Submitted by Kangaroo Island Councillor Graham Walkom, 2013.07.13:
As a Kangaroo Island councillor, I am very aware that regular and reliable air services to our island are vital to support our essential services such as health, education, power and water. Tourism is important but a secondary issue.
Council has now released A Business Case for the Upgrade of the kangaroo Island Airport at Kingscote
So far I have strongly dissented with the manner in which this important issue has been handled; the refusal of council and the administration to facilitate genuine discussion; the refusal to objectively consider alternatives to improve air services and the refusal to provide additional relevant documents that the administration is required by law to provide. I therefore provide here my criticisms that I sent to federal ministers Albanese and Gray.
There is much at stake here, not least the ongoing costs and viability of council’s airport.
I hope you will take the time to consider both documents and most importantly, contact and question councillors on the narrow focus and irregular processes they have supported so far.
This document is not available from the council website but is available from:
Aerodrome expansion debate — comment and QoN by Cr Walkom, 2013.04.10
An electronic copy for email distribution is available from: grahamwalkom@gmail.com
N.B. These are my personal observations and are not necessarily those of Council.
********
29 May 2013
The Hon. Albanese
Minister for Regional Development and Local Government
PO Box 6022
House of Representatives
Parliament House
Canberra ACT 2600
Email: A.Albanese.MP@aph.gov.au
Copy: Gary.Gray.MP@aph.gov.au
Dear Minister,
Review of Business Case:
Possible Grant Funding for the Kangaroo Island Airport Upgrade
Summary
I hope you may be interested in my concerns over the Kangaroo Island Council’s bid for funding to upgrade our airport which I believe is premature and high risk.
Like all councillors, I am concerned at the serious and steady decline in patronage of air services to our island. This was discussed some 2 ½ years ago and councillors clearly indicated they were not convinced the high costs and high risks of attempting to facilitate jet airliners coming to KI should be pursued. Never-the-less, without councillors being included in the development of the project requirements brief, we received the draft of “A Business Case for the Upgrade of the Kangaroo Island Airport at Kingscote” on 10th May and informally discussed it for a few minutes on the 13th May. I have never received a copy of the project requirements brief and I am not aware that any other councillor has either. (see note 1)
In effect, despite council being the sole owner and operator of the Kangaroo Island Airport, it has effectively been dealt out of any genuine consultation or discussion leading to the preparation of this document. It is noticeable that neither council, nor any other party has effected a Strengths, Weaknesses, Opportunities and Threats analysis regarding our airport. The document has been driven by the Kangaroo Island Futures Authority (KIFA) which does not necessarily have the same objectives as council and certainly does not have the responsibilities for this island community that council has. In addition council has no representation on the KIFA board. I have been able to confirm more than once that although the Mayor is on the KIFA board she is NOT a council representative and does not formally represent council’s interests.
I acknowledge that council has been briefed at a top end strategic overview level on several occasions about KIFA’s interest in our airport and on the various consultant documents that have been prepared on this matter most of which are included as appendices to the business case. However, I emphasise that all information to council so far and therefore the decisions made by council to support the ongoing investigations have been without access to this main report/business case. As I have now considered this report I have noted there are some high risk assumptions made: quite often risks have been identified but not quantified, costed or strategies developed for them. I also note that our CEO and mayor are scheduled to soon discuss grant funding for this project with relevant federal government ministers that includes yourself.
The purpose of this communication is to formally record and convey my reservations about the poor quality of this particular KIFA document, which is now the foundation for the project, and about the high risks for council if they are followed without serious question and adjustment.
Key identified Issues
The purported Business Case exists in name only. There has been no case made for the upgrade except on false premise. What stands out from the document is that it is incomplete and confirms a serious indifference by all major air passenger carriers in this country in providing scheduled air services to KI. To enable a business case to be made, pre-commitment is needed, bankable financials are essential, and there needs to be a heads of agreement between key parties. There is no business case made as no plan is or can be developed for the grand scale upgrade sought.
It seems that this is recognised by the consultants and an attempt to justify the outcome of a much larger facility is made through emotive and incorrect statements regarding risk. It is not mentioned that the existing facilities are currently more than adequate for more than double our present utilisation. The absence of a SWOT analysis as the instigator and basic reference for the report is unfortunate, as is the absence of a project requirements brief.
