Regional Express Update – Airport Owners Do Not Understand The Difficulties Of Regional Aviation

Regional Express executive chairman The Hon John Sharp highlights that airport owners do not understand the difficulties of regional aviation and charge too much for the services they offer. He highlights that even in markets where it is the sole operator, it does not hold a monopoly due to strong competition with the motor car and urges a review of airport charges and services. He also discusses that while pilot training is a “cost centre” its training academy makes pilot training a potential profit centre and a potential “big export earner” for Australia.


Hon John SharpI think we talked about the general state of the global economy. You know what threats, what opportunities exist there and I think the general view was, that we've got reason to believe we should be optimistic, that the economy, the global economy will remain pretty much as is for the foreseeable future. From a regional perspective, which is where I come from, we've had three regional airlines go broke, only in the last few months. So it's a different dynamic at the regional level, that it is to the global level or even the domestic level. We talked about the global economy. We talked about what are the challenges for regional aviation, in terms of how the regional, remote communities continue to enjoy access from airlines.

I talked about how we have a number of challenges, we've had pilot community of 270 people. We've actually had 100 pilots in the last two years taken from us by Qantas and Virgin, and a whole lot more again taken by other airlines, which means that our ability to operate all the flights that we try to operate is reduced because we've lost our pilots, and we've had considerable attrition of pilots off to other airlines, and that's making a challenge for us. I talked about airports and their ever increasing charges, which make regional aviation less viable, less sustainable. I think I gave an example of an airport in King Island in the Bass Strait, which has just announced an 110% increase in its charges for the airport, with a week's notice to implement it. So we talked about some of those things, talked about the regulator, and ever increasing costs, and compliance and how that impacts.

We also talked about, on a broader scale, on bilateral agreements between Australia and other countries to satisfy growing demand for air services between those countries, and we had the chairman of the International Air Service Commission, which governs the access to Australia for airlines, talking to us today, in the panel, and talking about some of the difficulties he has in trying to get countries to agree to allow an increase in the capacity between Australia and other countries.

We had one of the people from Vietnam talking about the opportunities that are happening in their part of the world, which are very significant. The rapid growth of countries like Vietnam sees real opportunities for Australian, for air services, for tourism, and also for pilot training out of places. Rex is actually training pilots for Vietnam airlines at the moment in our Pilot Training Academy in Wagga Wagga, in New South Wales. So we talked about all of those things today.

Margy Osmond from the Tourism Task Force spoke about the need to synchronize the way we move people between Australia and New Zealand for example, so we have common barrier arrangements, common border force arrangements, so that it makes it easier and smoother a journey for people.

Well if you go back to 2007 Rex lost half of its pilots in three months, the space of three months. Nearly crippled the airline, and what happened was that Qantas and Virgin had a whole new fleet of aircraft coming in and they suddenly realized they needed crew, so they came and took them from our airline. Other airlines had a similar problem, and all of a sudden our pilots just disappeared in the course of three months. So we built out own Pilot Training Academy in Wagga, we created a Cadet Program, and the idea was to try and insulate us against further loss of pilots, like we'd just experienced then. It's kind of worked okay so far, but unfortunately the growth in aviation, particularly in Asian countries means that there's a huge demand for pilots and some of our pilots are being swept away by airlines offering very big wages. I mean some of the major airlines will tell you they're losing pilots to Chinese airlines where the pilots are being paid US$750,000 tax free. So it's very hard for us as a regional operator to compete against that sort of wage structure, we simply can't.

So for us it's a huge problem. The only way we can go about it, to fix the problem, is to continue to keep training pilots as we do, to have access to foreign pilots to bring into Australia to fill the gaps that are created when you lose a senior captain, you just can't train a person to be a senior captain overnight, it takes five years. So we need to have access to foreign pilots and the government in their ever helpful manner, made that actually harder by changing the 457 Visa arrangements, and took pilots off the list of skills in shortage, in short supply. We've now had that put back on the list. Now we're arguing that they should be allowed to come out for longer that two years, perhaps five years, because if you're a foreign pilot moving to Australia, you don't want to move your family for two years, you want to move your family for maybe five years, with the prospect of permanent residency. So we're trying to fix it that way.

We're also talking to the major airlines and saying, rather than leaving us to find out what's happened after it's happened, work with us so we can actually manage the transition of pilots from our business to yours, so that we've got knowledge in advance, so we can plan for that. As it is we just get pilots walking in the door and saying, "I'm resigning. I've got a new job," with Qantas or Virgin or someone, and they leave. That's left us with a huge hole. So that's what we're trying to do at the moment. We'd love to do what soccer players do internationally, where we charge a transfer fee. 'Cause it costs us a lot of money to train these people.

I mean it costs us well over $100,000 just to train them in the first place. Then a lot more to get them up to captain. We'd like to think that we've made the investment in that, and these people are coming along and getting those people for free. So we'd like to have it like a soccer arrangement, where you are being transferred from one club to the other, the club that's receiving you pays a fee to the club that's giving you, and that makes up for the investment that club's made in you. So that's what we'd like to see that happen. I don't think it's going to happen, but we'd like to see it happen.

