Familiar territory

There Are Also Changes Happening in Other Non-mining Markets, With Some Leisure Routes Registering Encouraging Growth Over the Past Year or So on the Back of Increased Competition and New Entrants.

Also, Analysts Say Some Regional Airports, Quite a Few of Which Are Loss-making, Face a Challenge to Remain Viable Amid Declining Passenger Numbers, Limited Regular Public Transport (Rpt) Services and a Stagnant General Aviation Sector. One Solution Could Be Privatisation, as the Councils That Own Them Deal With Tight Budgets and a Host of Other More Pressing Community Needs.

Declining Passenger Numbers

Figures From the Bureau of Infrastructure, Transport and Regional Economics (Bitre) Show Australia’s Domestic Airlines Carried Half a Million Fewer Passengers in 2014/15, as Sluggish Consumer Confidence and the Changing Natureof the Nation’s Mining Sector Kept More Travellers on the Ground.

In Total, There Were 59. 87 Million Domestic Travellers in the 12 Months to June 30 2015, a Decrease of 0. 9 Per Cent From the Prior Year.

Meanwhile, the Total Number of Aircraft Trips Fell 1. 5 Per Cent to 689,162.

Among the Top 65 Routes for Which the Bitre Report Provided Figures, It Was Intrastate Routes in Western Australia and Queensland – the Nation’s Two Biggest Mining States – That Suffered the Biggest Percentage Decline in Passenger Numbers as Construction Activity in the Resources Sector Dropped Away.

In Queensland, Rpt Passengers on the Brisbane-mackay Route Slid 14. 7 Per Cent, While Brisbane-hamilton Island (Down 14. 6 Per Cent) Brisbane-emerald (Down 12. 6 Per Cent), Brisbane-moranbah (Down 14 Per Cent) and Brisbane-mt Isa (Down 13. 9 Per Cent) All Recorded Double-digit Falls in 2014/15 Compared With the Prior Year.

In Wa, There Were 14. 5 Per Cent Fewer Passengers Between Perth and Newman, While Traffic on the Geraldton-perth Route Fell 8. 4 Per Cent.

Passenger Numbers on the Trans-continental Trek From Perth to Brisbane (Down 3. 3 Per Cent), Melbourne (Down 2. 8 Per Cent) and Sydney (Down 1. 7 Per Cent) Also Eased Over the Past Year.

And Charter Operators Conducted 8. 7 Per Cent Fewer Trips and Carried 2. 2 Per Cent Fewer Passengers in the Past Year.

As a Consequence, Perth Airport Passenger Movements Dropped 3. 9 Per Cent in 2014/15, While Brisbane Airport Suffered a Two Per Cent Fall in Passengers.

The Bitre Report Also Showed Passenger Movements at the Top 50 Regional Airports in Australia Fell 2. 7 Per Cent in the 12 Months to June 30. The Most Significant Declinesoccurred at Gove (Down 28. 5 Per Cent), Roma (Down 18 Per Cent), Paraburdoo (Down 15. 8 Per Cent) and Moranbah (Down 15. 7 Per Cent).

Further, the Bitre Report Noted More Than One Third of All Charter Passengers in Australia Took Flights Either to or From Perth Airport.

Neil Hansford, the Chairman of Aviation Consultancy Strategic Aviation Solutions, Thinks About Regional Air Services in Terms of Three Separate Markets – Mining Routes, “tree Change” Destinations Such as Armidale and Tamworth, and “sea Change” Coastal Towns (Think Ballina/byron or Coffs Harbour) That Are Tourist Attractions in Their Own Right.

While the Charter and Fly-in/fly-out (Fifo) Operators That Have Generated Healthy Margins From Taking Workers Between the Big Cities and the Mines Are Looking to Diversify Into Other Markets in Response to the Changing Operating Environment, Hansford Says Leisure Routes Represent a Very Different Challenge.

“on Regional Type Aircraft You Will Never Get Rich Out of Leisure,” Hansford Tells Australian Aviation.

