Comment- Chasing The One Per Cent

At the time TAA decided upon the European A300 Airbus they well realised that to be economic they would have to incorporate the 270-passenger A300 into their existing fleet as their star attraction. The A300 was a proven aircraft that was also extremely fuel efficient on a seat-kilometre basis, particularly on the vital Sydney/Melbourne sector which is literally the jugular of both carriers. He who loses here loses big.

TAA also reasoned that they should retain their reliable DC-9s, albeit with a mild facelift, in addition to the 150-seat Boeing 727-200. By 1985 a number of new fuel-frugal mid-range aircraft would be available that would prove ideal DC-9- 30 and ultimately 727-200 replacements. With their narrow bodies largely written down to depreciation, it was considered sound judgement to retain these aircraft till new technology was translated into metal.

On the other side of Swanston Street, Ansett, somewhat worried about the fact that TAA would steal the wide-bodied march on them by almost a year and a half, realised that they had to pull a rabbit out of the hat in order not to lose their vital market share. It is worth noting here that one per cent of market share equates to roughly $8m, and, as we all know, THAT is the difference between profit and loss in today’s inflationary world of airline economics. Last financial year TAA captured 50. 4 per cent of the passenger market (50. 1 per cent in 1980) as against Ansetts 49. 6 per cent (49. 9 per cent in 1980) which is a situation exactly reversed in the ’70s TAA also continued to gain ground in their expand· ing air freight market, another former domain of Ansett and an area destined to be even further eroded with the massive underfloor freight capacity of the Airbus.

So Ansett could see TAA walking away with that vital one per cent, or even more if they merely sat and waited for their 767s to enter service late in 1982. By that time Ansett could have lost twenty to thirty million dollars in lost passenger revenue through the market defecting to the lure of the wide bodies. This is why Ansett gambled on a fleet of Boeing 737s, which no matter how you look at it was an immense decision bearing in mind that these aircraft (despite their technical and cosmetic refinements) are still old-generation designs compared with the next generation of super quiet and fuel-efficient short to medium range jetliners scheduled to become available through the mid-’80s. The reason, as a senior Ansett executive admitted recently, for the purchase of 737s was solely a marketing decision.

Ansett was afraid, and with good reason, that TAA would well and truly capture its market share with Airbus and Ansell would have to have something new to offer its passengers in order to retain them. In the short term that much-hated scourge of parallel scheduling will on many routes begin to fade as TAA balance their Airbus against the smaller Ansett Boeings though this situation will probably return to parity once Ansett has a number of 767s in operation and can match the Airbus on more equal capacity terms.

To many aviation observers (and we go on record as definitely one of them) the bulk purchase of 737s seemed to lack an element of long-term planning as these aircraft really did not offer all that much over the current DC-9s they were replacing in terms of seat-mile cost savings. True, there would be a reduced maintenance requirement on the 737s but as the DC-9s were fully depreciated it was difficult to see how a 737 and a DC-9 departing the terminal with the same load proportion and flying the same sector could see the 737 being more economical to operate. The truth, again according to a senior Ansett executive, was that it wasn’t – the DC-9-30 and the 737-200 in reality cost virtually the same to operate. Ansett will, of course, enjoy various benefits with the new 737 into Canberra and through north Queensland in the summer and again this can add those precious passenger numbers that all help contribute to the magical one per cent. Similarly, the introduction of the new 727-200LR, now capable of servicing Sydney/Perth non-stop year round will certainly increase market share in that sector to the point where Ansett could win over much of the high-value business market from TAA on that route.

As we go to press there is a strong rumour that already Ansett plans to backtrace their newly introduced 737- 200s on the 737-300 (see Update, June 81 AADR) for delivery around 1985 while the 727-200LRs are expected to go as soon as the 767 becomes operational. With the international respect held for Australian registered aircraft and the fact that Ansett has just sold eight of their DC-9s to Chicago-based Midway Airlines for a fat $A40m this policy of backtrading certainly has many followers in the ATI boardroom. Despite the marketing hoohaa made by Ansett at the time of the massive 727/737/767 order last year, it was on the cards that AT! would have to undertake a backtrace in order to be competitive during the latter half of this decade when TAA introduce their new generation 130/150 seater as a DC-9 and partial 727 replacement. The message of this is simply – don’t always take seriously what the marketing gurus tell you and secondly never underestimate the power of that all-important one per cent of market share.

What has happened in reality though is a sad event for TAA, who, with the novelty of the Airbus, were set to retain and perhaps enhance their slender but important lead over Ansett during this financial year. The cynical disruption caused to TAA during the August ground engineers strike effectively means that no matter how well TAA fares in the corning months they have well and truly lost their numerical lead. Such is the economic fragility of modern day world of airline economics!