Airport profits are out of hand says Virgin Australia

Virgin Australia’s second-in-command has joined the competition watchdog’s criticism of Australia’s privatised airports, saying that the monopoly assets’ world-leading profit margins have grown out of hand.


John Thomas, Virgin’s head of domestic and international airline operations, said airlines and passengers deserved more clarity on what they got in return for airport fees, which have increased dramatically over the past decade even as airfares fell and passenger numbers grew.

“The premise around the privatisation of Australian airports – and that was a very successful privatisation – was there’s a certain return shareholders want on those assets,” Mr Thomas told Fairfax Media on Thursday. “We just think that it’s got out of kilter now.

“They operate very much at a cost-plus basis. It’s like: ‘well we want to build something, and we’ll just go ahead and build it and the airlines will pay for it’.

“All of a sudden, by you doing that and charging us, our cost base has gone up by $10 or $20 million a year and we can’t recover that from our customers.” Troubling profits

Sydney Airport operates with a profit margin of 46.7 per cent and Melbourne Airport at a margin of 38.2 per cent, according to the ACCC’s most recent report into Australia’s airports, released earlier this month.

Mr Thomas said it was troubling that two airports in the region – Sydney and Auckland – had among the highest operating margins in the world.

“You compare their operating margin to something like at Heathrow, which is an incredibly well-run airport, where their operating margins are something like 20 to 30 per cent higher than Heathrow,” he said.

The same ACCC report found that Australian airports had charged $1.6 billion more over the past decade in fees than if they had kept the charges constant in real terms.

Over the past decade fees have risen 65 per cent at Brisbane Airport, 42 per cent at Melbourne Airport and 16 per cent at Sydney Airport, which still has the highest charges, at an average of $17.27 per passenger, the ACCC found.

Australia’s airports were a prime example of privatisation gone wrong, ACCC chairman Rod Sims said at the time.

Australia and New Zealand’s four major airlines – Virgin, Qantas, Air New Zealand, and Regional Express – announced earlier this month the formation of an industry group led by former ACCC chairman Graeme Samuel, called the A4ANZ (Airlines for Australia and New Zealand), which will lobby governments and regulators on issues like airports, fees, infrastructure and regulation.

“By flying into a destination airlines create a lot of economic activity and we often don’t actually bear part of the benefit of that. We would like to have a stronger voice with what’s happening,” Mr Thomas told a lunch in Melbourne on Thursday.