Sustaining Regional Transport Services Aviation

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Sustaining Regional Transport Services - Aviation

• Brian CandlerChief Executive Officer
  Regional Aviation Association of Australia

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The Regional Aviation Sector

• Definitions are varied
• Statistics are a bit apples oranges
• Includes
• Country flying schools/charter businesses
• Resource Industry closed charters
• Country aviation workshops
• Aero-medical services

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Regional Airlines

• Employ 3,996 people
• Operate 299 aircraft
• Operate almost 50 of domestic departures
• Operate to 161 regional airports
• Carry 12 of domestic passengers
• Generate 855 million per year
• Are essential to regional and remote communities

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Domestic vs Regional Aviation

• BTRE overall domestic figures show a 14 increase
  from 2003 to 2004
• BTRE regional figures show a 11 increase from
  2003 to 2004
• But

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More Pax Fewer Services

• BTRE figures on regional airline aircraft pax and
  departures are
• 2000 5.88m pax 357.1k departures
• 2001 5.56m pax - 5.4 317.6k departures -11.1
• 2002 4.35m pax -21.8 256.9k departures -19.1
• 2003 4.16m pax - 4.4 238.7k departures -
  7.1
• 2004 4.63m pax 11.3 238.2k departures - 0.2
• 0ver the five years - 21.3 -33.3
• BTRE data on the fleet in which those pax were
  carried shows for the last decade show
• 68 fewer pax were carried in aircraft of 9 or
  less seats
• 39 fewer pax were carried in 10-21 seat aircraft
• 14 more pax were carried in 22-38 seat aircraft
• 158 more pax were carried in 39-50 seat aircraft

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This trend means?

• Possible conclusions, notwithstanding that the
  decline in pax numbers appears to have been
  arrested
• With increased pax numbers in fewer departures,
  smaller aircraft are being phased out to
  maintain viability
• This consolidation of traffic and reduction ports
  served means, smaller communities are less likely
  to retain existing services or replace lost
  services.

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for sustainable regional aviation

• Larger centres, often coastal, with bigger
  populations that can sustain more cost efficient
  (ie bigger aircraft) services will thrive
• Industry Rule of Thumb on a per seat basis,
  regional turbo-prop aircraft are 3 times more
  costly to operate than trunk route jet aircraft
• Smaller communities may well decline

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NIEIR Study (Oct 2004)

• Economic Development
• Economies of regional communities with regular
  passenger air services of any type grew 1.85
  times faster than those communities without such
  services

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NIEIR Study (Ctd)

• Population
• Regions with competitive air routes are growing
  1.4 times faster than regions without regular
  passenger air services
• Unemployment
• regional communities with competitive air
  services have services have witnessed a reduction
  in structural unemployment of 0.28, compared
  with those regions without air services whose
  rate increased by 0.33

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GENERAL AVIATION(Charter, Training Airwork)

• In 2004, constituted 66 of GA hours
• 700 operators
• 4700 employees
• 1.05 billion turnover
• plus
• 300 mainly GA maintenance organisations
• 2000 employees
• (BTRE Report 111, April 2005)

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GA General Trends1993 - 2003

• BTRE general aviation activity trends have
  been flat
• Commercial Hours flown up 3
• Non-Hire Reward Hours flown down 2
• But Sport Aircraft Hours flown up 20

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GA Overview 1993-2003

• RPT Hours by GA aircraft down 45.1
• Down from 152,000 in 1993 to 83,500 in 2003
• Average Age of GA fleet up from 21 years to 29
  years
• Despite a fairly high level of churning
• 30 of aircraft registered in 2003 were not in
  1993
• 120 exports per year
• In the decade, 600 aircraft came and went

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GA Sectors - Recreational

• Hours flown up 13 overall
• But
• Type-certified VH registered down 19
• Amateur-built VH registered up 116
• Sport aircraft up 52

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GA Sectors - Training

• Constitutes about 22 of all GA hours flown
• relatively level trend
• Fixed wing down 5, rotary wing up 12
• Most flight training centres consulted felt
  positive about the continuing demand for flight
  training particularly in the overseas student
  market.

