Australia was among the most locked-down of countries during the pandemic. Now its airports are plotting their routes back to prosperity with an eye on big sporting events in coming years. Tony Harrington talks to the major players
Having endured some of the toughest, most unpredictable Covid restrictions in the world, Australia’s principal airports are preparing themselves for a new wave of travel growth, as international borders continue to ease or open, domestic networks reawaken, airlines reactivate services and major events drive urgent demand for new air infrastructure.
On top of hoped-for reactivation of previous air services, significant additional growth is expected through Melbourne and Brisbane, the nation’s second- and third-largest gateways, which have been named host cities for two iconic international events: the 2026 Commonwealth Games in and around Melbourne, and, even bigger, the 2032 Brisbane Olympic Games.
Sydney Airport, the nation’s biggest and busiest air hub, is also preparing for significant growth, following its recent AUD$23.6 billion (US$16.3 billion) sale to the Sydney Aviation Alliance consortium, and is further spurred and challenged by the development of the new Western Sydney Airport that will add domestic and international capacity and competition from late 2026. Elsewhere in Australia, major airports including the South Australian capital, Adelaide; the Western Australian capital, Perth; Queensland’s Gold and Sunshine Coast leisure ports; and Newcastle, north of Sydney, are among those that have commissioned, or are promising, major infrastructure upgrades designed to attract new business.
But while airports are ready to move forward, the airlines they will rely upon are not all quite as confident, leaving gateways to engage in price and incentive wars with each other to win what, in many cases, will be discounted business – leading to sub-optimal earnings to help support future growth. That is despite the Australian Government’s Aviation Relief Policy, a financial aid programme which many airports believe not only favoured airlines, but largely ignored the damage that airports, too, sustained during the crisis.
Australia was experiencing a travel boom just before the pandemic was declared and the Federal Government shuttered external borders. Even more damaging than the closure of international borders were the subsequent measures taken by states and territories to help stem the spread of the virus, including successive lockdowns of capital cities, uncoordinated closures of interstate borders, and imposition at little or no notice of a catalogue of travel restrictions.
At one point, the city of Perth was closed down following discovery of barely a handful of positive Covid Delta cases, a decision which led the chief executive of Qantas Airways, Alan Joyce, to frustratedly warn that Australia was on the cusp of becoming “a hermit kingdom”, and likening Western Australia to North Korea.
For more than two years, the airports of Australia, like most other markets, have sustained serious losses from the suspension of scheduled flights, and evaporation of commercial incomes as tenants ranging from cafes to car rental companies pared back or closed their operations.
And with no flights to welcome or farewell, airports also lost significant business from visitors, who in unblighted times would spend incremental millions in terminals and car parks.
Additionally, Australia’s second-largest airline, Virgin Australia, entered voluntary administration in April 2020, in synch with the pandemic lockdown, exiting seven months later under new ownership, with a far smaller domestic network, fleet, and airport facilities, and without its previous international operations to destinations including Los Angeles, Hong Kong, New Zealand, Pacific Islands, and Bali, Indonesia.
While airlines are rebuilding, they are not all doing so at pre-pandemic scale, and certainly not in a co-ordinated way. Some are roaring back, but many others are returning less frequently, with smaller aircraft, to fewer gateways, or from smaller networks; others might not return at all. And where they have agreed to restart, it is often only with the lure of substantial but temporary subsidies or discounted charges.
“We have consistently said that it will not be as simple as flicking a switch and expecting airlines and passenger numbers to return to normal,” said Kevin Brown, chief executive officer of Perth Airport. “We are in a race with every other Australian state, and with other destinations in the Asia region, who are all working to attract international airline capacity.”
This competition is not only occurring between airports that historically have been served by international airlines. Increasingly, smaller airports are gaining international services, or expensively pursuing them. Pre-pandemic, Canberra, the nation’s capital, was building a small but high-profile stable of international airlines. Others such as Sunshine Coast Airport in Queensland, Hobart, capital of the island state of Tasmania, and Newcastle, north of Sydney, all operated a handful of international flights, and flagged big plans to become international gateways, to the annoyance of struggling existing hubs.
