Airfares and Flights Routes in Regional Australia: Case of Central

Airfares and Flights Routes in Regional Australia:

Case of Central Australia

Dr Benxiang Zeng

The Northern Institute

Charles Darwin University, Alice Springs

May 2018


Contents 
 Acknowledgement ...................................................................................................... 3 
 Introduction ................................................................................................................ 3 
 Regional airfares have been and are higher absolutely and relatively ......................... 4 
1.  Airfares trends ....................................................................................................... 4 
2.  Northern Regional Australia suffers expensive airfares ......................................... 6 
3.  Airfares for central Australia are even higher ........................................................ 9 
 Social & economic impacts of high airfares ............................................................... 13 
1.  Stakeholders’ perceptions ................................................................................... 13 
2.  Impacts on local businesses ................................................................................. 14 
3.  Impacts on tourism .............................................................................................. 17 
 Determinant factors of airfares ................................................................................. 19 
1.  Ticket price drivers .............................................................................................. 19 
2.  Airline cost structure ........................................................................................... 20 
3.  Airport charges .................................................................................................... 22 
4.  Scale of passengers and airfares .......................................................................... 26 
 Discussion ................................................................................................................. 27 
1.  Current situation and challenges ......................................................................... 27 
2.  Possible solutions: collaborative efforts of key stakeholders ............................... 28 
3.  Better access: from demand side......................................................................... 29 
3.1.  Government subsidies ................................................................................... 30 
3.2.  Coexistence of airports and airlines ............................................................... 30 
3.3.  Pro-regional policies are needed ................................................................... 31 
4.  Competition: from supply side............................................................................. 32 
4.1.  Competition .................................................................................................. 32 
4.2.  Cabotage ....................................................................................................... 32 
 References ................................................................................................................ 33 
 

1. Acknowledgement

This research is jointly funded by Tourism Central Australia and Alice Springs Town Council. A special

thankyou goes to Mr. Stephen Schwer, CEO of Tourism Central Australia for his support in scoping the

study and providing information.

2. Introduction

Air services are critical for the Northern Territory’s economic and social wellbeing and growth, and

underpin the Territory’s ability to close the gap on Aboriginal disadvantage, develop our regions, and drive

the development of the north.

The factors which impact on the supply, sustainability and cost of air services in the Territory include a

small population (approximately 244,000 people dispersed over a vast geographic area of 1.3 million

square kilometres), long travel distances, climatic extremes, remoteness and isolation. The Northern

Territory’s relatively low resident population is routinely cited by airlines as a key factor in the lack of

competition on air routes to and within the Territory, which in turn contributes to higher prices for

consumers (Northern Territory Government, 2018).

Alice Springs, located at the geographic centre of Australia, it is the centre of economic, social, cultural

and recreational needs of Central Australia. The nearest major cities are Adelaide and Darwin, with each

being approximately 1,500 km to the south and north respectively. Furthermore, other capital cities are

more than 2,300 km away. This geographic remoteness and isolation absolutely enhances its

dependence on air transport compared to any other regional centres.

According to 2016 Census, Alice Springs has a population of 24,753

(http://www.censusdata.abs.gov.au/census_services/getproduct/census/2016/quickstat/LGA70200)

with another 18,000 people living within a 500km radius of Alice Springs. Alice Springs is a service town

with a very transient and disadvantaged Indigenous hinterland. Even though Alice Springs LGA itself

scores high on SEIFA’s measure of Relative Socio-Economic Disadvantage, this does not take into

account the fact that Alice Springs is a service town with a very transient and disadvantaged Indigenous

hinterland. For example, the Relative Socio-Economic Disadvantage scores for MacDonnell and Central

Desert Regional Council LGAs are 592 and 558 respectively, placing both in the most disadvantaged

decile

(http://www.abs.gov.au/ausstats/subscriber.nsf/log?openagent&2033055001%20-%20lga%20indexes.xl

s&2033.0.55.001&Data%20Cubes&5604C75C214CD3D0CA25825D000F91AE&0&2016&27.03.2018&Lat

est). The high cost of airfares compounds the disadvantage that the people of Alice Springs, and the

wider Central Australia region, experience. It also amplifies the negative impact of high cost of living in

the region which including high cost for transportation especially the high airfares. High airfares have

been blamed as a negative factor which discourages the recruitment and retainment of workers for the

businesses in the region (Alice Springs Town Council, 2018).

This report provides information about the airfares and flight routes in regional destinations focusing on

central Australia to analyse the possible reasons of relatively high airfares and less connection with

capital cities, and to discuss the possible solutions. The report is based on desktop research. The main

information collected include submissions from different stakeholders to the Senate Inquiry in late 2017

to early 2018; the literature studying the airline price models and airport cost structure; the published

materials about the impact of airlines on regional economic development including tourism

development; reports published by airports; and published airfares by major airlines operating regional

air-services in Australia. With the limitation in research time and resource availability, this report mainly

focuses on comparison of airfares in regional destinations, particularly in Alice Springs and central

Australia, the roles and impacts of airlines on regional Australia, possible reasons for high airfares and

discussion about the solutions. It is not a comprehensive study or a policy recommendation by any

means but provides a basis for further research into the co-existence of airlines and regional airports,

delivery of continuous quality services and contribution to social economic development in regional

Australia.

3. Regional airfares have been and are higher absolutely and relatively

3.1. Airfares trends

Analysing the long-term trend of airfares across Australia, it is suggested that although the real full

economy airfares have been slightly increasing (Figure 1), the real best discount airfares have been

decreasing (Figure 2), according to (BITRE, 2017a).

Data source: https://bitre.gov.au/statistics/aviation/files/air_fares_1804.xls

Figure 1: Real Full Economy (13 month moving average, Oct 1992-Feb 2015)

Data source: https://bitre.gov.au/statistics/aviation/files/air_fares_1804.xls

Figure 2: Real best discount (13 Month Moving Average, Oct 1992-Apr 2018)

This trend has impacted the airfares pricing for regional routes. According to Qantas Airways (2018),

compared to the airfares in 2003, in real terms, on average for all routes including regional routes, as at

June 2017, Best Discount Economy fares were lower by 38.4%, Restricted Economy Class fares were

lower by 19.1% and Business Class were lower by 4.9% (Qantas Airways, 2018, p6). Qantas argued that

as “across all regional routes, the highest airfare buckets represent a minority of the retail fares sold-the

vast majority of retail fares are purchased in Entry Level classes” (p6, refer to Table 1).

Table 1: Percentage of Retail Fares Sold in Full Economy v Entry Level

Brisbane-

Mount Isa

Brisbane-

Rockhampton

Brisbane-

Moranbah

Alice Springs-

Darwin

Alice Springs-

Sydney

Full Economy

Entry Level

32%

27%

44%

51%

31%

Cited from (Qantas Airways, 2018, p6)

Although Qantas published these figures, for the public it is still difficult to know at which level (other

than entry level and full economy level) the rest more than half (only little less for Alice Springs-Darwin

route) of retail fares were sold. Moreover, this does not necessarily suggest that the overall regional

airfares have been reduced. While when availability has been exhausted the high short-notice fares are

understandable, it is the fact that there has always not been a very high load factor (Table 2) according

to the BITRE’s activity statistics (BITRE, 2017b).

Table 2: Load factors for some flight routes (2017)

Flight routes

Brisbane-

Mount Isa

Brisbane-

Rockhampton

Alice Springs-

Darwin

Alice Springs-

Sydney

Average LF%

67.2

82.3

56.2

Not available

3.2. Northern Regional Australia suffers expensive airfares

It can be asserted that regional destinations in northern Australia and outback have higher airfares and

less connection, compared to capital cities and regional areas in the south.

In the submission to Western Australia Parliament’s Inquiry into the Regional Airfares in Western

Australia in 2017, Broome Chamber of Commerce & Industry and Broome Airfare Action Group (2017)

referred randomly to airfares from and to Broome at a weekend (Friday 11 August, return Monday 14

August 2017) booking 3 weeks before departure. They found that airfare flying from Sydney to Hamilton

Island (with a population of 1,347) was $135, returning from $135. On the same day flying from Perth to

Broome (with a population of 17,000) (the same distance as Sydney-Hamilton Island) started at $352,

returning $495. The discrepancy being more than 300% (Broome Chamber of Commerce & Industry &

Broome Airfare Action Group, 2017).