“in Your Tree Change Markets, Your Market is Business, Family Reunion for Funerals and the Like and Medical Travel. That is Your Justification in Your Tree Change Markets.

“on Sea Change Markets You Have a Leisure Component. ”

Rex Talks of Headwinds and Tailwinds

Regional Express (Rex) Executive Chairman Lim Kim Hai Says the Current Operating Environment Has a Mix of Headwinds and Tailwinds.

He Tells Shareholders in the Company’s Annual Report the Headwinds Rex Faces Are in the Form of Worsening Economic Conditions With “commodity Prices Continuing to Soften and Retail Being Morose”, While Tailwinds Include the Lower Australian Dollar

The Headwinds Rex Faces Are in the Form of Worsening Economic Conditions.

And the Airline Group’s Expanded Presence in Queensland After Retaining Two and Winning a Further Three Air Route Contracts in the Tender Conducted in 2014.

Those Contracts, Which Kicked Off on January 1 2015, Meant Rex Increased the Number of Destinations in Its Network to 53 Ports During the Year.

However, Rex Also Cut Some Frequencies in Nsw After a Network Review, With the Likes of Taree, Grafton, Lismore and Newcastle Affected as the Airline Tried to Better Match Capacity With Demand.

And There is the Prospect of Further Expansion for Australia’s Largest Regional Airline Group in the Current Year, With Rex Expected to Bid for Some West Australian Government Regulated Routes That Are Currently Up for Tender.

Recently, Virgin Australia Confirmed It Would Not Be Tendering for Wa Government Regulated Routes to Albany and Esperance and Wouldend Flights to the Two Regional Centres in the South West of the State When Its Current Contract Ends on February 28 2016.

The Shire of Esperance Said in a Statement on September 24 Submissions From Prospective Operators Had Already Been Received, With a Decision From Wa’s Department of Transport (Dot) Expected to Be Made Late in 2015.

Virgin Will Continue to Sell Fares for Travel Beyond February 28 “on the Understanding That the New Operator Will Honour Those Fares for Travel as Close as Possible to the Time and Date for Which the Original Fares Were Booked”, the Shire Said.

“whilst Virgin is Not Submitting a Tender to Continue Undertaking the Regional Air Services to Esperance, It Should Be Noted That Those Companies Who Have Submitted Tenders Are Experienced Providers of Regional Air Services,” Shire of Esperance President Malcolm Heasman Said.

“we Are Hopeful a Viable Service Can Be Established and Maintained to Esperance to Accommodate Our Region’s Needs Now and Into the Future.

“we Are an Observer in the Department of Transport Tender Process and We Will Always Advocate for the Best Air Service for Our Community. ” Rex Deputy Chairman John Sharp Said Recently the Airline Was Considering Tendering for Wa Regulated Air Routes, Noting the Airline Currently Had No Operations in That State.

And That Prospect Looked More Likely After Rex Advertised for a Perth-based Airport Coordinator, as Well as B1 and B2 Qualified Lames.

Skippers Aviation Was Also Understood to Have Applied for the Perth-albany and Perth-esperance Routes.

Government Acknowledges Difficulties in the Bush

Like Rex, the Federal Government Has Also Recognised the Difficult Times in the Bush While Acknowledging There Were Opportunities for New, Tourism-focused Regional Markets to Grow.

Deputy Prime Minister and Minister for Infrastructure and Regional Development Warren Truss Says the Forecast Rise in Air Travel – Domestic and International Passenger Movements Through Australia’s Major Airports Are Expected to Grow by 3. 7 Per Cent a Year to 2030-31, Rising to 279 Million Passenger Movements Compared With 147 Million Last Year – and a Lower Australian Dollar Are Plusses for Many Non-metropolitan Cities and Towns.

“after an Unprecedented Growth Period Driven by the Resources Sectorwe Are Now Seeing More Challenging Times for Regional Aviation,” Truss Told the Safeskies Conference in Canberra on September 23.

“the Fall in Commodity Prices and the Mining Industry’s Transition to the Operational Phase of Production Has Seen Some Downturns in Some Regional Market Sectors, but There Are Opportunities as Well.

