Catching up

“But you didn’t decide not to come to Perth and you booked and flew the day you wanted and the time you wanted; it was just that when you got here you were delayed and experienced congestion.”

Fly in or out of Perth Airport, and you could be forgiven for thinking the airport is bursting at the seams. The airport is at the epi-centre of Australia’s mining boom, the hub through which almost all fly-in/fly-out activity that virtually all of Western Australia’s mining uses, passes through. At peak times terminals are heaving with mine workers in flouro shirts and work boots and flight delays are commonplace as the morning and evening surges of FIFO charters mixes with domestic and international traffic as long queues of taxing aircraft wait to use the airports taxed runway infrastructure.

The figures tell the amazing growth story. In the 2011-12 financial year the airport serviced 142,000 aircraft movements, up 10 per cent on 2010-11 and 24 per cent on 2009-10. That has largely been driving by mining boom, both directly through increased FIFO and domestic business traffic, and indirectly, with Perth Airport having been quite successful in attracting international operators who will happily whisk travellers taking advantage of the high Australian dollar to Bali and beyond.

“In the five years to 2011, we have six million additional seats come into this place … from seven and a half million pax to 12 million pax. That’s the same number of seats that went into Sydney over the same period, an airport that’s three and a half times larger.”

Greatches is keen to highlight the airport’s success at attracting new international airlines and services.

“In a short period of time we had AirAsia X introduce A330s to KL; we had AirAsia Indonesia start to fly to Bali, we had Tiger, Singapore and we had Jetstar respond.“

As a result, “the number of low cost carrier seats pushed airfares down at the same time as you had a strong Australian dollar, etc, it substantially stimulated outbound travel here.”

Greatches makes that point to argue that, to date at least, that capacity issues at Perth Airport has not stopped airline growth at the airport, even with “unprecedented” traffic growth.

“If you look at those growth rates and compare them to other states, we’ve just been shooting the lights out. I’ve put the challenge to everyone that I’ve discussed these things with: you find one example where Perth Airport has constrained growth, either a new airline that wanted to come to Perth and has been unable to, or an incumbent airline that wanted to add services and has been unable to. And no-one to date has been able to give me an example of that.”

Continues Greatches: “what’s suffered is the customer experience and there’s probably been additional costs due to delays and inefficiency; but there’s no airline that has said I would have liked to have come to Perth, I would have come to Perth, but I couldn’t get a gate or you were full at the time I wanted to fly.”

“Now, I use the words ‘to date’, because we are now at the stage, particularly with the resource sector, where if the infrastructure isn’t delivered, it could constrain growth.”

That new infrastructure could include a third runway, which at a stroke would double the aircraft’s movement capacity. But a third runway will be a $600 million dollar investment that would take four years to bring online from a firm decision to proceed, says Greatches.

Ordinarily Perth Airport’s traffic numbers wouldn’t justify a third runway. But Perth, with its FIFO traffic, is no longer an ‘ordinary’ airport.

“Those narrow flying windows and those waves of small aircraft were never forecast by airlines, were never forecast by the resource sector themselves and the only parallel to that sort of demand on an airport that we’ve seen was the fleets of helicopters flying from Aberdeen out to the North Sea oil and gas platforms. There are 108 aircraft parked at this airport overnight. We think that’s the same as Sydney, we know it’s more than Melbourne. Then [in the mornings] you’ve got to a fair proportion of those aircraft airborne in two hours.”

Consequently, Greatches says Perth is now “beyond capacity in the morning peak during the week”, but comparatively quiet on weekends and early and late in the week.

“This regional flying is airfield and airspace intensive and passenger light. At other larger capital city airports, as the growth has come on them at slower rates, the airlines just schedule throughout the day, they just flatten and spread the peaks and fill in the shoulders and fill in the low periods… What’s been a shock to airlines and Perth Airport is how inelastic the resource sector is in terms of when it can fly.”

The inelasticity is because the mines want their workers to work a full shift after they fly in and before they fly out on the first and last days of their two weeks on site, hence FIFO flights are clustered early in the morning and late in the afternoon.

