Oh, dear, what can the matter be.
I may yet need to reach for the tin hat and Kevlar jacket – hope not – but I think its time to bring a little perspective to the table regarding air fares to ‘remote’ towns and cities. Lets take Mt Isa as a test case. There are aircraft operators there and it’s a big enough place to give a fair spread of the population variants. There is a mine, agriculture and the associated infrastructure required of a large regional town – city, if you insist.
Suppose a few of the big interests got together and decided to kick off their own air services, as a non profit outfit, to service the community needs in a philanthropic manner.
I won’t bore you with the thirty odd spread sheets required to analyse the best service and anyway there is no such animal. Whichever way you cut it up – there is no way a local airline can supply all the people, all the time, with there hearts desire. So from the kick off there must be compromises; commercially democratic ones. For example would your primary service be to Brisbane or Townsville? Pick one or buy two aircraft. That ain’t going please everyone as whichever way you jump, there will be a transfer to a flight to the ultimate destination. Brisbane has a wider selection of direct flights so, lets go there. Ok, so that’s the primary route, now what about a milk run for passengers in the larger towns? That means another aircraft; schedule simple enough – out AM – back PM.
In theory – you’d think a jet for the long haul and a big propeller turbine should do the job nicely. Well it won’t do, not at all, not sensible. Take the jet for example – Isa to Bris every morning, 60% load factor - then back again every evening – financial suicide. Ok so lets up the ante and do Isa, Townsville, Bris, Sydney, you are now entering a world of hurt. The aircraft must have a 60% (ish) load to break even on every sector; Isa – Townsville may be a break even run but once the TL passengers are off – if no one gets on to go the Bris – you’re buggered again and no matter what price you offer a ticket at – the competition is there with more to offer and deeper pockets and an averaged load factor across a network to smooth out the wins (full aircraft) and losses (half full aircraft). By the time you’ve done the maths and explained it to your potential investors, the atmosphere in the board room is grim. If you are brave and determined you will need to field the next line of questions.
So what class of money are we looking at here to get started?
Minimum fare structure to stay in the game?
Direct operating costs?
Operating budgets?
To name but a few of the ever upwardly spirally money numbers needed just to get the game kicked off. All up it is a massive investment, huge, to perhaps break even – with luck.
Perhaps the philanthropists are determined and waive the massive start up operational costs aside – quite prepared to write that money off. The next question will be along the lines of – “when can we get going?”. If you are honest – you’d perhaps point out the costs and hurdles associated with getting an aircraft into the air – and keeping it there. The direct cost of obtaining Australian Air Operators Certification (AOC) borders on lunacy, maintaining ‘compliance’ with the regulations is truly scary and the attempt to do so can land you in jail – quick as a wink, even if you tread carefully. All of this before the competition gets the ‘irrits’ and simply price you out of the market.
I have a great deal of sympathy with those who dwell in FNQ or indeed any of the remote centres. The commercial realities of air operations, as applied to the cost of providing any air service is a very real number ; the investments significant and outfits, like Qantas, are expected, despite all the problems (challenges; if you must) to make a return on that investment. The big ‘bad’ is that even if the ‘cost of providing service’ was reduced, fares will not become appreciably cheaper, the profits will simply be higher. In the USA and Europe there is competition which keeps fares down a little – but there are a hell of a lot more people there:- 8.77 million in London alone: 8.53 million in New York: 3.97 in LA: 3.5 million in Berlin: Mount Isa - 21 thousand, nine hundred and ninety eight 21, 998 including the town drunk and his dog. When you work out the numbers in terms of how many passengers can I expect on any given day to use my air service, you’ll admit it’s the skinny end of break even, two bad days a month and you’re on the brink of extinction. Even if you doubled that number with itinerant visitors – its still a bleak financial prospect.
They say supply and demand is a key element of a free market, that and competition. Although what folk expect the government to do about that is beyond thinking. Even if the government demanded to know the true cost of the daily services provided to rural and regional destinations they would probably end up providing supplementary money to the airlines – just to keep the service running.
It costs a whole boatload of real money to get an aircraft into the air; perhaps the government could think about doing their bit and reducing the fiscal burden of compliance with ‘the law’ by reforming the rule set to relieve that burden. It is the least they could do; and the best they could do. Will they do it? Unless you can hold your breath for another thirty years don’t bet on them doing it.
My apologies to the purists – and those with axes to grind queuing at the grindstone – but we have just invested enough money in a Senate tour of FNQ to define the air service problems and I, for one, would like to see a return on that investment – soon. Hence my little Monday ramble. Now, where did I leave my knitting?
