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Wednesday, 3 December 2003
Page: 23705


Mr McARTHUR (10:10 AM) —I am delighted to participate in this debate, having been a conscientious contributor towards the Report on regional aviation and island transport services: making ends meet. I compliment the secretariat on the comprehensive way in which the report has been put together and I compliment the committee on its recommendations. There are a number of issues, as my colleague the member for Eden-Monaro has mentioned, including local airports and the cost of regional aircraft. It is very difficult for governments to address some of these issues and look after regional communities. I want to make some comments on a few of the issues raised in the report.

I noticed from the overview—and this came out from a number of the witnesses—that government taxes and levies now account for between 25 and 40 per cent of many average airfares. So the government, local councils and state governments are making their contribution to the cost of regional aviation. Members of the committee became aware when they talked to witnesses that one of the fundamental difficulties is the sheer economics of regional aviation, and I would be happy to quote the committee findings because they precisely set out the problems that the committee encountered. The committee found that the key issues affecting regional aviation were costs, returns, service levels, interconnectivity, maintenance of country airports, regulation and coordination. The cost of operating regional airports is high and rising—and a number of witnesses supported that view, so I will talk about that further. Returns to regional operators are often low, and they are declining, because their passenger numbers can be small and variable. Because of the high cost and low returns, the level of service is often poor in terms of the size of the operating aircraft and the frequency and scheduling of services.

There we have, I think, the fundamental problems facing the regional airlines and the sustainability of these regional routes. I was deeply interested in a couple of the witnesses who put the costs in a very graphic manner. Island Airlines Tasmania said that the cost of operating a turboprop aircraft is double that of a piston-engined aircraft and that the economies of scale of a turboprop aircraft are not realised until a seating capacity of 18 is reached. That really demonstrates the problem where regional passengers are keen to have better aircraft—somewhat bigger aircraft—but the cost of those aircraft is considerable and the economies of scale are a problem, no matter what governments do and no matter what subsidies are provided.

Qantas provided some interesting comparisons between a 36-seat aircraft operating on a regional route and a 260-seat aircraft operating on a trunk route. The average passenger in regional Australia draws the obvious comparison when they get to the metropolitan areas and enjoy the bigger aircraft, and I think they are somewhat critical of the smaller aircraft without a full understanding of the costs involved. Qantas said that the crew costs per seat for a 36-seat aircraft are four times greater than for a 260-seat aircraft. So we have that fundamental problem. The maintenance costs per seat for a 36-seat aircraft are more than twice those for a 260-seat aircraft. The aircraft ownership costs for a 36-seat aircraft are more than 50 per cent higher than for a 260-seat aircraft. Landing and en route charges for a 36-seat aircraft are more than 40 per cent higher than for a 260-seat aircraft. We heard a lot of evidence about these landing charges and the difficulties that smaller aircraft encounter at remote airports.

The costs of running smaller aircraft in regional Australia are quite prohibitive in many cases. Research by the BTRE supports these findings. What they say is interesting: the cost per seat generally declines as the aircraft size increases because the fixed costs are spread among more passengers. I guess that is self-evident and those of us who have been around this industry for some time would know that to be a fact of life, yet a number of the witnesses and people associated with regional aviation really do not comprehend that difficulty. They want to get the service and they want to have it early in the morning and late in the afternoon, but they do not have an understanding of the costs involved. The cost per kilometre flown declines as the stage length increases, and propeller aircraft are cheaper to operate over shorter distances than jets. Again, that is self-evident: the bigger jets, once they are airborne, can cover the comparatively short hauls—in international terms—between Melbourne and Sydney.

So, obviously, the regional aircraft have a problem in making a return on capital. All aircraft are relatively expensive to operate over distances of up to 200 kilometres, but the cost per passenger declines as the percentage of seats filled on the aircraft increases. Again, it was made clear in the evidence that a number of the regional operators were not able to fill their aircraft and this encroached upon their costs. That was the fundamental argument that I picked up from hearing witnesses all around Australia. On the one hand, the business operators at Flinders Island, for instance, were concerned that they lacked an air service; on the other hand, the airline operators we spoke to were unable to make a dollar out of the operation. I think there had been a number of participants on that particular route who had gone broke over the years.

I would like to refer to the ALOP scheme—the Aerodrome Local Ownership Plan, which was instituted by the Hawke government in 1989. I have been around these arguments for some years, and in the broad sense I would say of this plan what Mr Ken Keech, the Chief Executive Officer of the AAA, said:

I have been on record saying for quite some time that my personal view is that the ALOP scheme was the greatest con job of all time.

Basically, he was saying that the government of the day decided to relinquish their responsibility for running local airports. They made capital moneys available and I do not think local councils around Australia fully understood the impact of this offer or that over time they would have difficulty in maintaining their airport, putting down new strips and getting sufficient income from the airports. As a result, the returns for local councils, especially from the smaller airports, were not commensurate with the actual running costs, let alone the replacement of their capital assets. It is interesting that the AAA represents over 255 airports across Australia and, of these 255 airports, approximately 220 are located in regional and rural Australia and are owned and operated by the local community through their local government shire or council.

