Feast and famine

Similarly, those scheduled regional carriers in Western Australia, Queensland and South Australia who serve communities close to major resource projects have also benefited from the rise in fly in, fly out operations.

It is mostly in those areas around major resource hubs that have pushed cumulative passenger numbers through regional airports up more than those through capital city airports in recent years.

“In areas like fly in, fly out and resource industry support, it is an exciting picture and I think it will for five to 10 years,” Regional Aviation Association of Australia CEO Paul Tyrrell told Australian Aviation.

But for other operators outside of that sphere, the year has proven to be a tough one, and has continued a challenging legacy.
“My strong view is the traditional regional RPT area is still struggling,” said Tyrrell.

“In a country that should be so attuned to aviation – massive distances, small population – the obvious candidate to move people around is aviation, not just in the major cities but the regional centres. And yet it struggles decade after decade.”

Illustrating that point is that according to data from the Bureau of Transport and Regional Economics that since 1984 the number of regional airports served and the number of regional airlines has halved.

More recently, airlines such as Brindabella and Rex have announced that they are closing some routes which are no longer viable, and in some cases are reallocating capacity to the more lucrative charter market.

In most cases, the cost of operating services has been the key factor in some of these route closures, mostly due to the persistently high fuel price which was experienced in the first half of 2012.

Further compounding that is the imposition of the carbon tax on July 1 this year. While many regional operators do not directly pay the carbon tax as their emissions are below the required threshold, the increases in fuel excise brought on by the tax are starting to have an impact.

As a result, some carriers such as Skytrans have implemented a surcharge on their tickets to cover the additional cost, while many others have had to review pricing, and in some cases have abandoned marginal routes as a result.

Added to that, the removal of the Enroute Charges Payment Scheme, which rebated aeronautical charges on certain RPT routes. The scheme was originally instituted in 2001 after the collapse of Ansett as an attempt to shore up regional airline services.

While the government has argued that such measures only increase fares to the passenger by a few dollars, Tyrrell points out that it is the accumulation of these increases that really hurts the industry.

“If you have all the policies – the carbon tax, security, regulatory policies –
Who is doing the cumulative analysis of all those policies and their effect? Nobody will answer that question for me,” he said.

Regional Express chairman Lim Kim Hai also highlighted the impact that these measures are expected to have upon his airline while releasing its annual profit result in August.

“Even as the world is entering a period of severe economic hardship that could be worse than the Global Financial Crisis of 2008, the Government has slapped on regional aviation the triple whammy of carbon tax, additional security charges and removal of the Enroute Rebate Scheme whose combined effect on Rex alone is about $4-5 million this current financial year.”

Nevertheless, he said that that the airline would “survive the cataclysmic period ahead” but was expecting a major downgrade in profit for the 2012-23 financial year.

In unanimity staff say the grounding of the airline has simply further alienated staff and customers.

Lim’s August comments were somewhat muted compared to a statement in February where he warned that the “Federal Government’s draconian policies on regional aviation will no doubt succeed in siping out regional air services to all but the biggest regional centres over the next few years.”

Despite those challenges, there are signs that regional operators are looking at areas where they can still grow and serve regional and remote communities.

Rex recently commenced services from Newcastle to Sydney and Ballina, and new services from Mildura and Broken Hill.

Similarly, Skytrans has stepped out with the launch of scheduled services from Toowoomba to Sydney.

Booming FIFO

The bright point on the horizon for regional carriers remains supporting the resources industry, predominately through providing FIFO charter services, but also on RPT services to mining cities and towns.

Indeed, late last year was something of a watershed moment for the industry, with the listing of Alliance Aviation Services, parent company to Alliance Airlines, on the Australian Securities Exchange.

There have also been some interesting changes over the year, seemingly showing that the market – at least at in the 100 seat jet charter segment – is becoming more competitive.

Earlier this year Qantas took over a key contract with Forestcue Metails Group for charter flights to its Cloudbreak minesite, and also commenced flying to Christmas Creek. FMG had previously contracted Skywest to operate its flights.

Similarly, Alliance Airlines has also been aggressively chasing new contracts, and over the last year added new contracts with Newmont and Rio Tinto’s Argyle Diamonds. It is also preparing to open a new base in Darwin, giving it a truly national footprint.

The growing regional network of Virgin Australia is also benefiting from the mining boom, with the airline using its growing fleet of ATR-72s to start services to major resource centres in Queensland, such as Emerald and Mount Isa.

At the smaller end of the scale, JetGo Australia has commenced operations with its 35-seat ERJ-135ER jet, and has been flying between Brisbane, Townsville and the Osborne mine in Queensland, as well as other ad hoc charters.

Despite recent announcement of scaling back of major projects by BHP Billiton and falls in iron ore prices, many believe that there are enough projects in the investment pipeline to keep demand for aviation services strong.

“It is an exciting picture and I think it will go on for five to 10 years,” said Tyrrell. “Even with slowing growth rates there are a lot of projects that are underway. We remain pretty buoyant about that – cautious but buoyant.”

Security

One of the major sticking points for all regional operators has been new security screening regulations coming into force from July 1 at 21 regional airports across Australia.

Under the new regulations, all airports receiving aircraft with a maximum takeoff weight of or over 20 tonnes – essentially any port receiving Fokker 50 or Q400 aircraft – is required to operate passenger and checked baggage security screening. Previously, this was only limited to airports that received RPT jet operations.

