Embracing opportunities

Melbourne Airport’s success, in particular, is leaving other capital city airports behind as it embraces business potential under the direction of Chris Woodruff, who has been in the seat as CEO and managing director of Australian Pacific Airports since August 2007.

Meanwhile Avalon Airport is seeking to restore its competitive position as a niche domestic, airfreight and engineering centre, something CEO Justin Giddings describes as “a rare opportunity for airlines to have a significant part in the formation of the airport”.

Growth strategy

Melbourne Airport has been a success story in terms of the planning, execution and realisation of its market development strategy.

For each month of 2012 Melbourne Airport posted successive growth in international passenger traffic, eclipsing growth rates of Brisbane’s five per cent and Sydney’s four per cent. The results built on a successful 2011, which saw an impressive 11 per cent growth in international traffic.

Melbourne’s success is reflected in international marketshare figures, which have experienced gains in each of the last four years while Sydney and Brisbane have both lost international traffic each year except for a modest increase in Brisbane in 2011/12.

A rare opportunity. . . GIDDINGS, ON THE FUTURE OF AVALON AIRPORT

In 2012 Melbourne Airport recorded double-digit growth across emerging and established international markets, with more than 320,000 seats a year added by Australian and foreign carriers. The largest growth market was Greece (up 18. 1 per cent), followed by China (16. 6 per cent), Taiwan (15. 7 per cent), Hong Kong (15 per cent), Italy (13. 1 per cent) and Brazil (11. 6 per cent).

This growth has been on the back of successive increases to capacity by international carriers, which have generated an average five per cent increase in seat capacity. In January Melbourne Airport celebrated its 100 millionth international passenger.

In July Singapore Airlines increased its nonstop flights to four a day and introduced a second daily A380. In October Emirates launched A380 operations to Auckland via Melbourne (the airline’s first Australian destination back in 1996), while growth in Chinese services saw China Eastern upgrade from the 767 to A330 and China operated double-daily flights during the peak season. Air China increased frequency to Beijing and Shanghai to five a week, while Air New Zealand, Garuda, Vietnam Airlines and Royal Brunei all added services.

Jetstar, meanwhile, soon to introduce 787 operations with Melbourne as one of its bases, has re-introduced nonstop services to Honolulu with A330s, a service it is increasing to three a week in March.

Melbourne is ranked ahead of Sydney in terms of available seats between China and Australia each year, with a total of 114 return flights, or nearly 32,000 seats a week, a position it has worked hard to attract and retain.

Sichuan Airlines’ new flights to Melbourne became only the airline’s second international destination, following the launch of Vancouver in June last year, signifying the importance of both Vancouver and Melbourne to trade and the growing tourism market.

Matt Francis, general manager corporate and public affairs explains: “China has overtaken the UK as Australia’s second largest international visitor market behind New Zealand and is also one of the highest growth countries in terms on passengers. China’s importance to Victoria and Australia cannot be underestimated.

China is expected to remain one of the largest inbound markets over the coming decade, and efforts are continuing to attract new business.

One of the unique approaches Melbourne takes to the development of international relations and markets is the adoption of sister airports. Sichuan’s Chengdu Airport is twinned with Melbourne.

“The sister airport agreement with Chengdu Shuangliu International Airport is an extremely important aspect of building Victoria’s aviation, business, education and tourism links with a significant growth region in China,” Francis said. It is a simple but effective strategy that following the same principles as city twinning, consolidates relationships and fosters better understanding between like airport businesses.

“With an increasing presence in China’s trade and business agenda and home to around 80 million people, Chengdu and Sichuan Province is definitely a region that we will hear more about. Governments are also recognising the importance of the region, with both the Victorian and Australian governments opening new representative offices in Chengdu to strengthen our trade and investment relationships,” he added.

Domestically, growth has been robust with passenger traffic increasing five per cent to 22. 3 million. Capacity increased 8. 8 per cent during the year as all the major domestic full-service and low-cost airlines added services.

“Over the last 12 months, we’ve seen the domestic airlines increase capacity on many Melbourne services. This increased capacity has stimulated demand with many Victorians taking advantage of the increasingly competitive market,” Francis said.