To a degree airlines have upgauged to bigger aircraft to service FIFO contracts. “So we’re seeing less F50s, more F100s, and we’re starting to see 737s and A320s, but the constraining factor on that is the nature of the regional airport infrastructure.”

Greatches says “There will always be a role for F50s, Brasilias, etc, because the remote sites, single [mine] site airstrips, they’ll never take the larger aircraft. But it is an interesting point that the infrastructure constraints and the failure to invest at regional airports – including some of the regional airports owned by some of the big mining houses – is contributing to the problems at Perth.”

As a result, Perth is having to consider a third runway well in advance of where other major airports, such as Brisbane or Melbourne, have had to.

“But the thing that we are now … coming to grips with, is because of the resource sector’s FIFO model’s inability to spread its peak, it might mean that runway is constructed earlier than at other capital city airports.”

The new third runway would be parallel to the existing 03/21 runway and to the east of the international terminal.

“The analysis so far suggests that the runway, if it’s to be constructed, in its first phase would be 2,300 metres; its ultimate life it would be 2,700 metres,” says Greatches. “The 2,300 metres is 2,100 metres to get F100, 717 and 737 type aircraft in the air, with 200 metres as a reserve, because when you come back to construct the extension, you won’t have to shut or limit the runway.”

Another option is a shorter, 1,800 metre runway for turboprops, but most of the airport’s turboprop operators are based out of the GA precinct in the airport’s northwest corner.

“To get to the threshold of the third runway, they’d have to cross two runways to get there with an extraordinarily long taxi.”

Another unlikely option would be to extend the existing cross runway to allow for simultaneous operations, but that would not overcome the inherent inflexibility of cross runway configurations.

“There’s no point in saying to the resource sector, you know what, for 40 per cent of the year, we’re going to meet your needs. We can’t tell you which 40 per cent it is.”

Perth Airport has had a team of eight consultants working on the third runway project that was due to finalise a technical design, cost estimates and a delivery program by late September.

“We think the cost of it’s going to be between $600 and 700 million, and the most optimistic time frame to construct it is four years which is two years for consultation and approvals and two years to build.”

Greatches says it would take two years before construction could start as “the entire airspace in the Perth catchment has to be redesigned. That then requires a full environmental impact assessment and full community consultation on an issue that’s already highly sensitive. Then you’ve got to go through a major development plan with the Commonwealth, when a major development plan for a straightforward development takes 10 months.”

Reaching a decision to proceed with the runway will take at least four months of consultations with the airport’s airline customers. Certainly airlines are now publicly calling for the third runway, with Qantas CEO Alan Joyce publicly backing the plan in an address to the National Press Club in Canberra in early October.

And there is political support for the runway from the WA state government.

“We need to maintain pressure on the airport to bring forward their plans for investment in the third runway,” WA state Transport Minister Troy Buswell told ABC radio recently.

“The public will expect the airport to make announcements around the construction and access to third runway in the not too distant future.”

But an Labor opposition MP has given a hint as to the obstacles a third runway will face, saying instead that FIFO flights should be relocated to RAAF Pearce, north of Perth.

“Not only would moving FIFO operations to RAAF Pearce be cheaper than building a third runway, it would also stop aircraft noise from impacting on local residents. I know for a fact that there are business people doing the sums on using RAAF Pearce – this is a better, lower cost option,” Cannington MLA Bill Johnston was reported as saying.

Any serious push to FIFO traffic our of Perth to Pearce is sure to be resisted by the airlines and mining companies, given the connectivity with domestic and international services and the convenience of Perth Airport’s location. (And with Pearce a very busy base in its own right, the RAAF would be sure to have its own objections.)

But instead, airlines and Perth Airport would need to agree on a new charging model to pay for the runway, which Greatches says raises some interesting philosophical questions.

“There is only one reason why a third runway might be required at Perth, and that is, the resource sector’s FIFO mode of operations requires them to fly out between a narrow window on Tuesday and Thursday. There are no other reasons. If that didn’t exist, you would not need to do it.”

