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Rural and Regional Affairs and Transport References Committee
04/04/2018
Operation, regulation and funding of air route service delivery to rural, regional and remote communities

McIVER, Ms Dale, Chairperson, Tourism Central Australia

SPENCER, Ms Merrilyn, Vice Chair, Tourism Central Australia

[15:09]

CHAIR: Welcome. The committee has received submission No. 86. Do you wish to make any additions or amendments to your submission before I invite you to make a brief opening statement?

Ms McIver : No, I think we were pretty happy with the submission that we've put in to date.

CHAIR: Tremendous.

Senator PATRICK: I think it's a cracker.

Ms McIver : Thank you. A fair bit of research went into that one.

Senator PATRICK: I read it this morning. Well done.

Senator O'SULLIVAN: He says that to all the girls. Be careful.

Ms McIver : Fantastic. We're off to a great start.

CHAIR: Ms McIver or Ms Spencer, would either or both of you wish to make an opening statement?

Ms McIver : Thank you to the committee and senators for bringing the hearing here to the heart of regional Australia. It's great to welcome you and for you to hear firsthand the impact that we have with not only the cost of flights but the lack of competition here in regional Australia.

We're here today representing Tourism Central Australia. We're the regional tourism body that looks after tourism in the southern part of the Northern Territory. We actually cover an area greater than Tasmania, just to give you an idea. We're an independent membership based association. We represent just over 330 members not only through that footprint, but we also find that we grow throughout other regions of the country including right into South Australia, across to Western Australian and right into outback Queensland as well. We're a pretty small not-for-profit organisation, so one of the big things that we do on behalf of our members is be a lobbying voice.

Airline access capacity and cost of travel are certainly all very vital aspects of a successful tourism destination. These factors play a very important role in being able to successfully market our destination and to attract visitors. There is absolutely no doubt in our minds that the high cost of flights in and out of Alice Springs are detrimental to tourism at this point in time. Alice Springs in Central Australia was, once upon a time, a bustling destination particularly for the youth and backpacker market. This is a market that has taken a big hit over the years, and we've just been hearing about the pulling out of Tigerair. When they pulled out in July 2014, this was the start of the demise of the youth and backpacker market in Central Australia. As a consequence of that discount airline pulling out of Alice Springs and their flights linking through to Sydney and Melbourne, we saw other airlines immediately increase their fares on those routes. Another issue that we had here locally in Alice Springs was the closure of two backpacker and youth hostels in Annie's and Toddy's. To date, this market remains in decline here in Central Australia.

Business tourism and attracting conferences to Central Australia also remain a large challenge for us. Time and time again, we hear feedback from this industry interstate that the high cost of flights is an issue and that the delegates simply wouldn't pay those high prices to come here. The lack of competition in routes is also a negative. Some of the companies we're looking to attract to bring their conferences and delegates here simply won't come because there is only one airline that will fly on a particular route. They will simply not put all their senior staff and directors on that one single flight, as it's too major a risk for their companies.

Last year, you may have seen the ABC television program Q&A that was televised live here from Alice Springs. I was fortunate enough to appear as a panellist on that program. During the show a question was asked from the audience about the cost of flights in and out of Alice Springs. My comments were scoffed at by many and I was questioned on a lot of social media when I made the statement that it was cheaper to fly overseas than it was to fly in and out of Alice Springs. Following the program, ABC's very own fact-checking department followed up this comment and found that it was a very fair call. I'm going to let you sit on that for a moment; the cost of airline travel in and out of Alice Springs is more than it is to fly to an overseas destination. And 450 kilometres down the road from Alice Springs, we have another regional airport at Uluru, also known as the Yulara airport. This airport is currently serviced by Qantas, Virgin and discount airline Jetstar. Costs for flights in and out of Uluru are often cheaper than those in and out of Alice Springs. This sees Alice Springs locals choosing to travel a 900-kilometre round trip by road to access those cheaper flights rather than flying in and out of Alice Springs.

Senator PATRICK: What's the difference in the price that drives people to drive?

