I am delighted to publish this guest post from my former colleague Craig Wilson, who is now Managing Director of DeltaPearl Partners. Craig will be well known to many readers as a result of his former senior executive position in the Queensland Department of Premier and Cabinet. His guest post is based on recent work he has undertaken for Mount Isa City Council. The post contains Craig’s views, and they should not necessarily be attributed to me. I am sure Craig would very much welcome comments on this guest post. GT
Why is it so? Regional Queensland airfares 2-3 times higher than in the city
by Craig Wilson
Toward the end of 2017 the Australian Senate announced an inquiry into the operation, regulation and funding of air services into rural, regional and remote in Australia. Among other things the inquiry will consider air fare pricing, competition, regulation and service quality as well as the socio-economic impacts of these things on communities and the economy. The announcement of such an inquiry is not surprising – the issue of high air fares and poor service quality on flights in and out of regional centres has been a hot button issue for communities across the country for some time.
Let’s take Mount Isa, for example, whose City Council has prepared a detailed submission to the Senate inquiry investigating regional air services.
Mount Isa is a significant regional centre in northern Australia and lies at the heart of the North-West Minerals Province, the largest zone of mineralisation of its kind in the world. The Mount Isa economy generates around $2.4 billion annually in value-added output and $1 billion annually in tax revenues for the state and federal treasuries.
Despite this significant economic contribution, regional centres such as Mount Isa feel second class because of the price and quality of air services they receive and, as a consequence, communities and local governments are becoming increasingly vocal in their demands for a better deal. At a headline level, the analysis in the Mount Isa submission has found that, on a per kilometre basis, Mount Isa travellers are paying two to three times more in air fares than passengers flying out of Australia’s major metropolitan centres on comparable journeys (Table 1).
Mount Isa residents state that it is often cheaper to fly overseas than to fly to Brisbane. To compound the disparity, service standards are typically lower with older aircraft and fewer onboard services such as food and entertainment.
Excessively high air fare prices impede the growth of business, especially small business, and isolates residents and lessens their quality of life. Local residents argue that this is a bitter pill to swallow when they see high subsidies for public transport in south-east Queensland, and high subsidies going to under-utilised passenger rail services in regional Queensland. They do not understand why they are exposed to the high price of market failure and/or monopoly pricing, and they believe the second-round economic effects of this policy failure are adverse.
It is also difficult for young families to move to, and remain in, Mount Isa as it is so expensive to fly and to keep in contact with family and friends outside Mount Isa. For example, a family of four thinking about flying to Brisbane will save over $2,000 by driving 900 km to Townsville to catch a flight. In cases of unplanned travel such as a medical emergency, residents can expect to be hit with one-way fares of more than $1,000.
Since the aviation reforms of the 1990s, passenger numbers on most major Australian aviation routes have boomed off the back of lower airfares and greater choice of carriers (Figure 1).
Figure 1: Index of real airfares, 1992 to 2017
Source: BITRE, 2017, Domestic air fares indexes.
However, in preparing its submission, the Mount Isa City Council found that the benefits of these reforms have largely by-passed Mount Isa and other similar centres. The submission concludes that discounted air fares are rare and passenger numbers through the local airport have barely changed in 30 years (Figure 2).
Figure 2: Index of domestic passengers, 1985-86 to 2016-17
Source: BITRE 2017, Airport Traffic Data.
A range of factors contrive to generate these untenable high cost and low-quality air services in regional centres. These factors include lack of competition, exposure to monopoly-owned asset operations (i.e. regional airports), government policy restrictions, high taxes and charges, and lack of transparency on costs.
Analysis has shown that Queensland Government transport subsidies in south-east Queensland are not replicated for transport services for communities in regional Queensland. An examination of Queensland Government expenditure on public transport shows that it is concentrated in south-east Queensland, especially on the city rail network. The result is that the state government supports public transport to the extent of $568 per person per annum in the south east. This is almost two times (85%) more than the $308 per person the Queensland Government spends on public transport in the remainder of Queensland.
Meanwhile, federal government support is limited to modest subsidies for tiny rural airports servicing communities of less than 200 people. Known as the Remote Airstrip Upgrade Program, this subsidy provides funds to improve runway surfaces, storm water drainage and navigational aids. For example, in 2015 $11.8 million was provided for upgrades at 52 aerodromes and a further $11.6 million was committed for 2017.
It is defensible to say that the Mount Isa City Council submission reflects a commonality of issues facing other comparable regional centres. The Mount Isa City Council has, consequently, developed a set of hard-hitting recommendations, arguing that a half-hearted response won’t suffice.