Where to now for domestic aviation? Examining the trajectory of Australia’s air travel sector

Transcript

Hans Mitterlechner:Good morning, everyone. Welcome to our session. I won't ask you about dinner yesterday. I just say maybe vegetarians have better nights than that, but the beef cheek was quite good, I have to say. It was lovely. Now, I dreamed about this yesterday night. I don't kid you, honestly, and I saw every one of you leaving, except for 3 people, maybe my best friends in the room, you being one of them. Uh, but to avoid that, I have a wonderful team here next to me, my, my panelists, and I'll— I'm not going to make any mistakes. Um, Emma Wilson on the very— my left, your right, CEO of Airlines for Australia and New Zealand, A4ANZ. Uh, then I have Stephen Pearce to my left, uh, Executive Director of BARA, the Board of Airline Representatives of Australia, and then I have Rob Walker, CEO of Regional Aviation Association of Australia, the RAAA. CAPA has tasked us with the, uh, uh, you know, idea to talk about domestic aviation in Australia and to do so through the lens— consultants see things through a lens— of the Aviation White Paper that was published late last year. Um, and they put something in there which is very good, thank you for that, um, It is a—

Stephen Pearse:what does it say here?

Hans Mitterlechner:A damp squiff. Squiff? Squiff, sorry.

Emma Wilson:Squiff.

Hans Mitterlechner:So I've been living in English-speaking countries for about 32 years now. This was new to me. Um, so I saw that, I looked at the white paper again, and I couldn't understand what it means. So lots of the government should, and the intention is, and blah blah. It's a policy statement, it's not legislation. So the idea is, where do we go from here? And that's, I think, what we want to discuss. Uh, here in the next, uh, was it 40 minutes I have? Uh, whatever. Um, and again, as for every session, we have the Slido and we have the microphones. Please don't hold back, do ask us questions. Now, to you first, Stephen, um, and talk about, um, the aviation industry ombuds scheme and passenger rights charter.

Stephen Pearse:Sure.

Hans Mitterlechner:Um, where are we now? I mean, there's an ombudsman now, or an ombudsperson. Um, where are we in the process and where are we going? Could you please Yeah, sure.

Stephen Pearse:So, um, so look, probably by con— uh, just a sort of bit of, um, uh, context, obviously Barra is more focused on, uh, international carriers and carriage into and out of Australia, but obviously the domestic, uh, setup is incredibly important to that in terms of the sort of the feed and the dispersal of, uh, of passengers both travelling outbound and inbound. So, uh, we certainly have, um, you know, a strong interest in that. In terms of the white paper and what's, uh, what, what's happened, obviously that was released, uh, back end of '24. Um, there were 56 initiatives, uh, which was probably quite an impressive number. I think in reality it probably is sort of half a dozen key, key, key things that sort of flowed out. And, um, one of those that is happening is, um, uh, the whole issue around, uh, essentially uh, customer rights, uh, air travel customer rights and protection. And the way that scheme is working, so that, that's flowing out. And the intention is that, um, the scheme which is going through consultation right now will get legislated in '26. So, so next year. Obviously the election, you know, sort of both, both stalled and helps that process go along because the, you know, uh, the government was returned to power. Um, so look, so where we are now and, and how that sort of relates to sort of both domestic and international is that, you know, at the top level you've got the Aviation Rights Charter, which is a sort of a, a more broad-based definition of, of what customers, uh, should rightly expect from, from us, you know, who provide, um, air travel. And if things don't go right, particularly around sort of delays and cancellations, et cetera, what would be some of the remedies? um, which would be essentially legislated and, and mandated rather than being up to carrier by carrier. So at the broad level, you've got the, the charter. Underneath that then is the, uh, industry ombuds scheme, which essentially is the compliance part of that. So in other words, you've got your rights, and then under that you've actually got the, the, um, ombuds scheme, uh, which would administer review complaints, um, have a compliance and a, and a, and a, um, uh, a mandatory outcome in terms of determining, um, solutions. So that's kind of context of all that, which is, which is great. So, so a couple of comments, which is, look, it's good to have certainty. Um, Australian consumer law is actually very strong, um, but potentially has not been as visible, let's say, to air travellers as, as it might have been. Um, so I think some of the risks and some of the things that we talk about in consultation is to, to sort of make sure that you don't end up with a very different, uh, aviation industry specifications. You, you really want sort of the best of both. Um, so, and, and, and how that manifests is things like around delays, et cetera, where, um, there are potentially sort of learnings from Europe. Um, you know, the Europe scheme in some ways is a, is a poster child of some of the things to avoid in a scheme. A lot of unintended consequences that could sort of flow from that legislation. But things, for example, around delays, etc., where simplistically it's quite attractive to put out a, you know, as a passenger you're entitled to sort of, you know, X amount of compensation after a flat time, you know, call it 1 hour, 2 hours, 3 hours, whatever. Of 3 hours has sort of been proposed. That actually kind of ignores the reality of the, um, the huge range of aviation outcomes. You know, sort of, uh, Rob here, you know, on the regional side, and, and, you know, we've had many discussions around this, which is, you know, if you have an engine failure in Karratha, um, you can't even get the part there for 5 hours, let alone sort of be able to sort of do a remedy within 3. So sort of what are, what are some of the things that sort of, uh, need to adjust on that? So the industry ombudsperson, I think we're on about our 4th right now. It seems to be sort of—

