A brake on expansion?

In May Virgin Australia told Contrails it will be unable to pass on the cost of the proposed runway, which is expected to be operational by 2019.

The airline told the operator, Perth Airport Pty Ltd, that while it agreed in principle with the need for the additional runway, its inability to pass on the carbon tax that had cost it and Qantas tens of millions of dollars was a deep concern.

The cost of the parallel runway is $480 million and will be paid for over 40 years by a passenger tax in accordance with Australian Competition and Consumer Commission guidelines, estimated at $3. 96 per passenger.

Though a small, seemingly insignificant amount, if airlines cannot recover it, then tens of millions of dollars are added to their operating costs.

Virgin Australia chief executive John Borghetti suggested that Perth Airport should contribute to the cost instead of having full cost recovery through a passenger tax.

“If you have a monopoly position, you should make sure you put back into the community the value of that monopoly,” he said.

Perth Airport’s net profit last year was $267. 4 million, and earnings before interest, tax, depreciation and amortisation was $520. 3 million.

Borghetti warned the ability of the airline to pass on the cost was limited because of intense competition.

The biggest segment of the market – economy class – is extremely price sensitive and domestic airlines face increased airport charges across Australia as airports make investments in infrastructure.

Qantas, the biggest operator at Perth Airport, has given its blessing to building a new runway to eliminate congestion. The precise timing of the runway is yet to be determined, but the airline too is also concerned about the ability to pass the cost on.

Qantas chief executive domestic Lyell Strambi told Contrails that the airline had endorsed plans to proceed with a two-year environmental impact study before a final decision is made on the timing of building the third runway.

“We agree a third runway is required at the earliest in 2019,” Strambi said.

While a new schedule coordination system, improved practices and a slowing in demand have contributed to less congestion and better on-time performance at the airport, major bottlenecks remain midweek.

Borghetti warned the ability of the airline to pass on the cost was limited.

And there are significant air traffic snarls in wet weather.

Though domestic traffic has stagnated, international traffic through the airport has leapt 12 per cent this year.

And another key piece of infrastructure for the airport – a $20 million CAT III ILS – appears to be on hold.

Perth Airport has about 12 major fog events a year but fog is forecast over 60 times annually meaning significant alternative fuel carriage or cancelled flights.

While this may not trouble Qantas, which has no international flights in its own metal anymore from Perth, it is a major issue for other foreign airlines as the alternate for the airport is Adelaide because of customs requirements and hotel accommodation issues.

Domestically the alternates for Perth are Kalgoorlie or Learmonth.

Perth Airport is the critical lifeline for what is Australia’s economic engine. It is also the world’s second most remote capital city making an all-weather facility imperative.

While the airport argues correctly under the Airport Sale Act its customers are the airlines, its customers are in fact the passengers, resource companies and the state of Western Australia.

Airline profitability is marginal at best and with explosive growth in the low- fare market driving much of the airline industry, the ability to fund the necessary infrastructure is a growing concern.