Chamber of Commerce NT and Tourism Central Australia (2017) investigated the airfares between

Darwin and Alice Springs. The distance between Darwin and Alice Springs is 1310km, slightly less than

Brisbane to Cairns at 1380km. The difference in pricing and servicing is significant, with Brisbane to

Cairns offering 14 flights ranging in price from $85-192 (booked 1 week in advance), while Darwin to

Alice Springs offers 3 flights ranging from $321-340 (Chamber of Commerce NT & Tourism Central

Australia, 2017). Currently in Darwin we have price fluctuations that are inhibiting travel to our region.

For example, a general one-way fare from Darwin to a major capital city in Australia can be purchased

for approx. $350, this is very similar to a one-way fare to Singapore (similar travel time). However,

during the dry season (May to Sept), this rate can fluctuate by up to 300% (Tourism Top End, 2018).

Airfares to and from Mount Isa are between two to three times higher than east coast Australian routes

(Mount Isa City Council, 2018).Mount Isa City Council (2018) compared the airfares from and to Mount

Isa with similar airports and routes (with comparable distance, route passengers, airport passengers and

load factors). It suggested that airfares per flying km ($/km) for remote regional airports such as Mount

Isa (Qld), Alice Springs (NT), Karratha (WA) and Carnarvon (WA) are much higher than other regional

airports and routes (Table 3 and Table 4).

Table 3: Airfare comparison (long haul)*

*Cited from (Mount Isa City Council, 2018)

Table 4: Airfare comparison (medium haul)*

*Cited from (Mount Isa City Council, 2018)

These relatively higher airfares do not come with a premium service. For example, submissions to the

Senate Inquiry into Regional Air Services from NT Government and Mount Isa City Council (Mount Isa

City Council, 2018; Northern Territory Government, 2018) claim that they are increasingly being serviced

by ageing aircraft with poorer on-time and cancellation performance.

We collected the airfare data from the airlines’ official online booking systems on 27 April 2018. We

collected the 4 days return airfares of direct flights between the city pair departing in two weeks (i.e.

departing on 14 May and returning on 17 May 2018). We picked the available lowest fares at the entry

level (e.g. Red e-Deal for Qantas, Starter for Jetstar, and Gateway for Virgin) (Table 5).

Table 5: Airfares from Capitals to Capitals and some regions (NT, QLD and WA) (return fares for 14-17 May 2018)*

Airport

Airlines

Sydney

Adelaide

Brisbane

Perth

Melbourne

Tennant

Creek

Katherine

Alice

Springs

Ayers Rock

Broome

Mount

Isa

Kalgoorlie

Darwin

Qantas

737 (2

direct

flights)

853

650 (2

direct

flights)

937

746

673 (2

direct

flights)

967 (no

direct *via

AS)

Jetstar

471

368

452

Virgin

920

700

570

819

643

642

Air

North

678

(18/05

return)

774

(18/05

return)

714

(18 /05

return)

Perth

Qantas

681 (7

direct

flights)

580 (4

direct

flights)

690 (5

direct

flights)

598 (8 direct

flights)

834

908 (no

direct *)

611

495 (3

direct

flights)

Jetstar

472

494

452 (2 direct

flights)

Virgin

620 (4

direct

flights)

530 (2

direct

flights)

620 (4

direct

flights)

558 (4 direct

flights)

563 (3

direct

flights)

Brisbane

Qantas

288 (21

direct

flights)

436 (4

direct

flights)

360 (12

direct

flights)

803

(no

direct)

747 (no

direct *)

756 (2

direct

flights)

Jetstar

232 (6

direct

flights)

336

292 (3 direct

flights)

Virgin

258 (19

direct

flights)

370 (3

direct

flights)

318 (13

direct

flights)

784

* Fares were published on airlines’ official booking websites on 27 April 2018.

We found that:

1) the airfares between the capital cities to their intra-state/territory destinations are much

higher than the capital cities to other capital cities, although the flight distances are always

much longer than intra state/territory routes. This suggests that regional routes usually have

higher airfares.

2) for the same route, the fare of Jetstar is lowest, with Virgin fares in the middle and Qantas

fares highest. This suggests that cheaper fares could be achieved if airlines adopt different

management strategies or price setting models.

3) The more airlines and fights flying the same route, the cheaper the average fares are

available. This suggests that the competition is an important driver for cheaper airfares.

3.3. Airfares for central Australia are even higher

Due to the tyranny of distance, flying is often the only option for people living in Alice Springs and

central Australia to travel to other Australian cities. Whilst the high cost of airfares can be mitigated

by booking early or traveling in the offseason, this generally only applies to holiday travellers. People

who are forced to travel on short notice (for medical or legal reasons, to visit sick relatives, or to

attend important family events, including funerals) are forced to pay exorbitant prices, often in

excess of $1,000 for a single return trip (Alice Springs Town Council, 2018).

The data collected from BITRE suggests that Central Australia’s airfares are significantly higher

compared to many other regional destinations to their own capital cities (such as outback Western

Australia and Queensland) (Refer to Table 6). For example, a Qantas return airfare between Alice

Springs and Darwin is $673, while the fare for Broome and Perth is $611 (10% lower than ASP-DRW),

and Kalgoorlie to Perth is $495 (26% lower than ASP-DRW). Travelling from Alice Springs to other

regional airports in the NT (Tennant Creek and Katherine), although shorter distances, is even more

expensive ($678 and $774 respectively).

Table 6: Airfares from regional airports (NT, QLD and WA) (return fares for 14-17 May 2018)*

* Fares were published on airlines’ official booking websites on 27 April 2018.

Airport

Airlines

Sydney

Darwin

Adelaide

Brisbane

Perth

Melbourne

Tennant

Creek

Katherine

Alice

Springs

Qantas

768

673 (2 direct

flights)

489

803 (no direct)

834

710

Jetstar

Virgin

642

458

Air North

714 (18 May

return)

678 (18 May

return)

774 (18 May

return)

Ayers Rock

Jetstar

491

967 (no direct

via AS)

753 (no direct)

747 (no direct)

908 (no

direct)

556 (half

direct)

Virgin

574

Broome

Qantas

611

Jetstar

1038 (no direct,

via Perth)

Virgin

563 (3 direct

flights)

Air North

738

Mount Isa

Qantas

756 (2 direct

flights)

Virgin

784

Kalgoorlie

Qantas

495 (3 direct

flights)

Another significant fact is that in the same region, the airfares for Alice Springs and Ayers Rock are

quite different. The airfare information collected on 19 April 2018 from the Qantas website shows

that the airfares, for example, between Sydney and Uluru are significantly lower than that between

Sydney and Alice Springs (website airfares published for May 1-10, 2018) (Figure 3a, b and Figure 4a,

b, c, d).

Figure 3: Comparison of one-way airfares between Sydney and Alice Springs/Ayers Rock

We compared the Red e-Deal (or Starter for Jetstar) fares. Figure 3a shows clearly that the one-way

fare from Sydney to Alice Springs (10 days average is $417) is consistently higher (52% higher on

average) than to Ayers Rock (10 days average is $273). Although the difference in fares to Sydney is

narrow, the one-way airfare from Alice Springs to Sydney ($384 on average) is still 21% higher than

that from Ayers Rock ($317 on average) (Figure 3b).

