Aussie service crisis fueling, ire of 'second-class citizens'

 - April 3, 2007, 7:59 AM

While industry groups in the U.S. warn about the effects of rising regulatory costs on service levels at small regional airports, similar pressures have thrown Australia into an even more serious crisis, judging by the frantic warning calls emanating from the Regional Aviation Association of Australia. The RAAA cautioned that another 30 communities could lose their air service over the next five years if the federal government does not approve a $30 million rescue package immediately.

According to government figures, over the past three years some 40 regional airports in Australia have lost regular service due to demographic and economic shifts, competition from roads and other government-supported modes of transport, aging aircraft, taxes, fees and insurance costs.

If the RAAA’s estimates prove correct, about one-fifth of all the country’s regional airports would lose service by 2009. In a desperate effort to stem the tide, in late May the RAAA called for $15 million in seat- or route-based rebates for operators flying to rural or regional destinations with airplanes carrying fewer than 20 seats.
The remaining $15 million would target a “pull back” of commonwealth, state and local taxes and charges, within which the RAAA recommends direct payments of $10,000 for each such airframe used on those routes.

Unlike the Regional Airline Association in the U.S., the RAAA represents almost exclusively small commuter carriers, virtually none of which control the resources to finance new aircraft on the open market and expand service in any meaningful way.
The largest–former Ansett Australia subsidiary Skywest–flies five Fokker 50s and a single Fokker 100 from Perth to 13 destinations. The rest fly a hodgepodge of Pipers, Cessnas, Fairchild Metros and a few Embraer Brasilias, primarily to rural outposts.

Meanwhile, larger independent regionals, such as Sydney-based Regional Express (REX), created from the remains of ex-Ansett subsidiaries Kendall and Hazleton Airlines, benefit from such considerations as the government’s 2001 Rapid Route Recovery Scheme, under which it paid $23 million to 18 airlines to assume mainly hub-connecting routes that stood to lose service as a result of Ansett’s bankruptcy.

REX received a $5 million grant to buy Ansett’s regional subsidiaries, while Skywest got $900,000. The government also offered Skywest a $3.5 million loan, which it turned down. Smaller regional airlines argued that the plan gave Kendall, for example, an unfair advantage over nonsubsidized competing carriers. In Western Australia, many fellow RAAA members still complain about licensing arrangements for regional aviation that give Skywest an effective monopoly on all but one of the province’s non-jet routes.

Notwithstanding the calls for more intervention, the federal government historically has shown support of regional air services, particularly in remote regions. Taxpayers now contribute roughly $10 million a year to the Remote Air Services Subsidy program after the government effectively doubled the level of subsidies in June 2000. All the contracts expire after a four-year term, meaning the new series of contracts take effect on July 1. In May the commonwealth announced it would add another $7.1 million to the budget over the next four-year period.

The government also drastically reduced the excise duty on the fuel used in regional airplanes in recent years, lowering duty on avgas from 18.5 cents per liter in 1996 to 2.8 cents per liter since 2000. Meanwhile, under a three-and-a-half-year program instituted in January 2002, the government pays the en route ATC charges for operators flying airplanes with an mtow of 30,000 pounds or less. It estimates the subsidies will save some 30 airlines $6 million over the life of the program. For those flying airplanes heavier than those exempt from the charges, it lowered en route fees by 3.6 percent starting in January last year, saving regional airlines an estimated $1 million per year.

Now facing a serious budget shortfall, however, Australia’s Civil Aviation Safety Authority recently announced it would raise fees for the first time in nine years, and Airservices Australia plans to boost tower fees for the first time since the government placed a cap on the charges in 1998. To help soften the blow to small operators, the government set aside another $7 million in the current budget to subsidize towers at 14 regional and general aviation airports.

Nonetheless, RAAA chief executive Brian Candler remains unimpressed. “On some routes there are as many as 11 different taxes imposed by the three levels of government,” he said. Candler apparently has forged some influential allies in the government, raising some hope of more support for the RAAA’s recommendations. “Without safe, reliable and affordable air services, Australians living in remote areas cannot enjoy the same access to health, commercial and recreational opportunities,” said a parliamentary report released in December by federal minister for transport John Anderson. “No government can stand idly by while country Australians become second-class citizens.”