Increasing competition between the primary domestic carriers will certainly manifest itself at Melbourne Airport, something the leadership team relishes as an opportunity.

Francis affirmed: “We welcome increased services and capacity from all of our domestic airlines which provides our passengers with more choice to more destinations, as well as support increased visitation to Victoria from the rest of Australia. Melbourne is the Australian home for Jetstar and Tiger, and we look forward to working with both airlines to support their future growth. ” While airfreight worldwide has been recoiling from depressed global economic activity, Melbourne Airport has been enjoying buoyant throughput.

“With 85 per cent of all freight carried by passenger aircraft, the continuing growth of passengers at Melbourne Airport is also increasing our freight capacity,” Francis explained, adding that during the current financial year imports through Melbourne have remained steady at around 30 per cent of the total Australian airfreight market. “However, exports through Melbourne increased to around 37 per cent. ” “Key reasons for this include the fact that we are curfew free – operating all day, every day and ensuring vital links to the growing Asian markets for key products such as seafood and dairy. As the southern hemisphere’s largest dairy producer, this is without a doubt integral to the growth of Victoria’s dairy industry.

“We are also investing in our support facilities for the freight markets with a state-of-the art cargo terminal operated by Toll Dnata, Qantas, Menzies, Australia Post and DHL, all onsite. The Melbourne Airport Cargo Centre is also under development,” Francis noted.

An economic impact study undertaken as part of the draft 2013 masterplan found Melbourne Airport directly employs 14,300 people and indirectly another 43,000. Some 10,000 – or 67 per cent – of those directly employed reside in communities immediately surrounding Tullamarine.

Francis explained the relationship between the airport and the state government remains intrinsically close: “We are in regular dialogue with the state government over our future plans, and what the state can do to support our future growth which will deliver significant benefits for the Victorian economy.

“Over the next 10 years we are investing more than $10 billion in expanding and upgrading our facilities, including a new domestic terminal, a third runway and significant internal road improvements, to cater for the estimated 60 million passengers who will be using Melbourne Airport by 2030.

“Getting those 60 million passengers in and out of the airport efficiently is going to be a critical issue and the state government needs to support this growth with better transport connections to the airport, including a rail link. As construction is likely to take several years, in the meantime the government needs to commit to improvements to current roads such as widening the Tullamarine freeway and dedicated rapid bus lanes.

Employment is forecast to increase to 23,000 by 2033, with economic contribution increasing to $3. 2 billion over the same period. Moreover, the value of spending by visitors travelling through Melbourne Airport is expected

We are in regular dialogue with the state government over our future plans. MELBOURNE AIRPORT

to grow from $8. 3 billion last year to $18. 5 billion in 2033.

It’s not hard to see why, then, Victoria takes its aviation strategy so seriously.

Avalon Airport, meanwhile, is priming itself for resurgence in response to state and federal government initiatives aimed at increasing the profile and prominence of the airport in the domestic and international markets.

Giddings described a recent announcement by the federal government as a “fast tracking” of a new international terminal that will expedite the introduction of services once commercial negotiations are concluded with airlines.

“Without this agreement Avalon Airport would be required to undertake a 12-18 month planning application,” Giddings explained. “However, with this fast tracking, international passenger operations could occur within six months of reaching an agreement with an airline. This announcement is a clear endorsement by the Commonwealth government for international operations out of Avalon, but it also provides us with less of the obstacles that we were facing. ” Avalon’s international aspirations are clear and it, too, will be seeking to harness the increasingly competitive domestic environment.

“We are actively pursuing more domestic activity,” Giddings said. We constantly engage with Jetstar to explain how under-serviced Avalon Airport is. For example, Avalon Airport has a natural catchment area of over one million people. This means for over one million people it is closer for them to use Avalon Airport rather than Tullamarine. If you look at Tasmania with a population of just over 500,000, they have two airports both undertaking many more daily services than Avalon. Furthermore the Wyndham area is one of the fastest growing areas in Australia and this growth will provide additional demand to Avalon.