Hans Mitterlechner:Yeah.

Stephen Pearse:—pass the parcel in the department. Um, but, uh, we've got a, we've got a new industry ombudsperson, and, and just to sort of finish up, now that we're sort of, um, um, you know, the department and, uh, the government are kind of tooling back up again, um, that consultation is ongoing. Uh, we've certainly engaged as BARA in order to Uh, try and talk about that complexity of different situations for, you know, classic, let's say, post-travel complaints if they occur on one side, and then you've got day of disruption and cancellations and postponements on the other. They're actually quite different. Uh, they needed to be treated differently.

Hans Mitterlechner:Mm-hmm.

Stephen Pearse:Um, and then ultimately to also allow carriers to distinguish their service, service offering by how, you know, by how well customers rate their ability to respond. Because at the end of the day, if you have a kind of vanilla program stuck on top of everybody, that's a deadweight.

Rob Walker:Right.

Stephen Pearse:We would, we would argue.

Hans Mitterlechner:So Europe is a, is a good blueprint as to how we might not want to do things. So we can learn from that, and hopefully we'll have the wisdom to do so.

Emma Wilson:Yeah.

Hans Mitterlechner:The question here I have is, look, when airlines would expect to be liable to making payments for delays, for cancellations? Wouldn't they just increase fares slightly as their own insurance scheme against that? Is this what happened in Europe?

Stephen Pearse:Look, ultimately anything that adds to the cost base for an airline, you know, it's not a straight-line, you know, hypothecation of, you know, cost here and airfare there, but ultimately it feeds through, you know, inevitably. You know, there are some classic examples out of the, um, out of the European scheme. Um, you know, one, one that I recall is, is quite sort of, if, if you actually sort of think through the manifestations of this, I think it was back in about 2011. Um, AirBaltic had a flight from Latvia, uh, went to, and, and, you know, this is a kind of, you know, low-cost carrier, um, a service to a foreign port. I'm not sure which one it was. Um, the flight crew It was either the captain or the first officer, details are now a bit sketchy because it's 15 years ago, but they either died or they were seriously ill in the foreign port. And at the end of the day, the European Court of Justice determined that that was not an exceptional circumstance and that was something that the airline should have known and planned for. Now, if you take that to the sort of the next logical conclusion, it's like, well, how would you mitigate that? You know, you're sort of— this is actually in the turnaround port, so as an airline or operator, you know, all in your own businesses, you've got your staff and your, your, your contingencies to be able to provide somebody to show up and do the job. But in this case, you know, in the middle of the job essentially at the turnaround port, uh, you had an issue. So how would you mitigate that? You'd either have to have a permanent extra crew in the, in, in the, in the overseas port, or you've got to sort of assume that this will happen occasionally.

Hans Mitterlechner:Yeah.

Stephen Pearse:And therefore you've got to sort of essentially factor in compensation. And again, I think this is where things get confused between compensation for the delay and looking after the customer and sort of, you know, protecting their interests when you have a delay that may be caused by exceptional circumstances. So at the end of the day, in an example like that, if that's how you have— if that's how the scheme is designed, you've got to respond. It puts extra cost into the system. You've either got to allow an amount that, you know, you know you're going to have to call on every now and then, or you've got to, you know, even more so, factor in crew, for example, to have sort of extra crew in a foreign port, neither of which are terribly attractive. And at the end of the day, you've bought your airfare as a consumer, let's say on a low-cost carrier, because it's a cheap price. So, you know, these are some of the unintended consequences that we, we want to be sure—

Rob Walker:Sure.

Stephen Pearse:In our dialogue here, get avoided in the Australian scheme.

