- A series of incidents involving high landing fees at Canberra airport after Qantas flights diverted there in 2017 have reemerged as Australian airlines begin a public fight over the costs charged by local airports since they were privatised.
- The airlines claim that while airfares fell by 40% over the past decade, Australia’s four main airports collected 25% more revenue per passenger over that time.
- Australian airport fees are estimated to add as much as 20% to the cost of an airfare.
- Canberra airport also charged a Qantas 747 freighter $67,000 when it diverted from Sydney.
This is a story about airport monopolies, an AFR rich lister, one of Australia’s biggest companies, and the bitter fallout from a $20,000 bill when a Qantas 737 was diverted to Canberra airport – a price that equates to around $100 per passenger.
But it’s also about a much bigger fight over the cost of aviation services and regulation in Australia.
Domestic airlines are currently on a push to get the federal government to intervene on what they see as overcharging by the country’s major airports.
Airport costs are adding up to 20% to the price of a ticket and airlines have accused their owners of abusing their monopoly powers in a new report analysing their performance since the government-owned airports were privatised two decades ago.
Former ACCC boss Graeme Samuel, who now chairs the industry lobby group Airlines for Australia and New Zealand (A4ANZ) commissioned the report “The Performance & Impact of Australia’s Airports Since Privatisation”, which found that while airfares had fallen by 40% over the past decade, Australia’s four main airports are collected 25% more revenue per passenger, in real terms, over that time.
Frontier Economics, which authored the report, concluded profit margins at Australian airports are “significantly higher” than global standards and in some cases more than double the international benchmark.
Samuel said the privatisation of airports led to higher costs for both airlines and passengers.
“Consumers are the ones who ultimately lose in this scenario, whether it’s the exorbitant landing and service fees paid by airlines on the passenger’s behalf, their car parking fee, taxi surcharge, or the bottle of water they buy in the terminal,” he said.
The report was a warning shot ahead of the Productivity Commission Inquiry into the Economic Regulation of Airports.
The ACCC was also “concerned” about the current regulatory regime in its most recent look at airport profits, which jumped 9.9% in real terms over the last 12 months.
Among the big four – Sydney, Melbourne, Brisbane and Perth – Sydney Airport made the most from each passenger at $18.30, up 4.4%.
But when the A4ANZ report was released one particular incident stood out: when a Qantas 737 bound for Sydney was forced to divert to Canberra Airport due to bad weather in March 2017 and was slugged with an $20,000 bill (more than $100 per passenger). It subsequently provoked a major war of words between Qantas and Canberra airport.
A diversion like that would normally cost around $2000.
Samuel called it “third world stuff” that left him “gobsmacked”.
Qantas boss Alan Joyce went further saying it was “unbelievably appalling behaviour” and comparing it to the actions of Somali pirates.
“They actually ransomed one of our aircraft,” he said.
Business Insider understands the extraordinary incident went even further, with the plane initially prevented from refueling and then an escort car was parked in front of the aircraft to prevent it leaving before the diversion bill was paid.
An email was sent to the pilot with the invoice saying “Please note the aircraft cannot depart until the invoice is paid. Payment by credit card please.”
Qantas senior management in Sydney then intervened. A new figure for the diversion was negotiated and the plane was allowed to leave.
Qantas domestic CEO Andrew David said no airport it deals with around the world behaved like that.
“It’s bizarre. It’s hard to see how a company can think that trying to attack its biggest customer, which Qantas is, will improve matters,” he said.
Business Insider contacted Canberra Airport for comment and an explanation of how the charge was calculated.
While Canberra Airport managing director Stephen Byron initially responded to Joyce’s pirate barb – an initial report published by the ABC had him calling Qantas “bullshitters”, before the story was amended and the reference removed – a spokesperson for airport told Business Insider that they agreed with Qantas that they didn’t want the dispute playing out in the media and would not make any further comment.
However, we were directed to a defence of the airport published on LinkedIn by Byron, which paints the emergence of the dispute as payback by the airline for the airport’s campaign to reduce cancellations by Qantas.