Figure 4: Comparison of return airfares between Sydney and Alice Springs/Ayers Rock

200

400

600

Figure 3a: From Sydney Airfares-Red e-Deal

($)

SYD-ASP SYD-AYQ

200

400

600

Figure 3b: To Sydney Airfares-Red e-Deal ($)

ASP-SYD AYQ-SYD

200

400

600

800

1000

1-4

May

2-5

May

3-6

May

4-7

May

5-8

May

6-9

May

7-10

May

Figure 4a: Sydney departure return airfares-

Red e-Deal ($)

SYD-ASP SYD-AYQ

1060

1080

1100

1120

1140

1-4

May

2-5

May

3-6

May

4-7

May

5-8

May

6-9

May

7-10

May

Figure 4b: Sydney departutre return

airfares-Flex ($)

SYD-ASP SYD-AYQ

500

1000

1-4

May

2-5

May

3-6

May

4-7

May

5-8

May

6-9

May

7-10

May

Figure 4c: To Sydney return airfares-Red e-

Deal ($)

ASP-SYD AYQ-SYD

1060

1080

1100

1120

1140

1-4

May

2-5

May

3-6

May

4-7

May

5-8

May

6-9

May

7-10

May

Figure 4d: To Sydney return airfares-Flex ($)

ASP-SYD AYQ-SYD

When we compared return fares between the two routes, it is found that Red e-Deal offers $728-

$906 ($824 on average) for flying from Sydney to Alice Springs and then returning, meanwhile $492-

$692 ($590 on average) for flying to Ayers Rock and returning to Sydney (Figure 4a). The cost for

flying to and from Alice Springs is 40% higher than to and from Ayers Rock. When we looked at the

fares from central Australia to Sydney, we found the same story. The return fares from Ayers Rock

are $538-$692 ($612 on average) while those from Alice Springs are $728-$865 ($758 on average),

that represents 23.7% higher costs for people travelling from Alice Springs (Figure 4c). Interestingly,

when compared the Flex offers, although the fares for Alice Springs (both one-way and return) is

higher than for Ayers Rock, there is no variation (only on 3 May, the fare from Sydney to Ayers Rock

jumps by $50) and little difference (only 2-3%) (Figure 4b, d).

The return airfare we used here is 4 days return, e.g. depart on 14 May, and return on 17 May 2018

which were collected at Qantas website on 27 April. When booking one way or return from either

direction, there is no difference for the airfare for each leg. However, there might be slight

differences in return fares if departing from different airports. For example, for the route Alice

Springs-Sydney, the return fares departing Sydney or Alice Springs are $768; but for Ayers Rock-

Sydney route, the return fare departing Sydney is $471, while the fare departing Ayers Rock is $491.

We used the average return fares for each route to compare the differences (Table 7).

Table 7: Comparison of average return Airfares between Sydney and Darwin, Alice Springs and Uluru

Red e-Deal/Starter

Flex/Max

Flight

distance

(km)

Airfare

($)($/km)

% difference

(F-D)/D

Airfare ($)

% difference

(F-D)/D

Sydney-Ayers Rock (Jetstar)

(D)

481 (0.2205)

1086

(0.4979)

2181

Sydney-Darwin (QF) (F)

716.5

(0.2271)

49.0% (3.0%)

1267

(0.4016)

16.7% (-

19.4%)

3155

Sydney-Alice Springs (QF) (F)

768 (0.3798)

59.7% (72.2%)

1117

(0.5524)

2.9% (10.9%)

2022

Alice Springs-Darwin (QF) (F)

642 (0.4920)

33.5%

(123.1%)

1052

(0.8061)

-3.1%

(61.9%)

1305

Data sources: 14-17 May return ticket, checked on 27 April from Qantas website.

The published fares suggest that the return fare for Sydney-Ayers Rock is the lowest and that for

Sydney-Alice Springs is the highest which is even more expensive than flying the route Sydney-

Darwin (Figure 5).

Figure 5: Return fares comparison in $

481

1086

716.5

1267

768

1117

642

1052

500

1000

1500

Red e-Deal/Starter Flex/Max

Return fares comparison ($)

Sydney-Uluru (*) (Average) (D) Sydney-Darwin (Average) (F)

Sydney-Alice Springs (Average) (F) Alice Springs -Darwin (Average) (F)

If we compared the fare rate per km flying distance, the rate for Alice Springs is very high. The route

between Alice Springs and Darwin reveals the highest return fares, and Alice Springs-Sydney follows

as the second highest compared to Ayers Rock-Sydney and Darwin-Sydney (Figure 6).

Figure 6: Return fares comparison in $/km

We found that:

1) the airfares between Alice Springs and capital cities are much higher than other regional

routes, such as Broome and Kalgoorlie (refer to Table 5);

2) the airfares from and to Alice Springs are much higher than the airfares from and to Ayers

Rock (refer to Table 5 and Figure 5); and

3) Considering the flying distance, airfares for Alice Springs are extremely high, compared to

Ayers Rock and Darwin (refer to Table 7 and Figure 6).

4. Social & economic impacts of high airfares

As demonstrated, central Australia’s airfares are high. They are even much higher considering social

economic disadvantages in this region: lower average income per capita, lower (smaller scale of)

business revenue, and higher staff turnover with associated increased recruitment and training

expenses, and higher cost of living. The high fares negatively impact on people’s movement as well

as on social and economic development in the region.

4.1. Stakeholders’ perceptions

People have suffered financially from the high airfares. Many residents are seeking solutions. In

Mount Isa, a family of four will save over $2000 by driving 903 kilometres to Townsville and then

catching a flight to Brisbane, rather than catching a direct flight to Brisbane (Mount Isa City Council,

2018).

In Alice Springs, locals often drive for 5 hours to fly to capital cities from Ayers Rock, as it is much

cheaper than in Alice Springs (Alice Springs Town Council, 2018; Chamber of Commerce NT &

Tourism Central Australia, 2017).

The high cost of airfares is often a major reason for people to move away from Alice Springs. The ABS

ERP that shows that the population of Alice Springs has declined every year since 2011 (Australian

0.2205

0.4979

0.2271

0.4016

0.3798

0.5524

0.4920

0.8061

0.0000

0.2000

0.4000

0.6000

0.8000

1.0000

Red e-Deal/Starter Flex/Max

Return fares comparison ($/km)

Sydney-Uluru (*) (Average) (D) Sydney-Darwin (Average) (F)

Sydney-Alice Springs (Average) (F) Alice Springs -Darwin (Average) (F)

Bureau of Statistics, 3218.0 Regional Population Growth, Australia, “Table 7. Estimate Resident

Population, Local Government Areas, Northern Territory”) (Alice Springs Town Council, 2018).

The unfairly high airfares from Alice Springs has been a hot topic in local media, which increased

recently while the Senate Inquiry into the regional air-services visited town. We collected and

summarised some of these media responses in Table 8.

Table 8: Some media responses to high airfares

Date

Media

Title

Issues

Nov 28,

2017

P1 and P7)

Centralian

Advocate

Is this fare? About

Senate Inquiry to

investigate regional

airfares

1) Services warning in Yulara bargains; 2) High flight

prices anger in Alice; 3) Airlines rely on volume first,

to achieve profitability; 4) All of my peer group feel

pressured by flight prices

Feb 20,

2018 P12

Centralian

Advocate

What’s a fair fare for all?

Australia’s in need of a Ryanair-style shake-up

Mar 6,

2018, p3

Centralian

Advocate

Flight cost

questions

for Qantas

Alan Joyce speaks at the launch of the new

Dreamliner in Alice Springs on Friday.

April 6,

2018 p3

Centralian

Advocate

Low cost flight of fancy

Senate inquiry interested in Alice and Uluru price

disparity

April 6,

2018 p15

Centralian

Advocate

It’s time for airlines to

give travellers a fare go

1) Interviews with Alice Springs residents and visitors

2) Remote situations outlined

April 10,

2018 p9

Centralian

Advocate

Blow to backpacker

market

1) Blow to backpacker market

2) too expensive to fly to receive awards

3) Family paying price for costly education thanks to

soaring airfares

April 24,

2018 p15

Centralian

Advocate

Locals continue to fight

for fair fares to the Alice

1) Will Low Cost Carriers come back?

2) Competition between Alice Springs and Ayers Rock

4.2. Impacts on local businesses

Not only do people in Alice Springs have to pay a higher price for flights, it also negatively impacts

local businesses, resulting in low wage growth and a lack of employment opportunities. Local

businesses need people to spend money, however, the reality is that there are fewer residents in

Alice Springs than in 2011, and the combination of high cost of living and high cost of airfares forces

people to hold on to their money in case of an emergency (Alice Springs Town Council, 2018). As a

result, the issue of staff attraction and retention are important for Alice Springs, especially since Alice

Springs is also a very transient town. Consequently, it is important to make the town an attractive

place to live; this includes the ability to travel elsewhere in Australia for a fair price (Alice Springs

Town Council, 2018).

The cost of doing business in the Northern Territory including central Australia is significantly higher

than other parts of Australia, due in no small part to the high cost of travelling long distances.