Emma Wilson:Yeah, I think Stephen makes a really good point about the European Court of Justice and to Han's point about the cost. So just some quick facts for everyone. The European EU 261 is always held up as the gold standard of customer rights. Since it was actually implemented, there's been over 70 interpretations of it by the European Court of Justice. And additionally, this year it's estimated to cost airlines $8 billion euros. So if we're talking about cost base and that flowing through, I think those numbers are really, um, useful to kind of right-size the conversation about what we should do in Australia. As Stephen said, Australian consumer law is actually the gold standard for consumer protections, and so I think that the government has gotten it exactly right in not following Europe's example and instead getting a right sized ombuds scheme to actually tackle the size of the problem, which as we know is not in the European scale. We've been working very closely from a domestic perspective, and I should just step back a little bit for those of you who don't know what AIFA ANZ is. We are the industry body for domestic carriers both here and in New Zealand. We've been working really closely with the government on the design of the ombuds scheme and the customer rights charter. And we're confident that throughout the consultation process, which Stephen said is currently ongoing, we'll get the right, uh, outcome, not only for consumers, but also for airlines and the broader aviation ecosystem.

Hans Mitterlechner:Thank you. Thank you very much. I think we should move on to regionals. A couple of things. I mean, there's a lot. The white paper is not a small thing, is it? So regional aviation, I think, is quite interesting for many people around here. Rob, you're the perfect representative of that kind of aspect of our industry. What's the state of the industry? What's the state of the Australian regional aviation?

Rob Walker:Well, trying to remain positive about the future. It's tough out there. I think there's obviously plenty of obvious examples now where the regional aviation sector particularly is doing it tough. That's not saying others aren't either. But there's, there are some issues for regional aviation that are bespoke to the sector. We share the same challenges and dilemmas around supply chain, particularly post that other era that we've decided that we're not talking about. But it's interesting, you know, the supply chain, getting spare parts, the fact that you wouldn't think necessarily that the Russian-Ukraine conflict could impact on regional aviation, but it does.

Stephen Pearse:Mm-hmm.

Rob Walker:A lot of the precious metals that are required to make this thing called titanium, that aircraft seem to have a lot of bits and pieces, made out of that metal is a challenge. So therefore, a lot of the OEMs aren't able and haven't been able to maintain the, the supply streams that are required. Ageing aircraft fleet is a challenge for everyone. Obviously, there's been a lot of discussion already around some of the new deliveries, which is absolutely fantastic and exciting to see. But for a lot of RAAA members, we are very much in the space of there aren't necessarily new aircraft on the drawing board at this point in time, or the newer technologies that will actually provide some benefits going forward, like hydrogen-electric power or re-engining existing airframes, aren't quite there yet and aren't available. So it's a— our church is a fairly broad one from a regional aviation perspective. On the large end, we've got members like QantasLink, and Vara Alliance, obviously, and then working through your Air North right down all the way through to other operators like Rex, Link Airways that are operating the Saab 340s, and then a whole raft of really true regional operators that are operating Cessna Caravans and the 208s, a lot of the other more or less legacy aircraft now as well. So it's impacting everybody. Um, and just in varying degrees.

Hans Mitterlechner:Mm.

Rob Walker:Uh, and the other real challenge, and something that the association's been advocating for for quite some time, and really pleased that, um, um, the regulator in Civil Aviation Safety Authority has actually been listening and making some improvements, and our members are seeing some of the improvements in this space, is around those workforce challenges. Um, rather ironically, um, out of every sort of challenge or crisis, um, there is, you know, some opportunity. Um, the position that Bonza and Rex has been— have been in has meant there are, uh, for a lot of RAAA members, pilots aren't so much of an issue at the moment. Um, but LAMEs, in the licensed aircraft maintenance engineers, um, is still at a, effectively a crisis point. Um, and recent changes in some of the regulation for modular licensing, uh, recognition of, uh, foreign LAME licences in this country from other like-minded regulators, are all positives going forward that, um, you know, members are embracing. Um, up this part of the world, Jet Aviation is one of the first to get the exemptions required from CASA to be able to, um, get licensed, foreign licensed LAMIs on their books. Um, because let's face it, at the end of the day, an Airbus aircraft or Boeing aircraft or a de Havilland, uh, whatever, the aircraft doesn't know what airspace it's flying in.

Emma Wilson:Mm-hmm.

Rob Walker:It's, it's a matter of the competencies and the skills that are required to maintain those aircraft. So, a mixed answer. The initial reaction is yes, it's tough. But one thing that, and I'm not sort of been trying to be altruistic about it, that I admire about the members that I have is that a lot of them are family businesses, but a lot of them are also self-made people that have created something from nothing and built it into something.

