Interview

Mr Riley has been in the industry for 30 years, having joined East-West as a traffic officer in Tamworth in 1949. Between 1951 and 1954, he was the Public Relations Officer for the airline and in 1955 was appointed operations Manager, a position he held till his appointment as General Manager in 1960. In 1974, John Riley became a Director of the growing airline and in 1976 his status was changed to that of Managing Director.

Q: Could you outline the background to the apparently increasing confrontation between East-West and the major domestic airlines – particularly Ansett?

A: When the two-airline policy was established by the Federal Government 25 or more years ago it was done for one prime reason – that was to ensure the survival of the free enterprise side of the air transport industry in Australia. About that time TAA had been established a few years and was operating very effectively. The private enterprise side – Australian National Airways – which was really owned and controlled by some shipping interests was having difficulties and made a few incorrect decisions as far as equipment was concerned.

They were getting to the point where they were prepared to – and I think had even advised the Government – that they wished to get out. The Government was concerned about this situation and established this policy with a view to ensuring that there would continue to be a private enterprise element in air transport in Australia. Subsequently, as the ANA shipping interests, represented mainly by senior management of the Holyman family, saw that they were not able to overcome the problems – it was almost a malaise, even if only a financial malaise – they reached a point where Ansett, with Government backing, was prepared to buy out the private enterprise ANA and combine it with his own Ansett Airlines. So we then had, as a fait accompli a two-airline policy responsible for looking after all the trunk routes in Australia and with an agreement that each of them would have 50 per cent access to that business and neither of them would be able to operate with more than 50 per cent of the overall capacity requirement.

Ansett recognised that for them to do at least as well as TAA and hopefully to do better, they should not only have this 50-50 sharing of traffic on trunk routes but should go ahead and acquire, by one means or another, regional airlines that were operating throughout Australia. Progressively they did take over control of Airlines of NSW, previously Butler Air Transport, Queensland Airlines, Airlines of South Australia, a little later MacRobertson Miller Airlines in Western Australia, and in between all this the Carpenterowned Mandated Airlines in New Guinea, which was then part and parcel of the Australian scene, at least for air transport purposes.

What Ansett then built up over a period of several years was an arrangement where not only did he have Government and guaranteed access to 50 per cent of the traffic on the trunk routes, but he also had ownership of the majority of all the other air service operations around that trunk route system and the only exception of any consequence was East-West Airlines, which had also been approached at the time, but our shareholders had rejected the approaches that had been made and East-West remained as a separate and independent entity. The only other one in that same category was Connair in the Northern Territory which however was primarily an operator of outback services and a very significant proportion of its income was in Government subsidy so you probably cannot compare the two.

Over the years the situation persisted on a balanced and stable basis. East-West of course was very early into the game with the operation of turbo-prop aircraft. Next to TAA, we actually introduced F27 aircraft ahead of the Ansett organisation and we reached the stage where we had a complete F27 fleet within about 10 years of when we first phased into it. Then some five years ago we decided that the F27 was getting old. At that stage, the earlier aircraft that we had ordered were 15 years old and as aircraft age, they become more expensive to operate. Maintenance costs are higher. Nor do you get the economic advantages that are inherent in technical advances that have taken place over the years in the design and construction of aircraft.

We pressed the Government very, very strongly at that particular point to enable us to move into an F28-type jet aeroplane. This would have involved a fair bit of expenditure to upgrade nominated airports on our network to support these heavier aircraft. But the Government of the day decided that it would not allow us to move in that direction – that it was not fair to fund the airport improvements that would be necessary.

We are not aware of what motivations resulted in this stance or decision at that particular time. We did not believe we were in a position whereby we could counter that attitude or advice too strongly so what we decided to do was a compromise arrangement. We decided to phase out our F27 aircraft and replace them with what had just then been produced by Fokker in the form of a stretched version of the F27 – the F27-500.

So we committed ourselves to a changeover – to bear the costs of the 500s. To operate they were about five per cent more than the smaller aircraft but the capacity was about 20 per cent more so the economics were obviously quite attractive.

After about two or three years Ansett then recognised the validity of our judgement from an economic viewpoint and decided to also move into these aircraft. So today, within the State of NSW, most services are now operated by these F27-500s.

As we have continued to develop and grow it has become necessary for us to look beyond the State boundaries. Within the State of NSW, which traditionally is our area of operation, almost every centre that could support an air service, had one. We were very mindful of the fact that as we became a more efficient unit and that as our aircraft become more productive, that we had to have further growth to ensure our long-term survival and strength and we had to then move on to air routes that did not respect the existence of State boundaries.

In that direction, we developed the Sydney-Alice Springs air route.

Q: What was the basis of getting that – did the major airlines simply not want to operate the route?

