What is a Fair Fare?

There is no doubt, like most regional centres across Australia, there is a community expectation for cheap airfares. But what actually is a fair fare for Alice Springs? At what point do you consider an airfare cheap or too expensive? Spare a thought for Broome residents recently being offered flights to Perth priced between $5861 and $6003 one-way! A recent Western Australian Parliamentary Inquiry into regional airfares received several hundred written submissions from across the State outlining the negative economic and social impact of high airfares across regional communities. They are yet to hand down their findings however there is no disputing that reasonable airfares are an essential economic enabler for any regional community. 

However, an airline that regularly charges $99 or even $199 one way to or from Central Australia will certainly not remain economically viable for too long. Tiger proved that in 2014 after only 10 months of operation. So what is a fair fare for everyone, including airlines?

Airlines generally use a range of metrics to understand operating costs to then set airfares that provide a sustainable air service that is attractive to both passengers and shareholders. One metric commonly used is ‘Revenue Available Seat Kilometres’. This is the value, in cents, of one available passenger seat, per air kilometre travelled. For example, an east coast high frequency high volume sector such as between Sydney and Melbourne may cost somewhere between $0.08 and $0.15 per seat, per kilometre. Therefore, on a 1,000km (714km actual) flight between Sydney and Melbourne at say $0.10, the airfare should be on average $100 one way. Conversely, Sydney to Alice Springs is somewhere between $0.20 and $0.30 per seat, per kilometre. We can then assume the seat fare for a 2,000km flight from Sydney to Alice Springs at $0.20 should be on average $400.00 one way. As we all know, actual seat prices can vary greatly on an aircraft as some airlines are either full service carriers, such as Qantas and Virgin, or low cost carriers, such as Tiger and Jetstar. Other very important variables include frequency of flights, volume of passengers, seasonality, demand and sometimes most influential, competition. 

Airline costs will vary depending on a wide range of factors – business model, aircraft type, markets serviced and so on – and the airline aims to exceed its revenue above the cost on each and every seat flown every day. Moreover, they will vary over time especially in relationship to interest rates, exchange rates and fuel prices. 

It is important to remember that the figures above relates to the costs of service provision, not the airfares charged by airlines. It is not uncommon to see airfares in the market that are below the cost of provision – Tiger recently offered $1 fares between Canberra and Melbourne. Care must be taken when comparing airport charges with airfares – in the Tiger case, airport charges would have been more than the advertised fare but what is not known is how many tickets were sold at this price or what arrangements had been entered into with the two airports involved to support this marketing exercise. Also, with airlines increasingly levying passengers for “ancillary services” (such as food, check-in, leg room and baggage) care must be taken not to underestimate the passenger’s total cost of travel, especially when comparisons are being made between different markets.

Conversely, we have to consider the economic benefit that airlines currently bring to Alice Springs, regardless of airfare prices. They are a major employer and are a significant contributor to not only the local economy but also the NT GDP. For a town of less than 30,000 population, we are the envy of many larger airports Australia wide being able to fly direct to many capital cities and major destinations on a daily basis. This is the key to our sustainability as over 50% of our passengers are international tourists direct from Sydney or Melbourne. We do not want the risk of losing direct services or destinations that we currently enjoy. 

Current ASP Route Network

Airlines and social media regularly suggest that high levels of airport charges are the reason for high airfares and if fares could be lowered, more people (and particularly tourists) would travel. However, according to the Australian Airports Association and the Productivity Commission, airport and aeronautical charges generally make up only between 5% and 8% of airline operating costs. To dispel the local myths about Alice Springs Airport, our airport charge is only $28.21 per departing passenger regardless of the amount of passengers per aircraft or ticket price. This charge is an agreed amount with the airline to cover forecast costs associated with operating and maintaining the airport along with all passenger and baggage screening security requirements.  This model is used across all major Australian airports as it does not penalise an airline financially if the passenger numbers on a flight are minimal. Another local social media myth is ‘landing charges’. Major Australian airports, including Alice Springs, do not charge a landing fee based on aircraft weight if it is a passenger or Regular Public Transport (RPT) aircraft.  

Nevertheless, and despite finding that airport charges had only a minor effect on airfares, the Productivity Commission found that airport and aeronautical charges accounted for only 5-8% of airfares. But more significantly the Productivity Commission found “in practice, airport and aeronautical charges only have a marginal effect on airfares”.

For Alice Springs residents – another way to help ourselves in the long term, is trying wherever possible to ‘keeping it local’.  We need to understand that the more often anyone drives from our community to Yulara Airport for a perceived ‘cheaper’ flight, actually reduces demand and therefore profitability in our own town.  Airlines rely on volume more than anything else first, to achieve profitability.  No airline will fly to an unprofitable port for long and it will not attract competition.

So, as much as we would all love $99 or $199 airfares every day, it is simply not viable for an airline operating to or from Alice Springs on one flight a day from any of our destinations. For long term economic viability for both airlines and passengers, the average sustainable air fare should be between $300 and $400 one way. Locals would recall similar or more expensive airfares throughout the 80’s, so in real terms, airfares are cheaper than they were 30 years ago. When looking for a cheaper fare it is recommended to plan and book as far ahead as possible (seats become available 12 months before departure) and sign up to airline websites and daily alerts for specials. Another tip is to compare prices with codeshare airline partners such as Emirates, American Airlines and China Eastern. In the meantime, let’s hope for some competition to keep the fare fair.

- David Batic, General Manager Alice Springs Airport