Challenges facing Darwin and other regional airports

JIM PARASHOS
DIRECTOR COMMERCIAL & AVIATION DEVELOPMENT
Challenges facing Darwin and other
regional airports
DARWIN AIRPORT BACKGROUND
Challenges at Darwin & regional airports
BACKGROUND
OWNERSHIP
Palisade
Diversified
Infrastructure
Fund
23%
BOARD
Adrian Croft
(IFML)
Director
Barry Coulter (IFML)
Director
(appointed 31 March 2014)
Julian Widdup
(Palisade)
Director
Chris Barlow
(IFML)
Chairman/Director
IFM
77%
Ian Kew (NT
Airports)
Chief Executive
Officer
No changes since 8 March 2013
Tom Ganley (NT Airports)
Company Secretary & Chief Financial
Officer
Overview
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Privatised in 1998
Owned by Airport Development Group Pty Ltd
100% Australian Owned
50 year lease with 49 year option
Airport centrally located
Join User Facility (Royal Australian Air Force – RAAF)
Instrument landing systems (ILS Cat 1)
Fire Fighting (Cat 8)
311 hectares (1258 hectares RAAF)
24 hour, curfew free operation
84 Staff
Darwin International Airport

Two runways
•
11/29 3354m (60m wide)
(resurfaced 2008)
•
18/36 1524m (30m wide)

17 aircraft bays – bays 23-25 added 13/14

Regular A319, A320, A340, B767, B737, B717,
EM2, M23, E170, F70, F100, SF34 aircraft
patronage

Two storey, modern, integrated terminal

Currently undergoing $60M expansion

Four aerobridges (One apron drive three fixed)
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Additional aerobridge to be installed
December 2014

Ten jet A1 re-fuelling points

Instrument Landing System (ILS Cat 1)

Fire Fighting (Cat 8)

100% Checked Baggage Screening
(Domestic and International)
Terminal Expansion
Capital Expenditure
$M
* Excludes Trust
ADG Capital Expenditure - since privatisation
80
70
60
50
40
30
20
10
1999
2000
2001
2002
2003
2004
2005
2006
Actual
2007
2008
Forecast
2009
2010
2011
2012
2013 2014 B
TXP Scope
Energy Centre
Existing Terminal
(Contract A)
(Contract B)
Existing Existing
Chiller S/R
(Contract A)
Bays 23-25
3 New Aircraft Parking Bays
Darwin Routes - Carriers
Recent Local News
 Malaysia Airlines commenced 4pw Kuala LumpurDarwin Nov 2013
 Airnorth increased Darwin-Townsville from 4 to 5
per week in April 2014
 Virgin retimed Brisbane-Darwin to daylight
services on 15 April 2014
 Tigerair commenced daily services BrisbaneDarwin 15 April 2014
 Qantas added 11 additional flights from Brisbane
(4), Melbourne (4), Perth (2) and Sydney (1) from
March 2014
 Jetstar withdrew 4pw Darwin-Manila-Tokyo in
March 2014
 Jetstar increased Cairns-Darwin from 3 to 7 per
week in March 2014
 SilkAir operates a 5th weekly supplementary
during peak months
Darwin – Carriers YTD April 2014
Overview
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Largest construction project undertaken at Darwin Airport
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Airport capacity will double with both terminal ends
expanding
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Foundations completed on East End July 2013
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Completion of East End anticipated June 2014
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Virgin and Qantas Lounges’ fitout
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Completion of West End anticipated October 2014
TXP
TXP Roof Construction
Dome Cafe
Hungry Jacks
Bumbu
Our Economy
 Population 240,759 / 30% indigenous
 1% of Australia’s population
 Relatively young age profile with half of the population
aged less than 32 years
 1.3% of Australian GDP (2011/12)
 1/6th of Australia’s land mass
 NT houses 9.3% of Defence Force Personnel
 6.3% total defence force expenditure in NT
GSP
Employment
2011-12
2012-13
10-Year
Average
%
%
%
Mining
18.0
14.3
16.7
4 300
4 800
3 300
Construction
13.7
17.7
13.6
12 200
13 500
10 100
Agriculture, forestry and fishing
2.0
2.2
2.9
5 000
3 100
3 000
Tourism
4.6
4.5
n.a.
8 000
8 000
n.a.
Defence
7.6
7.0
8.5
6 659
6 512
6 612
Retail and wholesale trade
4.7
4.8
4.8
13 600
13 600
13 400
Manufacturing
2011-12
2012-13
10-Year
Average
5.4
4.2
5.9
3 400
3 900
3 700
Government and community
services
18.7
18.8
19.4
42 600
44 400
39 700
Other services
23.7
24.1
23.4
41 200
42 100
38 000
Challenges in Darwin
Aeronautical Pricing:

Key inputs into building block
approach to aero pricing
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Structured formula – we do
not make it up as we go along
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Challenges with key inputs
drives outcome
Key Inputs
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Pax forecasts
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Capex program
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Asset base