“Tiger Airways has suspended its flights at Avalon and has so far not indicated when it will return. However, if Tiger Airways is going to grow and be successful it must maintain its low-cost position and must at least relocate part of its operation to Avalon Airport. Likewise, Virgin Australia is making tremendous progress and we believe the customers of Avalon would warmly welcome them. ” Giddings said the planned rail link from central Melbourne will make Avalon Airport more accessible.

“This initiative by the Baillieu government is extremely important for the future growth of the airport and we hope the commonwealth government can assist with the funding requested. ”

Building for growth

Of course, with successful growth campaigns comes extra pressure on facilities and the need to continually develop infrastructure.

Melbourne Airport is projected to grow by 3. 9 per cent a year through to 2030 to a total of 60. 4 million passengers. It currently handles 29 million a year and will reach 40 million within the next seven years.

Already the airport’s leadership is exercising its strategic and capital resources to develop the infrastructure necessary to cope with that long-term growth projection and the medium-term capacity constraints that will occur periodically while new facilities are being developed.

Chief among the capital program is the third runway announced in November last year. The new 3,000m east-west runway has been included in the airport’s 2013 masterplan and subject to approval will be built by 2022 at an estimated cost of $500 million. Construction is due to commence in 2015/16.

Woodruff said the east-west configuration was selected taking environmental and community impacts, capacity potential, cost and operational compatibility with the existing two intersecting runways.

“It will allow us to handle more aircraft more efficiently,” he added. “It will reduce taxi times between the runway and terminals, meaning lower fuel burn, lower operating costs for airlines and time savings for passengers. ” The parallel east-west runway is part of a $10 billion capital program to be implemented during the next two decades.

Also included in the masterplan is the investment of $1 billion over the next five years on airside and landside infrastructure, including plans for a new domestic terminal in the southern precinct and the ongoing redevelopment of T3 in conjunction with Virgin Australia.

Projects completed during 2012 were upgrades to the international terminal, aerobridges and gates, new baggage carousels and road improvements to improve preparedness for more high capacity operations such as Emirates’ recently-introduced A380 services, all factors that led Melbourne Airport to be selected as the Australian Airports Association’s Airport of the Year in 2012.

And it’s not just on the hardcore infrastructure side that Melbourne Airport is investing. Visitors to the airport need the same ease and efficiency that airside developments seek to create. It is also conducive to revenue optimisation.

Income derived from retail activities now generates equal revenue to income from aeronautical activities (each $248 million 2011/12), proving the value of investment in non-aeronautical activities to obviate the dependency on the vagaries of air services despite Melbourne’s recent successes, at least internationally.

“We recently completed a redevelopment of our international departures area with a focus on reflecting Melbourne’s unique lifestyle and culture with a strong focus on some of our unique food and beverage offerings,” Francis explained.

“Two of Australia’s top chefs are part of the Melbourne Airport family. Shannon Bennett has opened two outlets of Cafe Vue – one airside and one landside – and Frank Camorra has also opened Bar Pulpo by Movida. Visitors who don’t get the chance to visit these establishments downtown can now have the experience at the airport. Melbourne Airport is also

Avalon as a business must. . . diversify its functions. GIDDINGS

home to Victoria’s first Victoria’s Secret and other globally renowned retailers including WH Smith and the first ever airport-based Zoodle, WH Smith’s dedicated children’s store. ” Francis added Melbourne Airport, consistent with other major world airports, is looking to enhance other commercial aspects of its non-aeronautical strategy.

“Our business park is also an important aspect of our future development strategy as we upgrade facilities to support the important air freight market and the businesses that support our wider airport operations,” he said.

At Avalon the focus is on niche operations such as aircraft engineering and maintenance, and bulk retailing.

Giddings said: “Avalon as a business must seek to diversify its functions. Recently the City of Greater Geelong supported Avalon Airport in its quest to establish retail facilities at the airport. This type of business diversification is critical in flattening out the troughs of aviation business. ” The attraction of non-aviation revenue streams at Avalon Airport will be key to its success commercially, especially with the pending demise of Qantas’s heavy maintenance activities.

“The future of Qantas Heavy Engineering at Avalon is limited,” Giddings admits. “Qantas has made it very clear that it is withdrawing its heavy maintenance out of Victoria and consolidating into Queensland.

