Peak Period Pricing Damaging Regional Airlines

Results of the Surcharge

Most NSW regional airlines operating from Sydney planned initially to withdraw all services from the peak periods. However, during the planning period, it became obvious that other factors were extremely important.

One factor was the utilization of aircraft throughout the day. For example, one airline operator assessed that to reschedule one aircraft out of the peak periods meant that a complete service had to be dropped to another country centre between peak periods. Therefore, to use that aircraft throughout the day, the operator had no choice but to remain in the peak periods and pay the associated costs.

A second factor was the build up of clusters just before the peak hour, particularly before the morning peak hour. Delays caused by these clusters force many flights into the designated peak hour which costs the operator $250 for each incursion. Regional airlines which hub and spoke or triangulate, have difficulty arriving at Sydney before 8:00am with a reasonable time buffer.

A third factor is the use of larger aircraft during peak periods. In theory, the most efficient way to use the airport during peak periods is to use larger aircraft. It could be argued that regional airlines should hub at appropriate airports such as Orange, Newcastle and Canberra, and employ large aircraft for the final leg into Sydney. It could equally be argued that domestic airlines should use Boeing 747s to fly between Sydney and Melbourne/ Brisbane in peak periods!

The problem with this proposal is that the larger aircraft could not be used efficiently between peak periods and operators would certainly lose money. Smaller airlines that operate routes close to Sydney elected to reschedule out of the peak hours and now have aircraft sitting on the ground at Sydney Airport for up to three hours per day at the times that most passengers want to travel.

Since the introduction of peak period surcharges, there has been a general return to the peaks by the regional airlines to recover the loss in passenger revenue caused when they stopped operating during the time of maximum passenger demand.

As far as individual airlines were concerned, after the surcharges were introduced:

• Ansett Express increased schedules by three in the peak hours.

• Eastern Australia Airlines initially withdrew all flights from the peak periods but has since returned to the peak to meet passenger and scheduling demands. The airline has recently been purchased by Australian Airlines.

• Hazelton Airlines shifted the majority of its movements out of the peaks and was forced to abandon same day Sydney return services from Forbes, Cowra, Young, Cootamundra, Temora, West Wyalong, Condoblin, Coonabarabran, Bourke, Cobar, Walgett, Coonamble, Lightning Ridge, Nyngan and Brewarrina. Hazelton estimates that the resultant decline in passenger traffic cost the airline approximately $387,000 during the first three months of peak period surcharges. In addition, over the same period, the airline incurred direct costs of $103,250 for operating in the peak periods, and $18,500 in inadvertent costs where flights, scheduled outside, were forced into peak periods.

• Aeropelican reduced its peak period flights by 85 from January to June 1991, and was forced to increase fares by 6% for all flights, to cover the additional cost of peak period surcharges. Reduced passenger demand resulting from increased fares and less convenient schedules, caused a 6. 38% downturn in passengers compared to the same period in 1990, costing some $174,000. In addition, the airline incurred direct costs of $80,500 for operating in peak periods.

• Yanda Airlines moved all services out of the peak periods and has remained out. To operate in the peak periods would cost Yanda $65,000 per aircraft per year – a total of $260,000. However, as a result of withdrawing completely from the peak periods, Yanda estimates its loss of income at the rate of $38,000 per year as a result of decreased passenger demand. In addition, the inability to combine the afternoon Singleton and Maitland flights because of revised schedules, is costing Yanda $36,000 per year for additional flights. Finally, indirect costs of at least $6,000 per year are caused by incursions into the peak period. The total cost to Yanda for electing to operate outside the peak periods is at least $80,000 per year, which represents 7 % of the company’s gross turnover – a substantial amount for a small airline.

• Norfolk Island airlines ceased all operations soon after the surcharges were introduced.

• Sydney Airlines moved all flights out of the peak hour and later ceased all operations.

The Future

A recent FAC review of the first three months of peak period surcharges failed to address the loss of income to the regional airlines as a factor in its findings. The review also claimed a 25% reduction in peak hour delays during the March 1991 quarter against the December 1990 quarter, which was unsubstantiated in the document.

Indeed, during the March 1991 quarter morning peak hour, the delays were shown to have increased about 15% despite a decrease in traffic movements by approximately 14% during that peak hour. This was the only time during non-curfew hours to experience an increase in delay. Furthermore, the document shows that during the March 1991 quarter, significant decreases in delays of up to 50% occurred during hours that were well outside the peak hours. Obviously, there were other factors involved in reducing total delays. However, they were not identified by the FAC. The review calls for a continuation of peak period surcharges at the present rate to be reviewed in December 1991.

Because Sydney Airport is currently operating below its practical capacity during peak hours, regional airlines and their representative groups have requested the Federal Government to cease peak period surcharges until a competent authority, such as the Bureau of Statistics, analyses the FAC review document.

Furthermore, regional airlines believe that if a surcharge is ultimately required at Sydney Airport during prime times, then an equitable system based on a charge per passenger would achieve the desired effect. After all, the demand comes from the passenger, not the aircraft. Business travellers would pay more for the convenience of travelling during peak periods. Tourists and casual travellers would then be more likely to travel during the cheaper off peak periods.