Jet fuel infrastructure reform: Melbourne’s EOI is a good start

Australia has some of the highest prices for jet fuel globally, which often account for more than 40% of the operating costs for BARA’s members. At Sydney, Melbourne and Perth international airports fuel prices are higher than necessary due to a lack of effective competition between jet fuel suppliers.

Jet fuel is international aviation’s biggest single cost. BARA wants to reform the way jet fuel is supplied to allow importers of jet fuel to compete on merit at Australia’s major international airports. This will mean unlocking the jet fuel supply chain through open access and fair pricing so that new suppliers can establish operations in Australia and in so doing lead to a competitive, and more reliable, supply of jet fuel for the airlines.

In most instances, the investments needed to bring effective competition to providing jet fuel appear modest compared with the investments the owners of the major international airports are making in airfields, terminals and landside access road infrastructure at the airports.

Melbourne Airport’s changes will support future growth

BARA is greatly encouraged by Melbourne Airport’s initiative to issue an expression of interest (EOI) for its jet fuel storage infrastructure and fuelling facilities.

Reforming Melbourne Airport’s jet fuel infrastructure is critical for the long-term reliable and competitive supply of jet fuel. The changes will support future growth, and are in the interests of Melbourne Airport and the international airlines. The new operator of the jet fuel infrastructure could also become the catalyst that encourages investment in the supply chain to the airport to support the operations of new fuel suppliers.

One competitive tender that promotes open access

The most cost-efficient way to support a reliable and competitive supply of jet fuel at Melbourne airport would be to have one integrated operator of both the existing facilities and any future expansions. This would create clear accountability for delivering services to Melbourne Airport and the airlines. It would also avoid the need to deal with conflicts of interests and operational issues through various access arrangements and operating protocols associated with multiple providers of storage.

The new arrangements must separate the investment in jet fuel infrastructure from its pricing. Just as Melbourne Airport doesn’t expect airlines to take an equity stake in the airport (which is restricted under the Airports Act 1996 anyway), neither should fuel suppliers be expected to make significant investments in the jet fuel infrastructure for the right to supply airlines at the airport. Nor should any fuel supplier’s investment in jet fuel infrastructure confer any competitive advantage to that supplier.

The new arrangements need to promote ‘open access’, where globally recognised fuel suppliers can import fuel to compete in Melbourne Airport’s jet fuel market. This would not preclude arrangements where fuel suppliers and other stakeholders actively participate in developing and operating the airport’s jet fuel infrastructure.

Pricing and new infrastructure

Non-discriminatory pricing to use the jet fuel infrastructure at Melbourne Airport can be based on a published flat price per litre to recover the agreed costs of operating and maintaining the facilities, including a negotiated return on the investments made in the infrastructure.

The cost of any new infrastructure at the airport could be added to that flat price. Melbourne Airport’s model for ‘unplanned capital expenditure’ to price new aeronautical assets could be modified to suit the provision of new jet fuel infrastructure. That is, a formula could be agreed for determining the extra revenue needed to fund the new infrastructure, which would then be recouped from the per litre price.

Although Melbourne Airport’s EOI focuses on the jet fuel infrastructure inside the airport, infrastructure outside the airport to support airlines’ growing demand for jet fuel is also needed. Indeed, in the longer term it could be a good idea to build a new pipeline to transfer jet fuel efficiently to the airport.

Consultation about services

Little consultation occurs between the existing jet fuel infrastructure operator and the airlines over the delivery, operation and pricing of services. This is not conducive to promoting efficient and prompt investment in jet fuel infrastructure at the airport.

The new operator must be open to, and actively engage with, users and stakeholders in providing jet fuel infrastructure services at the airport. A good start would be if the new operator were to develop a ‘Jet Fuel Plan’ for consultation with stakeholders.

Through effective consultation and developing a plan that is consistent with Melbourne Airport’s own capital investment plan, the new operator can help bring about more efficient and competitive aviation at the airport. And that is an outcome that will deliver long-term benefits to Melbourne Airport, international airlines and the Victorian economy.