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As bilateral restrictions bite, Australia’s secondary airports have an opportunity to bloom

The withdrawal of regularly scheduled international Qantas services from Perth is giving reason for the Western Australian capital to suggest bilateral air service agreement caps should not apply to it, allowing Perth to grow in the absence of Qantas services and beyond the handful of Virgin Australia flights. Australia's otherwise unilateral open skies agreements constrain capacity at the main airports of Brisbane, Melbourne, Perth and Sydney but have more generous allowances – or unlimited access – for flights to other cities.

The more liberal access to secondary Australian airports presents a theoretical opportunity for airlines from markets like mainland China, Hong Kong, Malaysia, the Philippines and UAE which are at or close to bilateral limits. But secondary cities generate lower volumes, including in the necessary premium cabins, and have lower recognition overseas. Tag flights from a secondary Australian airport to a primary airport circumvent bilateral restrictions, but can come with prohibitive complexities, operationally or commercially.

Australia's international traffic is concentrated at Sydney, Melbourne and Brisbane

Passenger traffic into Australia’s airports is expected to increase significantly by 2030, with growth rates of 100% and 140% expected in Sydney, Gold Coast, Perth and Darwin. Although good news for Australia's tourism industry, it highlights likely congestion at a relatively small number of airports. Currently, almost 90% of passenger traffic in Australia travels via the 11 largest airports. Of these 11, most of the traffic is again concentrated between Sydney, Melbourne and Brisbane.

Australia typically applies its bilateral air services agreement restrictions only to the four major gateways of Sydney, Brisbane, Melbourne and Perth, while providing unrestricted access to airports such as Cairns, Gold Coast, Adelaide or Darwin, which are considered secondary or regional gateways. The programme also allows additional seats to major airports, provided a stopover is made first at a secondary port.

This policy has had marginal success to date. With the exception of Cathay Pacific’s four times weekly Hong Kong-Cairns-Brisbane service, no international carriers from bilateral-restricted countries currently operate tags from secondary to major ports. (Cathay previously operated a Hong Kong-Adelaide-Melbourne tag service, but suspended it on 01-Apr-2014 in favour of nonstop services to both ports, which worked better for the new IT system it migrated to.)

The exclusion of secondary airports from bilateral limits has however largely benefitted Adelaide Airport, which has lobbied successfully to attract several major airlines, and the Gold Coast, which receives long-haul LCC capacity from Southeast Asia. As the major airports become more congested – notably Sydney – the appeal of secondary ports may increase, particularly to LCCs, both as alternative destinations and as a way to bypass capacity restrictions.

Australia’s 10 largest unrestricted airports by system passengers: 2012-2013

Airport

2012

2013

% Change

Adelaide Airport

7,220,383

7,513,958

4.1%

Gold Coast Airport

5,676,420

5,734,981

1.0%

Cairns Airport

4,080,644

4,246,422

4.1%

Canberra Airport

3,022,818

2,933,426

-2.7%

Hobart Airport

1,919,026

2,091,706

9.0%

Darwin Airport

1,940,792

2,005,431

3.3%

Townsville Airport

1,609,746

1,556,579

-3.3%

Launceston Airport

1,172,273

1,257,145

7.2%

Newcastle Williamtown Airport

1,184,423

1,206,517

1.9%

Mackay Airport

1,126,243

1,102,594

-2.1%

Of these, only Adelaide, Gold Coast, Cairns and Darwin have international services; the remainder are driven by domestic traffic and, with the exception of Canberra, Newcastle and Townsville, are unlikely to experience more than seasonal leisure services to international destinations.

Not included on the list is Sunshine Coast Maroochydore Airport, which receives a seasonal twice-weekly Auckland-Sunshine Coast service from Air New Zealand, although the airport’s proximity to Brisbane and its short runway negates most destinations further afield. Melbourne Avalon Airport is also missing as it is technically classed as a Melbourne gateway and is therefore mostly subject to bilateral caps.