Stephen Pearse:Yeah.

Rob Walker:And the one thing that is the common theme for all of them is resilience. That is the, um, not so much a blind faith, but a faith that there is, um, it's a great sector we work in, and they do take the service provision where it's a matter of providing goods and services to the regional and remote communities of Australia, they take that very seriously.

Hans Mitterlechner:Which is the very core of it, isn't it? And, uh, there comes my next question is high fares. I mean, the government goes out there, or the white paper does, the government does not, Advising the PC to actually do an investigation into fare levels. Um, yeah, fine. I mean, but so what? It's expensive. What can we do with that? Is there any aspect of regulation we could bring in on a federal level? Is this something that would be considered?

Rob Walker:Yeah, it's a good question. The— obviously we're talking about Aviation White Paper. There are, of the 56, there are a handful that relate directly to regional aviation. And one of those is around the PCC being requested to do a review of regional airfares and the components that go into those regional airfares. And I've had some people say to me, oh, you know, this, you know, it's probably really unhelpful for you in terms of the government wanting to understand, you know, is the mindset around regional airfares are expensive? Obviously, the word expensive is a definitional one. that varies depending who you talk to. But from the RAAA's perspective and our members' perspective, we are welcoming the opportunity to participate in that PCC review. And you're right, it's on the drawing boards. There's no action's been taken because the government has got a number of higher priorities, let's say, in sorting out things like slot management in Sydney and ombuds schemes and service charters and those sorts of things. But where we really do want to embrace it and be involved is to actually make sure that the travelling public, the community, actually understand how difficult some of these businesses are.

Emma Wilson:Mm-hm.

Rob Walker:And if you look at a— you know, there's no such thing as a standard regional aircraft, but for any airline, and it doesn't matter whether you're Qantas or Virgin or, you know, a small charter operator out in the outback, Obviously, staff, the staff overhead is always right up there in terms of your cost. And then it's, then it becomes a mix of fuel. And there's a whole rabbit hole you can go down there in terms of supply and demand and your emerging technologies and SAF and those sorts of things. But then you get into things like air navigation charges. So air services.

Stephen Pearse:Firefighting.

Rob Walker:Yeah, firefighting services with ARFF. Um, you know, Steve and I would agree to disagree on things like aft services and cross-subsidy by international airlines or regional services, but we get on and we have fun with that. Um, and then, you know, with the greatest respect to, to, um, the airports that all our members fly into, um, you know, airport charges are right up there, uh, in terms of, um, the potential impacts for a regional operator. So, um, I probably a little bit harshly, but often talk about if you, You think of a typical regional aircraft, you know, let's take a Q400 or something like that. By the time you take all that on board, the last 2 rows at the back of the aircraft is the profit margin for the operator.

Emma Wilson:That's right.

Rob Walker:So I'm not saying we need to be greedy about it. It's a matter of being fair and pragmatic. And, but I think the PCC inquiry will provide the opportunity to shine a spotlight on a few of these areas. but also hopefully build a level of education and awareness of the travelling public of the challenges that any airline, and particularly for us regional airlines, face.

Hans Mitterlechner:Yeah. Well, thanks for 2 kind of keywords here. You said Sydney slot reform and then aeronautical charges, which is where I want to bring it over to Emma. Sydney slot reform, actually something has been done on that, so not just like aspirational. Are we better off? Have we kind of, you know, Solve the problem of access of, you know, level playing field? What do you think?

Emma Wilson:That's a good question, and I'll get to it in just a moment. But I might actually go back to your opening comment, Hans, about the damp squid or damp squib of an aviation white paper. I think that's a little bit harsh. You know, we were talking yesterday at the sustainability panel about looking at the international aviation market and seeing what works in other jurisdictions, what doesn't, and then really considering when we're making massive policy changes out to 2050, what are the intended consequences of a policy change and what are the unintended consequences? So I think in talking about, uh, the regional aspect of the white paper as well, I think there's a lot of good to go in there. I think it will be a while before we see the Productivity Commission inquiry into the regional the determinants of regional airfares, just because of course the government has a much broader productivity reform agenda at the moment. Um, but I think it would be really useful for that inquiry to look at not only airfares, but what goes into it, what goes into the airport operating charges, what are the costs to airports as well, because as we know, one of the key determinants of a regional airfare is the security, And all of our members in AIFA ANZ are very supportive of enhancing security and making sure it's fit for purpose at regional airports and airports across Australia. But the cost of that can be astronomical. And I think something that the white paper missed is looking at that in particular. In 2020, Home Affairs released a discussion paper into a sustainable model for security funding at regional airports. When I checked my watch, we're in 2025 now, and we haven't heard anything about that. So I think as we start to have these discussions and looking forward over to what might be coming over the next year or 2 for regional airports, I think that's critical, and I hope the Productivity Commission inquiry really focuses on that.

