Virgin Australia says a bigger focus on promoting tourism to regional towns in Western Australia would put downwards pressure on airfares on intra-WA routes.
In a submission to the WA government’s inquiry into regional ticket prices, Virgin said demand on the bulk of its intra-WA services was mostly from the corporate and government travellers, particularly fly-in/fly-out workers on mining and resources projects.
And efforts to stimulate demand among leisure or non-business travellers had proved ineffective.
“We would highlight that most of the intrastate routes we serve in Western Australia do not deliver acceptable commercial returns to Virgin Australia at current pricing levels,” Virgin’s submission said.
“Without the demand from these corporate clients, it is highly probable that capacity and frequency on many intrastate routes would be lower, and it is also possible that airfares would be higher.
“Offering deeper discounts will be unlikely to boost demand and will simply reduce the total revenue we would otherwise earn on these services, reducing our ability to cover our costs of operation.”
Virgin and its regional subsidiary Virgin Australia Regional Airlines (VARA) serve nine WA destinations – Broome, Geraldton, Kalgoorlie, Karratha, Kununurra, Newman, Paraburdoo, Port Hedland and Newman – from Perth, as well as flights to Christmas and Cocos (Keeling) islands off the state’s north west coast. It also offers a once weekly return service between Port Hedland and Bali.
The airline said seat numbers on its intra-WA services had been cut by 24 per cent since 2014, amid the downturn in the mining and resources industry. Meanwhile, Virgin said average load factors on its regional WA network was below 60 per cent in 2016/17 and passenger numbers had fallen for the past two financial years.
“On the routes we serve, we generally seek to set airfares at levels that allow us, at a minimum, to recover our costs of operation. On regional routes with marginal levels of profitability, this can be difficult to achieve,” Virgin said.
Virgin noted Queensland had 21.2 million domestic visitors and 2.6 million international visitors in the 12 months to March 2017, compared with Western Australia which welcomed 9.5 million domestic and 950,000 international tourists in the same period.
It said more getting visitors to the state would help support intra-WA routes and it encouraged the state government to boost funding to Tourism Western Australia and explore directing a relatively higher proportion of marketing funds to promoting travel to regional WA.
“Increased demand for travel to Western Australia may also correspond with greater demand for travel on intrastate routes, potentially leading to an increased supply of services and the ability for airlines to realise greater cost efficiencies in these markets,” Virgin said.
“This may deliver lower airfares on such flights.”
Virgin said other impediments to offering lower airfares on regional routes included airport charges, which were “on average around double those levied by the regional ports” in New South Wales and Victoria on a cost per-passenger basis.
“Regional airport operators should critically examine whether current levels of airport charges are in fact meeting the expectations of communities,” Virgin said.
“Communities that are concerned about prices of air services may wish to see airport operators bring down the cost of airport charges in order to provide scope for airlines to offer lower airfares on regional routes.”
Qantas too in its submission to the WA Parliament’s Economics and Industry Standing Committee noted the high charges it faced at the eight regional airports it had regular public transport services to – Broome, Geraldton, Kalgoorlie, Karratha, Learmonth, Newman, Paraburdoo and Port Hedland.
“Based on a per passenger charge calculation, these airports are all in the top 15 most expensive airports in the Group’s domestic network, making Western Australia’s regional network the most expensive in Australia,” the Qantas submission said.
Qantas recommended “additional non-regulatory oversight on Western Australia’s regional airports to ensure local councils and privately-owned airport operators are pricing airports rationally”.
“By doing this, airports are discouraged from charging exorbitant airport charges in isolation and encouraged to operate airports more efficiently when considering the flow on impact of their unilateral decisions,“ it said.
The committee is expected to hand down its report in November.
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