We had a number of comments about some of them being effective. Glenelg Shire, near Mount Gambier, is able to operate its airport effectively, although it requires a capital injection to upgrade the airport for modern aircraft. I note that in terms of firefighting, visits by VIPs and natural disasters these airports could play a crucial role, and it would be my judgment that the Commonwealth should support some of the smaller airports as a community service obligation, particularly in times of emergency. I strongly support the recommendation of the committee that the Commonwealth look carefully at the contribution of capital moneys to the smaller airports to keep them upgraded and operational and ensure they are servicing Australia. In my view, aviation is a Commonwealth responsibility. It is portrayed in that way in every other aspect and the Commonwealth has a responsibility to ensure that regional Australia is well served by the smaller airports that really have difficulty in paying their way.

If we look at the other policy issue of taxes, I said in my opening remarks that it is interesting that if you add up the taxes involved, especially in terms of some of these smaller airports, the Commonwealth imposed costs are as follows: Airservices' costs are about 4.3 per cent; airport landing and terminal charges are about 6.2 per cent; GST is nine per cent; the noise levy is about $3.60 as it applies to Sydney and Adelaide airports; and the terrorism insurance levy ranges from $2.50 to $10. These costs are add-ons to the cost of regional air tickets with the additional problems of economies of scale that the airlines face. In addition to these significant issues, the committee found that costs imposed at a local level that added to the cost of a ticket included passenger head taxes, landing charges and ground support charges.

We have an interesting situation where, on one hand, the government are not contributing to the operation of these regional airports while, on the other hand, they are very happy to take a number of charges as their due right. We have a real policy dilemma: if the Commonwealth government have responsibility for aviation, they should be making a contribution back to its operation.

Finally, I want to comment on the safety authority. That issue was a matter of considerable debate within the committee and was raised by a number of the witnesses, who complained quite fiercely on occasions about the operation of CASA. I participated in the Plane Safe inquiry and I have heard the arguments from both sides of the table. I have heard the defending argument from CASA, which has the responsibility to maintain a safe air system. I have also heard from some of the smaller operators, who complained that CASA was unduly officious in handling the air safety regulations. I well recall two years of discussions with CASA personnel and a number of witnesses on the Plane Safe inquiry and I saw a bit of a replay of those debates in this particular inquiry.

Suffice it to say that the bigger airline operators such as Qantas and formerly Ansett conduct their operations safely, in my view, although Ansett obviously had some difficulties with CASA because of its financial problems. Qantas is quoted as saying that it has a good relationship with CASA. However, as I have indicated to parliament, it is the smaller operators who are under financial pressure who have problems in maintaining their safety regimes. I suggest that we need to ensure that CASA provides a lead in the development of a safety culture in the smaller regional transport operators. Ensuring that the culture is one of safety is not one of the policeman's roles. We should encourage both sides of the debate to move along that path instead of pursuing the argument that CASA will implement a system of very tight regulation—and I noticed the demerit points approach outlined by the minister in the new set of CASA regulations, which is a step in the right direction.

I want to quote the Regional Aviation Association of Australia on this issue. The association has stated:

I believe there are better opportunities for CASA to become more interactive with the operators at the lower level, rather than being the policeman. I think they should be looking to move in with a lot of these operators—almost have their local man on the ground and take them by the hand and lead them through the safe culture that they need and that this country will need at the end of the day.

That interesting quotation summarises my view that a culture of safety is the way to go to encourage people, especially at the smaller regional level, to make sure that their planes are safe, that they operate safely and that their spare parts are up to standard. People in this parliament and members at the local level suffer considerably when there are aircraft accidents such as the Seaview accident in South Australia. In such circumstances, CASA comes under considerable political pressure for not executing their task.

I commend the report and the recommendations. I commend the depth of the submissions on a very difficult issue in respect of which people have very strong emotional reactions to a lack of services. If you look at the number of services that have been taken from regional Australia by the sheer pressure of the economics, one must be concerned about the future of regional aviation. I do not think that there is an easy answer because of the economics of regional aviation. Hopefully, over time we will develop a safer, economic system that will serve country people. Roads are improving. We noticed that some witnesses were prepared to drive longer distances to travel on bigger aircraft than smaller commuter type aircraft.

I commend the report and I commend the chairman on his conscientious work. The committee met a great number of witnesses in all parts of Australia—Kangaroo Island, Flinders Island and remote Australia—in an endeavour at least to get the problem aired before the parliament so that the issues are on the table. The solution to these difficulties is not easy but I am confident that the government will at least look at a number of recommendations. The injection of a relatively small amount of capital would be a great help to regional Australian operators. (Time expired)