From last to first

The growth plans also include further commercial development of up to 200 hectares of surplus land at Adelaide Airport and the general aviation Parafield Airport, as non-aviation activities continue to generate rising revenue streams for the airport company.

AAL gained a 50 year lease over Adelaide Airport at coastal West Beach and the general aviation Parafield Airport in the northern suburbs from the federal government in May 1998. AAL’s main shareholders are university retirement fund UniSuper, with 38. 5 per cent; Motor Traders Association of Australian Superannuation Fund, 28. 35 per cent; and the Local Government Superannuation Board, 16. 15 per cent. The remaining 17 per cent includes national construction firm Hansen Yuncken, which built the new terminal, and a remnant stake of about 1 per cent held by Serco, the initial bid leader and operating contractor, which sold down after the Ansett collapse.

The company achieved a 2006-2007 net profit before tax of $4. 84 million ($457,000 after tax). Revenues rose approximately 27 per cent over the previous financial year to $126. 3 million.

The strong performance was helped by a significant jump in international passengers, up 26. 5 per cent, which boosted total passenger numbers from almost 5. 8 million in the previous year to about 6. 26 million, and a major increase in commercial activities on the airport.

AAL managing director Phil Baker, seconded from bid team advisor Manchester Airport but now employed by the Adelaide company, is aiming to lift the monthly passenger figure from the present average of about 525,000 to somewhere between 700,000 and 800,000 within five years.

He admits that, given Adelaide’s population size of a little over 1. 1 million, the rate of the recent heady progress cannot be sustained, but he is confident a return to “more normal’’ growth patterns still will enable the company to reach its targets and improve profitability for its owners.

AAL’s “very positive’’ outlook is underpinned by South Australia’s strengthening economy, led by the defence and mining industries.

His “very positive’’ outlook is underpinned by South Australia’s strengthening economy, led by the defence and mining industries. “A lot of travel through Adelaide is business travel now,’’ Baker says.

Those travellers demand frequency and, while Adelaide has hourly services to Sydney and Melbourne spread over the busy morning and late afternoon peak periods, the frequencies ease through the middle of the day. AAL’s business development general manager, Malcolm Andrews, says there is sufficient passenger growth to warrant more frequencies on the two major routes, while Perth, Brisbane and Canberra are underserved at present.

Qantas operates 241 return flights a week through Adelaide, including 82 each to Sydney and Melbourne. Virgin Blue has 33 to Sydney and 61 to Melbourne in its 143 weekly flights, with Qantas subsidiary Jetstar adding 40 to take the weekly total to 424. Between them, they carried 5. 33 million domestic passengers in 2006-2007, an increase of 6. 2 per cent on the previous year.

Jetstar’s corporate affairs manager, Simon Westaway, says the airline has based two of its 177-seat A320s at Adelaide Airport to serve seven markets including Sydney and Melbourne’s Avalon, and is considering further moves as it gains an additional nine A320s from December.

Jetstar has steadily introduced more capacity since starting Adelaide services in early 2005, including a lift in Cairns services from three to five a week in July this year. It will also increase Adelaide-Sydney frequencies from once to twice daily from December 4 with the new aircraft.

Although its experiments with direct services on the Adelaide-Hobart and Adelaide- Hamilton Island routes have failed to attract sufficient traffic to sustain them – Hamilton Island was reinstated for the recent school holidays – its routes to Cairns, the Sunshine Coast and Darwin have shown good growth and are likely to attract additional frequencies.

Jetstar will be looking to patch Adelaide into its existing domestic markets rather than forging new routes, although these are not being ruled out, Westaway says. “The new terminal has been a catalyst for growth. ’’ Virgin Blue is coy about signalling any expansion plans although spokeswoman Amanda Bolger says the new Embraer 190 twin jets, coming into service now, are suited to introducing new city pairings.

“The 20 Embraers are going to give us more opportunities for growth and the aircraft will definitely be seen in Adelaide,’’ she says.