That effectively would end up as a rate race to the bottom, said one airport executive, with many airlines and commercial tenants seeking cuts in airport charges as a precondition to returning, further delaying restoration of sensible earnings for Australia’s air gateways – which have lagged Europe and North America in recovery. “In a lot of cases,” the executive said, “airlines are holding back on new agreements with airports because no one can agree on passenger numbers or the basis for new pricing models.”
Without reliable or predictable income from the pure aviation segments of their businesses, airports increasingly have seen the need to diversify their income sources and maximise yields, to support not just operating costs, but also future infrastructure requirements.
That has driven increased focus by many airports on non-aeronautical revenue to help future-proof aviation earnings, fund major capital projects, and sandbag against rising costs from factors such as higher global interest rates or further serious shocks to commercial aviation.
Melbourne and Brisbane Airports both announced during the pandemic detailed plans to expand significantly the non-aviation businesses on their land to help build revenue certainty.
Within Melbourne Airport’s perimeters, an AUD$800 million (US$555 million), 118,000 square metre pharmaceutical facility is planned for the vaccine producer and exporter, Seqirus, while Brisbane Airport has committed to a massive 51 hectare ‘auto mall’, which will feature vehicle dealerships, a dedicated track for prospective buyers to test new cars, driver training zones, a 4WD range, and research and development facilities for new vehicle technologies.
“In the past, non-aeronautical business was just cream,” said one airport commercial chief. “It just came to you. You didn’t go to it. Now, airports are becoming a lot more lateral and proactive. It’s no longer just about aeronautical business. It’s about how you get the most efficient, high-yield use of your land, and really raises the question, ‘How much are airports going to be just airports in the future?’ There’s now much stronger focus and strategy on other activities. The yields will go up for airports in that space.”
While a focus by airports on non-aeronautical revenue has long been commonplace, it was Melbourne Airport which specifically and publicly highlighted the trend to expand this segment as an essential strategy to help mitigate aviation losses from Covid, and protect against the costs of potential future disasters.
“The events of 2020 have made the airport shift focus away from traditional aviation-related revenue streams,” said Lyell Strambi, then head of Melbourne Airport, when, late that year, he announced the agreement with Seqirus. “We’re firmly focused on expanding and diversifying our property precincts, and look forward to partnering with many more quality tenants as we continue to grow the airport.”
Melbourne provided a textbook example of the need to diversify airport revenue channels.
“The pandemic hit Melbourne harder than most other cities, and Melbourne Airport bore the brunt of that,” said Lorie Argus, recently appointed chief executive officer of Australia Pacific Airports Corporation, which is the owner of Melbourne Airport, and Launceston Airport in the island state of Tasmania.
Indeed, Melbourne’s seven extended Covid closures earned it the unofficial and unwanted title of ‘The World’s Most Locked-Down City’.
The flight route bridging Sydney and Melbourne, Australia’s two largest cities, is the nation’s busiest air corridor, and is frequently ranked as one of the world’s top five. At its peak, late in 2019, it accommodated more than 800,000 passenger journeys per month.
But at its nadir in Australia, Covid plunged the Melbourne–Sydney sector from its traditional ranking of top spot to an unthinkable 28th, when both cities were simultaneously but separately locked down to help contain local Covid outbreaks.
“We dropped from an average of around 100,000 passenger movements a day to less than a thousand at some points,” said Lorie Argus. “That was due to a combination of Australia closing its international border, a ban on outbound international travel, Australian states closing their borders, and a series of successive lockdowns in Melbourne that restricted the movement of people to just a 5km radius.”
While its core business will always be its role as Melbourne’s air transport gateway, for which it is currently pursuing approval to construct a third runway to boost capacity by 50%, Melbourne Airport has made clear that its earnings from aviation alone can no longer be relied upon to fully fund future requirements, and that a broader strategy is needed.
“We have significant operational costs, and as an essential service we were required to keep all terminals operational and open, even when we were down to less than 1% of normal passenger movements,” she said. “But while the domestic market is rebounding relatively quickly, it’s obvious that international travel will take far longer to recover.