“Qantas has decided to try to discredit us through the media by bringing up an eight-minute incident that was resolved quickly, over 14 months ago, rather than sit down to discuss cancellations,” he wrote.
“By seeking more reliability of service for customers, we have upset our largest customer and we now face the blowtorch from one of the most powerful companies in Australia and their PR machine.”
Byron said the 30 March 2017 event “was the last in a series of unannounced diversions by Qantas that posed a risk to other aircraft”.
He says that last incident relates to 17 February 2017, “when Qantas sent two diverted, international 747 aircraft to Canberra Airport without notification (not even a phone call) and had another 747 headed our way”.
Byron said with a bushfire nearby and part of the apron quarantined to refuel firefighting aircraft, it was a crisis situation.
“We couldn’t take anymore diverted planes – we were in danger of being over capacity and possibly having to shut down our main runway,” he wrote.
Byron said he had to call Andrew David to stop the third plane landing and they agreed to establish a formal arrangement on diversions. With a deal now in place, there have been no more problems, he says.
The airport boss concludes: “No doubt the Qantas PR machine will continue this drip feed of stories but the people of Canberra–especially the ones who have been caught up in cancellations will see it for what it is.”
But Qantas disputes Byron’s theory with David telling Business Insider: “Cancelling or delaying flights disturbs passengers and costs us money, so we have plenty of reasons to minimise them. Canberra Airport seems to think it’s some sort of conspiracy and that they can publicly shame us out of it. That’s simply not how it works.”
However, with the airport trying to lure the airline’s low-cost offshoot, Jetstar, to Canberra, the dispute clearly rankles with the national carrier.
That aggravation intensified after Qantas discovered a contracted QF 747 from the US was charged $67,000 for a diversion to Canberra – the precursor Byron refers to – a month before the 737.
The 747 pilots were told the invoice had to be paid before they departed. Because of the huge sum involved, they had to make the payments in three credit card transactions.
Business Insider got a hold of the receipts for the transactions:
A typical diversion charge for a 747 would be around $10,000.
The $67,000 fee includes $19,000 for the diversion, a $14,000 parking fee and $28,000 “alternate operation fee”. It was only discovered by Qantas when the bill was passed on to them by the freight operator, and is one of several areas of dispute between the airline and the airport.
Jetstar group CEO Gareth Evans is blunt about the chances of his airline heading to the national capital, saying there are “two big obstacles”.
“Canberra Airport need to significantly reduce their fees and they need to take steps to build the sort of relationship you would expect between a business and its largest customer,” he said.
“Canberra Airport is expensive and we can’t make the economics work for a low cost carrier. Instead, we fly to 18 other airports around Australia who understand this.
Nonetheless, Canberra has been a good investment for its billionaire owner, Terry Snow, who bought the airport from the federal government 20 years ago for $65 million. It’s been described as “one of the more canny property deals in recent Australian history” and now features a business park, hotel and childcare centre, along with a recent upgrade to the terminal.
The airport recorded a $237 million operating profit in 2017.
Snow is 52nd on the recent AFR Rich List, which estimates his wealth increased 46% to $1.46 billion over the last 12 months.
The battle between airlines and the nation’s airports comes as world’s airline CEOs meet in Sydney this week for the International Air Transport Association (IATA) AGM. Privatisation was one of the key talking points.
An IATA Economics study concluded that if airport passenger charges in Australia had remained at their 2008 levels, passengers would have saved $180 million and domestic trips would have increased by 1.23 million passengers.
Graeme Samuel weighed in again during the conference after the Australian Airports Association (AAA) called the local regulatory framework a global role model, saying that was “laughable” and extending his complaints to New Zealand.
“A model in which the regulator only has a watching brief has set both Australia and New Zealand up as global leaders in making airport shareholders rich at the expense of passengers,” he said.
“It comes as no surprise to us that the only group who wants to defend the current model are those who are reaping all the benefits: the highly profitable, private monopoly airport operators in our region. Our airports have the lightest regulation and earn the biggest profits in the world.”
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