WACC (IRR)
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Term

Rebates/incentives
Tigerair announces
daily Darwin to
Brisbane flights
December 2013
Darwin Passenger Movements
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E
Dom OD
Int OD
Trans
Darwin Transit/Transfer Passenger
Movements
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E
Trans
Darwin International Passenger
Movements
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E
Int OD
Alice Springs Passenger Movements
750,000
700,000
650,000
600,000
550,000
500,000
450,000
400,000
1998
1999
2000
2001
2002
2003
2004
2005
2006
TOTAL
2007
2008
2009
2010
2011
2012
2013 2014e
Low and Volatile Volumes
This impacts on:
 Security charges
 Airport charges
 Ability to make long term investments with confidence
 Higher cost of borrowings
High Cost Environment

Competition from resources sector impacts all areas of
airports operations
–
A blue collar worker at INPEX site from 7am-5pm
compared to:
–
A security screening person on 24 hour roster
–
Creates cost pressures and labour availability
issues
ADG
Operating costs per passenger
14%
27%
$16.00
- Labour
- Security
10%
- Utilities
$14.00
$12.00
- Maintenance
21%
- Other
28%
$10.00
$8.00
$6.00
BNE
$4.00
$2.00
18%
21%
$ADG
BNE
ADG
MEL
BNE
MEL
PER
PER
SYD
SYD
ADL
ADL
- Labour
- Security
- Utilities
21%
17%
- Maintenance
- Other
23%
Security charges - $/domestic pax round trip
$14.00
$12.00
$10.00
$8.00
$6.00
$4.00
$2.00
$0.00
Darwin
Alice
Sydney
Perth
Security charges
Adelaide
Gold Coast
Brisbane
Extracts from Territory Economic
Review – May 2014
High Cost Operations
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4 symmetrical peaks per day:
− 1100-1400, 1600-1900, 2300-0200, 0400-0800
− 13 hrs peak, 11 hrs little activity
− But 24hr x 365 day costs
− Inability to spread peaks impacted by
− Curfews at other airports
− Aircraft Utilisation
− Maximising connections/connection waves
− Competitor response
− Demand from resources companies
− Average 4.5 hrs flying from everywhere
Domestic hourly seat capacity
International hourly seat capacity
High Cost Operations
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Remote northern Australia level of construction and maintenance
costs – varies from 20% to 50% more depending on project and
economic cycle
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Power and Water tariff increases:
1 Jan 13
1 Jan 14
1 Jan 15
Electricity
+20%
+5%
+5%
Water
+30%
+5%
+5%
Sewer
+15%
+5%
+5%
The MCG.....
..... And Darwin’s population
Scale
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Small population of Darwin (~120K) currently fills 30% of
domestic seats and 70% of international seats
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Populations (ABS 2011 Census Data)
–
Greater Geelong – 210,875
–
Bendigo area – 140,614
–
Frankston area – 126,458
–
Greater Darwin – 120,586
–
Ballarat area – 93,501
Alice Springs Market Mix FY13
Darwin Domestic Passenger Mix FY 13
Pax on domestic services
29%
26%
37%
Darwin Origin
Asp Origin
45%
International
Darwin Destination
(domestic)
26%
International
37%
Darwin Airport International
Passenger Mix FY 13
Passengers cleared at Darwin
32%
Australian Passport
Holders
68%
Other Australia
Overseas Visitors
DARWIN PASSENGER SEASONALITY
220,000
55,000
High season
200,000
50,000
180,000
45,000
160,000
40,000
140,000
35,000
120,000
30,000
100,000
25,000
Half as many passengers in low season
80,000
20,000
Domestic (LHS)
International (RHS)
 Traditional strengths in regional markets being
impacted
– Domestic markets to Darwin, Broome and other regional
cities impacted by LCCs to Asia
– Markets like Alice Springs and Cairns dependant on
international inbound travel face high dollar impacts, lower
cost destinations, dispersal challenges
– Strong economies increasing cost of ground content, forcing
out the ‘volume’ leisure sector
– Airlines no longer willing to ride out the storm. Readily
relocate their assets to better performing market sectors

Regional Airports generally don’t perform as
strongly in these areas as major airports
–
Usually much closer to city centre than major capitals,
with no traffic
–
Closer to city centre means more drop off/pick up due
proximity and lower equivalent taxi fares
–
Many regional centres don’t have paid parking in town,
so expectations are for nil revenue to fund car park
capex
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Car park development impacted by:
–
More than double the cost of
developments compared to major cities
–
A passenger mix of higher interstate
visitors, ie pax that don’t use car parking
The people challenge
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Difficult to recruit and retain in Darwin and other regional
and remote areas, particularly for key/critical roles

Challenge to attract partners and families
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High cost of living... Despite being balanced against
–
Lifestyle
–
Proximity to Asia
–
Opportunity to expand
experience for career progression
Thank you

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