Indeed it’s a situation where restrictions at mine site airfields and regional airports ‘externalises’ costs back onto Perth Airport.

“Why do they need to fly those narrow windows? They need to fly those narrow windows because they have worked out what is the optimal operational concept of operations for their business which makes their mines run efficient and importantly, minimises the capital that they, as companies, have to invest in regional Western Australia. If they change their rosters, they don’t get hot seat changes, they’ve got to build more infrastructure at the mine, and to date this [FIFO flying with relatively small aircraft in fixed time windows] has been the cheapest way to do it.”

“There is only one reason why a third runway might be required at Perth, and that is the resource sector’s FIFO mode of operations requires them to fly out in a narrow morning window.”

So, says Greatches, “The challenge for the airlines in the regional sector is, do you take on $600-$700 million investment to fly in those [FIFO peak] windows?”

Conversely, “So there’s an interesting philosophical discussion [to be had], because if there’s a third runway required here, should mum and dad going to Bali subsidise the capital requirements of the roster arrangements for mining companies?

“That’s a decision Perth Airport can’t make on its own, but our position is we have the balance sheet capacity and the preparedness to make the investment, if the customers want it.”

Greatches says the airport’s ability to raise the funds to build the runway, despite currently funding new terminal infrastructure as well, won’t be a problem as long as the appropriate commercial agreements can be put in place. “We can fund it if we end up with commercial agreements that we show the debt and equity providers of the business, well, there is a revenue stream that supports this investment.”

Another, lesser, issue around the third runway is that the airport has leased some of the land on which the runway would be built to commercial tenants. But Greatches says the land is leased for light commercial use, and the leases contain four-year break clauses. So the airport could trigger those clauses, and that with a two-year period before construction work on a runway could even begin, much of the construction work doesn’t require access to that leased land.

“On the worst possible scenario, you might have a 12 month overlap,” in which case the airport could consider paying out the leases.
But if the third runway proceeds with a decision made in the next few months, under the best case scenario the runway would not be open for operations until early 2017.

The challenge then for the airport is what happens in the meantime, particularly if movements continue to grow at 10 per cent per annum. Projects like the new domestic terminal currently under construction and the new Virgin Australia terminal pier extension to the international terminal will both significantly increase the airport’s passenger experience and remove some taxiway and ramp space bottlenecks, but they won’t aid the airport’s key limiting factor, its movement rate per hour, which is dictated by runway configurations and airspace design.

Greatches says the airport today typically achieves a movement rate of 37 an hour, and can reach 42 an hour “on a good day, if you’ve got good weather and the right runway configuration”.

But in an optimal environment, that could be as high as 47 or 48 movements an hour using the existing runways.

“In this environment, we have got demand outstripping supply for airfield and airspace in certain periods, it’s incumbent on all involved to get the most out of what we’ve got.”

Greatches says a study by the UK air traffic management provider NATS for Airservices found that Perth Airport’s capacity could be lifted to 47 or 48 movements with better airspace design and management, more effective airfield operations and changed pilot behaviours.

“For instance, the report says Perth should have constant speed arrivals, which it doesn’t now; it questions the separation distances on arrivals; it highlights that our runway occupancy times don’t benchmark well. These are all things that procedure, resources and modest capital can get substantial improvements.”

Also, notes Greatches, “why it’s 47, yet at other airports it might be higher, is again due to some of the operational challenges of the type of flying here, so in that morning you’ve got this weight of departures, so you can’t weave in balanced arrivals with departures as everyone wants to go out. Then you’ve got different aircraft sizes so you’ve weight turbulence separations.”

and, cautions Greatches, “I don’t want to overplay what that means, and it certainly does not mean that you wouldn’t do the third runway, because even if you became, if the three operators became really good at what we did, great at what we do, we suspect that supply will outstrip demand in those morning peaks.”