With many countries approaching bilateral limits, secondary ports become an option

Hong Kong, Malaysia, United Arab Emirates, Qatar, Philippines and China are among those markets approaching or at bilateral limits, meaning the attractiveness of these tag services may increase as airlines attempt to cement their positions in the market. As several Southeast Asian LCCs look to expand into Australia, secondary ports may become more viable in an attempt to bypass limited capacity allocations or congested/expensive airports.

Indonesia AirAsia has flagged Denpasar-Townsville service but noted other Australian ports remain under consideration. Strategic Airlines/Air Australia attempted that market, albeit with a higher cost base. Indonesian carriers are perhaps the most likely to enter secondary Australian airports with services to the ever-popular Bali.

Cebu Pacific Air is eager to expand but has no interest in secondary airports. The airline has instead pushed for a greater allocation under existing bilaterals, which currently allocate it only 2200 seats per week, or enough for five return frequencies into Australia (currently used on Manilla-Sydney). The remainder of the 6000 available seats are held by Philippine Airlines. Cebu has flagged Melbourne or Brisbane as its next ports after boosting Sydney to daily, and pointed to the Australia-Malaysia ASA, which currently allocates up to 37,000 seats, as representative of an ideal outcome. Australia is reportedly “very reluctant” to further increase air traffic rights to the country. Australia has previously requested beyond rights from the Philippine for Jetstar in return for added capacity, but Jetstar suspended its service in Mar-2014 leaving Australia’s position in discussions hazy.

Cathay is up-gauging one of its four daily Sydney services but says it is uninterested in secondary ports and tag flights as stopovers reduce appeal to premium passengers. Hong Kong Airlines is interested in serving Australia, but not too eager on secondary markets.

Lower airport charges – such as those at Adelaide – can help

Adelaide’s dominance in attracting new services is emphasised by its combined landing and terminal charges, which rank among the lowest of the major airports in Australia. This contrasts sharply with Cairns Airport whose calculated fees, according to the Air Transport Research Society, track closely to those of Sydney Kingsford Smith Airport – the busiest airport in Australia. These figures of course exclude incentive and marketing deals from the airport and various local government/tourism branches.

Adelaide Airport has reported a notable increase in international traffic, as did Gold Coast Airport whose fees track above Adelaide and roughly approximate to Darwin Airport. Although Jetstar cited limited cooperation from Darwin as a reason to cancel its idea of having an international hub at Darwin, Asian carriers have grown in Darwin, giving it a traffic boost.

See related report: Darwin grows foreign airline links, despite Jetstar's base closure. Even a hub role may evolve now

International traffic comparison by airport: 2010-2014

Adelaide Airport has aggressively courted international carriers

Adelaide Airport is the busiest secondary gateway in Australia and the fifth busiest international airport in the country, receiving international service from Air New Zealand, AirAsia X, Cathay Pacific, Emirates, Jetstar Airways, Malaysia Airlines and Singapore Airlines.

 

2012

2013

% Change

Total Passengers

7,220,383

7,513,958

4.1%

International

663,448

806,744

21.6%

Domestic

6,556,935

6,707,214

2.3%

Since taking a 99-year lease of the airport in 1998, AAL has invested USD428 million in infrastructure projects, the largest being a new integrated terminal facility, which opened in 2006. As it approaches capacity, the airport has commenced construction of 20,000sqm of apron space to provide parking for four additional aircraft. The apron area will cater for aircraft ‘laying over’ between arrivals and departures and will free gate space for inbound arrivals.

According to CAPA’s Airport Construction & CAPEX Database, AAL also plans a further USD866 million in investments as part of a 30-year infrastructure plan featuring a terminal expansion project and introduction of an ‘airport business district’ including office space and an airport hotel. By 2044, Adelaide Airport plans to have 52 aerobridges, including several A380-compatible gates, in addition to new retail spaces, lounges and car parking.