Ms McIver : There's been quite a difference. There was one report last year from a local who wanted to fly his family down to Sydney for a long weekend. It was $2,000 cheaper to fly out of Alice Springs for a family of four than it was to fly out of Alice Springs.

CHAIR: Cheaper to fly out of Uluru—

Ms McIver : Cheaper to fly out of Uluru than it was to fly out of Alice Springs. So those locals would rather spend nine hours in a car with their children nattering on the back seat than pay the prices in and out of Alice Springs.

Late last year, Tourism Central Australia partnered with one of our members, the NT Chamber of Commerce, and I understand you'll be hearing direct from them in sittings in Darwin tomorrow. I did, however, want to take a few highlights out of that report from some of the Central Australian members who participated. Interstate flights average more than $400 one way—and $400 one way to fly Alice Springs to Darwin. Out of those, 47 per cent of them said that they had at times paid over $500 one way. The average costs were similar for flying interstate. Some of the comments that came out of that particular survey that we did relating to businesses: 'My business is restricted from travelling due to the high cost of flights to and from Alice Springs. I'd love to travel more, to attend trade shows, to promote our destination, but we're restricted due to the high cost of flights. This also has an impact on my business not being able to take staff away for vital training.' Another comment: 'It is often cheaper to fly Darwin to Alice Springs and on to Perth than it is Alice Springs to Perth direct. This is crazy, because, when you fly from Darwin to Alice Springs, you have to unload, the plane gets fuelled and you take off again. Why is it more expensive to do this in a stop than it is to fly direct?'

In closing, I have something here to present, and I do have additional copies for members. I was on social media this morning and came across a paid advert from Qantas. The advertising highlights a great sale that they have on and the fact that it's 'only' $433 one way to fly from Alice Springs to Cairns. This is flatlined for the next 12 months when you click on that link. There are no specials being highlighted in that. It is flatlined at $433 one way for the next 12 months. As we say here in Central Australia, tourism is everybody's business; therefore, we see the cost of flights as being everybody's business, because it affects everybody's businesses.

CHAIR: Thank you. I just want to clarify: when you say 'flatlined', you mean that that is a fixed charge for anyone who wants to take up the offer of a one-way flight from Alice to Cairns—is that correct?

Ms McIver : Yes, it is. As I said, I've got some copies I can provide. When you click on the link from their Facebook advert, it has a graph that shows the cost of $200, $400 and $600, and then on the bottom scale it goes from April 2018 to March 2019, and it has a blue flat line at $433 for the next 12 months.

CHAIR: So it's fixed?

Ms McIver : It's fixed, yes. It seems to be.

Senator O'SULLIVAN: What you're saying to me is, for the next year, if I want to travel from here to Darwin, that's the exact fare I'll pay?

Ms McIver : To Cairns. That's what it appears to be in the paid advertising that I've seen online on social media this morning. It's amazing that they're getting out there and paying to promote that.

Senator O'SULLIVAN: How does that compare with your knowledge of flights to Cairns out of Alice Springs historically?

Ms McIver : I personally flew to Cairns return last year for just a little under $700. That was in September last year, so you would consider that still around peak time.

Senator O'SULLIVAN: So what you're saying is that their fixed special is now more expensive than their dynamic, flexible fare historically?

Ms McIver : That's what I seem to have found this morning, yes.

Senator PATRICK: I thought your submission was a cracker. Qantas, Virgin and Rex have put in submissions that explain their cost formulas, and they indicate that this is just the nature of the business when you fly into a remote area. Your submission shows that, in the case of Uluru, there are 364,000 passenger movements and, in Alice Springs, there is almost double that, yet you're saying the price is cheaper out of Uluru, which kind of breaks down their argument. Do you have any historical evidence of this price difference? This is a fantastic case study to take to Qantas and to Virgin—and they will be appearing before the committee—that unravels their argument, unless we can find some other reason for the price differential, which Senator O'Sullivan hinted on: maybe package deals or simply the fact that Jetstar flies into Uluru. Is there anything more you can tell the committee about the differences between the two? As I said, it could unravel the Qantas argument.

