Effort & reward

There was arguably no greater evidence of the benefits of viable and sustainable aviation services to a regional community, or indeed, of the intrinsic dependence between regional communities and their airport.

At the time, annual passenger throughput was less than 200,000 and the encouragement of additional patronage was stifled by high fares that reflected the lack of high volume and customer choice. The attraction of new airline business stood to create unease with incumbent Eastern Australia in particular, an airline on which the region had relied heavily for direct services to Sydney, Melbourne and Brisbane. But the advent of low-cost flying in Australia in the late ’90s and early 2000s had begun to prove that low cost could drive demand, and the region’s near one million people in the greater catchment area represented a potentially significant, volume-driven market to a low-cost airline such as Virgin Blue.

However, representing this opportunity to an airline inundated by requests from airports around Australia and with a ruthless commercial approach presented a challenge for an airport team that was itself somewhat virginal in such pursuits.

Discarding the notion of simply presenting a rate card with an invitation to do business based on published aeronautical charges, an open-minded board and management team adopted creative packaging within the competition regulations: something that became an essential tool that in the end not only benefitted entrants to the market, but the incumbents as well.

But of arguably greater significance was the uniting of every sector of the region towards the goal of securing low-cost air services. Bringing together hitherto disparate (and competing) tourism authorities, local governments (facilitated in this case by Newcastle Airport’s ownership by Port Stephens and Newcastle City Councils), the private sector and hospitality industries – led by the airport – was the key to convincing Virgin Blue the Hunter was a region committed in unison to supporting the development of air services for the benefit of economic development.

Moreover, considerable effort was made to form strong and close relationships between the key departments of the airlineand reciprocal staff at the airport towards ensuring any issues, be they commercial, financial, operational, strategic or tactical, could be raised with confidence and comfort.

The mutual insight into performance analysis of routes played an important role in actively managing the ebb and flow of seasonal and short-term demand cycles.

It was a convincing argument that eventually compelled Virgin Blue to start services, initially to Brisbane and then to Melbourne. It added services to the Gold Coast and subsequently more capacity on existing routes, all of which had a growing positive impact for tourism and business activity in the region.

On reviewing the success of the new services, Virgin Blue conceded the approach applied by Newcastle Airport became a model it encouraged other regions to follow.

The same principles were subsequently applied by Newcastle Airport to Jetstar when the airline started services in May 2004, as well as in its efforts to secure the region’s first international services to New Zealand in 2001.

That has been the story for the last decade. Now Newcastle Airport can claim to be among Australia’s busiest, and it continues to grow. The Newcastle-Brisbane route has grown from 353,000 in 2006 to more than 600,000 (in the 12 months to June 2012) and now carries more passengers than between other principal city pairs including Hobart-Sydney, Sunshine Coast- Sydney and Melbourne-Cairns.

But it’s not work for the faint-hearted.

“It’s no lie that it’s a tough gig for noncapital city airports to secure additional services and destinations,” Paul Hughes, CEO of Newcastle Airport Limited, said.

“The impacts of various events in the past few years, such as SARS, aviation fuel prices, the GFC, and significant changes to airline management, have all resulted in the airlines taking a cautious approach to business development, particularly on untested routes. This is where we’ve found that having open, honest and regular dialogue with airline personnel has proven invaluable.

We are also competing for airline capacity against the rapidly expanding resources sector, particularly in Western Australia & Queensland,” Hughes explained.

On the terms of engagement with airlines, in having to compete for airline capacity the airport team conducts regular market research and engages pro-actively with local businesses to learn not only what the market wants, but, importantly, why it’s wanted.

“And this ‘why’ has been incredibly well received by the airlines,” Hughes said. “It has given them a better understanding of the data we present to them. The close relationships we’ve developed with the airlines are because of this additional communication.

Rather than meeting with the airlines and presenting a business case full of pages and pages of statistics, we’ve presented exactly what our market needs and put it into context. We’ve even partnered with the private sector and sat at the table together with the airline and discussed their individual travel needs. And it works. Virgin Australia recently announced additional services from Newcastle to Brisbane as well as alterations to their network to facilitate better connecting flights. This is a positive result for everyone. ”

A similar success story has been experienced at Ballina/Byron Gateway Airport, owned and operated by Ballina Shire Council on the far north coast of New South Wales, where the airport’s manager, Neil Weatherson, has relied on the strength of airline relationships forged in securing new business to attract further incremental growth.

“The partnership approach to airline relations is essential. The airlines are our major customer, they basically control our growth, our revenue, our expenditure, and they have very mobile assets. It pays to protect the airline relationship and we must work together or we will not grow,” he said.