A: The genesis of it was that apart from operating our airline services we also operated a lot of charter services including air tours around Australia and through the centre. The success that we got from the promotion of these tours encouraged us to set up a series of back-to-back charter tours between Sydney and Alice Springs, just concentrating on moving the people by air and organising road transport around the centre once we got them there.

We set up these back-to-back charters on a weekly basis. They took off very, very well and demonstrated the fact that there was a market that was keen on exploring the centre but could not otherwise afford to visit the area. It was only by low-priced charter-type fares that this became attractive and profitable. With the success of that series of charter tours, we then recognised the potential and applied to the Federal Government for approval to run a year-round scheduled airline operation between Sydney and Alice Springs – mainly geared from a timing point of view and a fare structure viewpoint to this tourist market.

This went very well and progressively over a period of four to five years we built it up from a weekly service to three services every week, which was an attractive frequency which in turn generated a lot of commercial or semicommercial business as well. The whole thing was going fairly well and we could see that we were developing towards what would eventually become a daily frequency.

Unfortunately, Ansett and TAA recognised the success that had attended our efforts there and even though they were not prepared to apply for a licence and run a service, when we initiated it, once we had built it up they recognised that they could make money out of it. Both of them then applied for approval to operate on that route and the Federal Government gave them approval to do just that, taking the view that it was a trunk route operation and was one that really necessitated jet aircraft rather than the F27-50 0 aircraft that we were operating.

The result of course is that the three services a week, increasing beyond that hopefully, level of service had to be scrubbed and today we have three airlines all running at weekends between Sydney and Alice Springs. So the quality of the service has obviously deteriorated. There is no frequency and we believe that this narrow attitude in licencing TAA and Ansett just because they happen to apply for a licence, is not in the interests of the travelling community or the tourism industry. Tourism in the Northern Territory is suffering as a result of this.

Q: How evenly were your three flights per week spaced?

A: I forget the actual days. I think it was Tuesday, Thursday and Saturday.

Another initiative we took was between Sydney and Hobart. Here again we recognised that the cost of travelling between Sydney and Hobart for holidaymakers was quite extreme, because they had to pay a fare with TAA and Ansett which took account of the fact that the aircraft operated via Melbourne. So we again applied for approval to operate a series of charters on a formal inclusive tour charter (ITC) basis. We received that and launched this service which also has operated very successfully over the four or five years where it has been operating, to a point where Ansett and TAA again recognise the value of it and at least during the traditional vacation periods operate direct services themselves, parallel to our own flights.

Fortunately, there is a volume of traffic there, or a potential volume of traffic, which is large enough to support the additional operations during the vacation period, so that we are still able to maintain our service all year round and still have a healthy operation during the vacation period as well. So there has not been that unfortunate drop in the quality of the service as occurred between Sydney and Alice Springs.

Here again though, we believe that we can develop an attractive high-frequency service between Sydney and Hobart with fares and timings that are mainly geared to the needs of the holidaymakers.

A third initiative that we took – these are not in chronological sequence – was Sydney – Maroochydore, which we established some nine years ago. Maroochydore at that point was without any air service whatsoever. Ansett had operated a feeder service from Brisbane to the Maroochydore aerodrome some years beforehand but decided there was no potential in it and that passengers would be adequately serviced by using the available road services between Brisbane airport and the Sunshine Coast area, or alternatively by light aircraft.

We however took a longer-term view that if we were able to promote the service adequately within the Sydney market we would be able to make a direct Maroochydore service viable within a few years. We started on a weekly basis and progressively over the years, increased the frequency to a point where a couple of years ago it became a daily service, with additional flights during the holiday periods. That service is now carrying something over 25,000 passengers per year, which is not bad. It is not a good port if we compare it with some of the other provincial cities in NSW – we have about 80,000 at Tamworth, Dubbo and Wagga and 60,000 at Armidale and Albury.

Even though the service is developing well, it is not at a size as far as traffic volumes are concerned, where it does justify another operator at the present time. I believe that in the years ahead – maybe in five to 10 years from now – the traffic volume could develop to a point where it could justify a couple of operators, providing, reasonable frequency, if they did not operate side-by-side and re-create the disadvantages that the two airline policy has been so much criticised for.

Another route we developed was the Sydney-Norfolk Island route which we took over from Qantas two and a half years ago. That was a licence that was allocated to us by the Federal Government because it believed we were the most appropriate operator to handle that type of service and we were the only airline in Australia that had anticipated the needs of Norfolk Island and had aircraft specially produced on the Fokker production line with the long-range tanks and additional navigation facilities that are necessary for that over-water Norfolk Island service.

Q: The Ansett or TAA F27s would be unable to make the flight to Norfolk Island?

A: That is right, our F27s are the only aircraft in Australia that can handle that route, mainly on account of the heavy fuel loadings that have to be carried, not only to fly to Norfolk but so that if bad weather prevents you landing at Norfolk, you can fly on to alternates of either Tongatuta or Auckland.