Apparent ‘Business Case’ objectives: (p4)
1. Accept alternative RPT aircraft (double capacity of current Saab 340)
2. Enable security screening (required for the larger aircraft above 20,000kg MTOW)
3. Accept a more extensive range of private aircraft
4. Facilitate time sensitive tourism access
Apparent drivers for a major upgrade of KI airport:
1. The need to provide for 30+ groups (p4)
2. Island tourist and economic benefits (p4,5)
3. New air services (read competition) (p5)
Document Deficiencies:
1. There is no consulted input from the facilities owner – the KI Council
2. Advice to council that has significantly influenced council’s decisions to date and assumptions within this Business Case is based on the adoption of Pacific Aviation Consulting’s (PAC) medium growth model for passengers from 2011: but the first two years (2012 and 2013) are below PAC’s low growth model
3. The 20 year forecast provides for continued growth in passengers and income from year 6 but no increases in expenses over this 14 year period are included.
4. All aspects of this island’s air services and specifically the reasons for the established steady decline in air passenger numbers are not adequately considered, particularly reasons for reduced use by KI residents, mainland friends and inbound tourists.
5. An airport upgrade is ‘justified’ by the assumption that the Saab 340 aircraft will be replaced in the medium term (5-9 years). This is not the case as the operator Rex advises 15+ operational years remain and Rex are continuing to purchase Saab 340 aircraft as the largest operator of the Saab 340 in the world.
6. In my own communications with Rex, there appears to have been no significant consultation on the airport upgrade although this is claimed in the report to have been carried out.
7. It does not consider other options or staged development to arrest the decline in passenger numbers: in fact passenger numbers are projected to increase by 50% over the next 3 years independent of any airport upgrade.
8. If the upgrade occurs and the Melbourne link fails the numbers do not recover to present level for 6 years.
9. An unqualified and unquantified RPT Melbourne connection is a key feature, but no commitment or expressions of interest was received in support of this service.
10. There are no Return On Investment (R.O.I) details or indeed indication provided.
11. The report fails to appreciate that doubling the capacity of aircraft (ie what the report advocates) will halve the schedule frequency – a significant negative for time sensitive tourism access.
12. The current monopoly air service appears to be solely blamed for the reduction in air travel, whilst the fact the ferry’s significant growth in numbers as a monopoly is ignored, as is the general softening of both regional and inbound passenger numbers.
13. Risk analysis does not consider the possible failure of RPT from Melbourne after start-up, nor the identified possibility by PAC that the current trend could continue down to zero!
14. Improved competition from the very successful ferry service is not considered.
15. The report emphasises that airport upgrade, more accommodation and reduced pricing all need to occur for better passenger volumes, but only provides detail on the airport upgrade.
16. The report emphasises there is an immediate opportunity to work with Rex to increase passenger traffic, independent of an upgrade but this is not developed.
17. The additional depreciation costs identified in the Tonkin report of $276k pa for the upgrade have not been included in the financial analysis within the main document.
18. Council’s long term financial estimates appear optimistic and provide no flexibility for an adverse change over the 10 and 20 year forecasts: a most unlikely outcome.
19. The PAC report identifies that the Melbourne market will currently support a daily Q300 aircraft (50 seat) service without runway, security, or refuelling upgrades but this is ignored in the main report.
20. Both the PAC report and the business case ignore the fact that Rex is well established in Melbourne and flies to Adelaide via both Mildura and Mount Gambier. Kingscote is in direct flight range from Melbourne with a 1.5hour flight.
21. Over the 10 year modelled the cost of security exceeds the additional income generated by the need for that security – the Melbourne passengers by at least 50% pa.
Comment:
The theoretical Melbourne RPT service is factored in to the financial modelling as a definite, and is essential to return a break even net cash operating result after ten years, provided this service builds to 40,000 passengers in that time. It also assumes that service will return a significantly higher passenger head tax of $11.82 which is a material increase in the cost of operating to Kangaroo Island airport which makes any possible new services even more tenuous. Additionally some airports are experiencing recent negotiated downward pressure on passenger taxes (e.g. Hamilton Island) by air service operators.
If passenger numbers are achieved as indicated for a nil investment/contribution by council (the expectation of the 10 year modelling) there is still a $3.1m operating loss over this period to KIC. Should the RPT service from Melbourne not commence or fail to continue, the operating cash over this same period is positive $3.5m! It is not difficult to see why are there no ROI numbers provided. Council agreed to pursue additional revenue streams – I understood that was revenue IN not OUT!