Ms McIver : I'm willing to take it on notice and we can see if we've still got some further information that we can perhaps present on that. But something that's a big query for us as well is when they start to talk about those economies of scale and we present that sort of information and we haven't been able to get any answers—yes, it certainly something that concerns us as well.

Senator PATRICK: So there are three operators out of Uluru and three operators out of Alice Springs, albeit that there is no budget carrier out of Alice Springs.

Ms Spencer : Qantas used to be the exclusive airline into Uluru, and then they decided not to fly that route anymore. It was too expensive; they weren't getting enough people on board. They then pulled out of the airport. At that point Jetstar and Virgin started flying to Uluru, and that's when the prices dropped. Qantas now fly a few flights, but it used to be exclusively theirs. Once you got competition the prices dropped dramatically.

Senator PATRICK: But there's also competition here in Alice Springs, one would argue, because there are three airlines here. That's what I'm trying to unravel—what's happening here.

Ms Spencer : There's not a great deal of competition out of Alice.

Ms McIver : We might have three airlines out of Alice, but Qantas is the only one that you can use on every route. At the moment, Virgin fly only Darwin and Adelaide. As Mayor Ryan said in the previous session, they will be extending that service through to Brisbane two days a week as of June. Airnorth is probably a bit of a different scenario—it's what we refer to as the milk run. So you don't go from here to Darwin direct; you stop in Tennant and Katherine, so if you want to spend, I think, six or seven hours getting to your destination that's fine, but the cost is probably quite comparable.

Senator PATRICK: Sure. If you could, on notice, maybe have a look at the theory that Senator O'Sullivan has put forward—that it might be a packaging arrangement that makes those prices cheaper—that would be appreciated. If you've got access to historical data or even data moving forward, as you've indicated today with the link you clicked on, examining that may be very helpful for the committee.

Ms McIver : Certainly.

ACTING CHAIR: I want to pick up on some of your evidence, Ms Spencer. You said Qantas found the route to be unprofitable and left. Let's assume, prima facie, that that's the real circumstance, because I can't imagine anyone's going to abandon a profitable route. Then two other operators came into the route and we found that the prices were lower. That leaves me with a dilemma. There can be some obvious explanations—less service; budget airlines have a tendency to do things differently. Was there anything obvious to you that indicated why two other airlines, quite apart from market forces, could provide the same or comparable services and, we imagine, were profitable in doing so, versus Qantas, who could not? Did anything jump off the page?

Ms Spencer : My understanding is that they increased the loads that those planes were bringing, so, with the much lower flight prices, people were flying from Sydney and Melbourne for the weekend. So the amount of air traffic, people wise, into the Rock went up dramatically. My understanding is that, initially, no-one would fly the route, and Voyages, who own Yulara, hired planes themselves and started operating flights at a very low price and getting that many people onto the flights that Jetstar and Virgin then stepped up and said, 'No, we want to run those flights ourselves.'

ACTING CHAIR: That's the sort of thing I think we're looking for. The pricing was not indicating a free market; it was subsidised by one thing or another—either the airlines themselves trying to promote it and get volume into the marketplace or a tourist operator—

Ms Spencer : Initially, yes.

ACTING CHAIR: or peak body for tourists doing that. It seems that, when the volume got up, they were able to sustain it.

Ms Spencer : That's right. The volume was so high, and the amount of traffic they were flying was so high that it was worth them running the route themselves.

ACTING CHAIR: One final question on this remains a mystery to me. A plane takes off from Brisbane, for example, or Sydney, to come to Alice Springs, and it's got a full load, I'll assume. It arrives, the passengers are discharged, the plane takes on new passengers, it turns around and—I imagine this is typically what happens—the same aircrew go back. Why does doing that twice a day, if the aircraft can be applied to other routings on its return—what's the amortisation?

Let me go the long route here. We have two planes that sit on the tarmac in Sydney; they are identical models with identical aircrews and the same costs. They are both fully loaded with passengers. They both take off. They incur charges. One heads to Melbourne for a return trip of $180 back to Sydney or Brisbane, and the other one heads to Alice Springs for a return trip of $1,800. There are slight flight variation times—I understand that—and that will put upward pressure on the fare. When they come here, there are some staff who might stand around for longer, doing less, because they don't have 10,000 passengers coming through the airport. I understand that. That'll put pressure on the pricing. I understand the fuel will be more expensive here. That'll put pressure on the pricing. Sometimes the charges by a regional airport—not Alice Springs—can be more. But none of it explains the difference between $180 and $1,800. As I look through the submissions and talk to people, I'm hoping someone's going to pop out of a box and say to me, 'I know exactly why it's more expensive.'