Hans Mitterlechner:Appreciate that.

Emma Wilson:Now to slots. Um, it has been really the area of interest for the public that I don't think anyone in this room thought it would be. Who thought that our neighbours and friends would be asking about the concept of slot hoarding? Anyone? So when my neighbours and friends ask me about the concept of slot hoarding, I say that it's about as real as the tooth fairy. And you know what? We're about evidence-based policy at A4ANZ. That is fully backed up by last year's audit of the slot use at Sydney Airport. There was absolutely no evidence of slot hoarding. Non-utilisation of slots is about back to pre-COVID levels when the general public had no idea what a slot was. And we're seeing our performance improve. Now, whether the reforms that recently passed Parliament in the Sydney Demand Management Act late last year, um, and the regulations and scheme which are currently being consulted on as we speak— consultation closes on those today— Um, I think they're going to make a difference. It'll be great. I think aligning as much as we can with the worldwide airport slot guidelines is critically important. So we've been encouraging the department to make sure that we're moving to international best practice and aligning with that. I think anything about transparency is always good. It is about balancing with regulatory burden when we talk about, you know, publishing quarterly reports. from airline and airport data. Um, but yeah, we're very supportive. All of our airlines have been extremely supportive of the Productivity Commission, uh, inquiry recommendations that came out in 2019 on slots, the Harris Review recommendations which came out in 2021, and we've been fully supportive of all of the SATAM reforms that are being progressed.

Hans Mitterlechner:And we have some, some gains with the 85 kind of recovery kind of, uh, Areas and stuff that might help a little, but fact is 80 movements are 80 movements, and, uh, you know, as long as you don't make it more, that's, that's what it is.

Emma Wilson:And I think the recovery period is really interesting, and I'm going to ask Stephen and Rob to give their thoughts too. There's been a bit mooted in the regulations and scheme, but I think until the industry gets some more detailed guidance on how that will actually work in practice, we can't put all of our eggs in that basket. From what I understand, it's quite conservative at the moment and will likely be deployed about once a month, perhaps even less. So how that works in practice is gonna be a really key issue to solve.

Rob Walker:Yeah.

Emma Wilson:And we really support the review that's slated for the review of that threshold every 2 years to make sure that we're actually getting benefit from it.

Stephen Pearse:Yeah.

Emma Wilson:And it isn't just something that's been announced and then never touched again.

Stephen Pearse:I just, yeah, I was going to make a couple of comments on, on, um, the, the Sydney issue. I mean, Sydney is so important because it's the sort of the heart of the network, and, and, you know, we're doing a lot of work with Airservices, or Airservices have been doing a lot of work in terms of performing, uh, improving the overall performance, um, of the network because the criticality of the hubs. Um, it's not just Sydney, but that happens to be sort of the biggest. And so this issue of sort of slots and, and, um, the ability to recover. Um, that's why it is, it is so important. But just as a couple of things on, on, on the, on, on the slot, um, review process from the international perspective, or, and, you know, overall. Um, you know, I think it's fair to say there was an awful lot of media and probably less substance. Uh, I think, you know, that there will be some improvements, but it's not going to sort of suddenly, you know, have Sydney be wide open in terms of availability, etc. You're talking some incremental gains. Um, I think the issues around the recovery period are very real and are quite concerning, frankly, because, um, you know, the idea there is that, you know, at least for a nominated couple of hours, that, uh, you know, air services would be able to schedule, uh, as I said, it's up to 85 movements, uh, an hour. They struggle to actually even schedule or operate the 80 that is the, the current limit. Um, so again, you know, there's a degree of conservatism that, that we fear will mean that that 85 is not exercised. Uh, and then on top of that, it actually has to be approved physically by the Minister's delegate in order to enact this recovery period, which means that in practice, potentially, it's going to be used, or it's going to be enabled, uh, quite seldom. Uh, and if it is, only sort of 10 times a year. frankly, it's not going to make, not going to make much difference, which would be a real disappointment.

Hans Mitterlechner:Yeah.