A larger airstrip and terminal is argued on the basis that:
1. The Current 34 seat Saab 340 aircraft planes need to be replaced ‘in the medium term’, so the business case argues there is no option but to upsize the airfield for the inevitable upsized planes that need a larger strip.
2. The existing RPT route through Adelaide could/must be supplemented by a RPT service from Melbourne.
But the projected numbers after 10 years are low and may not have been cross referenced to the actual flights needed to achieve these numbers.
e.g. Melbourne: The 10 year pax (2023/24) of 40,000 would be achieved with a .72 load factor for a single daily flight (either 50 seat Dash 8 or Regional jet) – not exactly likely to attract the competition needed (p44) for the reduced fares and hardly attractive to tourists with only one daily service being provided. In addition if this service was mostly the 30+ groups being sought, there is very limited flexibility with bookings – a lot like flying a RPT service with only two seats.
e.g. Adelaide: The 10 year numbers (2023/24 of 65,000) are achieved with a .64 load factor for 4 flights daily with the existing 34 seat aircraft. But if this route is “upgraded” to Dash 8 (76 seaters) this becomes .58 load factor and down to two flights per day – again, not attractive for competition and lousy for time sensitive tourists. In addition much higher load factors are required to sustainably operate the 74 seat Q400 aircraft.
There is no escaping that Adelaide is the hub for SA air services and is fully set up and functioning as an international airport with considerable spare capacity. Adelaide is only 106km by air and 127km by road from KI which makes road/ferry the main competitor threat to air services. Rex has an extensive base in Adelaide with 10 Saab 340 aircraft servicing eight routes from Adelaide which enables them to viably service the Adelaide to KI route. They also appear to be in the best position to commence the Melbourne to KI route without modification to the KI airport.
In terms of scale REX were servicing the Port Lincoln to Adelaide route as sole RPT operator and built passenger numbers on that route to 150,000 pa before QantasLink entered that route in February 2010. The competition and increased capacity has been great for air travellers but hardly lucrative for QantasLink and Rex. The Port Lincoln to Adelaide numbers have grown to 195,000 which has been achieved with a runway length of 1499m (current KI is 1402m)
There would unlikely be much satisfaction from KI patrons with just two flights per day ten years on. It would continue to drive them to the more frequent service schedules of the ferry service.
Running against the argument for building a longer runway, installing security screening, installing refuelling facilities and constructing a larger terminal is that REX advise they will operate their SAAB fleet for “at least 15 years” – well past the projected tourist buildup period to 2024, when the estimated Adelaide/KI numbers of 65,000 should mean 4 services per day in the stronger tourist season (four return Saab 340 services is around 100,000 seats per year).
Current demand see Rex providing a core 2 to 3 Saab 340 flights per day, moving to 3 to 4 Saab 340 services in the stronger seasonal months between October and March. In this current financial year Rex will provide some 76,000 annual seats with a load factor of 0.51.
Let’s assume REX do start upsizing in 10 years or less – runs like Broken Hill to Sydney (2.75hrs for $426) could use a regional jet service but with the current 3 services a day they would suffer the same drop in service frequency similar to the larger plane threat to KI. By nature of the very short distance, low projected demand, and frequency, KI would want to be the last to drop the Saab aircraft.
The Business Case should specifically clarify the issue of when the larger planes would likely fly ADL/KGS because;
- of the probable cutback in the number of services when/if this occurs,
- REX advice that the SAABs will remain as their main regional fleet for 15+ years.
- If competition on the Adelaide/KI run is considered essential, it is much more logical it happens from say the 20 seater aircraft than the 76 seaters.
The obvious fragility of the proposed Melbourne service and the reliability and proven strength to readily increase the existing ADL/KGS service as numbers increase should give pause to check whether the advocacy for the Melbourne run is on the right tram.
I concur there is a serious market on/from the eastern seaboard – both national and international tourists waiting to be tapped. Combined the Qantas and virgin groups provide 20+ direct flights to Adelaide a day (less on weekends): 4+ ex Brisbane, 10+ ex Sydney and 6+ ex Melbourne for some extremely competitive rates, but none direct to the SA regions, not even to Port Lincoln with its current 195,000 pa movements. Adelaide to KI is starting from a very poor 38,000 passenger movements and this may be at risk of being pared back to only one flight in the off season.
The other very significant advantage of retaining Adelaide as the hub is that refuelling, security facilities, a larger terminal and a longer runway could be avoided for several years whilst KI numbers build up.
