Australian Airport Association Stakeholder Dinner 31 May 2018 Sydney, Australia Speech by Angela Gittens Good evening ladies and gentlemen. It is a pleasure to be with you tonight and thank you again Caroline for this invitation. On behalf of ACI, I truly appreciate you giving me this opportunity to provide you with fresh insights and updates on the airport industry from a global perspective and to support you in addressing some of the challenges and issues Australian airports are facing currently. It is no secret that the airport industry is a tough business. Airports are under constant pressure. And, as I will explain in more detail in a few moments, infrastructure financing continues to create a continuing and longer-term challenge for operators. With the recent call for tighter regulation on airport revenues, it is important for our industry to state loudly and clearly that in an increasingly commercial and competitive business environment, airports must be able to collect sufficient revenues to finance their investments in airport infrastructure and operations. This is crucial as it allows airports to maintain service levels to all airport users, passengers, shippers and aircraft operators. So: in my time this evening, I d like to elaborate on what airports and aviation do for the world s economies, and talk about what needs to happen to keep those benefits flowing. 1
Certainly, we in the aviation industry, in cooperation and collaboration with governments need to keep the system safe, secure, efficient, economically and environmentally sustainable, and provide for a good passenger experience. This becomes more and more challenging as the demand for air travel grows; we forecast that passenger traffic will double in the next fifteen years Aviation is essential to the economic development of cities, countries and regions everywhere The 2017 ICAO/Industry Aviation Benefits study found that Aviation supports 62.6 million jobs and generates 3 1/2 per cent of global GDP with its $2.7 trillion economic impact. In the Asia-Pacific region, the numbers are 28.8 million jobs and 626 billion in GDP. The Report made several recommendations to governments to maximize the benefits of aviation and the approach Australia has taken had made it a role model, with liberalization for airlines and light-touch economic regulation for airports. Together, these policies have enhanced Australia s connectivity, within the country and with the rest of the world. Global passenger traffic reached the 7.7 billion passenger mark in 2016 and is expected to reach 15.7 billion by 2031, growing at an annual rate of 4.5% it will reach 22.3 billion by 2040. 2
For Australia, as a mature market, we forecast a 20-year cumulative average growth rate of 3.7% to go from 157 million passengers in 2016 to 321 million by 2040. So, to keep pace with this demand, Australian airports must be able to invest, improve and grow. Where is the money to come from? Aeronautical and non-aeronautical revenues are the major sources of funds for airports to invest in infrastructure and service improvements. Globally, aeronautical revenue is about 56% of the total with charges on passengers about 45 per cent of that segment and landing charges on airlines about 21%. As a share of total airline operating costs, airport charges on airlines are about 5%, varying from about 3% for full service carriers to 12% for low-cost carriers, based on data from Europe. Incidentally, in spite of some of the rhetoric we have been hearing, there is little correlation between the level of or changes in, airport charges and the level of, or changes in, airline fares. Airline fares are highly dynamic, primarily driven by demand elasticity and patterns, and the level of competition on any given route. We have ample evidence of this. In the United Kingdom for example, even though London-Gatwick has lower airport charges (14 Pounds) than London-Heathrow (45 Pounds), the fare British Airways charges on the New York flight is the same. 3
Air France-KLM does not pass-through lower airport charges at Amsterdam-Schiphol (20 Euros) compared to Paris-CDG (25 Euros) for its services to New York and Madrid. Ryanair does not pass through lower airport charges at Brussels- Charleroi airport compared to Brussels-Zaventem airport for its services to Barcelona. Fares are pretty similar (43 Pounds vs. 39 Pounds). And we saw in the U.S., when the government shut down for a time in 2011, the taxes expired but most airlines raised their fares to the passenger so the passenger paid the same as before. We saw the same phenomenon after the 2010 oil price spike when airlines added a surcharge to their fares and those lingered long after fuel prices returned to pre-spike levels. In short, there is ample evidence proving that lower airport charges do not necessarily result in lower air fares and higher airport charges do not necessarily result in higher airfares. The legitimate question is how airports are going to accommodate the growth in air service demand and what can government do to enable that accommodation. Three thoughts 4