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GA Sectors - Charter

• Again, about 22 of all GA hours flown
• Again, level trend overall, but appears to have
  peeked in 1999 and is slowly declining
• Increasing real costs
• Cheaper RPT airfares
• shift towards larger aircraft

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GA Sectors Airwork(not Air Ag or Mustering)

• Hours flown relatively static
• Shift to rotary, in 2003 27 of this sector
• Shift to turbine
• Eg, RFDS now all turbine
• Future Trends need to distinguish between
  recreational and business or community service
• Recreational and business affected by increased
  real costs
• SAR, ambulance, fire-fighting relatively price
  inelastic

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GA Sectors- Air Ag Mustering

• About 9 of GA hours flown
• Hours peeked in 1998, on steady decline
• Trend towards larger, higher payload aircraft
• But, total potential payload less in 2003 than in
  1993
• Future Demand
• subject to variations in the conditions of their
  respective agricultural industries
• Rice and cotton are 25 of all Air Ag effect of
  water pricing?

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AIRCRAFT MAINTENANCE

• There has been a steep decline in licensed
  maintenance workshops
• AMROBA says survey of its members indicates this
  trend will continue

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What Do The Trends Tell Us?

• Why the decline?
• Market forces Increasingly un-economic to
  provide services on thin routes
• Despite currently favourable
• Interest rates
• AUD-USD exchange rate
• Government Taxes and Charges
• Add 30-45 to most fares
• Add up to 60 to many discount fares

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Some Factors

• Industry Caused Negatives
• Past uneconomic fares
• Excessive discounting
• Confusing cash flow with profitability
• Leading to a very old fleet
• Less able to meet customer service expectations
• Less cost-efficient
• Compounded by
• impact on public expectations of LCCs, eg Virgin,
  Jetstar
• Impact of taxes and charges

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Some Factors

• Industry Caused Negatives
• Skills Shortages
• Engineers
• High start-up costs with no assistance
• Poor remuneration
• Poor working conditions
• Poor job satisfaction (lack of modern equipment)
• Pilots
• High start-up costs with no assistance
• Often unprofessional training
• Poor remuneration, sometimes outright
  exploitation
• Poaching
• Boom and bust cycle

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Some Factors

• Government Caused Negatives
• Excessive costs associated with
• CASA
• AirServices
• NAS
• Security
• Privatisation of Airports

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Question for Government

• Are regional Australians entitled to reasonable
  air services or not?

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RAAA Position

• This is a national infrastructure issue
• Government is responsible to ensure all
  Australians have reasonable access to certain
  services, including air services.
• The more remote the community, the more important
  air services become, but the less likely to
  remain due to costs.
• Government policy based on market forces and
  full cost recovery is incompatible with its
  responsibility to regional Australia

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RAAA Position

• This is a view shared by the Neville Report
  Making Ends Meet, released in December 2003 and
  still shelved
• The issues identified in Making Ends Meet
  cannot be neglected any longer. To put these
  issues on the backburner will guarantee that in
  four or five years time regional Australia, its
  airports and it air services will be facing an
  even greater crisis, if not a terminal one
• Paul Neville MP (Hansard 1 December 2003)

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Challenges

• To all
• Recognise that
• It is a changing market
• As remote communities shrink, their dependence on
  air services increases
• BUT
• Their ability to sustain them reduces
• Market-based policies are unsustainable

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Challenges

• To industry
• Become more professional
• Improve training of pilots, engineers, managers
• Adopt more business-like practices
• Pay appropriate rates
• Improve conditions
• Demand higher standards of the regulator
• Lobby more effectively

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Challenges

• To the Commonwealth Government
• Develop a coherent policy aimed at ensuring
  services to remote Australia continue
• Foster aviation
• Reduce excessive regulatory burden
• Stop unfairly taxing the industry
• Provide incentives to up-grade
• Regulate monopoly service providers

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Challenges

• To the State Governments
• Much of Regional Aviation is IntraState
• Regulated routes can prevent destructive
  competition, but
• As Queensland has shown, direct assistance may be
  necessary
• Not for the benefit of the aviation operators,
  but for the sustainability of the regional
  communities

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Challenges

• To Local Government (most especially those who
  are aerodrome operators)
• Aerodromes are part of the transport
  infrastructure
• More likely to be a cost centre, than a profit
  centre
• They are an essential key to economic and social
  well being locally and regionally
• Regional Airport Operators and Regional Aviation
  Operators are in the same boat
• We must work together to lobby State and
  Commonwealth Governments

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Will Regional Aviation be part of a sustainable
regional transport future?

• Empathetically YES
• But
• Services to remote communities will continue to
  decline without a fundamental change in
  government policy at all levels