Stephen Pearse:And then the very last thing I'd just say on SATAM is actually, whilst, um, supportive of most of the recommendations, um, there is some divergence between, um, sort of international, um, uh, world, um, World Airport Slot Guidance rules, particularly around the sort of the use of slots when they get returned, um, and they sort of use it or lose it, 80/20 2020 rules. These are quite concerning for international carriers because they've got aircraft and crew scheduled potentially through, you know, 2, 3, 4 international jurisdictions. If you've got different rules in Sydney, basically it's— that, that has the, that has the real potential to stuff it up, you know, for networks that go way, way beyond Australia. And what would be the outcome of that will be a diminution of the service to Australia rather than interrupting the global network. So there again, there are some potentially unintended consequences of trying to, you know, treat Sydney as being so unique in the world that it doesn't need to, to, to work with these, uh, worldwide slot rules, which at the end of the day are made up and determined by, you know, the, the, the, the group that is airports, airlines, and slot coordinators. So So, you know, everybody's got an equal stake in that. Those rules are there for a good reason. So anything that diverges from that is a concern.

Emma Wilson:Yeah.

Hans Mitterlechner:Mia, sorry.

Rob Walker:I was going to say, just quick, add to that quickly as well. Obviously very much concur with the— and rather interestingly, the 3 of us have spent I don't know how many hours on Teams meetings with the department and obviously the major airlines and other stakeholders in this country, not just on this but on obviously other white paper initiatives. I think the other sort of couple of key points to make around Sydney, and Sydney is, as has been said, is very much, you know, Sydney sneezes, the network gets a cold. I think the concerns are that the thresholds that have been, you know, currently in the exposure draft of the regulation are too conservative.

Hans Mitterlechner:Mm-hmm.

Rob Walker:And I don't think we'll see a real operational benefit necessarily if there's not an opportunity to revisit those and for those to be tweaked. And I think the other challenge, and, you know, we've— from a regional aviation perspective, there's certain guarantees around slots and those sorts of things. There's a lot of— still a lot of myth out there.

Stephen Pearse:Mm-hmm.

Rob Walker:And a lot of it is, I suppose, I'm not saying it's all politically driven, but there is, there is a public component to it in that there's not enough slots in Sydney. and you need more slots or the slots to be managed better to improve competition. I don't think we are going to see an improvement in competition or new competitors entering the market in the city, into the Sydney Basin, because of the way the slots have been managed.

Stephen Pearse:Yeah.

Rob Walker:And linked to that, the other challenge for any airline that's operating into Sydney, the way the system's been set up is it's around the day of operation. as, as has been said, the minister's delegate making a decision. So who's on first, who's on second, who makes the decision, when's the decision made? For most airlines flying into Sydney, they need some more surety. And the day of operation, yep, if the weather turns to custard, that's normal ops for a lot of people, and they just get on with it. But the shoulder decision, those periods around the relief period, actually need to be made by airlines the night before, because that's when you're going to decide make a go/no-go decision.

Stephen Pearse:Mm-hm.

Rob Walker:Um, and that provides some certainty also for the customers, because at the end of the day, um, people worry and airlines worry about their customer, um, experience and all those sorts of things. And I think— I'm not saying it's, uh, it's the tip of the iceberg. Sydney is a very complicated piece of airspace for a whole number of reasons. Um, if you're gonna be fair dinkum, um, where me or, you know, um, appearing before Senate inquiries have said 85 is not enough. The airport's capable of doing 100, easy. Um, if they're on the parallels, um, how do I know that? Because if those that are in the room remember the little sporting event back in 2000, um, that was held in Sydney, they were pushing over 100 moves an hour, getting aircraft in and out of that airport ready for that and post that event. Um, so the, the real question is, um, and I'm happy to talk about it forever. Is, is there a political appetite to do something with the LTOP in Sydney? And you can get into arguments about how much noise aircraft make, a 787, A380, compared to a 74, or even a 72, et cetera, et cetera.

Emma Wilson:Right.

Rob Walker:You know, runway end sharing, noise sharing, social licence, et cetera. So it's a positive that there's been some light shone on some of these issues. Is it going to fix Sydney? No, Sydney will continue to be the challenge that Sydney always is.

Hans Mitterlechner:Guys, it's all very interesting. We're running out of time, and you guys, you owe us 5 minutes. I think it was 40 minutes, not 35. So please, um, maybe go to the broader issue of airport regulation. And I'm not painfully, but I'm aware that many of my clients sit down there, the airport clients, and I have an exclusively airline representative body up here. Um, Matthew Schroeder yesterday said that he would appreciate some some more regulation, some more light-handed regulation? Are we at the end of the usefulness of, uh, the kind of, uh, gentleman's agreement aeronautical pricing principles, and, or what, what's the next step here?

