A Question of Politics or Economics?

Commentary by John Hicks, Professor of Economics and Dean of the Faculty of Commerce, Charles Sturt University

Government policy makers are frequently faced with issues for which they struggle to find a universally acceptable solution. Continued regional airline access to Kingsford Smith Airport (KSA) is one such issue.

Australians living in the vicinity of KSA have made it clear that they object to the noise levels generated in their suburbs by the operation of a modern airport. To date, through the political process, they have managed to have restrictions placed on the times at which the airport can operate (the curfew) and the manner in which the airport can operate (restrictions on the pattern of runway usage).

Taken together, these two restrictions have partly been responsible for the unacceptable congestion experienced at KSA with respect to aircraft landings and departures.

Some years ago, the Prices Surveillance Authority argued that the problem of congestion could be alleviated by charging airlines premium rates for access to the runway at times in which congestion was a problem. This would have the impact of forcing out of these times the airlines that could least afford to pay the premium. Inevitably, this would have resulted in the smaller, regional aircraft being pushed out.

Such an outcome would have had a serious adverse economic impact on regional Australia. However, it is likely that the benefit to non-regional Australians (primarily the major airlines and their customers) would have substantially outweighed this cost in pure economic terms and, further, it was not readily apparent how those who would gain could be made to compensate the losers for their loss.

In the end, the solution was political rather than economic. The Government adopted a "slot" system for operations at KSA and allocated "ring-fenced" slots to regional airlines in order to ensure continued access to KSA and to pacify the regional electorate.

Perhaps that is how things might have stayed if it were not for two developments: first, the Government decided to privatise major airports, and second, demand for access to KSA continued to grow.

If KSA is to be privatised, the Government will want to sell it for as high a price as it can possibly get - and this is what most tax payers will want as well. However, the airport will clearly be worth more to a potential buyer if the slots currently allocated to small regional aircraft are reallocated to large commercial jets. Thus the pressure is on again to move the regional airlines out.

However, a new element has entered the debate. It is now in the interest of the Sydney Airport Corporation to "pay" to have the regionals depart. This payment would largely be in terms of infrastructure expenditure on developments at Bankstown airport and on rapid transportation infrastructure between Bankstown and both the CBD and KSA.

Should regional Australia accept this offer or maintain its demand for access to KSA?

There can be no question that access to KSA on regional Australia's terms would be the best outcome for regional Australia.

But regional Australia doesn't have that now! Regional aircraft are excluded from access during the most convenient (most congested) periods. Regional aircraft are confined to the slots located in the shoulder period outside of the peak. This means that regional Australians generally have to put up with very early mornings and very late nights if they want to do a day's business in Sydney. In some cases, regional Australians have to "overnight" in Sydney in order to fit in their meeting schedules.

It is this, far less than satisfactory, access that regional Australia is seeking to protect.

One advantage of the "Bankstown solution" is that the timing of flights can be far more convenient. Indeed, it can be shown that for many regional Australians the combined travel plus wait time (that is unproductive time) will be less flying through Bankstown than through KSA.

If the Bankstown solution is rejected, what options will remain?

For many years the construction of an International Airport at Badgerys Creek has been touted as the solution to the airport needs of the Sydney basin. But the economics are such that its construction would mean the creation of a "white elephant". The major interstate airlines will not want to incur the cost of constructing and running duplicate passenger handling facilities in Sydney and neither interstate nor international travellers will want to undertake the arduous trip from Badgerys Creek to the City on the existing infrastructure (as no major upgrading of this transport network is being proposed!).

If Badgerys Creek is built to relieve the pressure on KSA, the first group of users will almost certainly be the regional airlines. If the regional airlines are forced to Badgerys Creek, the Sydney Airport Corporation will have got what it wanted - access to the regionals' KSA slots for large commercial jets - and they will not have had to contribute anything towards the continuing infrastructure needs of regional air services to Sydney.

This is the down-side to the current regional stance of insisting on the maintenance of regional air access to KSA. Regional airlines could be forced to Badgerys Creek at the expense of a not too unpalatable switch to a substantially upgraded Bankstown.

Might the advocates of regional access to KSA win the day? In politics anything is possible and such a decision would indeed be a political decision. But then, the restrictions placed on the use of KSA are themselves a politically determined outcome. Perhaps the Government will choose to listen to the voice of regional Australia and risk the wrath of the electorates in the flight path of jets coming into KSA.

I don't envy the politicians. Heads they lose and tails they lose. No wonder they don't want this particular coin to land.