“Having a diversified business has helped cushion some of the impact of the Covid-19 pandemic. While the aviation side of our business hit record lows, our property portfolio performed strongly.”
In Brisbane, capital of the State of Queensland, the pandemic pain was also severe, though not on Melbourne’s scale. As Australia’s second-largest state geographically, roughly equivalent to the combined areas of France, Spain, Germany, Italy, Netherlands and Belgium, Queensland replaced a significant volume of its foregone overseas and interstate passengers with a surge in intra-state tourist and commuter traffic, bolstered by continued operation of major resources sites across the state, served from Brisbane by ‘fly in – fly out’ workforces. This is a way of employing people in remote areas by flying them into the place of work rather than relocating them and their families. Each week, up to 8,000 ‘FIFO’ passengers passed through the airport.
The remainder of the shortfall was compensated by the airport’s extensive non-aeronautical activities, including a major retail precinct, commercial offices, warehouses, two hotels and a golf range.
“During the pandemic, our cost levels remained pretty much the same as pre-Covid,” said Gert-Jan de Graaff, chief executive of Brisbane Airport Corporation. “But our revenues dried up almost completely. Our saving grace has been our property business. The revenues from property kept us going.”
But while Brisbane Airport was more fortunate than many in Australia during the pandemic, it will face bigger challenges than most in the region, even the world, in the coming decade, following the selection of Brisbane as the host city for the 2032 Olympic Games. The event will demand enormous infrastructure growth to meet expected spiking demand not just for the short span of the games, but also for the decade-long build-up beforehand and the hoped-for surge in visitors afterwards.
Not long before the pandemic was declared, curfew-free Brisbane Airport completed construction of a second parallel runway, to accommodate projected and targeted strong growth in both domestic and international traffic. Built on reclaimed coastal land, it was one of Australia’s largest and most challenging infrastructure projects.
Now, particularly given Brisbane’s selection as Olympic host city in 2032, the airport is already well advanced in initial planning for further infrastructure expansion, potentially including an additional terminal which might accommodate both domestic and international operations. Brisbane’s current international and domestic facilities are 2km apart.
“We are approaching capacity limits in the domestic terminal, and will also in the international terminal before the Olympics,” said de Graaff. “We also have the ambition for Brisbane to be the gateway into the east coast of Australia.”
While a decision on a new terminal is still 18-24 months away, a “preferred position” has already been identified between the two runways, said de Graaff. Non-aeronautical revenues will play a key role in supporting both this development and other substantial capital works required to progress Brisbane Airport post-pandemic.
The nation’s biggest airport, Sydney Kingsford Smith, is also preparing for life after Covid, but in a very different way to Melbourne and Brisbane. With very
limited land free to develop on its inner-Sydney site, the gateway has focused on redeveloping the facilities it already has (including a premium brands retail precinct within its international terminal) as it rebuilds under new management, while also trying to win back airlines that withdrew during the pandemic.
But it is not just this airport that will take Sydney forward beyond the pandemic. And nor are its greatest concerns the increased competition from the expanding Melbourne and Brisbane gateways.
Arguably the biggest challenge to Sydney Airport is the region’s second major air hub, the new Nancy Bird-Walton Airport now taking shape in Western Sydney. After close to a century of discussion, debate and controversy, it is due to open officially late in 2026.
But unlike other airports in Australia, which are carefully developing their post-Covid funding and growth strategies, the new gateway will not have the same issues.
It will be owned by the Commonwealth of Australia, connected to major transport, industrial and social infrastructure and corridors, and embedded in a region with a potential passenger catchment zone bigger than either Adelaide or Perth. Politically, there is bipartisan support for this airport to succeed.
It will be international, offering not just a new option for passengers but also a fresh 24/7 option for freight airlines.
It will be curfew free, which Kingsford-Smith is not, and will have all-weather capabilities, providing the option of low-visibility operations not available at the main airport.
Presuming air transport recovers by 2024 as expected and remains on track, Western Sydney will represent a huge step forward for Australian aviation after the big step back it has just taken.