“our Neighbours in the Asia Pacific Region Are Expected to Be the Fastest Growing Countries in the World Over the Next Decade and as the Australian Dollar Falls, We Can Also Expect More Australians to Consider Taking Their Holidays Locally – With Potential Benefits for Regional Airports Servicing Local Economies With a Tourism Focus. ” Citing the Bitre Figures Mentioned Above, Truss Notes Traffic at Uluru Had Soared Close to 30 Per Cent in 2014/15, While Passengers Were Up About 15 Per Cent at Proserpine/whitsundays Airport.

“the Government is Committed to Reinvigorating Our Regions and Building Better Connections Between Our Regions and Our Cities, and the World,” Truss Says.

“most Importantly for the Regional Tourism Industry We Are Committed to Developing Northern Australia. ”

Qantas Swings the Changes

the Outlook is for Current Conditions to Muddle Along for a While Yet, According to Qantas Chief Executive Alan Joyce.

“we’re Thinking That the Decline Will Continue for at Least the Next 18 Months, Probably Two Years, and We’re Planning – and Have Plans in Place – to Be Able to Compensate and to Be Able to Manage That,” Joyce Told Reporters at a Capa – Centrefor Aviation Conference in Helsinki on October 8, Where He Accepted the Aviation Consulting House’s Airline Chief Executive of the Year Award.

A Lower Australian Dollar and Healthy Demand Along Australia’s Eastern Seaboard is Helping Qantas Reallocate Aircraft From Mining Routes in Wa and Queensland to More Popular Leisure Routes, as Well as Pulling Some Widebodied Airbus A330s Off Services Between Perth and the East Coast.

And Qantas is Downgauging Some Mining Routes With Smaller Aircraft From Its Network Aviation Subsidiary, Which is Being Rebranded to Be Part of Qantaslink’s Operations.

These Aircraft Changes Have Freed Up Qantas Mainline Aircraft to Resume International Services Such as Perth-singapore Which Took Off in June and Seasonal Sydney-bali Flights Over the Coming Summer, as Well as Add Domestic Routes Such as Melbourne-gold Coast and Sydney-marrochydore.

And Five Qantaslink Q300 Turboprops That Were Sitting Idle at Tamworth Were Also Repainted in Jetstar Colours to Establish a Regional Operation Across the Ditch, With the First Flights Due to Take Off in December.

Also, Joyce Notes There Are Some Infrastructure Projects in Other Parts of Australia That Should Provide a Boost to the Economy.

“i Think There’s $60 Billion Being Spent in New South Wales Alone in the Next Few Years on Different Infrastructure Projects, We’ve Got the Financial Services and the Professional Services Doing Very Well,” Joyce Says.

“and the Leisure Market for Jetstar is Actually Going Exceptionally Well at the Moment.

“so All of That Allows Us to Take Advantage of Redirecting the Assets to the Parts of the Market That Are Actually Growing. ”the Changing Market Dynamics Has Also Prompted Other Players, Such as Fly-in/fly-out and Charter Operator Alliance Aviation Services, to Diversify in an Effort to Adapt to the Changing Environment.

Alliance Has Moved Heavy Maintenance of Its All-fokker Fleet to Europe as Part of Cost-cutting Measures, Sold Two Aircraft, Lifted Fleet Utilisation and Tried to Secure More Non-mining Related Flying.

During 2014/15 Alliance Secured a Contract to Operate Aircraft in Australia and New Zealand for Us-based Tour Operator Tauck.

The Company Told Shareholders in Its Annual Report the Outlook for Its Financial Performance in the Near Term Was Stable.

“there is Likely to Be Limited Growth in Long-term Contract Revenue in the Resources Sector, However New Opportunities Will Continue to Be Sought in Other Sectors,” the Company Said in Its Annual Report Published on August 13.

“a Positive Example of This is the Five-year Contract Recently Signed in the Tourism Sector. Alliance’s Fleet and Bespoke Charter Options Represent a Compelling Proposition for Tourist Operators.