A key point disregarded in the report is that QantasLink run five Dash 8 200 (36 seats) and sixteen dash8 300 (50 seat) planes on the eastern seaboard; both could land without modification to the KI airport at Kingscote. REX operate a very substantial fleet of fifty one Saab 340s in south eastern Australia and far north Queensland. Rex do compete directly on some routes with QantasLink, however it should be noted that all such routes have greater than 170,000 annual passengers. REX are already established at the Melbourne (Tullamarine) airport and may consider direct flights to Kingscote (1.7hrs) thus providing a Melbourne, Kingscote, Adelaide link.
Logically, priority and resources should be put into increasing the frequency of Adelaide flights so that eastern seaboard tourists have more connection options. Sure there will be transit time loss in Adelaide but this would be small compared to the time often lost waiting to join a once a day seamless flight to/from Melbourne if your connection did not closely match the schedule. Whilst seamless flights are a most desirable goal, more desirable is increased flight frequency as this opens up KI to many intrastate, interstate and international connections with little risk.
I would also suggest (I note seamless costs from Melbourne are not mentioned) that the cost to the passenger of ‘seamless’ fares from Melbourne to KI would likely be almost double the competitive route through Adelaide – Melb/Adelaide so typically $350 one way; cheaper from Avalon, but most internationals and key domestics fly into Tullamarine; taxi from Tullamarine to Avalon about $130 and 80 minutes – add your check in times and ‘seamless’ to KI has blown out by a 3-4hr Melbourne ground connection. As the major airlines operate from Tullamarine, and they have expressed disinterest flying to KI, Avalon is probably the unwanted Melbourne starting airport for an alternative airline. As is often said, the devil is in the detail.
If the 30+ tourist groups that are sought are not overly concerned about cost then maybe the 35 seat ERJ135LR jet could land at Kingscote and would need only the existing runway extended by 200m – no security, no fuelling, no terminal upgrade so much less at stake if the Melbourne RPT failed. The smaller 35 seater would provide two flights/day for the same projected numbers. The Brisbane Co JetGo is committed to this plane but says it would not be interested in the likes of a Melbourne/KI run for two years so there is much uncertainty.
The Business Case mentions the stellar growth in air visitors to Ayres Rock in the 90’s and a lot of this is attributed to the direct flights introduced when the airport was upgraded. However, much of this growth was due to the professional marketing of the resort and to meeting the requirements of Japanese group tours who required professional guides, paramedics and helicopter rescue facilities based there before enthusiastically accepting and promoting the rock as a group destination. I do not know if Chinese tour groups have similar requirements today.
In any event the KI tourist operators have been shown to be wanting in their take up of their own demands when these have been provided by others. Case in point is the recent demand for a mid-day Adelaide/KI air service; this was provided by Rex on the assurance of KI hospitality operators that they would fill it, but in effect they offered little support. Any airport augmentation based on tourism need must be supported by firm pre-commitment and heads of agreement established from the hospitality industry of KI, and by major Australian and international tourism marketers (yet to be fully exploited).
I believe there is a real option the identified need for 30+ tour groups could be supported with the Adelaide/KI run. It would need to be negotiated with Rex.
Numbers to KI can be substantially built up on a very low risk basis using a staged airport upgrade plan dependent on achieving milestones in increased passenger numbers.
Current fares available (indicative low $, indicative total time)
| Melb to Adel | $125 Jetstar | 1.25hrs | |
| Melb to Pt Lincoln | $251 Qan (booked thro’) | 2.75 – 3.2hrs | Transit Adelaide |
| Melb to Mt Gambier | $173 Rex | 0.70hrs | |
| Adel to Gambier | $172 rex | 1.2hrs | |
| Adel to Pt Lincoln | $138 ($109 promo) Qan/rex | 0.75/0.85hrs | |
| Adel to KI | $110 Rex | 0.6hrs | |
| Melb to KI (via Adel) | $125 Jetstar + $110 Rex = $235 | 2.4 – 3.5hrs | Separate bookings |
| Melb to KI – potential | $350 estimate only | 1.7hrs | Direct |
Note 1: A cursory overview report was provided to council at council’s March meeting 2013 but the full set of the Business Case documents have not been presented and discussed by council, either formally or informally.
Graham Walkom
Elected Member
Kangaroo Island Council
08 8553 7161
Schematic: REX – Current Air Services