Cairns Airport – Rebuilding Aviation

Briefing Note Summary

COVID-19 has had a disproportionate impact on the Far North Queensland region with an estimated loss of $2.2B of visitor spending in 2021, impacting more than 7,700 jobs in the visitor economy.

Investing in the rebuilding of aviation will deliver a strong ROI resulting from increased tax revenue, while playing a critical role supporting job creation in the tourism and accommodation industries.

Cairns Airport has committed to upgrading the International Terminal to support the rebuilding of direct international aviation. This follows completion of the Domestic Terminal upgrade in 2020.

Government support to meet the costs of Federally Mandated security upgrades will avoid cost prohibitive increases to the International Passenger Service Charge and International Passenger Security Charge during the aviation rebuild period.

Targeted route development, with a strong focus on Japan and Europe, is required to replace Chinese visitors who were previously the most valuable international customer segment for Tourism in the region.

New aircraft technology provides the opportunity for direct flights from Cairns to Europe, which would be a game changer for Cairns’ tourism and international trade. Cairns is the only airport in Queensland that can reach Europe with direct flights.

The Issue

Rebuilding international aviation in a COVID-normal operating environment

When international travel ceased in March 2020, it removed a structurally important component of the $3.3B tourism industry in Far North Queensland (FNQ). International visitors not only account for 7.4% of the region’s economy, but they also smooth the annual demand cycle because they travel when domestic demand is low, which allows operators to retain a year-round work force. The current absence of international tourists has operators juggling resourcing to service stop-start domestic demand and missing out on the opportunity to serve their premium customers.

FNQ’s high value airfreight export industries are also dependent on international connectivity and currently rely heavily on the Federal Government’s IFAM program. Whilst this program has been a lifeline, private sector businesses are relying on the resumption of international connectivity to provide freight capacity beyond July when the IFAM program concludes.

Cairns Airport is working to achieve a strong, fast international recovery for the benefit of the region’s tourism industry and exporters. This international aviation rebuild will be achieved from a standing start as the Cairns International terminal has been closed to commercial traffic for two years due to ongoing travel restrictions. The aviation rebuild will also take place in a changed and challenging operating environment where geopolitical developments, rapidly evolving customer needs and high degrees of operational risk dictate that international connectivity be built back differently.

Key issues for consideration during the international aviation rebuild include:

Maintaining a stable cost base for airline partners:

Cash constrained airlines are highly sensitive to increased costs of doing business with airports in the current environment.

Mandated security upgrades will cost Cairns Airport $10M, significantly increasing the International Passenger Service Charge and International Passenger Security Charge levied to airlines, particularly as costs would be shared across a reduced number of passengers during the aviation rebuild.

Establishing new point-to-point routes for the covid-cautious traveller:

Route development has also been impacted as passengers now prefer to avoid hubs and fly point-to-point. Thankfully, Cairns has a long history of direct connectivity to Japan upon which to rebuild, and modern long-range wide-body aircraft (A350 and B767) are creating opportunities for long-haul point-to-point routes, including the possibility of direct flights into central-western Europe.

Airlines rely on direct financial support to offset the increased risk and cost associated with new routes, especially long-haul point-to-point routes which are a departure from the pre-covid playbook. In a cash constrained environment, all stakeholders have weak balance sheets and must work together to support the re-establishment of international routes.

Background

Facilitating growth of aviation support

Cairns Airport maintains strong relationships with airlines based on fair pricing and a constructive approach to the airline-airport partnership. These relationships enable it to secure increased aviation capacity, which in turn facilitates regional growth. Cairns Airport has a successful track record of investment in international route development and a history of successful collaboration with government to deliver positive regional and industry outcomes.

In FY19 Cairns International Airport facilitated 4,400 direct international flights and 660,000 direct international passenger movements. During that period, international visitors accounted for 6.9M room nights and $1.1B in regional expenditure in Far North Queensland, while airfreight exports ex Cairns Airport totalled 3,075 tonnes with a total value of $146M.

Now that vaccination thresholds have been achieved, Cairns Airport is once again seeking to support the re-establishment of critical international links to enable industries to continue operation.

Cairns Airport is engaging with NAIF to revitalise the International Terminal on the basis that that a modern and efficient international terminal will be a more attractive destination for international airlines and will provide an improved passenger experience for the FNQ tourism industry.

Government mandated security upgrades would be completed as part of the terminal refresh project however the incremental cost of security upgrades, if funded by Cairns Airport, would be passed through to airlines via increases in the International Passenger Service Charge and International Passenger Security Charge.

Cairns Airport will fund the functional and cosmetic components of the terminal refresh, most likely with NAIF loans. However, to maintain a stable cost base for airline partners Cairns Airport call upon the Federal Government to fund the mandated security upgrades as it has done for other non-capital city airports via the Regional Airport Security Screening Fund. Cairns Airport understands that it sits outside the eligibility parameters for this program but is concerned that a new commercial disincentive to fly into Cairns during the rebuild period would negatively impact the recovery of the international tourism industry at a time when the region needs all the support it can get.

Cairns Airport has had to reevaluate its approach to international route development for the COVID-normal operating environment.

The rebuilding of key tourism markets such as Japan back to its peak in the late 2000s would largely offset the recent loss of direct Chinese arrivals from Hong Kong and mainland China, and modern, fuel-efficient aircraft now make it possible to establish direct connections from Cairns to Europe. A Cairns-Frankfurt service would make Cairns (and Queensland) a single-hop destination for covid-cautious European travellers. There is no precedent for such direct connectivity from Cairns, so interested airlines would seek to minimise commercial risk through government support.

Cairns Airport has a solid track record of delivering a strong ROI on government aviation investment and this would be opportunity for another successful partnership.

Next Steps

Mandated security upgrade

Maintaining stable costs for airlines is a high priority for Cairns Airport as it works to rebuild its international route network, to bring valuable international tourists back into the region. Government funding to cover the security upgrade requirements will eliminate the need for increases to the International Passenger Service Charge and International Passenger Security Charge, supporting the recovery of the region’s tourism industry

Cairns airport investment

Cairns Airport is supporting the regional economic recovery by investing in initiatives that increase the appeal of direct flights to international airlines.

Aviation attraction funding

To rebuild traditional direct routes and to provide direct connectivity to new destinations without exposing passengers to hub airports. Cairns Airport seeks to work with State and Federal Governments in attracting a full-service carrier into Japan and establishing a direct service into Europe. To achieve this, government will be called upon to help de-risk these service through the direct provision of aviation attraction funding to Cairns Airport.

Our Recommendation

To maximise success, Cairns Airport calls for the following commitments:

  • $10M towards Security Infrastructure upgrades, to support the recovery of the region’s international tourism industry, by allowing Cairns Airport to maintain a stable cost base for airlines during the international aviation rebuild period.
  • $20M ($5M per year for four years from State and Federal Governments) in aviation attraction funding directly to Cairns Airport, to support attraction of an historic direct central-western European international connection and to rebuild Japan back to peak visitor numbers.