“While this is obviously a very disappointing decision for the people who worked at both Avalon and Tullamarine, Avalon must now forge ahead knowing that Qantas maintenance is a thing of the past. However, the withdrawal of Qantas opens up enormous opportunities for Avalon. We are very confident that we will re-lease the hangars shortly after they become vacant. ” Lufthansa Technik would be considered a prime candidate. While Giddings would not be drawn on specific potential operators, the attraction of an internationally-recognised operator like Lufthansa would add significant credibility to the airport and would almost certainly be the cornerstone of an aerospace cluster around the airport, something the state government is supporting through active policy.

“I don’t want to comment on any specific potential customer of Avalon, only to say that the successful business that relocates to Avalon will be one that is seeking to form a long-term relationship with the airport,” Giddings said of potential clients, while remaining enthusiastic about the future.

Competitive tension

So is it actually a blessing to have two airports serving one capital city? Has there been real value added to the economy derived from competition? In reality it’s impossible to tell definitively, because Melbourne Airport (at Tullamarine) has always had sufficient capacity to meet demand and is building more capacity as traffic increases loom. However, the benefits from having two competing airports serving a major city were tested as Avalon Airport, privately owned by the Linfox Group, stretched its commercial ambitions and attracted airline business away from Tullamarine, at least for a period.

Positive competitive tension between airports can generate choice for customers just as it can between airlines, provided the political and economic landscapes support that concept. In Melbourne’s case (and it is true of Geelong, too), a state government that is actually interested in aviation and a buoyant aerospace community ensures airport infrastructure remains a priority among strategic economic considerations.

For Avalon, its competitive proposition remains strong, but as Giddings explained, optimising the return on that competitive proposition demands being adroit at picking airline strategies! “Over the last few years the domestic aviation scene in Australia has incurred significant change. When Avalon first commenced domestic passenger operations with Jetstar back in 2004, Jetstar established its main hub at Avalon. I believe the reason for this was to ensure Jetstar did not impact on Qantas’s operations. With the low-cost advantage of Avalon Airport, Jetstar was able to gain a clear advantage over its competitors and soon increase its flights substantially both at Avalon and around Australia. However, with the introduction of Tiger Airways and its subsequent establishment at Tullamarine, Jetstar shifted some of its operations from Avalon in order to compete with Tiger head-to-head.

“There is no doubt the low cost of Avalon Airport will see us grow substantially over the coming years. However, with the interesting domestic airline competitive dynamics some decision-making is not necessarily based on lowest cost and highest yield,” Giddings said.

Freedom

As airports around Australia – and the world – experience pressures that dilute their ability to grow sustainably, Melbourne and Avalon Airports have largely been free of community and political pressures.

The Victorian state government’s overt encouragement of the airports and aviation developments more broadly through a supportive Premier and dedicated Aviation Minister have fostered an enviably positive attitude to their respective developments.

As Melbourne Airport’s Matt Francis said: “Thanks to the foresight of the planners who chose our current site, our curfew-free operations deliver two million additional passengers for Victoria annually and contribute more than $590 million to the Victorian economy through additional visitor spending.

“With these figures expected to grow to an additional five million passengers per annum and $1. 3 billion in visitor spending by 2033, our curfew-free status delivers real economic benefit for our state.

“It also enables our exporters to access high-value markets around the clock. We need to protect our curfew-free status into the future through sensible planning and airport safeguarding. A truly global destination doesn’t shut the gate on the rest of the world at 11pm each night,” Francis emphasised.

With such strong political support, it is a point that Melbourne and Victoria are able to ram home to the industry resoundingly.

“Airports are critical pieces of our national infrastructure and our draft masterplan will set out the future vision for Melbourne Airport as a 24-hour gateway for the movements of people and goods to destinations and markets around the world,” Woodruff extolled in announcing future strategies.

If this was anywhere else Woodruff’s closing statement would likely be taken for corporate spin. But this being Victoria, where aviation strategy is considered central to economic prosperity and a competitive national and international positioning, every word is weighted with strong conviction.

How refreshing.