Q: Do you have to reduce the number of passengers because of the fuel load? The majority of new aircraft being manufactured or designed at present are moving down from four to three and to two engines.

A: Yes. We can only carry 36 passengers on each flight, even though they are a 52-passenger aircraft.

Q: The Government would prefer a four-engine aircraft on the route. I know the Rolls Royce Dart engines are very reliable. Have you had any operational problems at all on the Norfolk Island route?

A: No. The operation has gone excellently. There is one condition that does make the service operationally undesirable in the minds of the Department of Transport. This relates to their long-term 90 minutes rule which is about 30 years old. It states that no passenger-carrying aircraft with two engines should at any point in its flight be more than 90 minutes from a landing airfield.

We do not argue with it, but that is the only basis on which you can suggest that an aircraft with more than two engines would be a more appropriate vehicle. What is happening on the world scene these days is in actual fact in the opposite direction.

The majority of new aircraft being manufactured or designed at present are moving down from four to three and to two engines.

Q: The Dash 7 and the BAe 146 would seem to be the two that run counter to that?

A: The Dash 7 is an aircraft that was designed for a particular purpose – to operate in and out of short airfields on relatively short-haul stages. The availability of the particular Pratt and Whitney engine which powers the Dash 7 actually gives an increased airflow over the wing to assist high lift performance. With both those aircraft we have to take into account the fact that first of all the manufacturer decides what is going to be the right sized aeroplane then looks at the power necessary to propel that aircraft, then what engine, or engine development can satisfy that power requirement. It has happened in particular with the British Aerospace 146, that there was not a powerplant available in the world, either in use or on the drawing board which was suitable for that aircraft in a two-engine configuration. They were then forced to move to a four-engine operation. They will tell you, as they have told us, that they are quite happy with the concept of four small engines, but, equally, they would be quite happy if an engine manufacturer came up with an engine that permitted them to build a variant of the 146 with two engines.

Q: This range question is interesting. What are the comparative ranges of the 146, the Dash 7 and your F27-500?

A: The range of these aircraft, in their standard production form, is about the same as the standard production F27. This means that for any of these aeroplanes to be used on Sydney- Norfolk Island or Sydney-Alice Springs, they have to have additional fuel tanks built into them.

Q: This would cut back their payload?

A: The payload on the Dash 7 cer-· tainly has to be cut back and operating direct between Sydney and Norfolk Island it would carry no more passengers than the F27-500. The British Aerospace 146 and the Fokker F28-4000 however, have a lot more payload up their sleeve. Even with the installation of long-range tanks, you can almost carry a full passenger payload. The degree of economic restriction on the use of those aircraft on those routes is no where near as great as on the F27-500 or the Dash 7.

Q: What is happening with the move by Ansett to acquire Dash 7s?

A: As we understand the situation, Ansett has signed an option initially for two and in a further year or two developing to an order of four, with a view to using the Dash 7 across from Sydney to Norfolk Island, but via Lord Howe Island, thereby looking after that holiday island, and some communication needs as well.

Maybe you could operate the aircraft without losing money on this basis if the aircraft was full between Sydney and Lord Howe Island, where you top it up with fuel and then fly on to Norfolk with the remaining two-thirds of the payload, or however the figures work out.

We believe however that it would be the death knell of the Norfolk Island tourist industry. Every holiday destination is dependent on getting its visitors from a great pool of people who want to go on holidays either within a particular cost profile or within a general destination area and for a general time span of a week or two or whatever the case may be. The people who go to Norfolk Island are not unusual. They are the sort of people who are interested in going generally on a 10 to 14-day holiday. An overseas flight, outside Australia has a degree of appeal beyond a flight that stays on the mainland. People who are interested in this have a choice of going to New Zealand, Noumea, Fiji and as these new international airfares from Australia to more destinations are becoming more general, the price of travelling to Pacific destinations even more remote than Norfolk Island is fairly competitive with Norfolk Island. So we have to recognise that the quality of service available to Norfolk Island must be competitive with air services available to the secompeting destinations.

There is no way a turboprop aircraft, which operates via an intermediate point, is going to attract passengers who otherwise can relax on a single-sector flight in jet comfort all the way at 30-35,000 feet.

There is no way that passengers are going to be at all excited about landing half way at a small point in the Pacific Ocean for the sake of refuelling to be able to get to their destination. The airstrip at Lord Howe is fairly restricted at just over 3000 feet it is a small airstrip by any standards and unfortunately on account of the terrain of the island more often than not there is a lot of turbulence in the area and we understand that it can be quite unpleasant on occasions.

Norfolk Island must have a jet aeroplane that will operate above all the weathers and can do the flight in about two and a half hours, which is about the flying time to these competing destinations. It must be able to do it at a price competitive with all the others, which means you cannot afford to land anywhere en route.

