Image: Melbourne Airport Chief Executive Lyell Strambi
Airports need to do a better job of explaining how investment in improved infrastructure helps airlines lower their operating costs, according to Melbourne Airport Chief Executive Lyell Strambi.
The former airline executive believes that post privatisation rhetoric about monopoly airports and pricing is too simplistic and ignores more complex consumer benefits that should be part of the discussion.
He points to areas such as runway upgrades and A380 gates that allow airlines to use bigger planes with better economics and self-serve check-in technology that permits carriers to reduce labour costs while improving customer service and increasing passenger throughput.
Another example is the $400m T4 low-cost terminal, a fully-automated asset that saves airlines “a fortune’’ through smarter, collaborative design – even though they pay higher charges to use it.
And then there is new runway capacity that will save airlines money in terms of delays and systems costs, while growing the number of choices available to the travelling public.
“We’ve driven a lot of efficiencies for the airlines,’’ Strambi says. “But people tend to focus in on the airport charge rather than the total cost of operation.”
It’s a long-standing annoyance for Strambi, who is approaching his second anniversary running Melbourne Airport, and who dealt extensively with airports in his former role as Qantas Domestic chief executive and in the UK as a senior executive with Virgin Atlantic.
He says “enlightened airlines’’ do look at the total cost picture rather than individual charges but there are some who don’t.
“We probably need to do a better job of helping them understand how we’re actually helping them save money,’’ he says.
The same is also true about the benefits of privatisation.
The airport boss spent the early part of his career stationed at Melbourne Airport with Ansett in the early 1980s and says the differences under government and private ownership are enormous.
A big open-air car park from those days is now home to multi-storey car parks and hotels and he say amenities at the airport have come a long way since its main claim to fame was a bar with extended opening hours.
“If you look at it now, the passenger amenity is completely different to what it was in that world,’’ he says.
“So, I go back to what’s changed…within the airport and I probably put it down to two things.
“One is a much higher degree of commercial thinking. And the other piece that you really see as different is the level of accountability that’s carried in a private world.”
Strambi says the government-owned airport didn’t have the level of accountability seen in the private sector “where you really have to answer for your decision’’.
“You make very hard investment decisions and it does feel like spending your money rather than spending the government’s money, so to speak,’’ he says. “And I think that puts a huge discipline over the organisation.”
And that money is a tidy sum — Strambi says the airport is spending more than $500 million a year on an asset that not only needs developing but is also expensive to maintain.
“You’re facing 40-, nearly 50-year old asphalt and concrete — you’re having to replace that — and the buildings, you’re progressively replacing as you go.
“It’s an enormous spend rate and there has been huge investment over the years. And some of it goes into just keeping Australian airports up to the standard expected by a growing number of increasingly sophisticated global travellers.”
That ability to access capital to unlock growth, rather having to seek government funding, is what Strambi nominates as the most significant impact of privatisation.
Examples include the investment to make Melbourne Airport A380 ready — a process that demanded the widening and lengthening of runways as well as new terminal facilities — as well as wider terminal redevelopment, changes to security and improved baggage handling.
“The fact that you can get access to capital and you’ve got real disciplines in private industry in running the airport means operators have been able to develop their airports at a much faster pace than you would have ever seen under government ownership,’’ he says.
The rapid rate of growth is reflected in figures that saw passenger numbers at the airport soar from 14 million two decades ago to 35 million with throughput expected to double again over the next two decades.
At the same time, the mix of international and domestic passengers has changed from one in seven travellers 20 years ago to one in three. This requires additional resources because catering to international passengers is more complex and demanding on resources than catering to their domestic counterparts.
“The other interesting piece is that while the airport has more than doubled, the city has grown by 40 per cent,’’ Strambi adds. “So, a lot of this has been driven by inbound travel.’’
In July of this year the airport recorded its 100th consecutive month of growth in international passenger volumes. The milestone was especially meaningful given the softening in the domestic market since the end of the mining boom.