According to a survey conducted jointly by Tourism Central Australia and the Chamber of Commerce

Northern Territory in early 2018 (Chamber of Commerce NT & Tourism Central Australia, 2017),

51.39% of total surveyed businesses (53.4% from Central Australia, 39.7% from Top End) had an

annual domestic air travel budget over $10,000, which is significant considering most of businesses in

the region are small businesses with limited total budget. 45.32% of respondents confirmed that the

average price they paid for a one-way intrastate fare was more than $400, with a further 44.6%

confirming the average cost was $300-$400. Only 10.07% of respondents paid less than $300 (Figure

7).

Figure 7: Average one-way fare paid by businesses travelling interstate

In the survey, there was not a single respondent happy with the cost and provision of air services. In

their comments, they mentioned many issues associated with the air services, including

compromised business promotion and reduced business productivity, flight cancellation affecting

business operation, lost business and difficulties in staff recruitment. Some comments are aware of

the importance of collaboration in finding a solution (Table 9).

Table 9: Comments about the airfares for central Australia*

Key issues commented

Quotes of comments

Compromised business

promotion and cut

business productivity

My business is restricted form travelling too much due to the high cost of

flights to and from Alice Springs. I would like to travel more to attend trade

shows and training, but have to heavily restrict due to high cost of flights. Tis

has a direct impact on my business by not being able to promote at major

trade shows and limits the staff training we can undertake.

My staff and I would fly more often however we chose to drive now due to

costs. It cuts our productivity as we are on the road so much more. We have

flown less and less in the past 5 years and will continue to drive more than fly

while the costs are so high. It is putting too much strain on small business

with the prices we have to pay. I have also had some family not visit for over

6 years as they can't afford to fly in. Family stay in Alice Springs less time as

they have to allow for drive time. I am looking at moving my business to be

based in Adelaide so I can see family more often due to high air fares. It has

also stopped me flying to weddings, birthdays, births, concerts etc as I just

can't afford it.

The increase in airfare cost has meant our business can travel less often and

network less effectively with our customers interstate. This has a huge

negative impact on our business

We could do more business and provide a better service to regional and

remote areas if airfares were reasonable. We can’t service our customers

with the current prices

The greatest cost to the business and the economy is not the cost of flights

for the company -rather it is the isolation and disconnection to the rest of

Australia which has a major impact on keeping people in Alice Springs long

term. This has a negative impact on tourism, private investment and the

sustainability of various social elements. A long term, sustainable population

is paramount to Alice Springs, however, expensive flights makes this difficult.

Cancellation affect business

operation

Airlines are continually reducing flights to and from Alice Springs and Qantas

has cancelled many of the afternoon flights into and out of Alice Springs to

2.88%

7.19%

44.60%

45.32%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

Less than $300 About $300 $300-$400 More than $400

Figure 7: Average you paid (n=139)

lack of numbers, usually just hours before flight is to depart. Difficult in

organising meetings when flights are so unpredictable.

We travel extensively and have seen several flights cancelled in recent

months with no

explanation. We are concerned this will continue to happen when flights are

not full. The cancelled flights then were redirected to another city and took

more than 24 hours to return. This makes it unworkable when setting client

meetings. Air North is also is an alternative, but is often cancelled or delayed.

We are concerned that not only are flights expensive, but they will become

unreliable as well which makes doing business challenging. It also impacts on

liveability for staff who are trying to see family etc. on short trips.

Flights get changed without warning and then you miss your connection flight

as this carrier does not service this area and they do not seem to care that

you are out of pocket or incontinence. This is more than an isolated case. We

would fly more if the price was lower but now we drive more.

Lost business

We have lost significant business in the tourism and corporate events

industries due to excessively high flight costs in and out of Alice Springs. It has

affected our business greatly in the

first 6 months of operation. We have the capacity to seat 500 people at a

corporate function and require response from the airlines and the

government as to why flights are prohibitive and detrimental to Tourism in

the region.

We forego many business opportunities due to the prohibitive cost of flights

from Alice Springs within the territory and nationally.

Flights into and out of the Territory are having a detrimental effect on the

Business Events Industry. We are constantly hearing feedback from

organisers that flight and accommodation costs are some contributing factors

as to why the Territory is not selected for a business event.

Staff recruitment and

retention

The prices to Alice Springs are ridiculous. They are killing our business. Staff

retention is almost impossible as people can't go on leave without paying

around $800-1200 per person return to Sydney or Melbourne. Over

Christmas it was as much as $2000 per person return to Melbourne.

Travel budget depletes very quickly - restrictions on staff due to high travel

cost – training opportunities getting missed

The cost of airfares from and to Alice Springs has a negative effect when

trying to recruit staff from interstate. During tourist season the cost of

interstate fares rises considerably. Business travel is often at short notice, so

we are unable to take advantage of any discount fares, as they are usually

unavailable. When compared to the prices of flights available interstate,

Central Australia continues to be price gouged.

We hire temporary staff from all over Australia and getting temp staff is not

affordable for our business. Further, potential employees are turned off from

moving to Alice Springs to take up positions due to the isolation in particular

expensive airfares. To travel from Uluru is half the cost which is 450km from

Alice Springs. If they can have affordable flights I cannot see why we in Alice

cannot have the same.

Whilst one flight per day to Capital Cities and 2 flights per day with in NT is

acceptable and usable for both business and pleasure travellers, the cost is

far too expensive to allow businesses to work effectively and for families to

travel. It is very hard to encourage families to move to Central Australia

where there is a lot of work on offer when they can't get home to see their

families on holidays. Airlines complain that they need "bums on seat" in order

to run an effective business, however you would have more bums on seats if

the airfares were lower!

Need to find out why and

work together to find a

solution

The cost of flights is prohibitive for business in terms of expenditure and sales

with visitors turning away from the region due to the cost. A negative media

campaign against the airlines is not going to achieve the desired outcome and

we have to find a way to work with them cooperatively. Find out from them

what we need to do to achieve a better deal that will enable our economy to

grow.

40 years ago we had regular daily interstate flights connecting Alice Springs,

Tennant Creek, Katherine and Darwin with Ansett and TAA, we also had a

great number of overseas flights including Cathay Pacific, Garuda, Royal

Brunei, Qantas, Malaysian Airlines, it seems we have and are continuing to

slide backwards and this with an increase in population and tourism so from

the outside, it is hard to fathom why.

More importantly, when will the government bring some of these freight

companies in to line whereby they charge a surcharge for air freight and

airbags into the NT. Atom is charged $15-$20 for airbags by some companies,

which is the national charge. Many others add a surcharge which will end up

costing between $40-$60 for a bag, which is daylight robbery and has been

going on for years. The subject has been broached with NT politicians as well

as visiting Federal politicians, who are always going to look into it, but to no

avail.

What about there being an agreement for a minimum number of flights

either a week or a month that must be met in order to keep being able to fly

to a certain destination, and or what about a certain number of seats with a

capped price (market equivalent of similar distance within Australia but has

competition so prices are fairer) per week or month to from ie a 1 hour flight

from Sydney to Melbourne is easily found for less than $150, imagine a 1

hour flight from Darwin or Alice, to anywhere for similar cost.

We are finding the cost of service personnel from interstate a large and

inhibitive cost. There are skills not available in Alice Springs that we need to

bring in and it is a huge cost. In addition it makes attendance at conferences

and other events expensive. One of the reasons prices in Alice need to be

higher than the rest of Australia. Taking this a step further, it restricts our

choice when hiring staff...people from interstate think twice when they see

the cost of returning home if working in Alice. It also restricts our access to

investment as new owners see the cost of monitoring an investment in Alice

which inevitably requires some face time.

*Data source: (Chamber of Commerce NT & Tourism Central Australia, 2017)

4.3. Impacts on tourism

Airfare pricing is a consideration for consumers when confirming their travel plans (Tourism Research

Australia (TRA), 2012). Cost is a key deterrent amongst domestic travellers. Expensive airfares are an

important reason for not intending to travel to the NT. Tourists often complain about high airfares:

“The flight prices are bit too expensive”; “Price, it is so far away and so expensive to get there.

Apparently, the airlines believe they need to overcharge their customers. I can fly to New Zealand for

less than $300” (Tourism Top End, 2018).