Ms McIver : If you find them can you send them this way!

ACTING CHAIR: Yes. That's the mystery for us. I don't want to reflect upon any of the major airlines, but I promise you that when they come before us they are not going to roll over and get us to rub their bellies and spend a lot of time trying to have us understand the algorithms of their dynamic pricing arrangement. We'll have to unravel that mystery ourselves. I just thought that someone might have done work on it because it's so significant to your communities. In fact, I'd suggest that all of the peak bodies that are interested meet and pony up together, put a few bob together and give us a brief that shows the comparative airline pricing and these dynamic examples to help us confront the airlines when the time comes. We don't have the resources to do that.

Ms Spencer : We do have a very strong international tourism market here in Alice Springs, but our international visitors fly on a very, very low price airline. They come in on Qantas, but their tickets are very, very low priced. It's quite common for international visitors to fly to Sydney; fly from Sydney to the rock, or, generally, to Alice Springs; and fly from Alice Springs on to Cairns. But that flight from Sydney to Alice to Cairns probably costs them in the vicinity of $200.

ACTING CHAIR: Yes, but the airline's already made their money.

Ms Spencer : That may be, but it's still—

ACTING CHAIR: It's a bit like going to Harvey Norman and seeing 'interest-free fridge, pay it off over five years'. That's not what's happening. You're paying for the interest on the fridge over five years. I think the airlines have already made their money, however they break it down and for whatever their purposes—and you might find there are some tax treatments involved if it was a package that they sold in another tax jurisdiction. It's complex. I think the danger we have is that I'm hearing and seeing a lot of evidence that says we have a problem. I couldn't care if I never heard another sentence about that between now and the end of the inquiry. We know we have a problem. We have a pricing problem. We have a services problem. We have all these peaks—school movements and so on. I want to come to understand whether we are dealing with price gouging, whether we are dealing with the airlines colluding. As I said earlier, you don't need to hide away now to collude; you can do it across a football stadium. The guy knows what you're doing. 'I see you brought your fuel dockets out yesterday, Woolworths. We at Coles will do the same tomorrow.' That's where my focus is. I want to find out what's in behind this dynamic pricing pattern or formula.

Senator PATRICK: You've undertaken to supply some data on the differential between Alice Springs and Uluru. Perhaps it might be helpful not just to pick single data points but to make sure that we spread it out. It could be that you can sell the differential case between Sydney-Melbourne and Sydney-Alice Springs by picking the low-cost for the Sydney-Melbourne sector and ignoring the business class rate that they're pulling in, and there are probably a spread of fares across the Alice Springs sector. In providing the data, be careful about picking out a single data point.

ACTING CHAIR: I know that in the motel industry, for example, as they start to sell rooms, the cheapest room is the room booked three months ago on the first booking for that day—assuming that Woodstock's not on or Elvis Presley's in town. That's how it happens. Then each room is more expensive until they get to the collapse point, where it's eight hours to go before the beds are available and there are 10 rooms left. They'll put them out, these days, on some app, where you can buy them for a lot less. My understanding of the airline industry is that it's no different. However, people in remote Australia just don't have any other choice. We've got a brand-new airport in Toowoomba, privately owned. We suspect that about 80 per cent of our Toowoomba population still drive two hours to Brisbane and pay a parking fee to get their flight, to a point where they could leave the airport 30 minutes from town, and it's driven by price sensitivity. You don't have that choice here. You can't give them the central finger and then get in your car and drive 14 hours that way. This is the crucial thing. We will have to challenge the airlines with this or prove that this is what's happening—I promise you—before we can get them to even contemplate doing something else. You're the only people who are going to be able to help us—you and those in your community. I recommend again you get the mayor, you get the other witnesses from here today, you ring your friends in Darwin and say, 'Come and have a little summit.' You may have to put in a few bob. You may have to get some consultant to pull down this evidence—

Senator PATRICK: And read the submissions of the airlines as well.