Debate about the measures has taken place as far back as 2009 when it was announced as part of the Government’s Aviation White Paper, with Opposition transport spokesman Warren Truss then attacking the move for the added cost that it would put on regional airfares.

However, since then there has been little opposition to the changes.

Tyrrell says that while operators understood the need for security at regional airports, there was no path to reduce those security measures if the threat environment changed.

“We certainly are absolutely nimble when there is a perceived security threat and increasing the security options, but if the security threat is lessened, I don’t see as many triggers there in terms of policy for lowering the threat levels and taking some of those costs off.

“They’re pretty easy to put on but hard to remove over time. If there is less threat, will the government be lowering security levels on operators and regional airports?”

Maintaining Skills

For many regional airlines, maintaining pilots and engineers has been a challenge for many years, especially prior to the global financial crisis of 2008, and there are signs that the squeeze is once again being applied.

Brindabella and Aeropelican announced in March adjustments to their schedules, which they blamed on losing pilots to the larger airlines. Back in 2007, Rex also had to scale back its network due to a pilot shortage.

In response to this, some airlines have established cadet schemes, which take pilots with little or no flying experience and train them, maintaining a bonding structure to enable them to hold on to their pilots for longer before they transition to the major airlines.

Tyrrell says that while most regional operators are not experiencing as many problems retaining and attracting pilots, it is a different story for engineers, many of whom will be approaching retirement age in coming years.

“The upside is that there is this great pool of experienced engineers, the downside is that they can’t work forever,” he said.

To compensate for that, he acknowledges that regional aviation needs to do its best to get students attracted to heading down the apprenticeship path and make a career out of aircraft engineering.

“I think on the engineering side, we’re got to sell that great career far better than we are at the moment, and I think we can sell it better,” he said. “We need to do more on that front because in my view it can be an equally exciting career option as being a pilot.”

Tyrell also noted that regional operators could provide a great pathway for potential pilots and engineers to get a good feel for the industry, and encourages those interested in the industry to meet with those businesses.

“If the young people of Australia want to get into aviation in a commercial way, they should really look hard at regional aviation and get in there and talk to people.

“Go and talk to the operators if you are interested, and you might get a chance to talk to the chief engineer, chief pilot or chief executive.”

Aircraft

For many years there was great concern that the lack of new aircraft in the 19-36 seat category would lead to long-term fleet issues with Australia’s regional operators.

But this concern has lessened somewhat, with a number of newer used aircraft now available on the market, and more support for older aircraft, including the Dash 8-100 and Fairchild Metroliners which operate on many regional routes.

“Our strong view is that with quality maintenance these aircraft will go on for many years,” said Tyrrell.

There has also been growth in some of the newer smaller types in the market, such as the Beechcraft 1900D, which could play a role in replacing some of the early model Metroliners, which have become the bread and butter aircraft for many regional operators.

In part this has been due to the economics of regional flying in Australia, which often involves long distances and low passenger loads.

“The small profits that the RPT make on that really, they’ve got to keep that route going with that type of equipment, because if they go into anything else it will drive the route into loss,” says Tyrrell.

“The public wants shiny jets and very cheap seats, but the reality is that many towns can really only support a Metro.”

Luckily, there remains on the global market a good supply of quality used aircraft in the 19-36 seat category, most of which have seen their values and lease rates drop, allowing operators the chance to seek newer types.

Further down the spectrum, there is growing evidence that manufacturers are once again looking at ways to cater for the markets between nine and 19 seats.

Locally, GippsAero has achieved the major milestone of flying its stretched GA10 Airvan, while development work on the relaunched GA18 (formerly the GAF N24 Nomad) twin-engine, 18 seater aircraft is also continuing.

At the larger end, Tyrell says that ATR and Bombardier have been able to harness the global trend away from regional jets back to turboprops very well, and were delivering a good product, and the future signs of new aircraft developments were promising.

“There’s some very exciting regional products out there in terms of engines and airframes,” said Tyrrell.

Future Prospects

Despite the pressures that regional aviation continues to find itself under, the geography and demographics of Australia mean that the sectors is not going to be going away any time soon.

“Australia has a very natural fit for regional aviation,” says Tyrrell. “For anybody looking from outside, they see a small population, large distances, cost of infrastructure and labour, so regional aviation is probably the best option to move people and freight around the country,”

He notes that there is enthusiasm within the industry to turn around the situation on non-mining RPT routes, with some genuinely seeking out the opportunities to grow.

“There is a real energy to replace and rebuild routes in our industry,” he said

While little can be done about fluctuations in fuel prices and other costs, he believes believes that there needs to be serious action from the government to reduce some of the barriers which prevent new operators entering the market.

“The barriers to starting in the industry, they are very high and that worries me,” he said. “If someone wants to have a crack in the regional area, how do we encourage that?”

One of the key barriers that he sees coming down in the near future is the uncertainty over CASA’s regulatory reform program, which has been dragging on for nearly two decades now.

A key reform is the move to Part 135 for all operations above nine seats and Part 121 for operations below nine seats, effectively removing the delineation between charter and RPT air operator’s certificates which currently exists.

Some parties, such as the WA government, have noted that this is likely to lead to a situation where some charter companies would be able to open up spare seats on their charter flights to the general public.

The adoption of Part 121 operations could open up opportunities for new players to come into the market operating aircraft with nine seats or under on niche RPT routes.

“We’d love to see the end of that process, and we are aware that is probably three to five years away. It could actually open up opportunities at the entry level once those regulations are settled,” he said.