It is also similar for international tourists travelling around Australia. In general, international tourists

are price sensitive when they travel overseas and plan their intra-country trips. Transport was the

most expected service at both regional and major airports, and included provision of taxis, public

transport links and shuttle buses (TRA, 2016). China is an important international tourist source

market for Australia and also for the Northern Territory. According to Pham, Nghiem and Dwyer

(2017), Chinese visitors are very price sensitive and have a high income elasticity. Chinese visitors are

very responsive to price signals. Hence, it is important to keep prices in Australia at a reasonable

level, as the impacts of higher prices and price variation will be detrimental to the level of inbound

demand from China, as well as their dispersal to regional regions. Another increasing market is India.

A recent survey on Indian tourists in NT (TRA & Tourism NT, 2018) suggests that Indian travellers are

very price sensitive and value conscious. Moderating the costs of travel to/from and within the NT

would help to encourage visitation. Cost reductions in flights and accommodation would be

particularly well received as this allows more discretional spend on activities. Airline schemes and

partnerships were felt to be necessary to provide more cost-effective airfares and limit the cost of

travelling to the NT. Among the types of promotions that had the largest impact on potential

considerers of the NT, “discounted airfares direct from India to the NT (57%)” and “discounted

airfares from a major Australian city to the NT (52%)” are top listed (TRA & Tourism NT, 2018).

As local providers of information and sales for visitors, tourism organisations in the NT, including

Tourism Top End and Tourism Central Australia, often prepare itineraries for families, only to be

notified that the flights are too expensive, and we will “go to the Gold Coast instead”. Similarly,

research conducted by the Darwin Convention Centre explains the price of airfares across 2016/17

was the reason explained for 2,450 lost delegates. That equates to more than 12,000 lost room

nights and estimated $10 million in delegate spend lost for Darwin (Tourism Top End, 2018).

The high cost of airfares compounds the disadvantage that the people of Alice Springs, and the wider

Central Australia region, experience. Tourism is an important economic driver for Alice Springs, but

due to its remote location, it is dependent on the cost of airfares. Both overseas and domestic

tourists look at the cost of airfares to determine if they can afford to include Alice Springs in their

travel itinerary. As a result, the higher the cost of airfares, the lower the number of tourists that visit

Alice Springs (Alice Springs Town Council, 2018).

The higher fares between Darwin and NT regional airports such as Alice Springs, Ayers Rock, Tenant

Creek and Katherine, compared with airfares between Darwin and capital cities, will be likely to

significantly compromise the dispersal of international tourists from Darwin through the recently

announced direct flights from China. It is more likely, given their price sensitivity, to fly directly from

Darwin to other capital cities. This also will prevent domestic tourists in Darwin from visiting more

regional locations in the NT. Moreover, the higher fares between Alice Springs and Darwin,

compared to the fares between Alice Springs and other capital cities, will discourage residents in the

NT to have holidays within the NT. They will rather fly interstate even overseas instead. This will

negatively impact on intra-territory visitation.

The negative social and economic impacts of high airfares have been experienced in other regions;

especially in the North and Outback. For example, high airfares act as a significant brake on business

in Mount Isa and limit the ability of the local economy to expand and diversify. Similar to Alice

Springs in remoteness, residents and tourists rely heavily on air travel. There is a strong willingness

within the community to drive tourism growth and develop packages to encourage visitors to stay

longer and experience more of the outback. Due to the high cost of air travel, and the low availability

of discount airfares and frequency of flights, the holiday and tour packages have to be costly and,

therefore, are difficult to promote (Mount Isa Tourism Association Inc (MITA), 2018). This loss in

tourism opportunities has a negative impact on its economic development, and its growth as a major

tourism destination.

Being a traditional tourist destination, Broome’s tourism has been decreasing in recent years while

increasing in WA as a whole, according to Flowers’ (2017) Remote Airfares Broome Case Study

(Figure 8). This is, to some extent, associated with high airfares and less connection between Broome

and capital cities and large centres.

Cited from (Flowers, 2017): Remote Airfares Broome Case Study

Figure 8: Decreased tourist visitation to Broome

5. Determinant factors of airfares

5.1. Ticket price drivers

There are numerous studies exploring the underlying factors that impact on air ticket prices. In

broad terms, the existence of sufficient demand, an airline’s ability to recoup its costs and

competitor dynamics will determine the commercial viability of air services on any route, and these

are also the key factors which underpin airfare pricing (Virgin Australia, 2018).

A study in the US found that there are three key factors impacting the price. They are Density,

Distance and Competition, which explain 52%, 16% and 7% of the variation in average ticket prices

(Surry, 2014). It is found that the biggest individual factor is the “density of demand” in the origin

state. Large states with smaller populations, or states with lower median average incomes, are more

expensive to serve, since lower demand makes it harder to fill airplanes and a dispersed population

makes it harder to service airports. Regarding the impact of distance flown in and out of

destinations, Surry’s study estimated that each additional mile flown adds about 6 cents per mile to

the cost of round-trip tickets. The level of competition is another important price driver. States with

lower median household incomes also tend to be less well serviced by the airlines, with less

competition meaning fewer airline choices and a higher average number of stops between origin and

destination (Surry, 2014).

Gillen and Hazledine (2015) (David Gillen & Hazledine, 2015) studied all flights (about 3000) on all

regional routes (about 250) with scheduled airline services from one of about 130 regional towns or

cities, in regional airline markets in six countries: Australia, Canada, New Zealand, Norway, Sweden,

and a sample of three U.S. states. They suggested that the determinants of service and pricing on

regional routes align with the standard model of the extent of service between city pairs. The study

also shows strong effects of competition on prices and quite substantial intertemporal price

discrimination (i.e. consumers are separated into different groups with different demand elasticities

by charging different price at different points in time) (David Gillen & Hazledine, 2015). A later study

they conducted focusing on Eastern Australia and New Zealand regional routes (David Gillen &

Hazledine, 2016) supported their previous findings and also suggested that Airfares are more

expensive in regional Australia than New Zealand.

Cameron (2013) examined the economy class airfares published online, totalling some 1,780,832

price points. He grouped the airfares by distance and selected the 20th percentile fare for each

distance (where 20% of fares are less, and 80% are more), to produce a graph showing a clear linear

relationship between distance traveled and airfares (Figure 9). The study then established a simple

equation to model this relationship: Fare = US$50 + (Distance * $0.11). The formula suggests that on

average, a fare costs $50 before any flight distance is taken into account, plus an average of 11 cents

per mile travelled. The research further analyzed the average cost per mile for fares grouped by

airline, using the same methodology. The average costs for Qantas Airways, Virgin Australia and

Jetstar Airways are US$12.9, US$11.2 and US$10.3 respectively (Cameron, 2013).

Figure 9: Linear relation between flight distance and airfare (Cameron, 2013)

However, Cameron also recognized that there are many factors which can influence the costs

including type of aircraft flown, routes flown, local salary and fuel costs, ancillary revenue, and

airport landing fees (Cameron, 2013).

5.2. Airline cost structure

Generally, the overall cost determines available air ticket price. The overall cost will be affected by

many factors. It is critical to explore airline cost structures to understand airfare pricing.

Airline cost structures vary depending on a wide range of factors – their business model, markets

serviced and so on – and are not generally made publicly available by individual airlines. Moreover,

they will vary over time, especially as a result of movements in interest and exchange rates and fuel

prices. The following graphic (Figure 10) provided by the International Air Transport Association

(IATA) –the international airline industry association, gives the broad picture (Australian Airports

Association (AAA), 2018).

Figure 10: Airline cost structure-1 (Australian Airports Association (AAA), 2018, p32)

In this structure, fuel and oil contributes to one third of total cost, airport charge and passenger

service contributes to less than 10% of the total cost.

Another airline cost structure provided here is cited from (Mount Isa City Council, 2018). Fuel and

salaries are the largest components of airline costs (29% and 20% respectively), and followed by

Ownership (16%) and then Fees & taxes (14%) (Figure 11) and are therefore the most obvious

targets (Mount Isa City Council, 2018).

Figure 11: Airline cost structure-2 (cited from (Mount Isa City Council, 2018))

According to The International Civil Aviation Organization (ICAO, 2017), in the US, aircraft serving

(7%) and traffic servicing cost (11%) (associated with airport use) take around 18% of the total

operating cost for major airlines (Table 10).