When East West took over from Qantas, the DC4 which was operating then took over five hours in each direction. We have been able to chop an hour off that. The F28 or British Aerospace 146 will do it in two and a half hours. The Dash 7, going via Lord Howe Island as it would have to do, would take almost six hours, an obvious backward step.

Q: Is the Dash 7 more economical to operate than the F27?

A: A study by East-West some two years ago went into considerable detail and employed aeronautical consultants from outside the company to ensure it was not influenced by any internal factors. This indicated that the Dash 7 was about 10 per cent more expensive to operate than the F27-500.

East-West recently updated this study and says there may have been some improvements since the aircraft went into service. Fuel consumption rates for instance are reported to be better than figures originally nominated and the serviceability rating of the Dash 7 has proved excellent, reducing maintenance costs to a degree. While East-West believes the 10 per cent gap may be narrowed, it is dubious about whether Dash 7 costs can match the F27-500.

Q: Why, in your view, are Ansett looking at Dash 7s?

A: I do not believe that Ansett is impressed with the idea of getting involved in a Dash 7 operation per se. I believe that what they are very concerned about is the development of East-West into a force to be reckoned with by Ansett in the years ahead. I am sure that the people who were in the air transport industry 25 or more years ago are very mindful of the fact that Ansett at that time before it took over ANA, was developing into a force to be reckoned with by ANA and TAA.

People who maybe live in the past can maybe anticipate that what evolved then may evolve again in future with East-West being the catalyst.

We believe that this is a very narrow, myopic and introspective assessment of the situation and I am inclined to the view that some of the reaction that has been displayed particularly in the Ansett camp, is almost hysterical in the degree of overreaction that is displayed there. The concern that they have is East-West moving into equipment which could be used competitively against them. That means jet aeroplanes. It is as simple as that.

Q: Would East-West become pitted against Ansett on major trunk routes?

A: I am not sure what they are concerned about. I suppose it is the major trunk routes but from our point of view, for us to even seriously consider doing a study on the operation of medium-sized jet aeroplanes on major trunk routes against TAA and Ansett front-line wide-body jet equipment, would be commercial suicide. So there is no way in which we want a confrontation in that area.

Maybe there is some concern in other people’s minds about the validity of the two-airline policy. It has never really been challenged in respect of how it stacks up under Section 92 of the Constitution, which dictates that there should be freedom of trade between the States. Maybe there is a recognition of the fact, that the only legal way in which the Commonwealth Government can therefore exercise control is through its import licensing powers. No doubt again there could be a concern in some people’s minds that once an airline like East-West was licenced to import jet aircraft, ostensibly to operate on our present network of services, there would then be nothing to stop us from using those aeroplanes competitively against them on trunk routes.

It is a mindless exercise – unless the Commonwealth Government wishes to see this happen. I think we all realise that the Commonwealth Government has very strong powers and can pass special legislation to ensure that what it wishes to see come about does eventuate, and vice-versa.

East-West has advised the Federal Government that it is prepared on any jet aircraft it is given import permits, to contractually commit itself not to use them on the prime trunk route in Australia for as long as the Government wishes. However, East-West required in return that wherever it was required to operate its services, it should have the same degree of protection from the main trunk operators.

Q: What has been the reaction to that?

A: There has not been any reaction to that specific proposal.

Q: They are probably thinking of Mr Barton who had a vaguely similar agreement with the Argosies for Bass Strait and is now rather publicly trying to get out of it?

A: I think that at least the Department of Transport accepts the practical logic of a proposal along these lines. To what extent it is feasible to actually wrap it up in a legal contract is something I am sure they are exploring.

East-West has made very clear to the Federal Government that it wants the jets for its long-haul flights – SydneyNorfolk Island, Sydney-Alice Springs, Sydney-Maroochydore, Sydney-Hobart and, within NSW, from Sydney to Albury, Armidale and Tamworth, its three heaviest trafficked routes and all with good, consistent growth. The intrastate routes are expected to economically support the medium sized jets, even though on stage lengths under about 350 miles jet aeroplanes are no more economically attractive than a good turboprop aeroplane.

This route network involves an initial purchase of two aircraft. An airport improvement program is necessary to cover most of the intrastate and some interstate airports. But these are not major expenditures apart from Norfolk Island where there is about $3 million involved. Otherwise, we are looking at about $1 million per airport.

I would not be surprised though if the Federal Government took the view that interstate routes come under Section 92 of the Constitution and therefore no preference will be given to any airline wishing to fly interstate routes, and let the forces in the marketplace resolve the situation.

Maybe that is the way it will sort itself out.

East-West says it is interested in only two aircraft, the Fokker F28-4000 and the British Aerospace 146. It is only timing which would dictate any final swing one way or the other.

“There is very little between the two of them,” John Riley said.