The outcome of two escalating airport battles will have major implications for Australia’s ability to address the infrastructure bottlenecks of the next decade.
In Brisbane, a showdown between
In NSW, Premier
With the NSW government, like its predecessors, unwilling to risk the voter fallout in western Sydney of backing a second airport in the city, O’Farrell has nominated Canberra and a high speed rail link as his preferred solution.
Yet by approving the Tralee housing development, the Premier will seriously limit that airport’s future capacity to serve as Sydney’s 24-hour overflow for passenger and freight aircraft.
While Australia’s infrastructure challenges are national, the solutions rest with state governments and a harmonious relationship between airports and their airline customers.
Australia’s major airports have spent about $9 billion on various upgrades since a wave of privatisation kicked off in 1992. They need to spend another $9 billion on new runways, terminal expansions, roads and support infrastructure over the next decade to keep pace with passenger growth, according to the Australian Airports Association.
Any threat to the hitherto efficient funding model, which sees airlines chip in for major aeronautical capital expenditure through per-passenger runway charges, endangers the building of infrastructure that is critical to Australia’s economic development.
A Deloitte Access Economics report prepared for the Australian Airports Association estimates the country’s airports generated a total economic contribution of about $17.3 billion, equivalent to about 1.2 per cent of gross domestic product, in 2011. Annual passenger traffic at airports is projected to more than double in the next two decades, with Sydney, Melbourne and Brisbane airports each expected to facilitate at least 50 million passengers a year.
Without greatly enhanced runway and terminal facilities, our airports will be unable to accommodate that growth. And that growth is also reliant on airlines, Qantas chief among them, agreeing with the need for the asset in the first place as well as paying their share of the building cost through passenger-based charges for every aircraft movement.
Brisbane Airport wants to increase its runway charge to $9 from $7 per passenger for domestic flights, and to $27 per passenger from $24 for international flights.
The airport, which is owned by a collection of superannuation funds, argues the small addition to the levy, which is the price of a cup of coffee, is acceptable as it will be absorbed by customers who are the end beneficiaries of the improved facilities.
Qantas says it is unreasonable to ask today’s flyers to pay for tomorrow’s infrastructure, and for the existing airline customers to pay for a runway that will be used to lure more offshore competitors, already a thorn in Qantas’s side, to Brisbane. In the current domestic environment, where both Qantas and
Under the existing model, the two sides have to engage in commercial negotiations to agree on the need for any new infrastructure and how much the airlines will pay through passenger charges. The threat of reregulation, with the competition regulator setting airport charges to airlines, is designed to keep both parties at the negotiating table.
The model is regarded around the world as one of the most efficient ways of delivering aeronautical assets. But Brisbane is the first airport to attempt a new runway in the post-privatisation era with a $1 billion plus spend for a single project.
The issues in Brisbane are twofold – the massive $1.3 billion price tag and the eight-year timetable for its construction. Brisbane wants the airlines – Qantas being the biggest contributor – to start paying higher runway charges now as the construction kicks off. The airline’s chief executive,
Before any construction of the runway can begin, the site needs to be cleared and filled with 15 million cubic metres of sand that then needs to rest for four years to soak up moisture and flatten the land. That process alone will cost $500 million. When the construction of the runway starts around 2017, that will cost another $800 million for a mid-2020 finish. Brisbane Airport wants to fund the construction through 50 per cent debt, 25 per cent shareholder equity and 25 per cent from the higher charges to airlines.
If the two parties cannot resolve the dispute, and Brisbane proceeds with the project, the most likely next step is a referral from the airport to the Australian Competition and Consumer Commission.
And this is why Brisbane Airport chief Julieanne Alroe’s counterparts in Sydney, Melbourne, Perth and Canberra are taking more than a passing interest in this stoush.
Airports in Brisbane, Melbourne and Perth all see the need for a new runway within the next decade, while Sydney Airport is in the early planning stages of a $1 billion plus reorganisation and expansion of its terminals to ease growing capacity constraints.
They will rely on the same model as Brisbane, though the CEOs say that while they have every sympathy for Ms Alroe’s plight, they will not be placed in a similar position because of their greater ability to debt fund projects with shorter lead times that allow them to start charging the airlines when the asset is ready.
However, if the Brisbane matter does go before the ACCC, and the regulator finds in favour of the airport and the pre-funding model, it is hard to imagine the other airports would not follow suit on future projects, with higher charges kicking in from day one of the build.
It’s not just new territory for the airlines and airport operator. ACCC chairman
An assessment of the underlying need for the asset will be critical to the regulator’s determination, and there again Qantas and Brisbane Airport differ in their views.
The airline says more can be done to improve the efficient operation of the airport, with a second runway not needed until perhaps 2025.
But in a capacity squeeze at airports, it is the incumbent operators who benefit – the less room for the competition, the greater the ability to keep airfares at a premium.
Sims doesn’t want this one to land on his desk. He’s already busy poring over the complicated Qantas-Emirates alliance and now Virgin’s two proposed takeovers in the domestic market.
But a referral to the ACCC looks like the only way to resolve the impasse in Brisbane. In that scenario, which way the competition tsar rules, in favour of the airline or the airport, will help determine how Australia builds and funds the infrastructure needs of the next decade.
The Australian Financial Review