The result has been an increase in passenger numbers from 271,617 in 2009/10 to a forecast 370,000 in 2012/13. Weatherson further predicts this will grow to 420,000 the following year.

Ballina/Byron now handles up to four jet services a day operated by Jetstar and Virgin Australia in addition to Rex flights to Newcastle and Sydney. Like other regional airports facing growth, investment in infrastructure becomes a necessity.

“We are definitely building the foundations for increased services, destinations, passengers, employment and growth of the airport,” Weatherson said. “Over the past three years we have developed additional jet parking bays and taxiways, extended the GA aircraft parking area, extended and improved the terminal building, and improved the car parking facility. Next year will see an asphalt overlay to the main runway, taxiway and RPT apron. We are also planning for future projects including the new terminal upgrade, a new access road, new set down and pick up areas, a new GA aviation precinct, new car parking, and new ARFFI infrastructure. ” The apron redevelopment is due for completion in February 2013.

These investments totaled $1. 2 million this financial year. In the next two years the Council is seeking to spend a further $5. 7 million in 2012/13 and more than $5. 2 million in 2013/14. Ballina/Byron Airport’s shareholder council is literally building its faith on sustainable, competitive air services, but it’s a faith well-founded on the successes so far.

Elsewhere in Queensland, Sunshine Coast Airport is recognised as an important source of economic development for the region. Newly-elected Mayor Mark Jamieson reflected on the airport’s growing role as both a gateway and a base for aerospace developments.

“Our geographic location positions us as a key gateway to the rest of Queensland without the costs and congestion of our capital city neighbor to the south,” the councilor said, drawing on the example of the Sunshine Coast having succeeded in securing seasonal flights to and from Auckland.

“These flights have returned an estimated $14. 5 million to the local economy over the 12-week life of the seasonal service,” he added. “This is just the first step in this direction, with our expansion plans in place and the approvals process underway for the new east-west runway to accommodate international flights. ” The airport is forecast to see passenger throughput increase to around 1. 9 million by 2020, coinciding with completion of the planned new runway, partly contributed to by a growing range of FIFO operations by Skytrans and JetGo.

“The benefit to these communities has far outweighed the cost of facilitating the airport gateway. ”

The airport’s aerospace precinct is also creating economic prosperity for the region, with its 52,000m2 already home to a range of training, maintenance, education, freight and management companies.

”A 2008 study indicated the airport contributed $469. 3 million in direct and indirect expenditure to the regional economy,” Jamieson said. The addition of international services and expected further development in the aerospace precinct will add not only to that figure of four years ago, but also to the 4,409 full time equivalent employees at the airport.

The importance of an airport’s role in regional economic development is an argument as valid in any other part of the world as in Australia. In Jersey, the largest of the Channel Islands lying between the UK and France, their airport acts as a lifeline for a population of modest 95,000, yet the airport itself handles around 1. 5 million passengers a year. It’s recognised as a vital catalyst for economic activity, in particular to the island’s role as a major financial centre and rejuvenated tourism destination.

For two years prior to the onset of the global economic downturn in 2008, the airport invested heavily in market development and achieved 12 per cent growth in passenger throughput supported by an expanded network and more airlines, including the introduction of easyJet. While the whole of that 12 per cent growth was lost in the following years as a result of depressed economic conditions, the community of Jersey stood to have been even more severely impacted had it not made those investments in encouraging new business to its shores.

What the development program in Jersey again proved was the innate value of forming close working relationships with airlines sufficiently strong to ride out bad times so that rebuilding becomes an easier proposition when conditions permit recovery.

In mid-2012, as Jersey Airport finished licking its wounds while the rest of Europe continued in a malaise, the new airlines the airport had earlier attracted began to announce new routes, including more low-cost services between the island and the UK, and to Germany – a market that generated a doubling of passengers in three successive years.

Spokesman for Jersey Airport, Alan Donald, said it was fundamentally down to the strength of the relationships between it and its airline customers that has allowed it to recover while other airports in the region continued to recoil.

“Our dedicated commercial and route development team always strives to maintain a positive and open relationship with existing and potential airline partners,” Donald explained. “And in analysing the suitability of new routes it’s essential we work closely with and seek the views of other key parties such as the local tourism industry. Ultimately, all parties want air routes to be successful so it’s essential to maintain this open and honest dialogue. ” One may ask how the Channel Islands example is relevant to the Australian regional aviation scene, but the principles and approaches are entirely transportable across nearly all borders: and with demonstrated success.

David Huttner, co-founder and former chief commercial officer of Virgin Blue, now senior VP with aviation consultacy firm Nyras Consulting in London, agrees.

“The situation of regional airports in Australia is not unique. It is more expensive on a per passenger basis to operate a regional airport to smaller more isolated communities. Yet, often that service becomes a lifeline for the community’s economic viability,” Huttner explained.

