Interview – Sir Peter Abeles

PA: The new equipment is well on stream. All our plans for training and development are running on schedule and more important than that, I believe that the staff of the organisation is in first-class order and all the new hands coming out of Ansett and out of TNT are working as a unified team. Attitudes are very aggressive and I feel that the whole Ansett fighting machine is running very well.

JS: When you say fighting, who are you fighting?

PA: I call it a fighting machine because it is aggressive and go-ahead. Certainly, we are fighting TAA and whether we are fighting for market share or for making a profit in a competitive situation, is immaterial. The fact that the team is ready not only for what we are doing now but is looking for new challenges – that in itself makes for a fighting machine.

Maybe it is a wrong description, but I always can sense it in whatever team we have in the TNT organisation I do not regard Ansett as different – it is now part of our organisation – when you get a team to a stage where they are doing well what they are supposed to be doing, but they are eagerly looking for challenges, you have a well-functioning machine.

JS: In recent months there have been quite a number of changes in the Ansett management. In the early days, there was not a great deal of change

PA: No, because I do not believe that one makes changes when one is not on firm ground, and in this sense I think I am a slow mover and not one who likes to come in with a knife and go boom boom, quite the reverse. I took my time, and then once the whole situation became clear I think I moved very fast.

In retrospect, it is only 18 months since Rupert and I moved in and I think now we have a very well-functioning organisation.

JS: Would you say the rate of management change within Ansett has slowed down now or would you see continuing change?

PA: Well, I do not think changes per se. There will be normal changes like in any big organisation. There will be a lot of development and I still believe that more and more people, especially young people, will be given challenges with which to go on.

JS: How much has the actual philosophy of the airline changed since the takeover?

PA: It has changed tremendously. The basic truth has now shifted from market share to profit and loss – a weekly profit and loss. Ansett always had as an entity profit and loss, but we have now broken that down to a number of cells. Every State has its own profit and loss account and that is what is given on a weekly basis. They are all, including every subdivision like the smaller airlines, already on their own profit and loss accounts in all their sub-divisions. The computer section goes on to profit and loss, and maintenance goes on to profit and loss, so we like to make it possible for management at all levels to measure their own performance.

JS: This is the same as for TNT. In your own terms then, what do you see as the broad outlook for development?

PA: Very broad. In the airline, we have embarked on a big program and it will take a few years before that program is accomplished. We certainly have started to operate regionally, we are starting to operate to Vila and are looking at the possibility of operating ‘in the Pacific basin more and more as a regional operator. On non-aviation activities, we now identify the areas where we are going full blast ahead.

JS: What about the various inquiries and committees that are in operation at the moment?

PA: We will participate in all of them, and we will make our submissions and our views known.

JS: The Independent Fares Inquiry would probably be the outstanding one among them at the moment wouldn’t it?

PA: In a way that would be the very simplest, because there is no independent fare inquiry – there is a committee meeting, which is a very different thing. Rules and rights have already been set down in the two-airline agreement and we will operate within, at least for the next eight years, established rules.

I see the major function of not only Ansett, but of government, the Department of Transport and fare setting authority, all combined they will determine what will happen after five plus three years to the future of aviation. There we will co-operate with them, to determine what will be the best.

I do not think that conclusions will be reached five years from now, but I do not think one should file it away. I think one should consider what is the future of Australian aviation.

JS: You are absolutely satisfied that you will have eight years under these current terms. You do not think there is any way that might be broken down or interfered with?

PA: Let me say this – I am not in any way worried. I was more worried about civil aviation than about Ansett because it is an illusion to take on an infrastructure that TAA and Ansett have, it could be a temporary situation. But it is an incredibly difficult thing to take on two established organisations with their infrastructure in position. I would not like to be the one that takes them on.

JS: Assuming all the obstacles were overcome and someone did manage to get a few aeroplanes operating between Sydney and Melbourne, what effect do you think that would have on the overall setup?

PA: It would have a many-fold effect. It would have the effect that the standard of aircraft and the standard of service over a period would decrease. We could get to the stage where now American Airlines are operating and buying 11-year-old aircraft used by Ansett for the last 1 O years and cannot afford to buy new planes.

On the customer side, there would be a temporary advantage, they would have a temporarily unrealistic lower rate, but very temporary because the moment a new operator has to get new equipment it would not work any longer because you have an enormous cost factor coming into it. It would not work any longer, it would only be a temporary situation.

The market is small and certainly, the standard of service to the non-peak areas, would not only decrease in terms of service, but in terms of cost, it would increase.

JS: How much of your current operation is run on strictly commercial lines at the moment, if you had no other considerations? I am thinking of the F-27 operations.