Emma Wilson:May I start? Because there's no gentleman's agreement here, obviously. Um, I think it's really important. I would agree with Matthew from the ACCC. It's something we've been a big advocate for at A4ANZ, is enhanced monitoring of the performance of major airports. And that's not to say that airports are doing the wrong thing. It's more about data collection. We had the Productivity Commission inquiry in 2018 and 2019 that said the regulatory regime in Australia for the airports was fit for purpose. Now, like you said, Hans, it's very light-handed, and that's okay. But what we want is to actually assess, is there excess and abuses of market power. With the data that is currently collected by the ACCC, it's almost impossible to tell. So to get that data set collected by the ACCC for the Productivity Commission to then fully consider, I think will be very important. And I think the other point about airport regulation is there's always discussion about the aeronautical pricing principles and how that guides new negotiations between airlines and airports. Now, without getting into the argy-bargy of the airport-airline negotiations, which I know can be quite tiresome, is I think not everyone realises that the aeronautical pricing principles aren't actually legislated anywhere. They're not mandated. They're a serving suggestion that were included in an appendix to a government response to a Productivity Commission inquiry. in 2007. So far from official. I think if we can get some sort of mandation of those pricing principles which guide negotiations, negotiating in good faith, having a reasonable rate of return, and in the event of an intractable dispute between an airport and an airline, having the opportunity to have some commercial negotiation and arbitration happen, I think if we can start to mandate those, we'll see a lot better outcomes, not only for airports and airlines, but also for the travelling public.

Hans Mitterlechner:Um, thank you. I see BAC down there and Jim is somewhere in the room. Do you want to say something to that immediately, or— just asking, yes or no? Okay, please. Anyone else who wants to talk to that? I mean, we talk about it a lot, Stephen.

Stephen Pearse:Yeah, I do. Look, yeah, I mean, so, so, you know, uh, Barra is, uh, authorised by the ACCC to to collectively negotiate with, um, uh, the essential aviation providers, which is basically the airports and air services, etc. So yeah, we are, we are deeply in the weeds on that. So I mean, just to try and sort of make some really, you know, broad comments, you know, that are sort of supporting what, what Emma was saying there, which is the way that things are set up here in Australia is, is, you know, we have privatised airports. Um, that's designed to allow flexibility of investment and capital, etc. And that's all— that's good, because as airlines we also need the right infrastructure and the right service level, um, at the key ports. I guess the challenge comes in a way which is that, you know, private capital does what private capital needs to do, which is get maximum return. And at the end of the day, I think, you know, the concerns as airlines is that you you're going into basically, um, you know, private monopoly assets, the main, the main airports. And if that return, if that price keeps on going up and up and up, you end up shoot— which, which, you know, logically the return on capital is, is where you need to go. You actually end up shooting yourself in the foot because you end up at, at levels of cost which suppress the very demand you're trying to encourage.

Rob Walker:Yeah.

Stephen Pearse:And, you know, it gets again a bit more complicated because there are various models for aeronautical pricing which I won't go into, but, but that essentially becomes the, the layer of concern. And, and therefore, under this very light-handed regime, the call, I guess, in supporting the ACCC is, look, there needs to be a backstop. There needs to be a point at which, you know, if you get parties where you're sort of saying, hey, look, you know, I say black, you say white, that you can go to an external party in order to get some sort of objective resolution. That process doesn't exist right now. And, you know, as we emerge from the event that we're no longer talking about, the amount of capital investment and the view over the next 10 years is huge.

Rob Walker:Mm-hmm.

Stephen Pearse:It, it's absolutely massive across all of Australia, most of which is great, but it's a question of making sure that it's both affordable and will deliver back to the flying public the outcomes that we all want.

Hans Mitterlechner:We have a problem with time. Thank you, Stephen. And we didn't even touch my favourite subject, which is the, uh, the world's least competitive aviation industry. Uh, I just have one question for you. Uh, Geoff Dixon about 20 years ago said that Australia is just big enough for 1.5 airlines. Um, population has grown 40%— sorry, since then, uh, GDP by 60%. Is, is Dixon's statement a curse, or is it mathematical truth in the monument? What, what, what do you think?

Rob Walker:Yeah, I mean, yeah, obviously, uh, history is an interesting thing. That was quite a while ago. Um, I, I'm, I'm of the view, uh, and obviously very biased view from regional aviation perspective, to whilst he might have said there's room for 1.5, uh, airlines in this country, I'm of the view that there's, uh, there's already plenty more than the 1.5 or the 2 or the 3. And I suppose as a demonstration of that, if you look across the RAAA membership, Alliance Airlines has currently got 72 airframes. So 72 aircraft is no small investment by any sort of airline. We heard yesterday, obviously, with Virgin at the point of going into administration, they were down to like 52 or 53 hulls. So So there are already other operators in Australia that are comparable to or not far behind the majors, which is one component of it.

