and that provides that back into the economy sort of loop, that ability to spin up.

Rob Walker:John, you had—

John Woperis:Simon, I just want to chime in really quick on that. I think, you know, for us, Solomon Airlines, we fly into some destinations which are not, let's say, your mainstream, such as Fiji out of Brisbane, but we fly, let's say, into Santo. We fly there twice a week. So it's a secondary emerging destination, and the partnership with airports and tourism bodies is really important to the overall success of that route. And we've seen that really impact positively in terms of our load factors into these destinations. And probably my friends at Skytrans or Alliance Airlines— I think that's a really good point. Alliance would know since we've been using them recently for various reasons. But yeah, partnership is important. We all have a role to play in flying to a particular destination and the airline can't do it alone. We need partners to assist us with the marketing side of things, talking with the trade, and some incentives in managing the cost side of things too, especially in the early stages of developing a route. So very important.

Gytis Gumuliaskas:And maybe in addition to that, that successful partnership, the aligned word is a very key one, and when it's aligned, we had an example of Proserpine, for example, which we are operating from Cairns. When we actually met with people from tourism association, we asked what material you're advertising, I mean, when you're abroad, and then we had our contribution to that material, which, you know, you are showing here a bit, not about exact individual airline, but more in general to provide ways how to connect, that there is availability and so on. When you're increasing that, you— not the big numbers, but some load factors a bit increased from overseas passengers, then you are in aligned way also sharing that information worldwide, how to access that specific location. And maybe in addition to that, about partnerships in general, as representing a bit smaller operator and capacity from turboprop perspective, enabling some more code sharing on those smaller, shorter routes also could potentially enable a bit of growth. It's not maybe double-digit numbers, but imagine you have Skytrans with We have a codeshare on some of those niche operations over there, a few passengers more, it makes a bit more resilient operation in general, and the market also wins. You have bigger option variety to offer.

Simon Eselon:With interlining and codeshares, there's a lot of sort of behind-gate activity, but is it difficult for regional carriers to sort of go to the big, the big guys and say we want to codeshare? Is it difficult?

Gytis Gumuliaskas:No, it depends, you know, willingness, and also it requires a bit of investment into infrastructure to offer codeshare, correct? So it's not each regional airline maybe is able to invest, but there are a lot, I mean, pragmatical ways how to structure it, and you don't need to have a big name in GDS to be present. You can select a bit smaller solution, not so expensive, and still offer that capability and ability. So I believe there are ways, just you need to do it in a common sense way, a pragmatic way.

Simon Eselon:Right, and speaking of sort of behind gate access and that sort of stuff, with the new fleet coming in, is there Would there be a sort of market for some regional to international destinations, some of those smaller and secondary airports with an A220? Would there be leisure routes that could be served? Scott, maybe? Or is that the bridge too far? They're a bit long and a bit thin.

Scott Zeglin:No, I think there's been, you know, really quite a good track record already in terms of having smaller gauge, low trip cost capable aircraft that are able to fly long distances. I think if you look at what, at least on the Qantas side, especially looking at Pacific Islands, you know, there's been quite a bit of growth in terms of into the Pacific Islands, a bit of it using the wet lease, you know, from Alliance, but also then growing into things like, like 220s. And I think that's a great opportunity longer term. But really what the, what the gauge allows You know, allows airlines to network plans. And this is just— this is not just about regionals, but having small, capable, very highly efficient aircraft enables so many different opportunities throughout the world, whether it be new lines and spots. But also the thing that I really like is getting depth into certain destinations. So you're not just flying on a random Tuesday once a week, that you're able to then offer something where maybe a larger gauge, older technology, you were flying a few times a week, you can get up to, you know, 5 or daily service. So you have a consistent proposition, which then we talk about business, you know, development, community develop, especially in the discretionary leisure side of things. Having a product on the shelf every single day is so helpful because you don't have to— for whatever customers you're trying to tap into, it's, oh, I've got to only travel on Saturday. That breadth really helps. to be able to continue to stimulate and grow into those markets. So I think it's the capability that is exciting to be able to start new things, but it's that depth of schedule that really rounds it out and helps the selling proposition in terms of why do I want to go to this new spot. If I'm a discretionary leisure traveler and I'm in, you know, one of the capital cities, you know, give me a reason why to go there. And And so that's where the new technology allows for that reason to be, oh, it doesn't fly on the day that I want to fly. That goes out the window. Or it's, I have to connect and I don't want to connect. I want to go nonstop. That's where you're able to then build on that. And we've seen really good success with that. And I think that's what, as the fleets continue to grow and continue to scale, because the new technology on the Qantas Group side of things is still scaling. Once those are able to get to scale, that's where you can then find those pockets to where you can drive, you know, higher utilization, more efficient kind of, you know, network deployments, you know, once we get into, you know, kind of that full scale of the new fleet.

Simon Eselon:Right. We have a couple minutes left. Are there any questions from the audience? There's one at the back, I believe. There should be a microphone. Coming over in the centre.

John Woperis:Hello, I'm Bonsen Lam from Japan Travel. Good to see you again, Scott.

Paul Doherty:Where do you see the future with the work with Alliance, with the E190s and your own aircraft, with the A350s?

Rob Walker:Fleet mix, okay.

Scott Zeglin:No, I think it's very complementary. I think, you know, the E190s in the Alliance fleet, you know, in terms of the wet lease, they've been, you know, fantastic, you know, in terms of being able to design new spots, new lines, new networks, but also that depth that I talked about in terms of, you know, what the A220 does. And so really it's almost That's the starting point to get, you know, pull forward some of the benefit of the 220. And so now it's up to the 220 to come in and provide even more scale. And it's a bit bigger aircraft too, but it has a lot, you know, some better legs in terms of longer range, you know, than the E190. So I think there's absolutely a fantastic, you know, part to have both operating. And so the E190 has not just given us the confidence on the, on the 220 from a business case, but it showed us what, what we kind of can do and what is available. And, uh, you know, and credit to the Alliance guys, they're a really good operator. And so having that, uh, you know, customer value proposition, you know, in addition to the technology, has been, you know, very, very successful and something that we've been really proud of.

Paul Doherty:It sort of— just to add to that, it gives flexibility from what we see too. So for Scott's former team, in Qantas, it allows them to mix the gauge around so they can actually switch something from a 100-seater to 130 to 170 to 210 and move it quite effectively, which then gives them much more control over, A, the cost, but also, B, the revenue they can drive from that particular—

Scott Zeglin:Right aircraft, right route, right time of day, right season, and being able to be quite variable with that is better matching capacity with demand has been a successful strategy for us.

Simon Eselon:Well, thank you very much, gentlemen. That's thrown some sort of illumination on the state of the domestic market. So could we give our panellists a round of applause, please?

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