Adelaide Airport Capacity Breakdown (by seats)

Adelaide Airport International Carriers (by seats)

South Australia’s state government is acutely aware of Adelaide Airport’s position as a key driver of the state’s economy, accounting for 2.7% of economic output and almost AUD2 billion of GSP. The government has aggressively courted airlines in the past, offering a substantial financial support package to Emirates in 2012 after eight years of lobbying. Since the carrier started service alongside AirAsia X in 2012, Adelaide has presided over a 67% increase in international seats. The two carriers now account for 36.7% of all international seats, although AirAsia X will withdraw in Jan-2015.

The state has since moved away from incentives and has focused on building partnerships and joint marketing campaigns with existing carriers to maintain demand and therefore capacity, although discussions are reportedly ongoing with both China Southern Airlines and China Eastern Airlines. China Southern appears most likely, having operated Chinese New Year charters and announced support for Adelaide as its next Australian destination, but this is not expected until performance improves on its existing destinations in Australia.

Adelaide Airport Annual Passenger Numbers 2008-2013

Gold Coast Airport is a popular leisure destination although further growth is limited

Gold Coast Airport is the fourth busiest international gateway in Australia and the busiest secondary international airport in the country, operated by Queensland Airports Limited. The airport receives international service from Air New Zealand, AirAsia X, Jetstar Airways and Scoot and has presided over growth of 163% since 2008, increasing from just 339,100 to 893,600 in 2013.

 

2012

2013

% Change

Total Passengers

5,676,420

5,734,981

1.0%

International

853,775

893,620

4.6%

Domestic

4,822,645

4,841,361

0.3%

According to CAPA’s Airport Construction & CAPEX Database, Gold Coast Airport is undertaking a terminal expansion programme ahead of the 2018 Commonwealth Games with an estimated completion date in 2016. The project will be retail and commercial driven to offer passengers more services and optimise non-aeronautical revenue. The airport plans to expand the terminal's duty-free precinct.

Gold Coast Airport Capacity Breakdown (by seats)

Gold Coast Airport International Carriers (by seats)

Gold Coast Airport is attractive both domestically and internationally as a tourist destination and alternative to Brisbane. Its international operators are mostly LCCs, which like Gold Coast's LCC-friendly approach; Gold Coast was the first destination for the new AirAsia X.

The airport is geographically constrained from further expansion, although recently announced works in anticipation of the 2018 Brisbane Commonwealth Games may include plans for additional apron space. Sichuan Airlines will reportedly operate into the airport, although possibly only on a limited charter basis. Thai AirAsia X is also reportedly considering the airport, as is another unnamed Chinese carrier. The airport is expected to report passenger growth in excess of 100% over the next 15 years.

Gold Coast Airport Annual Passenger Numbers

Cairns Airport is highly dependent on leisure traffic but an attractive destination for Asia

Cairns Airport is the major international and domestic gateway to far north Queensland, operated by North Queensland Airports. The airport handled 4.2 million passengers in 2013, 11.6% of which was international traffic. The airport is the seventh busiest international airport in Australia and has international services from Air Niugini, Cathay Pacific, Jetstar Airways, Qantas Airways and United Airlines (to Guam).

Cairns grew its international traffic considerably in 2010 and 2011 to 711,300 and 776,300 respectively before declining sharply in 2012 and 2013. The airport handled 492,1000 international passengers in 2013, a 37% increase over the 359,200 of 2008.

 

2012

2013

% Change

Total Passengers

4,080,644

4,246,422

4.0%

International

544,359

492,091

-9.6%

Domestic

3,569,285

3,754,331

5.2%

According to CAPA’s Airport Construction & CAPEX Database, in Mar-2013, the Queensland government agreed to a 20-year AUD1 billion redevelopment of Cairns Airport, allowing for the moving of key airport operators to a new airport economic precinct from the western side of the runway to the eastern side. It also gives approval for a second runway although might not be required for at least 50 years.

Upgrades are planned for Cairns Airport's infrastructure and freight services to serve the growing Asian market "as a northern gateway to Australia for both passengers and cargo." Cairns has also received AUD9 million as part of Airservices Australia's Integrated Tower Automation Suite (INTAS). The phased programme will aid in transitioning away from a manual, paper based system, giving controllers increased situational awareness and enhanced safety. According to Airservices Australia, the modernisation project will take approximately two years to complete.