The Perth Airport CEO also defends how the airport has found itself in the situation today where it faces capacity constraints, noting how the global financial crisis created havoc on traffic planning and the challenges of forecasting the needs of the FIFO sector.

“To be opening the third runway today, so that we’re not constraining today, the decision to have built it would have been made in 2008 in the depths of the GFC, at a time when the resource companies weren’t growing but were retrenching.”

Equally surprising was how traffic rebounded after a GFC induced pause for breath.

“The interesting question is why are the domestic forecasts haven’t been reliable? Well, the source information coming into them hasn’t been reliable, so why is it any surprise to anyone that the forecasts aren’t reliable?”

Greatches says Perth Airport uses Tourism Futures International for its traffic forecasting, while “the Bureau of Transport and Regional Economics does another set of forecasts and the Tourism Forecasting Council does another. Not one of them has got the forecast in Western Australia right, and all have been under.”

Another issue, notes Greatches, is, “The way the resource sector procures its flying has to date been what I would describe as quite non-strategic, so it’s been all driven by safety, on time performance and cost. They’ve contracted short, they’ve sought to leverage off competitive tension between airlines and they’ve typically given three to five year contracts, so those airlines that then talk to us about their needs are not projecting any long term requirements of their clients.”

Further, he continues, “The other point to note is a substantial input into these forecasts is what the airlines tell you themselves. I can absolutely assure you in dialogue with Virgin Australia in 2009, they did not say that they’d be increasing capacity by 40 per cent two years later. But that is what’s happened.”

There’s no doubt that in four to five years should the third runway go-ahead that Perth will be transformed, as in the meantime significant terminal developments would have opened as well.

Nearly complete is the new domestic terminal, designed for low cost and FIFO operators, which is due to open for business in January. So far Skywest and Tiger have committed to move to the new terminal, who at opening will only use 30 per cent of the terminal’s capacity.

Other FIFO operators such as Cobham and Skippers will continue to use their own terminals in the airport’s GA precinct, at least until their current leases their expire.

Greatches notes that there is friction with some of the GA precinct’s regional operators.

“They’ve got their leases in there and they’re entitled to quiet enjoyment to operate in there, but there’s a bit of tension emerging between ourselves and them about their capacity to grow in their existing facilities. What’s happened in that precinct is that everyone’s stretched the boundaries of the definition of general aviation and we’re saying that it is not a precinct that was built for high volumes of passenger movements and we’re starting to cap that, we’re starting to put limits on size of aircraft and number of people in the peak periods.”

Says Greatches, “we’re not constraining their ability to grow at Perth Airport, we’re just telling them where they can’t grow.”

Meanwhile Skywest and Tiger moving to the new terminal will initially free up space with the existing T3 terminal , where “we’ve now got A330s coming in to a terminal that was never designed for them”.

Then in 2014 Virgin Australia will move into a brand domestic pier to be built as an extension of the current T1 international terminal. That will in turn allow Qantas (and its Network subsidiary) to expand into T3. Prepatory earthworks for the T1 domestic pier are already underway, with construction currently out to tender.

As part of that work the international departures area of T1 will also be expanded with expanded check-in and a new international departures lounge, while the domestic pier will also feature swing gates that can be used for international A380 operations.

And further into the future, plans see Qantas relocating into T1 as well, and with T1 further expanding with a new pier for international airlines and Qantas operating from the existing terminal space. A new international pier would finally overcome some of the “structural deficiencies” of the existing international terminal, particularly around international arrivals processing.

So far $750 million has been committed to terminal redevelopments, with the ultimate aim of having all airport operations – international, domestic and regional FIFO all in the one precinct centred around the current T1.

But in the meantime, until a third runway does open and capacity constraints are eased – or the mining boom busts and FIFO traffic is dramatically curtailed – Perth Airport will have its critics.

Says Troy Buswell: “The feedback that I get from people is that the delays because of access to the runways are significant and increasing, and effectively we may have an airport with some lovely terminals that better be comfortable, because they can’t take off and land.”
In more ways than one Perth Airport is the frontline of the mining boom’s growing pains.