Table 10: Total Airline Operating Cost Breakdown in the US

Functional Cost Categories

Aircraft operating costs –

Expenses associated with flying aircraft, also referred to as

“Direct Operating Costs” (DOC)

Aircraft servicing costs –

Handling aircraft on the ground, includes landing fees

Traffic service costs –

Processing passengers, baggage and cargo at airports

Passenger service costs –

Meals, flight attendants, in-flight services

Reservation and Sales costs –

Airline reservations and ticket offices, travel agency

commissions

Other costs, including: –

Advertising and publicity expense – General and administrative

expense

Total Airline Operating Cost Breakdown (US Major airline total operating costs):

– 44% is aircraft operating expense,

which includes fuel, direct maintenance, depreciation, and crew

– 29% is servicing expense

• Aircraft servicing (7%)

• Traffic servicing (11%)

• Passenger service (11%)

– 14% is reservations and sales expense

This figure was 19.5% in 1993, but declined steadily throughout

the 1990s

– 13% is overhead expense

• Advertising and Publicity (2%)

• General and Administrative (6%)

5.3. Airport charges

Although it is suggested in the literature of airline cost structures previously presented (Figure 10, 11

and Table 10) that airport charges take small proportions (from 10-18%), they seem to be an

important concern for Australian airlines flying regional routes (Qantas Airways, 2018; Virgin

Australia, 2018).

According to Australian Airports Association (AAA) (2018), most reginal airports in Australia have a

similar pricing structure that consists of:

• A landing charge levied on the maximum take-off weight (MTOW) of the aircraft, for use of

the airfield;

• A passenger services/facilitation charge levied on a per-passenger basis, for use of the

terminal; and

• One or more security charges, usually levied on a per departing passenger basis, to recover

the costs incurred by the airport in screening passengers and their bags, and perhaps other

matters, in accordance with the relevant aviation security standards.

Generally, the share of airport charges out of airfares varies considerably depending on the charges

themselves, the length of the route, the level of competition on the route and the business model of

the airlines involved. Any estimation based on general cost structure is only a reference to any

specific route. Research currently being conducted for the Australian Airports Association (AAA)

estimates that on average across Australia, airport charges account for less than 10 per cent of fares

(Australian Airports Association (AAA), 2018).

There is difference between regional airports in their airport charges. Despite difficulties, this report

compiles a list of airport charges for a small sample of airports based on limited available information

(Table 11).

Table 11: Aeronautical and terminal charges for regular public transport airlines, by airport

Mount Isa (1)

Townsville (1)

Cairns (1)

Mackay (1)

Broome (2)

Kalgoorlie (3)

Alice

Springs (4)

Tennant

Creek (4)

Darwin (4)

Aeronautical services (per

Pax)

16.89

7.36

13.85

20.37

Total charges for a

complete aircraft

turnaround were

$9143.83 with the

landing fee,

terminal services

levy of $3405.60

for 132 passengers

and the same for

departing flights

9.13

18.00

8.86

Common user terminal

charge (per pax)/ Passenger

facilities charges

11.15

5.85

10.50

9.59

10.34

Aeronautical services

($/tonne MTOW)/landing

charge

10.30

23.65

25.58

27.19

25.58

Security charge (per

departing pax)

2.60

4.31

13.24

9.49

11.03

Checked bag screening (per

pax)

2.90

2.02

Common user check-in (per

departing pax)

0.23

Passenger screening charge

(per pax)

2.90

2.15

9.95

Estimated total fees

charged for per pax

34.5 (With a full

plane of 132

passengers, Virgin)

Data sources: (1) cited from (Mount Isa City Council, 2018); (2) Broome International Airport Aerodrome Charges (Broome International Airport, 2016); (3)Interview with the City of

Kalgoorlie-Boulder council chief executive John Walker (Meachim & Kalgoorlie Miner, 2017); (4) Northern Territory Airports-Conditions of Use 2016-17 (v1.3) (Northern Territory

Airports, 2017)

We understand the calculation of airport charges is difficult for each airport even for each route, as it

highly depends on types of aircrafts, load factors and other factors such as agreements between

airports and airlines. For example, only for landing fees alone, they vary significantly from one airport

to another, ranging from as high as $42.53 per tonne to as low as $7.75 per tonne, as show in Table

12 (Pilbara News & Zaunmayr, 2017).

Table 12: Landing fees by regional airports (cited from (Pilbara News & Zaunmayr, 2017))

The airport charges include more than just landing fees. The comprehensive overall airport charges

will affect the cost of airlines and further affect the airfares customers have to pay. Case studies

suggest that the airport charges are around 10% of airfares (Case 2 and Case 3). In some cases, the

percentage is even lower (e.g. in Case 1).

Case 1: Mackay Airport, QLD

(Australian Airports Association (AAA), 2018, p26).

Case 2: Kalgoorlie Airport, WA

City of Kalgoorlie-Boulder council chief executive John Walker said the total charges for a

complete aircraft turnaround were $9143.83 with the landing fee, terminal services levy

of $3405.60 for 132 passengers and the same for departing flights.

“We also have a screening charge of $9.95 per departing passenger, which doesn’t apply

to incoming flights and is actually a revenue-neutral charge — we only charge the airlines

what we are paying the contractor to screen passengers,” he said.

The cheapest flights with Virgin Australia yesterday (22 April 2017) from Kalgoorlie-

Boulder to Perth was $455 at 6.15pm.

With a full plane of 132 passengers, the Kalgoorlie Miner calculated $34.50 of passengers’

fare would go towards airport fees to land one-way, meaning Virgin Australia was

charging $420, which amounts to 70¢ a kilometre.

(Meachim & Kalgoorlie Miner, 2017)

Case study 3: Mount Isa Airport, QLD

Aeronautical charges at Mount Isa do appear high in comparison with these other

airports, being at least double those at Townsville. Moreover, for a flight taking off from

Mount Isa and landing at Cairns, the airport charges of $47.70 represent over 10 per cent

of the $435 airfare

(Mount Isa City Council, 2018).

According to Virgin Australia (2018), one of the most challenging issues they face is the

disproportionately high charges imposed by a number of regional airports. Qantas Airways also

claims that airport charges per passenger in Northern Australia are higher than in the South, and

these charges play a significant role in forming the airfares in regional Australia. For example, 13 of

the top 15 most expensive airports in Australia that Qantas flies to fall within QLD and WA; Airport

charges are $16 for airports in NSW, VIC, SA and TAS, and $25 for those in QLD, NT and WA (Qantas

Airways, 2018, p9). According to Qantas Airways (2018), one of unique supply factors for regional

destinations is ‘airports exercise monopolistic power over airport charges’ which has a direct impact

on the airfare. It claims indicates that particularly in regional QLD and WA.

Clearly, there are different perceptions regarding the airport charges between airports and airlines.

While airports claim they charge reasonable rates to recover their costs, airlines claim the high

airport charges are one of key factors responsible for high airfares, especially in the North. It is true

that regional airports apply higher airport charges per passenger compared with capital city airports.

However, it is unlikely that these charges play a significant role in airfares remaining costly.

Considering the figures published in the literature and assuming the possible significant movement in

charges in some regional airports, we might argue the proportion could be higher than AAA’s claim

(i.e. less than 10% of airfare). However, even if as high as 20-25 per cent, it would not necessarily

materially affect airfare prices and service volumes.

5.4. Scale of passengers and airfares

Five regional airports in northern Australia: Alice Springs, Ayers Rock, Broome, Kalgoorlie and Mount

Isa, have some similarities in terms of their annual revenue passenger numbers (refer to Figure 12),

remoteness and population (except Ayers Rock).

Data source: WebAirport_FY_1986-2017

Figure 12: Annual revenue passenger number by regional airport

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

Annual Revenue Passenger Numbers-Domestic Airlines (5

airports)

ALICE SPRINGS AYERS ROCK BROOME

KALGOORLIE MOUNT ISA

We compared the return airfares for some top regional flight routes in the region against their

revenue passenger numbers (Table 13).