One route being mooted is Adelaide-Port Lincoln and Adelaide Airport management is eyeing possibilities such as Adelaide- Launceston, Adelaide-Newcastle and resurrection of the former QantasLink service between Adelaide and Kalgoorlie.

Meanwhile AAL is working hard to gain Adelaide services from Singapore owned newcomer Tiger Airways.

“We have a fair way to go before we are saturated,” Baker says.

And Andrews sees prospects for further growth in international services, with Cathay Pacific introducing daily services to Hong Kong in October, citing “a significant increase’’ in business travel on the route. “China is a key part of that, and the minerals boom,” spokesman David Bell says. Air New Zealand is planning to move up from an initial three services a week to daily flights between Adelaide and Auckland in February, joining Cathay and Singapore Airlines with daily operations.

AAL sees prospects for further growth in international services, with Cathay Pacific introducing daily services to Hong Kong in October.

”There are hopes for gaining additional services from Malaysia Airlines, which operated the first international flight into the new $260 million passenger terminal, and now has four services a week, and for the opening of a direct route to Christchurch by Air New Zealand.

Surprisingly, with the two Indonesian airlines, Garuda and Air Paradise, withdrawing from Adelaide, Qantas is the airport’s smallest international operator, with just three flights a week to a single destination, Singapore, back from a peak of five. It also dropped its Adelaide-Auckland service, handing the route to Air New Zealand.

Instead the Australian airline uses Sydney, Melbourne and even Perth domestic services to connect Adelaide to its overseas network.

“We’re still talking to Qantas about overseas services but we appreciate it’s very difficult for the carrier to run so many international bases in its home country,’’ Baker says.

Jetstar is a likelier candidate for new overseas services from the Qantas camp.

International opportunities through Adelaide, particularly into South East Asia, will be considered next year, the airline says, as it starts to take delivery from August 2008 of 15 Boeing 787s for long haul operations.

Adelaide Airport continues its efforts to entice other overseas airlines to Adelaide, including Emirates and Thai International – both of which are the subjects of business discussions.

It’s also had contact with China Eastern and China Southern, although the Chinese airlines do not appear to be strong prospects at present, particularly in the face of Cathay Pacific’s upgraded operation to the Hong Kong gateway.

Kuala Lumpur based AirAsia X is another target and further out, Andrews says, are hopes to attract one of the participants in India’s burgeoning aviation scene.

On the regional front, despite the short lived South Australian operations of QantasLink, passenger traffic rose 14. 7 per cent to 473,000 last financial year. Regional Express is the major operator, serving seven centres including Port Lincoln, Whyalla, Mount Gambier and Broken Hill. It added further frequencies in September, with Port Lincoln now getting 57 services a week.

Mount Gambier based O’Connor Airlines – a Qantas associate – links Adelaide to its home city, and also serves Port Augusta on Spencer Gulf and Mildura, across the border in Victoria. It was forced to drop Whyalla from its schedule in September because of a shortage of aircraft following CASA’s directive grounding all Cessna Conquests with more than 22,500 flying hours.

Then there is Air South, which flies scheduled services to Kangaroo Island.

The rapid expansion of South Australia’s mining industry is generating new work to complement the long standing National Jet services for Cooper Basin petroleum group Santos between Adelaide and Moomba.

Queensland’s Alliance Airlines is building its presence on contracts to serve resources giant BHP Billiton’s Olympic Dam mining operation, which is heading towards a $6-7 billion expansion, and Oxiana’s $775 million Prominent Hill copper-gold project, now under development and due to begin commercial production next year.

Air South provides the passenger transport link for Dominion Mining’s remote Challenger gold mine, west of Tarcoola, and Rossair shuttles drilling crews around the SA outback.

Several other potential outback mining projects are expected to rely on flyin, fly-out services, offering the prospect of more business for the airport.

Air freight continues to grow as well, with Singapore Airlines leading the way with twice-weekly Boeing 747 cargo flights, while National Jet operates BAe 146s and 727s for the Australian air Express venture for Qantas and Australia Post from its Adelaide Airport base. However, much of the air cargo leaves Adelaide in the holds of domestic and international passenger aircraft.