PA: Well, in every way we are running the operations commercially. The only area where we are running strictly commercially – it is a fact a philosophy, that by and large under the two airline agreements, the intentions of the original agreement are still in force, which are that more or less the government and the private enterprise operators should have 50/50 per cent.

That is the only difference in my view from an ordinary commercial operation. Otherwise, we are definitely trying to be as cost-effective as possible, to give as good a service as possible, to be as competitive as possible, not only with our major competitors but also with regional competitors.

So I do not think there is a great difference because we are not running it as a monopoly, we are running it as an operation because you could say, ah, yes, but it goes at 50 per cent and what the hell are you here for?

We are there for a very important reason, because in commercial terms we can run 50 per cent and make a loss or a very small profit, but our function is to make it into an incredibly profitable operation, which we can only achieve if we run it on really commercial terms, both on the costs side and the marketing side.

There is a lot of difference between having good paying passengers and giving half your fares away to people for various reasons, just to fill the aircraft.

JS: What, in your view, would be the maximum likely variation in that 50/50?

PA: Well, in principle it could vary up to say 55/45, but I do not regard that as necessarily a real criterion. As long as we operate around about the 50 very well and develop other services on the side of it I think you are really getting a much bigger share of the overall market, not just the flying market. There is a lot to it, there is tourism, trade and there is a lot involved in an airline and if you make sure you increase your penetration I think you are on to a much better business.

JS: Within the new various formulas for setting fares of different types, how much potential is there for either airline to set its own promotionally innovative fares?

PA: Well, there is quite a lot of potential for both airlines, but one has to be careful. It is easy to structure innovative fares, but then one goes immediately against the cross-subsidisation and one has to be very careful that the innovative fare is a genuine developer of new business and not just a shifting in emphasis from one geographical area or one segment of the community to another one.

If there is genuine new business developed then I think innovative fares are a real bonus. But if you just shift the emphasis – it is one big cake – and if you shift from one segment of the cake to another, then politically everyone will run into lots of problems. It is important to remember innovative fares should be to develop new business and not at the cost of other areas.

JS: What is the overall Ansett philosophy on route or network development at the moment? It would appear that TAA has introduced a number of services in its own name in areas here, where Ansett would be tending more to cooperation with regional carriers.

PA: We believe in the interests of not just Ansett, but civil aviation, there are a lot of good commuter and regional carriers that should be supported by the major airlines and more and more we should become true trunk operators and let others develop in the varying functions, which again is no different from the TNT philosophy. It does not particularly worry us that some of them are competitive, because in-house we are indulging in the same exercise right through.

This is possibly a change in philosophy because the past history of Ansett was that anyone who flew should be out of the sky as quickly as possible.

Well, these days our philosophy is that if people fly in their overall context in certain areas, which supports the development of aviation, then we are quite happy to support them.

An example is the group, News Limited and TNT, which have bought Pelican and Masling, and were quite happy to sell Masling again because we believe we are happy to support others to develop those services as long as they fit into the overall cake.

We have made a very good arrangement with Bush Pilots which, from a virtual commuter airline, will develop into a strong regional airline. We will be right behind them to achieve that. So we are not taking the attitude that others should not fly because we think that the civil aviation market in Australia has now developed to an extent, which is contrary to what it was 10 or 20 years ago where certain functions – as in the rest of our industry – should be taken over by different interests who have a specialised interest in developing services in that area.

JS: So Bush Pilots, which is already quite large for that sort . . .

PA: Bush Pilot is still a commuter operator and not a regional operator. As there is no regional operator in Queensland, we believe that Queensland needs a regional operator. Now we did not go out and say we want to be that regional operator’, because we can achieve exactly the same thing for the overall situation and for ourselves by having another regional operator there. And we are supporting them and helping them to build and strengthen and Queensland will have its own regional operator.

JS: Does this mean that perhaps you think there is not enough financial return for your operation in regional airlines?

PA: I do not agree with that. I think there is enough financial return in it. But I believe that independent management has its place and we accept the fact that there should be a regional operator in every State, and we do not necessarily have to own that. There should be regional operators and there should be commercial operators, in all areas.

We have acquired Aeropelican because we just did not have a Newcastle service and nobody was coming forward with an idea for us to develop a service. We acquired both but we thought we did not want a complete ownership hold on the market. We had an approach by others who wanted to develop it and we said all right – come along and we will support it.

JS: Aeropelican would still be unusual in that it is about the only fairly major route between fairly major cities where you are still operating small aircraft.

PA: Yes, but this is limited by the airport. Regarding the question of Newcastle servicing, there was no alternative, either you serviced from Williamstown which is Masling – and TAA has the right to go there, it is their own decision that they do not, all this talk about monopolies is nonsense. TM voluntarily stopped flying there and could fly there tomorrow if they liked, so we do not have a monopoly.