“Governments often take the view that the airport must recover the cost of capital invested, a noble principal, but it is inconsistent with the economic analysis behind building regional roads, or hospitals in small communities, or even the town swimming pool. Clearly, in each of those cases, a greater social good has been identified and it is no different than maintaining economically viable air services to isolated communities.

Huttner ought to know. He was instrumental in helping to achieve the unprecedented successes in Newcastle and was on the board of directors of Spanish value airline, Vueling, which opened up a network of secondary routes in Europe by following the same tested principles of engagement between airports and airlines.

“Vueling and easyJet have built up routes that used to only sustain turpoprops,” he added. “The same is true with Allegiant in the US or Gol in Brazil. Yet the economic benefit to these communities in terms of tourism, property transactions and accessfor their own citizens has far outweighed the cost of facilitating the airport gateway.

“One forgets that before 2000 and the advent of Virgin Blue and later Jetstar, the idea of flying daily scheduled B737 or A320 services into communities such as Hervey Bay, Rockhampton, Coffs Harbour, Ballina, Launceston or Newcastle was deemed preposterous by the two major airlines, as well as by most ‘experts’. ” On the broader Australian front, the strategies employed in Newcastle, Ballina/ Byron and Jersey described here are becoming more commonplace to the point they are under-pinning successes across the country.

Caroline Wilkie, CEO of the Australian Airports Association (AAA), told Australian Aviation that unified fronts between airports, the various levels of government, tourism authorities and the private sector are becoming ever more important.

“Attracting airline services is a very competitive business. Not only are airports within Australia competing against each other to attract new airlines, they are competing against airports across the world.

“For this reason it is very important that the airports, state governments and where possible, national government tourism bodies take a coordinated and planned approach when looking to attract new airlines. Having the state and national government tourism bodies by an airport’s side during an approach delivers legitimacy and strength to their pitch. This is something that airlines, particularly in the Asian region, respect and pay attention to,” Wilkie explained.

Whether airports take the lead – or government or other institutions – depends on what stage of negotiations an airport is in with an airline. Typically it is the airport that seeks to fill a gap in their network or has an aspiration to grow a completely new market and they then seek external support to help realise the potential. This has been the case in Cairns, where Chinese carriers are making inroads.

“The work that has been done over recent years in welcoming China Southern to Australia has been a clear example of how government tourism bodies and airports can work together most effectively to secure airline services,” Wilkie said, adding: “The Queensland government recently assisted Cairns Airport to secure China Southern services between Guangzhou and Cairns from 18 December – 1 March. This decision followed years of negotiations and with the Queensland government’s help, Cairns got over the line. I think some state governments understand the importance of the role they play in airline negotiations better than others. However, there is a growing realisation across the country that negotiations are most effective when they’re conducted as a government/ airport partnership. ” Wilkie sees tourism as playing a potentially key role in achieving new inbound business.

“We see the most success in securing airline services come from airports working in partnership with state and national tourism bodies. Having the Australian government’s logo next to an airport logo on a letter of proposal can be very helpful, and having the state government willing to assist in negotiations can be the difference between an Australian airport getting the service or it going to an overseas destination.

“Airports themselves must focus on building long-term relationships with airlines before going for the big pitch. Rome wasn’t built in a day, and airline services are not secured overnight. Taking time to approach an airline in a well-planned, strategic way, which is coordinated with government is essential to getting the deal done,” she concluded.

At the regional level, some airports or their council shareholders see risk in developing airline business. In this respect, the AAA’s Stephen Prowse made arguably the most definitive statement that exemplifies the risk challenge faced by regional airports.

“Clearly regional airports and airlines need to work collaboratively in the spirit of the partnership model that is so often mentioned.

Unlike our airline partners, however, regional airports cannot move their assets to more lucrative markets. So for regional airports, the economics of our markets mean we carry perhaps a disproportionate share of the risk. The challenge for regional aviation, not just regional airports, is how this risk is managed. ” As some regional airports have proved, strong airline relationships can help mitigate that risk to a material degree and although it can’t be obviated entirely, it can be used to advantage in its own right when forging new relationships. A deep appreciation of all parties’ risks leads to an understanding of the trigger points that may result in a reduction of services and, more importantly, what can be done to avoid that situation.

As experiences show, if constructed diligently, a unified approach to regional aviation in which all stakeholders actually exercise their participation in the solution to attract and sustain air services as a means of economic prosperity can be a potent mechanism to boost economic prosperity.

The author has drawn on his experiences as CEO of Newcastle Airport 2001-05 and Jersey Airport 2006‑12 in preparation of this article.