AAL’s business growth also is tied to new commercial developments on the airport, including the latest moves to attract a hotel group to develop a multistorey property on a site across the access road from the new $260 million passenger terminal.

There have been several false starts on that proposal over the years, but Baker says the company has held preliminary talks with “a couple of interested parties’’ as its prepares its own studies for a hotel development connected to the terminal by a footbridge.

The internal studies are expected to be completed early next year. Baker has no doubts a hotel would enhance the airport operation, although it would involve “serious millions” investment by a developer.

“A hotel is important to us. We wouldn’t build it, but we’d have to put in some infrastructure,” he says. However, AAL did build the recentlyopened regional headquarters for the Australian Quarantine and Inspection Service after securing a long term lease deal with the blue-chip client.

The present positive outlook contrasts with the early setback for the airport company, which was left languishing in the red, including a loss of $7. 9 million in 2001-2002 after the Ansett collapse took about 40 per cent of the airport’s business with it, and Impulse disappeared from the scene.

Also weighing on the early financial results was debt servicing, and the inheriting from the Commonwealth of a controversial and complicated formula for aviation charges with a price cap which led to long and costly battles with the airlines and frequent appeals to the Australian Competition and Consumer Commission as the appointed umpire.

“The regulations did not make any sense to us,” Phil Baker says. They precipitated “ill-tempered’’ negotiations between the airport and its customer airlines and contributed to the struggle to turn a profit in the early years.

Now a new system, recommended by the Productivity Commission in 2002, devised by AAL and monitored by the ACCC, provides for open discussion of all pricing with the regional, domestic and overseas airlines, calculated on aircraft weight or passenger throughput, and including provision for necessary investment.

Baker describes it as “a very useful process’’ which provides greater certainty for the airport owners and the airlines.

Together with a 12 per cent increase in passenger numbers to 4. 3 million, and a 20 per cent jump in freight activity, the new cost-recovery regime helped to propel AAL to a 150 per cent jump in net profit to $3. 5 million in 2003-2004.

New five year pricing agreements with a CPI escalation clause have been reached with the regional and international airlines, and agreement with the domestic carriers is imminent.

But aviation charges are only part of the airport’s income. In 1998-1999, when Adelaide Airport had 3. 4 million domestic passengers and 245,000 international ones, aeronautical activities accounted for $10. 2 million in total income of $36. 5 million, which included $17. 2 million in property revenue and $8. 8 million from commercial trading activities.

By 2005-2006, with domestic passengers at 5. 01 million and international at 386,000, the airport gleaned $46. 4 million in aeronautical revenue, $24. 4 million from property and $17. 6 million from commercial trading in a total income of $99. 7 million – up from $71. 2 million in the previous year.

However, the costs associated with the new passenger terminal and a decision to move to international accounting standards hit the reported result. As total borrowing costs soared from $37. 8 million to $58. 6 million and depreciation charges doubled to $15. 2 million, AAL’s bottom line plunged back into the red, with a net loss of $11. 1 million, from a restated profit of $13. 9 million in the previous year.

In the past financial year, aeronautical income was $69. 6 million, property produced $24. 6 million and commercial trading $23. 9 million in total revenue of $126. 3 million, to enable AAL to achieve its net profit before tax of $4. 84 million.

Meanwhile, the airport board, which includes former Qantas chief executive John Ward, is grappling with requirements for further significant investment, following the Terminal One (T1) project.

Terminal One

Adelaide’s new Terminal One will be improved over the next 15 months to increase its passenger capacity with two new glasssided aerobridges and a more central standing area for regional aircraft and their passengers, who have faced a long walk over the tarmac to and from their aircraft.

The changes, expected to cost up to $15 million and involving the demolition of the old international terminal to make way for the new regional airline parking bays, will effectively open up two more gates for domestic services.