It will help. Yes, it will help and congratulations to them for doing it. We would've liked them to do this 10 years' ago because we were running. We were the only airline running a Cadet Program, and yet the others had just as much reason to have one but couldn't be bothered to do it. Qantas is now setting up an academy or academies in different locations, they're talking 500 pilots year. It's physically impossible to train 500 pilots a year. They won't be able to do that, because there just aren't enough instructors around. There isn't enough infrastructure to do it. But you can start with realistic figures like 50 to 100, and that's where I think they'll end up going. But it's the right step in the right direction. Hopefully Virgin will follow suit because it has the same interest as Qantas and Rex in training pilots. We would just like to think if we look to the future, there's going to be growing demand for pilots.

It is actually an income earning opportunity because Rex is now training pilots for Vietnam airlines, their cadets. There we're doing some pilots out of the Emirates, that we're training as well. There's actually an export opportunity. So there's more than one reason to have a pilot training academy, not just for your own cadets, for your own business, but also to tap into the growing market for pilots in the region.

Well airports are monopolies, they're natural monopolies. You're flying to Sydney you can't land in Melbourne to get to Sydney, you've got to land in Sydney. At the moment there's only one big commercial airport in Sydney, and it's Sydney Airport Corporation. So you've got to land there. So they are in the box seat in terms of how they treat you and how they charge, and I'm responsible. When I was in another life as the Minister for Transport, I actually privatized the airports, and we regulated those airports at the time, 'cause we were fearful that private sector monopoly owners would abuse the monopoly and charge too much, to the disadvantage of the consumer. So we regulated those for five years. Then the regulations were lifted and there's basically no regulations now, on how airports price or charge for their services, and as a result we've seen monopolistic behavior, higher charges than necessary. Australian airports enjoy the highest margins of any airport owners in the world. I don't think, and certainly our airports are not ranked in the top 10 in the world for the quality of the airport or the service they offer.

We're certainly ranked number one in the world when it comes to the margins that those airports enjoy. So there's no comparison. You'd think if we were going to be charging the most and getting the most profitable airport owners in the world, we'd have the best airports but we don't have the best airports, but we do have very expensive airports. We would like to see the Productivity Commission Review, which is now underway, to come forward with some initiatives to bring back some sort of control over the way airports price their services and deliver their services to customers. Not just about price, it's about having clean toilets, and it's about affordable car parking. It's about having airports that are well maintained, so there are not holes in the carpet or tiles that are missing. These are things that impact on our customers, our passengers, and we need airports to look at not just the price they charge but the quality of the service they offer, as people walk through and use their airports.

I mean since I've been involved with Rex, I've been Deputy Chairman since 2004, there have been 20 regional airlines go broke. Three in the last few months, so Jetco, Free Spirit, and Rossair have all gone broke in the last few months, taking it to 20 that have gone broke. So clearly they go broke because they can't generate enough revenue to cover their costs. Fundamental but that's the truth of it, and people who increase your costs are people like airport owners who give you unsustainable airport charges, and of course other services that you draw upon. So we think one of the reasons why it's so tough is because airport owners don't understand the difficulties of regional aviation, they charge too much for the services they offer, and it's not just the capital city airports that do this, it's also the local council owned airports. We fly to 60 destinations, about 50 of them are owned by local councils, and those 50-odd councils, many of them are trying to turn their airports into profit generating venues.

So the example I gave a few moments ago, of an airport owner, King Island Airport in King Island Council, increasing their head taxes or their charges by 110%, with a week's notice, that sort of behavior actually kills off regional airlines. It actually achieves the opposite outcome to what the local community wants. The local community wants lower cost, reliable, sustainable airline services, and if the council, who owns the airport keeps putting their prices up all the time, it's not going to be affordable, it's going to be expensive, and it's not going to be sustainable.

Because when people look at us, and they say, "Well you're the only operator," to whichever airport it is, "So therefore you're a monopoly operator." We're not a monopoly because our competition is not Qantas or Virgin, it's the motor car. You push the price of a airline ticket up by $3 or $4, people will get in the car and drive, rather than fly. That's in nobody's good interests in the end, because actually you're less safe on the road than you are in the plane, you emit less carbon emissions in a plane than you do in the car, and it actually costs probably as much or more if you think about the true costs of operating a car, to go by car. But people don't look at it that way, they just look at it as, "Well there's an airline ticket, it's gone over my budget. I'm going to hop in the car."

I try to explain to people in these local councils, who own these airports, is that there's a reason why retailers price things at $99.99, because it sounds a whole lot better then $104 or $106, and if you put the price up by $4 or $6, as retailers know, you go beyond the tipping point for customers, and they'll say, "Oh no." $99.99 under $100, that's affordable. $104, $106 that's not affordable. So small movements in price have bigger impact on consumers' ability to afford your service. That's what a lot of these airport owners don't understand, is that by putting their prices up, they're actually driving people away from aviation.

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