Cairns Airport Capacity Breakdown (by seats)

Cairns Airport International Carriers (by seats)

Cairns Airport has experienced a volatile traffic mix following a boom in 2010/2011, with 2013’s traffic falling to 492,100. While 2014 has improved marginally by 0.4%, this is over a slight decrease of 2.3% in total seat capacity. The airport has experienced an increase in charter traffic over the last two years, and is re-attracting the interest of Chinese carriers. China Eastern and China Southern have had charter/seasonal service to Cairns and the city council and airport are making strenuous efforts to encourage further service..

China Eastern is building to a daily Cairns service from 06-Feb-2015, although it previously noted the passenger mix was over 90% low yielding group traffic, which was unable to cover the cost of operating the service. Jetstar has also increased its presence, moving to increase its off-peak services from to Osaka and up-gauging equipment to Boeing 787-9 which offers 32 more seats than the A330-200s they replace. Cairns can potentially have a growing niche in Australia’s international tourism market but its fee structure may present challenges. Cairns also has two terminals, a hangover from the wake of the Japanese tourism boom of the early 1990s, and this adds to the airport's costs.

Cairns Airport Annual Passenger Numbers

Darwin Airport had the chance to become a hub but that ship might have sailed

Darwin Airport is the main gateway to the Northern Territory, operated by Darwin International Airport Pty Ltd - a subsidiary of Northern Territory Airports Pty Ltd, which is in turn owned by Airport Development Group Pty Ltd. The airport is shared with the Royal Australian Air Force, which also provide ATC facilities. (See CAPA's Airport Databases).

The airport handled 2 million passengers in 2013, 16.6% of which was international traffic.

The airport is the eighth busiest international airport in Australia, and has international services from Indonesia AirAsia, Jetstar Airways, Jetstar Asia, Malaysia Airlines, Philippine Airlines and SilkAir. The airport grew its international traffic sharply in 2011, posting a year-on-year increase of 50.6% to 326,900 from a base of 217,000 the year prior. The airport handled 333,200 international passengers in 2013, a 77.4% increase over the 187,800 of 2008.

Darwin Airport International and Domestic Passenger traffic 2012/2013

 

2012

2013

% Change

Total Passengers

1,940,792

2,005,431

3.3%

International

328,714

333,217

1.4%

Domestic

1,436,167

1,672,214

16.4%

Darwin Airport is undertaking a significant terminal expansion project that is approaching completion having already opened a new international arrivals area and added new retail space and Qantas Club lounge. According to CAPA’s Airport Construction & CAPEX Database, the project comprises an AUD42.5 million (USD44 million) expansion of the terminal from 16,000sqm to 27,000sqm and construction of a new departure lounge, baggage system, security screening area and check-in facilities.

The expansion will also create more space for retail and food and beverage outlets. The terminal expansion is designed to double the airport’s peak hour capacity, including an increase of domestic peak arrivals capacity from 630 to 1300 passengers per hour while domestic departures will increase from 630 to 1750 per hour.

International arrivals capacity will double from 360 to 630 per hour, and departures will increase from 400 to 840 per hour. On that basis, Darwin Airport expects the terminal to handle close to 5 million passengers p/a prior to another expansion. The expansion works are scheduled to be completed upon installation of new aerobridges and way finding signage in late 2014.

Darwin Airport Capacity Breakdown (by seats)

Darwin Airport International Carriers (by seats)

Darwin is four hours flying time between Asia and all Australian ports, and can operate curfew-free. This potential came close to being realised between 2008 and 2010 when Jetstar Airways proposed an Australia-Asia transfer hub at the airport. Jetstar described its operations there as a “major international flying hub” – an assessment that likely would have come true assuming a proposed AUD60 million terminal expansion was completed on Jetstar’s terms.