Hans Mitterlechner:I appreciate that, but on a city pair basis, we are bound to one or two carriers basically, right? And that is massive market concentration.

Rob Walker:I think, well, the point I was going to make is I think the next, you know, if you call it a few years, however long, is going to be quite interesting because the lines are getting blurred. Um, there's a lot of, uh, different operating models that are coming into effect in terms of, um, you know, wet leasing and who actually owns the aircraft as to who operates it and, and those sorts of things. And I think the other bit that's really going to be interesting going forward is the industry as we know it, um, I, you know, refer to it as planes with wings, is going to change. Uh, and there's sessions coming up on advanced air mobility. Yes, it's not going to be in the next 5 years, But there are people already starting to fly small-scale aircraft that are, you know, hydrogen power— hydrogen electric powered or battery powered or whatever. Where's that going to end up? Because it'll be intercity to start off with, but what is it going— what is the definition of an airline going forward?

Hans Mitterlechner:Mm.

Rob Walker:I think an airline, if it's about having— holding an AOC and selling a ticket to an uninformed passenger, that is technically a passenger, then I think the definition of airlines are going to change.

Hans Mitterlechner:Emma, closing thought on that, please.

Emma Wilson:Yes, I was going to say, Hans, we could be here all day if you wanted to talk to me about the competitive market in domestic aviation. If you've never sat around my board table, it is the most competitive place, probably, with all of the airlines around it being fierce competitors who are continually innovating. We're seeing fares come down, which I think is important. aviation in this country is incredibly tough. Since the demise of Ansett, we have seen 24 airlines bite the dust. So that is 24 airlines in 24 years. So it is incredibly tough. Um, I think we have moved on from when that comment was made 20 years ago. I was finishing high school, so I like to think we've made some progress. Um, it's important to note that some of Geoff Dixon's, uh, successors have talked about potentially 3 major airlines, and that's to say there's no real limit on other airlines as well. I think we have moved on. I think we have a competitive market. Even though it's concentrated, that doesn't mean that it's not competitive.

Hans Mitterlechner:Stephen, we stole some time, so please, you see it here, 2 minutes.

Stephen Pearse:Yeah, look, I was just picking up on Emma's last point. I sort of have a slightly contrary view to, to the extent that, you know, 2 carriers on a route, you can still, as a consumer, you've still got a lot of, there's plenty of competition. And I think we have to be careful what we wish for in a way. I think there's a bit of a sort of myth here. It's not as simple as the number of airlines. It's, you know, have you got your choice of frequency and, and, and, you know, type of airfare and everything else. So I would argue also that, you know, the market is broadly very competitive. The regional challenge is is, you know, I think people forget Australia is so urbanly concentrated, it's almost unique, you know, sort of 85%, 90% in the sort of 5 or 6 major capitals. The total demand to and from regional Australia is actually relatively small. If you add it up, it's like equivalent to a couple of mid-sized US cities. It's, you know, there isn't that much regional demand to support. I mean, there are an awful lot of, um, as Rob said, sort of, um, you know, sort of individual family-owned airlines, and they've built up, and some bigger ones. But, you know, your total, you know, what you're trying to sort of compete for when you get behind the majors is actually quite limited traffic. And certainly when you go to some of the more regional, um, uh, you know, potentially regulated in sort of state environment type routes, the amount of discretionary traffic, let's say on, you know, Perth-Esperance, Mm-hmm. is only a fraction of the total volume that will go backwards and forwards on that route day in, day out. So, you know, whether you sort of throw in another airline or whether you sort of drop your price, you're not actually going to change the amount of passengers that go backwards and forwards because the discretionary traffic is such a small portion of that. You know, it's really there as a regional service, mainly driven by local business and VFR and, you know, medical and all the rest of it, which is consistent.

Hans Mitterlechner:Yeah.

Stephen Pearse:And these are one of the— you know, this is Part of the challenge of the geography of Australia, um, very large with, with, with not a lot of people. And then from the international perspective, um, you know, Australia is where it is, which, which drives internationals into the sort of the peaks which create the, the, the infrastructure crunch at the airports. So you can't, you can't change the geography.

Hans Mitterlechner:Thanks a lot. Uh, thanks, Marco, for the 5 minutes, and thanks, my, my panel, very highly knowledgeable and very good-looking. Thank you very much.

Stephen Pearse:Thank you.

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