Toot toot.
I may yet need to reach for the tin hat and Kevlar jacket – hope not – but I think its time to bring a little perspective to the table regarding air fares to ‘remote’ towns and cities. Lets take Mt Isa as a test case. There are aircraft operators there and it’s a big enough place to give a fair spread of the population variants. There is a mine, agriculture and the associated infrastructure required of a large regional town – city, if you insist.
Suppose a few of the big interests got together and decided to kick off their own air services, as a non profit outfit, to service the community needs in a philanthropic manner.
I won’t bore you with the thirty odd spread sheets required to analyse the best service and anyway there is no such animal. Whichever way you cut it up – there is no way a local airline can supply all the people, all the time, with there hearts desire. So from the kick off there must be compromises; commercially democratic ones. For example would your primary service be to Brisbane or Townsville? Pick one or buy two aircraft. That ain’t going please everyone as whichever way you jump, there will be a transfer to a flight to the ultimate destination. Brisbane has a wider selection of direct flights so, lets go there. Ok, so that’s the primary route, now what about a milk run for passengers in the larger towns? That means another aircraft; schedule simple enough – out AM – back PM.
In theory – you’d think a jet for the long haul and a big propeller turbine should do the job nicely. Well it won’t do, not at all, not sensible. Take the jet for example – Isa to Bris every morning, 60% load factor - then back again every evening – financial suicide. Ok so lets up the ante and do Isa, Townsville, Bris, Sydney, you are now entering a world of hurt. The aircraft must have a 60% (ish) load to break even on every sector; Isa – Townsville may be a break even run but once the TL passengers are off – if no one gets on to go the Bris – you’re buggered again and no matter what price you offer a ticket at – the competition is there with more to offer and deeper pockets and an averaged load factor across a network to smooth out the wins (full aircraft) and losses (half full aircraft). By the time you’ve done the maths and explained it to your potential investors, the atmosphere in the board room is grim. If you are brave and determined you will need to field the next line of questions.
So what class of money are we looking at here to get started?
Minimum fare structure to stay in the game?
Direct operating costs?
Operating budgets?
To name but a few of the ever upwardly spirally money numbers needed just to get the game kicked off. All up it is a massive investment, huge, to perhaps break even – with luck.
Perhaps the philanthropists are determined and waive the massive start up operational costs aside – quite prepared to write that money off. The next question will be along the lines of – “when can we get going?”. If you are honest – you’d perhaps point out the costs and hurdles associated with getting an aircraft into the air – and keeping it there. The direct cost of obtaining Australian Air Operators Certification (AOC) borders on lunacy, maintaining ‘compliance’ with the regulations is truly scary and the attempt to do so can land you in jail – quick as a wink, even if you tread carefully. All of this before the competition gets the ‘irrits’ and simply price you out of the market.
I have a great deal of sympathy with those who dwell in FNQ or indeed any of the remote centres. The commercial realities of air operations, as applied to the cost of providing any air service is a very real number ; the investments significant and outfits, like Qantas, are expected, despite all the problems (challenges; if you must) to make a return on that investment. The big ‘bad’ is that even if the ‘cost of providing service’ was reduced, fares will not become appreciably cheaper, the profits will simply be higher. In the USA and Europe there is competition which keeps fares down a little – but there are a hell of a lot more people there:- 8.77 million in London alone: 8.53 million in New York: 3.97 in LA: 3.5 million in Berlin: Mount Isa - 21 thousand, nine hundred and ninety eight 21, 998 including the town drunk and his dog. When you work out the numbers in terms of how many passengers can I expect on any given day to use my air service, you’ll admit it’s the skinny end of break even, two bad days a month and you’re on the brink of extinction. Even if you doubled that number with itinerant visitors – its still a bleak financial prospect.
They say supply and demand is a key element of a free market, that and competition. Although what folk expect the government to do about that is beyond thinking. Even if the government demanded to know the true cost of the daily services provided to rural and regional destinations they would probably end up providing supplementary money to the airlines – just to keep the service running.
It costs a whole boatload of real money to get an aircraft into the air; perhaps the government could think about doing their bit and reducing the fiscal burden of compliance with ‘the law’ by reforming the rule set to relieve that burden. It is the least they could do; and the best they could do. Will they do it? Unless you can hold your breath for another thirty years don’t bet on them doing it.
My apologies to the purists – and those with axes to grind queuing at the grindstone – but we have just invested enough money in a Senate tour of FNQ to define the air service problems and I, for one, would like to see a return on that investment – soon. Hence my little Monday ramble. Now, where did I leave my knitting?
Toot toot.