This would have meant up to seven A320s and 280 crew being based in Darwin supporting “a strategic transport hub into near Asia.” Darwin Airport and Jetstar were ultimately unable to reach agreement over construction of the expanded facility. By the end of 2013, Jetstar had closed its base at Darwin and relocated the three A320s and 98 crew based there to a new hub at Adelaide Airport. Jetstar cited a poor operating environment including intense competition from SilkAir and AirAsia. Jetstar now operates a four times weekly Darwin-Bali service while Jetstar Asia operates four times weekly between Darwin and Singapore (also served by SilkAir).

Australia's capital city Canberra is a rare world capital lacking international flights

Capital Airport Group purchased Canberra Airport from the government-owned Federal Airports Corporation in May-1998, purchasing a modest airport terminal, general aviation precinct and Defence Establishment Fairbairn. The airport has since undergone a significant redevelopment, including runway extension and a total reconstruction of the terminal precinct.

Canberra Airport Domestic and International Passenger Traffic 2012/2013

 

2012

2013

% Change

Total Passengers

3,022,818

2,933,426

-2.9%

International

N/A

N/A

N/A

Domestic

3,022,818

2,933,426

-2.9%

Canberra is one of the world's few major capitals lacking international service bar a brief period in 2004 when Air Pacific (now Fiji Airways) operated to Nadi. Nonetheless, as one of Australia's open skies airports, Canberra expects international growth to be the “backbone of growth over the next 20 years” as noted in its 20-year master plan. This includes attracting an international service into Asia, with Singapore and Hong Kong having already received a lobbying visit from Australian Capital Territory treasurer Andrew Barr.

The airport has also approached Singapore Airlines, Air New Zealand, Qantas, Virgin Australia, Emirates and Etihad Airways. Canberra agues there is demand for 230 seats each day to Singapore, 30 of which are in business class. The airport has also proposed acting as a hub to Asia and the US should Sydney Airport become constrained.

Canberra has the infrastructure already to support international services, both in terminal and airfield facilities. But being one hour by air from Sydney or four by road, most of Canberra's international traffic easily goes through Sydney (or another Australian city). Canberra does not have a curfew.

Hobart Airport upgrades runway to be widebody-capable

Hobart Airport serves the capital city of Tasmania and the gateway to the island, owned by Tasmanian Gateway Consortium. The airport maintains customs and immigration facilities from earlier international service to New Zealand, but in 2014 it did not have a scheduled commercial service to outside of Australia. (Skytraders, an airline supporting the Australian Antarctic Division, operates A319 aircraft to Antarctica.)

Hobart Airport Domestic and International Passenger Traffic 2012/2013

 

2012

2013

% Change

Total Passengers

1,919,026

2,091,706

9.0%

International

N/A

N/A

N/A

Domestic

1,919,026

2,091,706

9.0%

According to CAPA’s Airport Construction & CAPEX Database, Hobart Airport recently announced an AUD38 million expansion, primarily focused on a 500m runway extension to be complete by 2016. The focus of the expansion is supporting the airport’s services to Antarctica, but it would also improve Hobart’s attractiveness to commercial international carriers by allowing A330 or Boeing 777-sized equipment to operate.

Hobart Airport has been vocal in its desire to attract international air service, but the reception from both local and international carriers has been lukewarm so far. This reflects the tendency of visitors to make Tasmania part of a broader visit to Australia, rather than a destination in itself. Scoot’s GM Australia Dennis Basham noted: “The traffic is simply too little at the moment and travellers typically don’t want to just take in Tasmania but also Sydney and Melbourne, so flights into these ports coupled with domestic connections to Tasmania suffice.” Hobart is however confident it can secure a Chinese service in the near future.

Townsville Airport may have a saviour in Indonesia AirAsia

Townsville is north Queensland’s regional hub, offering capital city connections and an access point to the Great Barrier Reef. The airport is owned and operated by Queensland Airports Limited, a private airport operator, under a joint user agreement with Australia’s Department of Defence (DoD). The airport has historically had international services to Singapore, Tokyo, Hong Kong, New Zealand, Papua New Guinea and the US. However none remain and Townsville's only scheduled flights in Dec-2014 are domestic.