“the Financial Outlook for Alliance for the Year Ended 30 June 2016 is a Product of Moderating Contracted Revenues, Developing the Ad-hoc Charter Market, New Revenue Sources and Reducing Expenditure, in Particular Capital Expenditure. ” Macquarie Securities Analysts Sam Dobson and Avinash Srinivasan Say the Declining Demand in the Mining Sector Has Created Opportunities for Domestic Carriers to Increase Capacity and Fleet Utilisation on Routes in Eastern Australia.

“this is Consistent With the Declining Growth We Are Seeing Through Perth Offset by Additional Routes to Brisbane and Melbourne, Together With the Aforementioned Leisure Destinations (Gold Coast And

There is Likely to Be Limited Growth in Long-term Contract Revenue.

Cairns),” the Pair Said in a Research Note Dated October 7.

The Analysts Said the Growth Outlook in the Domestic Market Was “increasing but Remains Modest, With Potential for Some Reductions”.

“based on the Latest Available Scheduling Data We Estimate Both Vah and Qan Have Negative Growth Across Vast Portions of the Domestic Network Through to the End of December ’15, With Jetstar and Tiger Still Showing Some Growth,” the Macquarie Analysts Wrote.

Hansford Says One of the Reasons Qantas and Virgin Australia Compete So Vigorously for Mining and Fifo Contracts is the Feed They Provide for Their Rpt Services. In Effect They Can Carry a Worker From Newcastle to Port Hedland on the One Ticket and One Booking.

“the Driving Force for the Big Guys is Interstate Feed. They Are in Fifo and the Like to Get Both the Domestic and International on-carriage,” Hansford Says.

“what Was Attractive for Peoplegoing Out Into the Surat Basin is When They Brought Them to Brisbane They Got Onto a Qantas Flight to Take Them to Sydney or Melbourne. If You Throw Them Into the Open Market They Then Are Going to Be Totally Price-related and They May Go With Anyone on the Long-haul Sector. ”

Smaller Players Finding New Markets

While Qantaslink and Virgin Australia Regional Airlines Slug It Out in Both the Fly-in/fly-out and Major Rpt Routes to Feed Their Respective Mainline Operations, Some of the Smaller Players in Regional Markets Have Found Some Success in 2014/15.

Pelican Airlines Restored a Direct Air Link Between Canberra and Newcastle in June, When It Began Offering Rpt Services With 19-seat Jetstream 32 Aircraft. The Route Was Previously Flown by Brindabella Airlines, Which Collapsed in December 2013.

Previously a Charter Operator, Pelican Also Gave Residents of Mudgee in Nsw Air Services to Sydney for the First Time in More Than a Year in June When It Started Flying the Nsw Government Regulated Route.

Regional Jet Operator Jetgo Was Another to Commence Rpt Services During the 2014/15 Year and After a Shaky Start – the Airline Cut Service to Gladstone Just Three Months After the First Flight and Pulled Out of Roma Two Weeks Prior to Launch – Appears to Have Found Its Feet and Currently Serves Tamworth, Dubbo, Rockhampton, Brisbane, the Gold Coast and Townsville. The Newest Route – Melbourne (Avalon)-dubbo – Was Due to Launch at the End of October.

Jetgo Managing Director for Airlines Paul Bredereck Says the Current Rpt Network Was Performing Well and Encouraging More People to Fly Rather Than Drive, With Anecdotalevidence From Dubbo and Tamworth Showing Its Passengers Are People That Usually Drive Two to Three Times a Year but Now Choose to Take the Jet.

“most of Our Traffic is New Business So We Haven’t Taken Any Appreciable Amount of Traffic Off the Other Carriers,” Bredereck Tells Australian Aviation.

“we Have Now Established Brisbane-tamworth Without What We Can See Having as Any Negative Impact on the Other Carrier, Which is Healthy for the Overall Market. The Figures Are the Same for Dubbo, Although It is Still Early Days.