Table 13: Qantas airfares for regional routes (published on 1 May 2018)*

REVENUE

TOTAL

REV

A/C

Return fares

Red e-Deal

(14-17 May) $

CITY-PAIR

PASSENGERS

TOTAL RPKs

AVAILABLE

SEATS

TOTAL ASKs

PAX

LF %

TRIPS

Broome -

Perth

313 383

521 412 840

420 767

699 253 659

74.6

3 673

712

Kalgoorlie -

Perth

241 869

130 125 522

415 434

223 503 492

58.2

3 436

495

Ayers Rock -

Sydney

191 479

417 615 699

245 654

535 771 374

77.9

1 391

531

Mount Isa -

Brisbane

125 273

197 054 429

186 481

293 334 613

67.2

1 835

756

Alice Springs

- Adelaide

124 466

163 797 256

181 752

239 185 632

68.5

1 201

489

Alice Springs

- Darwin

118 772

154 997 460

211 450

275 942 250

56.2

1 766

673

*Date sources: Domestic_aviation_December_2017annual; Qantas website: booking.qantas.com.au

It is hard to identify the relationship between airport passenger scale and airfares. From the Figure

13, there seems no correlation between return airfares and passenger scale.

Figure 13: Passenger scales and return airfares

6. Discussion

6.1. Current situation and challenges

Booking information suggests that regional airfares in the North especially in the NT and central

Australia are much higher than major domestic and even international routes. Even in the same area,

the airfares for Alice Springs are more expensive than those for Ayers Rock. All stakeholders including

airlines, airports and passengers hold perceptions that the airfares in regional destinations especially

in the northern Australia and outback Australia are high. However, because of the lack of deep

research, it is unclear what the specific reasons driving the consistent high airfares are. For the high

airfares and less routes offered to the largest centre in central Australia-Alice Springs, they seem not

313

242

191

125

124

119

712

495

531

756

489

673

100

200

300

400

500

600

700

800

Broome - Perth Kalgoorlie -

Perth

Ayers Rock -

Sydney

Mount Isa -

Brisbane

Alice Springs -

Adelaide

Alice Springs -

Darwin

Passengers ('000) $

to be simply explained by passenger scale, airport charges, flight distance and destination

population.

We do not have access to detailed knowledge of the various airline operating cost structures in

Australia to analyse the appropriateness of airfares. Although it is difficult to access detailed airport

charges and special arrangements between airlines and airports on specific routes, the information

we collected from airports suggests that airport charges have insignificant impact on the overall level

of airfares, as general airport charges are believed to be only approximately 10 percent of airfare

costs. Even if that proportion was 20-25 per cent, airport charges are still unlikely to affect the

airfares significantly. However, airlines insist that the airport charges are key driver for high airfares.

They claim that regional airfares are high because airports are gouging, which is rejected by airports,

as ‘regional airports simply lack the capacity to do this’ (Australian Airports Association (AAA), 2018).

Based on general understanding of airfare pricing and factors impacting on airline cost structure, the

Northern Territory faces a number of issues and challenges which impact on the supply,

sustainability and cost of air services: 1) long distances; 2) a small population; 3) high infrastructure,

regulation (safety and security) and service provision costs (Chamber of Commerce NT (CCNT), 2018;

Northern Territory Government, 2018); 4) social economic disadvantage; and 5) less competition.

These challenges increase the operating cost of airlines and airports and constrain economies of

scale and the commercial viability of both airlines and airports. Eventually these challenges transfer

into higher airfares and fewer flight routes, and subsequently damage social and economic

development.

6.2. Possible solutions: collaborative efforts of key stakeholders

Population increases in the long term are critical to solving this issue, but it is a very slow process.

Feasible short and medium-term solutions need to be developed collaboratively, from both supply

and demand sides. Whilst airlines must address their challenges in meeting local demands to keep

airfares low, stakeholders in regional destinations must also address challenges to develop lower

cost access to air-services.

Existing airlines servicing regional routes have the opportunity and capacity to contribute to

reduction of airfares. Airlines recognise that airfares in regional Australia may be higher than

between major population centres. They also claim that due to the confluence of supply and demand

challenges, these services are not significant profit centres for the group (Qantas Airways, 2018, p5).

This statement suggests that a reduction in airfares for these services might result in profit reduction

for the group, however this will not have significant impact on the overall profit level for the group.

We believe the major airlines are “corporate social responsible”, as they have been involved in some

ways to help local communities to increase local demand. For example, Qantas Airways has been

actively participating in tourism promotion at national level and local level (Qantas Airways, 2018).

We believe a responsible airline will work together with regional destinations to lower airfares

without compromising services.

Passengers will also have to contribute to the solution. It is likely a fact that Alice Springs residents

will probably always be required to pay more for their travel than people living in more densely

populated areas. Corporate and government travel might need to be accepted as the backbone of air

service delivery in Alice Springs (NT News, 2018). We must understand that cheap airfares are good

but unreasonably low fares are not sustainable. As estimated by Alice Springs Airport General

Manager David Batic, for long term economic viability for both airlines and passengers, the average

sustainable airfare should be “between $300 and $400 one way with airfares below $300 considered

as ‘cheap’” (NT News, 2018).

6.3. Better access: from demand side

As a destination with small population, and with a huge potential for tourism development, Alice

Springs and other regional destinations need to embrace the need for both inbound and outbound

travel to ensure sustainable air services for the long term. AIRBIZ’s (2012) framework (Figure 14)

outlines the key roles for different stakeholders including government, airport and industry in

developing and improving the access to fair air-services for regional destinations.

Figure 14: Role of key stakeholders in access development (AIRBIZ, 2012, p53)

The model originally focuses on developing access to new air-service, but it works well on improving

accessibility for exist airlines. Successful regional destinations, from an air-service perspective, always

enjoy the full support at all levels of local tourism, government, product and local businesses to build

an attractive airline business case. A long-term strategy and supporting investment is needed. State

and regional tourism organisations also need to embrace the need for both inbound and outbound

travel to ensure sustainable air services for the long term. This could mean drawing on reciprocal

relationships with other tourism organisations from source markets and building relationships with

relevant external parties. It is important to clearly identify all the passenger source markets possible,

who can influence travellers and develop partnerships to invest in marketing, awareness, reciprocal

support and business ties between the two destinations connected by an air service (AIRBIZ, 2012).

The core message of this framework is collaboration.

6.3.1. Government subsidies

Government can play important role in improving regional air services through the development and

implementation of pro-regional air service policies, such as government subsidies and incentives for

regional air services. According to ACIL ALLEN CONSULTING (2016), on average regional airports had

a 6% of funding gap in 2014 between their expenditure and service revenue. The funding gap for RPT

airports was 3.4%. Proportion of aeronautical revenue was 4.3% of total revenue for RPT airports

(ACIL ALLEN CONSULTING, 2016, p21). Government subsidies and incentives would help to fill such

funding gap and ensure airports provide better service to airlines to improve air services.

Government subsidies and incentives are important for regional air-services. Usually the profit

margin of airlines is low and for regional routes is even lower. According to IATA (IATA, 2016), airlines

in the Asia-Pacific region were expected to generate a net profit margin of 2.9%, which was US$4.44

on a per passenger basis. Airport charges (saying $30) account for around 10% of the total operating

costs, which do not significantly contribute to airfares. However, its variation will significantly affect

the profit margin of airlines. This is an important reason why airlines insist the airport charges are too

high. From this regard, if government subsidies and incentives can be partly transferred to airlines

through reduced airport charges, there would be a positive influence on the economic viability of a

route (although not significantly affect the airfares directly). That will eventually contribute to

sustainable air-services in the region. International experiences support this practice especially on

regional flight routes which are unprofitable. Malina, Albers and Kroll (2012) investigated the pricing

practices at 200 airports in the European Union (EU). The analysis shows that airport incentive

programmes are generally a common tool of airport pricing. This study also finds evidence of

bilateral agreements between airport operators or regional authorities, and airlines, to incentivise air

routes. In many cases, the average level of landing and take-off, parking and positioning, and

passenger charges is generally reduced by more than 10% due to incentive schemes offered at

airports (Malina et al., 2012). Governments provide various forms of financial support for sustaining

unprofitable regional airways, especially when such airways are essential to local livelihoods and

economies. However, inefficient provision of subsidies has been subject to worldwide criticism.

