Regional Express’ (REX) long running dispute with Dubbo City Council over passenger fees at council run Dubbo Regional Airport is flaring up again.
Dubbo Regional Airport is serviced by Qantaslink, REX, Fly Corporate, Airlink, and FlyPelican. Over 200,00 people moved through the airport in 2017/18.
REX’s dispute dates back a decade to a 2009 Australian Government White Paper on aviation security. The White Paper found upgraded security measures were required at airports that handled jet airport and turbo props over 20 tonnes.
These upgraded security measures primarily involve screening passengers and their luggage.
REX flies 34 seat Saab 340s which have a maximum takeoff weight of 13 tonnes. Qantas flies both Dash 4 300s and Dash 8 400s into Dubbo. The Dash 8 400s do exceed 20 tonnes. Now defunct operator Jetgo also flew into Dubbo between 2014 and 2018, operating Embraer regional jets.
As the airport operator, Dubbo City Council was to be responsible for the ongoing costs of this upgraded security screening. It had several cost recovery options. It elected to implement the upgraded security screening on a full cost recovery basis (at no cost to local ratepayers). The council also decided to apply the cost (in the form of a compulsory passenger fee) across all passengers, not just those flying on aircraft weighing over 20 tonnes.
Since then REX has argued that it and its passengers have been unjustifiably slugged with a fee that effectively subsidies passengers on competitor airlines and drives up the cost of a REX passenger ticket.
REX notes that other council run regional airports of a similar size (Wagga Wagga, Albury, and Port Lincoln) screen passengers separately. Passengers travelling on aircraft weighing over 20 tonnes are subject to additional screening and this is reflected in their ticket price.
The dispute between REX and Dubbo City Council has never gone away. REX frequently cites it as an example of unjustifiably high passenger fees at regional airports. Dubbo City Council for its part, has not been inclined to reduce passenger fees for REX passengers. It maintains any fee increases in recent financial years have either been minimal or nil.
But they have increased passenger fees this financial year.
Dubbo Regional Airport has increased its passenger fee by 13%, or $1.99, this current financial year. Dubbo City Council contends the increase is required to fund further upgrade work on the main runway, runway lighting, customer parking, and enabling the Precision Approach Path Indicator system. Dubbo City Council contends that in the last financial year it provided the airport with $1.2 million over and above normal funding.
In response to the passenger fee increase, REX has threatened to pull its flights from Dubbo. REX has 61 flights a week in and out of Dubbo Regional Airport. It contends it can use its aircraft elsewhere.
Dubbo City Council’s financial records indicate Dubbo Regional Airport generated revenue of $3,913,000 across the 2017/18 financial year from fees and charges
ABC News has quoted REX’s General Manager of Network Strategy and Sales as saying:
“REX has solemnly put the council on notice that its intended actions… could result in REX deploying all its 61 weekly flights and associated Sydney Airport slots to another region.”
“It is illogical that the 28 weekly Qantaslink departures are dictating the security screening requirements for all regular passenger transport services.”
The issue of excessive airport passenger fees has been in the news lately. Several weeks ago, Qantas CEO Alan Joyce and Virgin Australia’s CEO Paul Scurrah joined forces to deliver scathing speeches at the National Press Club in Canberra. Mr Joyce acknowledged REX’s Deputy Chairman, John Sharp, in the audience.
Mr Joyce cited the example of Whyalla Regional Council wanting to increase their passenger fee by 250% next year to fund what Qantas believes are unnecessary upgrades at that airport. Mr Joyce said such fees made regional routes uneconomic. However in comparison to Whyalla, Dubbo City Council’s proposed 13% increase looks positively benign.
Claiming high passenger fees contributes to high passenger fares intuitively makes sense. But not everyone is a fan of the airlines using airports as their whipping boys.
Judith Sloan, writing in The Australian on the weekend, was highly critical of Alan Joyce. She argues that the airline’s activism is driven by fear that an impending Productivity Commission report into the economic regulation of airports will recommend business as usual. The draft report said “existing airport regulation benefits the community and remains fit for purpose.”
Ms Sloan notes that reductions in passenger fees won’t necessarily be passed along to passengers in the form of lower ticket prices. Rather the airlines will absorb the reductions as profit. This is particularly the case with smaller reductions. On an individual passenger level, a few dollars won’t make much difference to a ticket price or a purchase decision. But for airlines, all those few dollars saved fast add up in their revenue pool.
She argues the airlines are contesting the debate primarily out of self interest.
Does this apply to REX? Less so, in my opinion. REX doesn’t get the economies of scale that Qantas and Virgin Australia enjoy. In addition, REX flies some highly marginal routes and have stated that on one hour long commuter flights, such as the Dubbo-Sydney route, average profit per passenger is about $14. That doesn’t leave a lot of wriggle room.
But the fact that REX is running 61 flights a week in and out of Dubbo suggests that business on that route is okay and passengers are willing to wear the passenger fees imposed by Dubbo City Council. Ultimately, a $1.99 fare increase is unlikely to drive a lot of custom away.