“we Are Quite Happy With the Response in Those Markets. ” Qantaslink and Virgin Australia Fly Between Sydney and Tamworth.

Although the Privately-owned Jetgo is a Relatively Small Operator Both in the Fly-in/fly-out and Rpt Sectors Compared With the Likes of Qantaslink and Virgin Australia Regional, Bredereck Says There Are Markets Out There That Suit the Airline’s Fleet of 36-seat Embraer Regional Jets.

Moreover, Jetgo’s Rpt Network Helps the Airline Insulate Itself From the Peaks and Troughs of the Charter and Fly-in/fly-out Sector.

“there is Still Plenty of Opportunities for Other Players, You’ve Just Got to Be Able to Identify Them and Have Adequate Capital to Exploit Them,” Bredereck Says.

“the Charter Business is Great When It is Going Well, You Make Good Margins Out of It but You Do a Big Lump and Then You Do Nothing.

“it’s Fairly Volatile and It is Quite Risky. The Rpt You Make Much Smaller Margins but It is Consistent, It is More Predictable and You Have a Higher Degree of Control Over the Viability of Your Product.

“we Don’t Have a Particularly Large Footprint in the Fifo Market but in the Segments That We Do They Have Been Quite Depressed for the Past 12 Months.

“we See It Being Depressed for at Least Another 12 Months. ”

Regional Airports Under the Spotlight

Hansford, Who is Part of a Group That Operates Glen Innes Airport in Nsw, Says the Viability of Smaller Regional Airports is Also a Particular Concern.

“unless an Airport Has Got Substantial Rpt Activity, the Average Rural Airport Loses Between $150,000 and $250,000 a Year,” Hansford Says.

“all These Council-owned Airports, Unless It Has Got Substantial Rpt, Are Keeping an Airport Open Fundamentally for the Local Aero Club and a Few People Who Might Still Fly and the Aero Ambulance.

“as the Pressure, Particularly Financially, is Put on Local Councils, They Start to Ask if an Airport is a Primary Requirement of a Council Like the Local Swimming Pool or the Library and the Answer is No.

“i Can Cite Any Number of Airports Where the Only Real Users Are the Weekend Warriors – Leisure Flyers – and the Rest of the Community is Subsidising Their Hobby. ” a Report From Legal Firm Norton Rose Fullbright Backs Up Hansford’s Assessment.

Quoting Australian Airports Association Figures, the Norton Rose Fullbright Report Said an Estimated 50 Per Cent of Australia’s Regional Airports Owned by Local Councils Were Operating at a Loss.

Further, of the 2,000 or So Landing Sites for Aircraft in Australia, Only About 250 Airports Received Rpt Services.

Recent Events Have Highlighted the Interest From the Private Sector in Regional Airports.

In August, Port Hedland Council Approved Amp Capital and Infrastructure Capital Group to Run Port Hedland Airport for the Next 50 Years, With a Purchase Price of $165 Million and a Commitment to Outlay $40 Million on Upgrades Over the Next Half Decade.

And in September, the Whitsunday Regional Council Said It Was Seeking Expressions of Interest for a 49 Per Cent Stake in Its Airport.

Norton Rose Fullbright Partner Tom Young Cautioned in a September 23 Report the Path to Privatisation Would Not Necessarily Be a Straightforward One.

“the Reality is That While the Private Sector Has a Real Appetite to Acquire Airport Infrastructure at Present, There Are Only a Few Regional Airports Around the Country That Are Privatisation Ready,” Young Wrote.

“further, the Private Sector Needs to Be Aware of the Political Sensitivities Local Authorities Must Manage When Looking at the Privatisation of Their Assets.

“if the Benefits of the Privatisation of the 21 Commonwealth-owned Airports Under Long Term Leases to Private Entities Between 1997 and 2003 is Anything to Go by, Then Not Only Will Local Authorities and Their Communities Benefit, but So Too Will Our Nation’s Airport Infrastructure Network. ”there is Still Plenty of Opportunities for

Other Players, You’ve Just Got to Be Able to Identify Them.Paul Bredereck