Minato and Morimoto’s (2017) case study in Japan examined the load factor guarantee, a

dynamically interdependent business model for airline-airport coexistence where an airline and an

airport agree on the load factor of a flight, after which either party compensates for any

discrepancies between the actual and agreed-upon load factor. The study suggests that successful

coexistence between an airline and an airport hinges on the integral management of annual

negotiations regarding the target load factor and the monthly demand adjustment of subsidies. In

addition, although a subsidy represents a temporary financial loss for an airport, it is an effective way

of maintaining long-term, airline–airport coexistence (Minato & Morimoto, 2017).

There are different government policies at different levels to subside the regional air-services in

Australia, including those that would directly reduce the airfares for residents. For example, there

are government residents scheme in WA and Qld to allow local residents to purchase cheaper air

tickets (Qantas Airways, 2018). There has not been such policy in the NT. It is necessary to develop a

policy package to recover some of the airport costs, reduce airport charges on airlines to increase

their profit margin, and offer special discount prices for local residents. These incentive and subsidies

could be useful to improve air services and lower the airfares in the NT and in central Australia.

6.3.2. Coexistence of airports and airlines

For regional air services, airlines and airports seem not to collaborate well. They have different

perceptions on airport renovations and upgrade, for example. Airports claim that “There is evidence

that some airlines use their market power to obstruct investments at airports that would facilitate

greater competition and generate other benefits for regional communities” (Australian Airports

Association (AAA), 2018), while the airline suggests that “New investment in airport infrastructure

must be carefully considered and fully consulted with airlines. Otherwise the updated infrastructure

cannot be fully utilised and functioned but has to recover the cost by increased airport charges”

(Virgin Australia, 2018).

According to the airport charge model, airport upgrade and renovation will increase the airport

charges, which will increase the airlines operating cost given the passengers will not increase

proportionally in the short term. These will ultimately push airfares higher. According to Sunday Mail

(Jones, 2017), South Australia’s main regional airline carrier warns ticket prices will rise when

upgrades to two regional airports are complete, jeopardising the future of its service. This is a

dilemma: on one hand, the relatively insufficient infrastructure of regional airports constrains the

capacity of the airports which is an important factor of high airfares; on the other hand, if the

infrastructure is upgraded and renovated, the airport needs to recover its increased investment costs

in a limited time and thus increase the airport charges, increasing the airlines’ costs and ultimately

transferring this increase to airfares. The only solution is to involve all key stakeholders in the

decision-making process to achieve a solution acceptable to all sides. Government’s role including

government subsidy policy is necessary.

6.3.3. Pro-regional policies are needed

The current Fixed Airport Security and Safety Costs are believed to result the higher security charges

for a regional airport like Alice Springs (Northern Territory Airports, 2011). The level of security

infrastructure and capability required at all “security designated” airports makes them sensitive to

passenger throughput i.e. lower passenger numbers mean higher charges. Security charges are

relatively high at Darwin and Alice Springs because they both are security designated airports with

low passenger volumes. Estimated Domestic Security Charges per passenger for Return Trip would

be around $10 for Darwin and $13 for Alice Springs, compared $3-5 for other capital airports

(Northern Territory Airports, 2011).

The Passenger Movement Charge (PMC) increased from a flat $55 to $60 on 1 July 2017 (Tourism

Top End, 2018). Since its introduction in 1995, the PMC has more than doubled, making it the second

highest departure tax amongst OECD countries. As the PMC is not tied to distance, its impact is

disproportionate on visitors travelling short distances, such as between South East Asia and the

Northern Territory. PMC revenue is anticipated to rise to cover $1.1 billion in 2019-20, while the cost

of passenger movements at international airports is only $250 million. Modelling by the International

Air Transport Association suggests that every 10 per cent increase in departure taxes leads to a five

to seven per cent decline in leisure traveller demand (Northern Territory Government, 2018).

Reducing the PMC unilaterally, or for priority North Australian regional destinations, would reduce

the disproportionate cost burden currently being experienced in these areas. The PMC’s

uncompetitive nature inhibits tourism opportunity and we believe it should be rolled back to cover

costs of border agencies only (Tourism Top End, 2018).

We believe it would be a good option that Australian Government take pro-regional policies, as

recommended by the Northern Territory Government: a) introduce network pricing for airport

security charges (with the cost to be shared equally per passenger nationally), and b) commit to a

timetable for a phased reduction in the Passenger Movement Charge, commencing in 2019-20, to

return it to a cost-recovery based levy (Northern Territory Government, 2018).

6.4. Competition: from supply side

6.4.1. Competition

Literature and survey support that competition will play a key role in reducing the regional airfares

and increasing services.

While suggested by research (e.g. Cameron, 2013; David Gillen & Hazledine, 2015; David Gillen &

Hazledine, 2016; Surry, 2014), competition is an important factor for airline pricing; Zhang, Wang and

Fu (2017) studied the competition of air services in regional Australia. The study suggests that the

Qantas airline group uses Jetstar as a fighting brand, such that Jetstar flies to a destination if and only

if the regional airport is also served by Virgin Australia, the group's major competitor. We hope that

on more regional routes, such competition will present to contribute to lower airfares and better

connection, particularly for central Australia. Zhang et al. (2017) empirical results support the

introduction of a consistent aviation policy across Australia, especially for issues related to airline

competition and demand stimulation. However, special consideration needs to be paid to regional

airports to help them deal with economic shocks and cover fixed costs.

Alice Springs is one of largest airports in Australia, regarding its revenue passengers, however, there

are only 3 airlines (Qantas, Virgin and Air North) serving the region (only two flights to Darwin daily);

Meanwhile Ayers Rock has three major airlines (Qantas, Virgin and Jetstar) which all fly Ayers Rock-

Sydney (three flights daily). The competition is likely the most significant reason for cheaper fares

between Ayers Rock and Sydney. It is believed that encouraging more airlines operating central

Australia will re-activate the competition of air services from the Red Centre to benefit local people

and local development. Reintroducing low cost carriers like Jetstar and Tiger Airways should be

encouraged.

6.4.2. Cabotage

A perennial topic in Australia is whether cabotage should be allowed in some regions such as in

northern Australia. It has been suggested that selected cabotage opportunities could be afforded and

ring-fenced, on occasions where existing domestic operators do not wish to trial such attempts

(Tourism Top End, 2018). It is believed that ‘The Australian Government will also consider cabotage

in some exceptional cases, for example for operational reasons when domestic services are

temporarily unavailable, or on a longer-term basis when a foreign carrier seeks to operate a route

which is not currently served by Australian airlines or which requires a government subsidy (such as

routes between some of Australia's external territories).’ (Tourism Top End, 2018).

Supporters believe that cabotage, a more open skies policy, would improve the competition and

increase the accessibility of regional destinations and eventually benefit local people by reduced

ticket prices, and also stimulate tourism and help business by cutting the cost of transporting cargo

(Financial Review, 2015).

Major airlines such as Qantas Airways and Virgin Australia are clearly against cabotage for domestic

routes. They suggest that cabotage would have substantial economic, employment and operational

risks, and cabotage would undermine Australia's position in future air services negotiations (Qantas

Airways, 2018). Virgin Australia says cabotage would have far-reaching consequences for the long-

term viability of local aviation and tourism industries (Travel Daily, 2018). The Airlines for Australia &

NZ representative body also rejects cabotage suggesting “there is no business case for making

changes to the current cabotage restrictions and no international precedent for doing so” (Travel

Daily, 2018).

Globally, cabotage has been strictly regulated, although cabotage laws and the definition of

commercial aviation vary worldwide. In some countries there are no restrictions on cabotage, such as

Saudi Arabia, while in some countries cabotage is totally prohibited such as Kuwait and Mozambique;

in more countries, there are restrictions such as in European countries like UK, France, Germany,

Italy and Russia (JETEX, 2017).

The international practice tells us that cabotage really depends on specific situation in different

countries. It is worthwhile to take into a serious consideration a limited introduction of cabotage into

Northern Territory including central Australia. As suggested by Chamber of Commerce Northern

Territory (Chamber of Commerce NT (CCNT), 2018), to allow foreign carriers to carry domestic

passengers to fly some domestic connection routes, for example from Darwin to Alice Springs, would

have a double impact, on both providing better connectivity for international tourists and driving

costs down for domestic passengers. As indicated by (Chamber of Commerce NT (CCNT), 2018), this

has precedent.

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