Townsville Airport Domestic and International Passenger Traffic 2012/2013

 

2012

2013

% Change

Total Passengers

1,609,746

1,556,579

-3.3%

International

N/A

N/A

N/A

Domestic

1,609,746

1,556,579

-3.3%

Townsville Airport's runway requires an extension to facilitate new surveillance operations, according to the DoD. The DoD stated to a federal parliamentary committee in 2014 that the airport's runway is too short for its P-8 Poseidon aircraft, and has requested a 400m runway extension and a loading facility upgrade. The Defence force stated it plans to spend approximately AUD700 million (USD612 million) on infrastructure upgrades across the country, commencing with works at the Townsville base in 2018.

Townsville gained a Strategic Airlines (later known as Air Australia, now defunct) service to Bali for eight months in 2011, but this was later suspended, citing poor demand. It is not clear what role the carrier’s own financial position had in the decision given it entered administration six months later - or whether its network selection helped accelerate its demise. The city maintains it can comfortably support a service to Asia, but the airport operator has said there simply isn’t any appetite from airlines to enter secondary markets. While AirAsia’s interest is promising, it has flagged the airport's AUD55 passenger movement charge as a detracting factor.

Newcastle Williamtown Airport has tried to position itself as an alternative to Sydney

Newcastle Airport is a regional airport serving the city of Newcastle and the surrounding Hunter Region in New South Wales. Originally a military air base, known as RAAF Williamtown, Newcastle underwent significant infrastructure upgrades in the 1990s and for a time from 2002 was served internationally by Air New Zealand's LCC subsidiary, Freedom Air. Today, Newcastle is served by Australia's major domestic carriers and linked to the country's major east coast cities and regional centres.

The airport has been among Australia's fastest growing, serving some 200,000 passengers in 2003 and more than 1 million in 2007. The airport is operated by Newcastle Airport Limited and forms a regional hub for Jetstar Airways.

Newcastle Airport Domestic and International Passenger Traffic 2012/2013

 

2012

2013

% Change

Total Passengers

1,184,423

1,206,517

1.8%

International

N/A

N/A

N/A

Domestic

1,184,423

1,206,517

1.8%

Newcastle Airport is currently undertaking an AUD80 million terminal expansion project including the construction of a new retail precinct and quarantine, customs and immigration facilities. Due for completion in Jan-2015, the expansion includes swing gates to support international operations and increase the airport's passenger capacity to 5 million p/a. The expansion is consistent with the Defence Department-approved Newcastle Airport Master Plan, giving certainty to the future growth of services to and from the airport. The NSW Government is providing AUD11 million in funding for the project.

With a new airport in Sydney at least 10 years away, the existing Sydney airport may struggle with a forecast growth rate of 101% over the next 15 years. Newcastle has tried to position itself as an alternative to Sydney, but this has not caught on domestically. Newcastle is a two-hour drive north of Sydney but Newcastle airport is working with ground transport providers to improve connections between the airport and the large catchment market in the Central Coast. Newcastle Airport CEO Paul Hughes believes Indonesia and New Zealand to be the most likely destinations within a five to 10 year timeframe.

Secondary airports are littered with the bones of failed operators, but if one made it work it could change everything

The reluctance of international operators to move into secondary airports is understandable: many have tried and failed and Australia lacks a true dual airport model in the major cities. Melbourne’s Avalon had a promising start but has been reduced to a scattering of Jetstar services to Sydney, which remain, supported by a subsidy.

Necessity may force a change in thinking: as bilateral caps are stretched, competition intensifies and airports grow more congested, the desire to push into smaller ports may become more attractive both for passengers and carriers.

Australia’s heavily concentrated population is limiting and the catchment areas of many are small, although some innovative thinking could bypass these challenges. Many of Australia’s secondary airports have the ability to implement customs and quarantine facilities should an operator express interest - although these can be very costly if there are only limited services, a chicken and egg dilemma.

In the new environment, it may only take one successful operator to make others re-asses their conclusion, and there are many would be operators as southeast Asian markets boom.

See: As many as 10 Southeast Asian LCCs are poised to enter Australia, further pressuring incumbents

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