The $260 million, 750m Terminal One structure, on which work began in November 2003, opened for international services in October 2005. However, the move by domestic airlines from the decrepit old terminal, now Terminal Two, was delayed until February last year after the new pipeline network for aviation fuel supply was found to be contaminated and required extensive remediation and testing.

The terminal can process up to 3000 passengers an hour and has won accolades from passengers and airlines alike, and a string of awards. These have included being named best capital city airport by the Australian Airports Association last year, and second best airport to Central Japan Airport in Nagoya in the 5-15 million passenger category by the Airports Council International this year.

It can accommodate up to 27 aircraft at the same time, and is capable of handling A380s when they enter service.

The $40 million extension of the main runway, originally aimed at assisting Boeing 747 operations in mid-summer heat, will provide sufficient length for landings and takeoffs by the Airbus giant – although realistically only diverted flights are likely to land in Adelaide. The plans include the demolition of the old international terminal building, beneath the northern wing of the new terminal, to provide more convenient tarmac space closer to the centre of the terminal for the regional airlines and their passengers, and two new glasssided aerobridges to parking bays on the high strength apron at the northern end of the terminal to cater for growth, taking the total of aerobridge gates to 16.

The cost of the plan has not been finalised, although estimates range around $15 million including more than $1 million each for the two new aerobridges from Spanish aviation technology company TEAM. Adelaide was the first airport in Australasia to install the air conditioned glass-sided structures, which extend to 43 metres.

Although final decisions have yet to be taken, Baker says AAL is aiming to complete the work within 15 months.

The infrastructure agenda includes further drainage works for the airport, which stands on former coastal swampland near the River Torrens mouth, improvements to taxiways and aprons, roadworks to improve traffic flow and additional long term car parking.

There’s also a proposal to move existing maintenance and freight facilities across to the other side of the airport, away from passenger and commercial facilities and closer to the main runway.

The present historical locations are not optimal, Baker says.

Then there is a potential major upgrade of the old and empty domestic terminal to consider. Tiger Airlines, although it has not committed to Adelaide services yet, has expressed interest in using the T2 facility as a cheaper alternative to the new terminal.

And the mining charter firms, led by National Jet and Alliance, which require less security for their charter flights, are likely customers.

General capital expenditure by AAL has been running at between $30 million and $40 million annually, with $32 million ear-marked for this financial year.

Meanwhile, private capital investment on the airport precinct continues to grow, and stands at about $150 million since AAL took over the lease.

The major components have included $40 million by furniture retailer IKEA which has built its only Adelaide outlet at the main entrance to the airport, and about $20 million by the Harbour Town retail developers on the western boundary, where a further 35 outlets were opened two years ago to take the total to 95. A recent expansion involved a seven-day supermarket.

The retail scene includes 34 tenants occupying about 3400m2 in the new terminal.

There’s also an expanding new business and warehouse park, a joint venture between AAL and developers Australand and Commercial and Industrial Property where the first section was completed last year, and a 60 bed low-care Southern Cross Care residential aged care facility which was fully opened a year ago.

Company chairman David Munt says strengthening the non-aeronautical activities is vital for the future sustainability of the business, which now has “a very firm foundation’’ for building value.

Record numbers of people have been visiting the airport for reasons other than air travel, with the retail precincts drawing shoppers from across the Adelaide metropolitan area, he adds.

And the growth has generated significant numbers of jobs, estimated last year at 5070 on site and a further 2670 off site, supporting companies and service organisation operating at the airport.

AAL contemplates further incomegenerating private investment, with about 200 hectares of surplus land still available for commercial projects at Adelaide Airport and Parafield – which has its own retail precinct to serve the expanding northern suburbs.

Even then, total building development will account for only about 20 per cent of the total land space of about 780 hectares at West Beach. The company has another 436 hectares at Parafield, where its major aviation client is aviation college Flight Training Adelaide (see feature in the October issue of AA).

So, despite the commercial proposals, the bulk of the land will remain open space around the two runways and associated taxiways.

“Airports require a lot of land for aviation,’’ Baker says succinctly.