That’s a good deal for the Victorian government because each new daily international service to Melbourne adds an estimated $100 to $150 million to state domestic product, one of the reasons the two work together to promote tourism and make Melbourne attractive to airlines.
A big target is the emerging Chinese market, but Strambi notes traditional markets such as America, New Zealand and South-East Asia have remained strong.
Strambi sees Chinese hub carriers as the next evolutionary step in a process that saw European endof-line carriers replaced first by hub airlines from South-East Asia and then from the Middle East.
But he believes Australia needs to do more to take advantage of the huge opportunities in China.
Chinese passenger numbers at Melbourne Airport have seen double digit growth and while Strambi doesn’t expect that to change, he argues Australia should have a bigger share of the market than the percent it currently snares.
“There’s this emerging middle class that is well-heeled and looking for quality experiences,’’ he says.
“That’s why the market’s growing. And if you look at Australia’s relative attractiveness, I would argue Australia is still under performing against the natural attributes that we have.
“You’ve almost got the same time zone, it’s not a huge flight down to Australia and Australia has a great reputation for safety, for nature, for all the things the Chinese are actually looking for.”
Also playing into this trend is the introduction of the fuel- efficient aircraft such as the Boeing 787 and the Airbus A350.
This has meant smaller planes can deliver the same seat economics as their bigger counterparts for much less risk and it has encouraged airlines to introduce more point-to-point travel on relatively thin routes.
As a result, Australia becomes more attractive to Chinese carriers wanting to connect secondary cities because they no longer need to use hubs such as Hong Kong and Shanghai.
Even more gratifying for Strambi is the fact carriers can economically fly direct to Melbourne without having to hub over Sydney.
“And if you start having more direct services you actually are becoming much more attractive in the marketplace,’’ he says. “These planes have allowed cities like Melbourne to absolutely flourish.’’
The aviation veteran believes Melbourne will eventually take over as Australia’s biggest airport because of the geographical advantages that allow it to grow more easily than Sydney.
However, he downplays the rivalry with his northern counterpart and says the question of when Melbourne will claim the crown as Australia’s biggest airport is moot and “frankly not a competition in that respect’’.
He says he even celebrates growth in Sydney because he knows passengers there will want to
venture further afield and Melbourne will be high on their list.
Regardless of its size relative to Sydney, it’s clear that Melbourne will require significant infrastructure improvements to meet the growing demand – including a new runway and potentially a new terminal.
The airport is currently preparing a Major Development Plan for the new runway before sending it to government ahead of unveiling it for public comment.
Strambi says the project is wider than simply building a new runway. This is because the existing east-west runway will need to be first extended and possibly widened to cater for bigger, long- haul aircraft while the new runway is being built.
But he estimates the new runway will allow Melbourne to move from about 55 movements an hour to close to 100 and give it the ability to handle the next 20 years of growth.
He is also lobbying hard for a train connection, although he wants it as part of a wider project that extends beyond the airport.
He views a point-to-point airport train as a “licence to lose money” and says a rail line should be used to service other parts of the city, possibly new suburbs to the west and north-west, and help solve congestion in the city.
“You need a social component and a city efficiency component as well as maybe unlocking new development and new suburbs and maybe re-routing some regional train lines through there as well,’’ he says.
“If you do that all together you’ve actually solved a much bigger problem and you’ve got your airport train line in the process.’’
The Victorian and federal governments have pitched in $30m to study the project and Strambi believes it could be operational in as little as 10 years, depending on Melbourne’s growth rate.
An award-winning journalist, Steve began covering aviation in the United States in the early nineties before returning to Australia later that decade and editing The Australian’s aviation section for 17 years. He is editor of Airline Ratings and has co-authored books on industry initiatives aimed at reducing greenhouse emissions.
Steve has joined the AAA to write interesting and informative editorial on the aviation industry.