1. Efficiency, that is, how we can use the infrastructure we already have to the optimal extent. 2. Protection of the infrastructure we have so we have PERMISSION to use the infrastructure to the optimal extent; and, of course 3. Building new infrastructure, finding it, getting permission to take it and paying for it. With respect to efficiency, ACI and the industry have worked at the global level to introduce data-driven aerodrome design provisions to enable airports to gain more capacity with existing airfield infrastructure. As well, we are working now with IATA on a strategic review of the worldwide slot guidelines with the intent on our end to bring airports into the decision-making so as to gain better use of existing infrastructure. Protection of the infrastructure, mainly against constraints on use due to concerns of noise, emissions and other local impacts means working with communities and governments to keep airports as good neighbors. Australian airports have a strong record of environmental stewardship. Australian Airports have a high rate of participation in the global Airport Carbon Accreditation program, with 12 airports and Sunshine Coast Airport as part of their ongoing commitment to environmental sustainability. 5
Globally, 237 airports are accredited under the ACI Airport Carbon Accreditation programme. Among them, 44 are located in Asia-Pacific and 12 of which are in Australia. In March 2017, Sunshine Coast Airport became the first Australian airport to achieve Carbon Neutrality. This rigorous programme provides a unique common framework and tool for active carbon management at airports with measurable results. It covers the operational activities that contribute most to carbon emissions. Renewable energy projects in Darwin International and Adelaide Airports have won the 2017 ACI Asia Pacific Green Airports Recognition platinum and gold respectively. Likewise, Adelaide has once again won the 2018 ACI Asia Pacific Green Airports Recognition, this time at the platinum level for its waste minimization project. But airport also need protection from incompatible uses encroaching on them, leading to calls for restrictions. Responsible land use planning by local, state and national governments is critical if the country is not to strangle itself by strangling its aviation sector. As well, airports need to become more resilient to more adverse weather conditions that are the result of our changing climate. Recognizing the potential risks and impacts from climate change - and given the vital importance of the infrastructure and its long term operating life - Brisbane Airport Corporation has been implementing a Climate Change Adaptation Plan to detail potential vulnerability to climate change and corresponding actions to mitigate the situation. Adaptation plans are based on risk assessments and they also require investment. 6
The magnitude of investment needed by airports is pretty big. Globally, we are talking about US$430 billion in planned capital expenditure by airports worldwide. Whether financing is achieved through public funding, airport revenues and global capital markets, investments are required to alleviate bottlenecks and guarantee a sustainable aviation sector. To this end, privatization has been a way to finance much needed infrastructure investments, and Australian airports continue to be able to finance their operations and development thanks to their revenues major projects such as the Brisbane Airport runway now under construction and planned new runways at Melbourne and Perth airports are good examples of airport investment increasing capacity. The private operator approach pioneered by Australia has been a success and we hear it from the passengers. eight of Australia s 10 busiest airports in total passenger movements are part of the global ACI Airport Service Quality (ASQ) program. Australian airports are using the ASQ programme to understand how to increase passenger satisfaction and improve business performance. While I can t disclose individual airport scores, I can tell you that Australian airports are rated Good by their passengers and their working with the government and airlines on waiting times for passport control, security and check-in have earned them scores higher than the rest of the world. But the strain on infrastructure is starting to show with lower scores on airport access and facilities. 7
Australia has been a success story to date and needs to stay the course by addressing the sector s infrastructure and resource needs in their national development strategies, policy and regulations. Airports are asset-intensive businesses that require many years to recover the significant capital investments in airfields, terminals and roadways. Australian airports need permission to operate and grow, not only from regulatory and territorial authorities but also from the local and broader communities they serve. Keep in mind the forecasts and the benefits. Thank you. 8