Senator O'SULLIVAN: Yes, pick holes in it. I'm on record. I don't know what's happening. I'm not suggesting that the airlines are colluding; I'm not suggesting that they are price gouging—I don't know. That's the purpose of the inquiry. But I'm left with no explanation as to why we have this disparity in prices. No witnesses, either now or who have made submissions, have illuminated that for me. I'm on the record as saying that's my particular interest.

Senator McCARTHY: I have a couple of questions that you might want to take on notice, Ms McIver. I was looking at your business survey. I am just checking whether you have done a tourism survey with any of your tourists in terms of their flights. Ms Spencer, I think you mentioned the international flights. Has any survey being done—it's just a question.

Ms McIver : I'm unsure, but, again, we'll take that on notice. I'm not aware of anything, but we'll certainly have a look.

Senator McCARTHY: Just anything that you can provide for the inquiry about what people have told you on their visits to Alice—whether they have had issues with flights. This may be more a question for the chamber of commerce. You talk about 45 per cent of respondents confirming that the average price they pay for airfares is $400, with a further 44.6 per cent confirming the average cost. But do you have a general ballpark figure of what businesses may be losing as a result?

Ms McIver : Again, that's probably a question for the chamber of commerce because they were the ones that actually crunched the figures.

Senator McCARTHY: I'll put that question to them as well, but feel free if you want to provide anything on notice.

Ms McIver : Absolutely.

Senator McCARTHY: We have until 4 May for questions to come back to us in that area. Finally, you may have heard Councillor Melky and his proposal. Just a general question: what are your thoughts on his idea of a proposed co-op?

Ms McIver : Councillor Melky discussed this with me, probably, a good six weeks ago. I think it's an interesting concept and, as the peak tourism body in the region, we'd certainly be interested to be a further part of a conversation to see if it's a realistic thing. There are obviously a lot of things from a tourism point of view, particularly marketing and getting it out there to prospective visitors. It seems like he's probably looking at it more from a local's perspective, but one of the challenges that we know we have here is we just don't have that big population base to make some of those flights sustainable et cetera. There would be some further interesting conversations to take place. It's certainly an interesting concept and we'd love to explore it further.

ACTING CHAIR: In this printout you gave us, what drew you to the conclusion that that is the fixed fare for 12 months and there will be no other variables? Let me put to you a couple of things that might challenge that, in my mind at least. Flights from Cairns to Alice Springs are 'from' $433, suggesting that there are other fare levels, and it's got the asterisk and that asterisk takes you to, I would think, 'terms and conditions apply'. It is the same down here, 'Sort by lowest price first, $433,' and conditions apply. Can you tell me, Ms McIver, what directed you to think that that is the fixed fare throughout a year, without variation. We will also put this to Qantas, that's all.

Ms McIver : I guess it was that graph that's represented on the sheet there. I've seen them come up on paid advertising before, and you click on them and you normally see that it might go up closer to school holidays and it might drop down in February, when it's not our peak season per se. Personally, I have never seen a graph that flatlines at that rate. It appears to be that whole price from a 12-month period, and it states down the bottom left-hand corner, 'Depart from'—

ACTING CHAIR: Could it not be the lowest price for the next 12 months?

Ms McIver : That's what I mean, but $433 is the lowest price. I flew to Cairns return myself for under $700 in September.

ACTING CHAIR: No. That's a different issue. I accept that they're related. I don't want to confront Qantas if I'm not certain on this. My read of this would suggest that $433 is the lowest price you're going to get, as extraordinary as that is compared to your experience, over the next 12 months, and there'll be terms and conditions that apply. Anyway, I'll interrogate them with it myself.

Thank you, Ms McIver and Ms Spencer. We thank you for your efforts and we look forward to hearing from you if you have anything further to add. There being no further witnesses, we thank the good people of Alice Springs for hosting us today. It's been a very useful day.

Committee adjourned at 15 : 38