Mailing we have handed over to another progressive aviation group -we sold it to them and without any profit -at the price at which we bought it – so we only have one link to Newcastle. The other limitation is that they can land only at Williamstown and Belmont. One thing that worried us was that the Belmont airport was owned by AeropeLican and we might not have proper access to it and this was how we got access to it.

The sort of thing we looked at was to run helicopter services, but the economics of this with present-day equipment has not been possible.

JS: Even though Joe Scruse is suggesting it?

PA: Yes, but we genuinely hope he will succeed because of what he carries. It is important for the whole market to have the variations there and it could well be that we are happy to help and go a step further there. But it certainly could not pick up the volume that we are seeing go to Newcastle because the cost of it is so big.

JS: When you talk about volume, of course, if you limit it to the Twin Otter operating there, there are only a certain number of spaces in the growing congestion of Sydney Airport. I know there are very difficult limitations at Belmont, but do you see any immediate or future prospects of larger aircraft operating from there?

PA: Yes, but at this stage the Twin Otter is not a bad aircraft, because it gives tremendous flexibility and frequency which is needed for this type of service. We certainly are looking and thinking in terms of trying to increase our runway and trying to get different, bigger aircraft. I do not think there is a need for it in the very immediate future, but sooner or later it will be needed.

JS: What about the Northern Territory, how is that developing?

PA: Well, we are fairly new to it, we are trying to comply with the needs of the Government and the customers and we are finding our way. But it is working remarkably smoothly and we are improving our know-how and service generally.

JS: Sydney Airport?

PA: If the decision were ours and forgetting political problems with both State and Federal Governments, on a practical side there is an absolute need in my opinion for both, on the practical side, for a second runway immediately, and a second airport.

If we talk in terms of the next 50 years, there is no question that both will be needed and I would think that the internal services will grow in Australia to such an extent that the present Sydney Airport, even with a second runway, will just about cater for the internal services.

Overseas services certainly I would remove – with very good commuter facilities – to a second airport site. I cannot answer where it should be exactly. I must admit I am saying this through the eyes of an airline operator and not looking at problems, not just political problems, of the population in the areas.

JS: What is your forecast for the development of civil aviation in Australia? You mentioned the number of passengers and movements.

PA: I believe the growth will take gradual ups and downs over the next 20 years, but ultimately we will have a very much bigger aviation industry in Australia. It will keep on growing because we cannot get away from the fact that we are a continent with people principally dispersed over the eastern seaboard over thousands of miles. I do not think that the size of the community is big enough that in the foreseeable future, we will see, for instance, the type of trains that operate in Japan and France. I do not think we will see trains operating at hundreds of miles an hour as a mass transport system, because we just have not got the volume. The only form of modern communication will stay in the air.

JS: Freight operations – your development there?

PA: We. are developing our freight operations the same as we have in our other operations. We regard freight as an all-round service that Ansett offers the customer. The experience the group has with handling freight is very handy to us. It is not just flying the freight – that is only one facet. It is an overall service concept including administration which we are adapting to air freight.

JS: You were looking at those 727s for freight operations a while ago, why did you drop that idea?

PA: We dropped the idea because we decided we had not established well enough our future needs. We can extend the operating cycle of the Electras for a while. At present, we are flying two 727-200s with freight to Western Australia every night now that freight is outside the two airline agreements. While those aircraft are not ideal we are glad we had them because it saves us time to make the final determination of what we need.

JS: Are those converted to freighters?

PA: We are seat-loading, which is very inconvenient. It is not ideal but we have it. We can give the service with it and it gives us a chance to well think out what we are going to do.

JS: There have been suggestions that you might look at international air freight operations.

PA: Well, there is no question about it that the TNT group has aspirations, the same way we are involved in international trucking now, more and more we have our distribution areas in North America, Canada, the UK, Europe, Australia and New Zealand.

We certainly have the best distribution systems by road, in shipping we are rapidly moving deeper into round-the-world shipping, through our interest in ABC and TFL, which has become a very large operation. It is a natural development that we are thinking of in terms of a round-the-world airfreight system at one stage of the game. As we now have the technological know-how through Ansett there is no question that at some time we will move on in that area.

JS: That is in hardware?

PA: We always are very flexible on hardware. Maybe in the beginning we will not be so interested in hardware, but somewhere in the world, or maybe in Australia, the need or the opportunity will arise where pure freight operations will be a possibility and we will be very interested.

JS: For the moment you are continuing with your ground handling for Pan Am?

PA: Not just for the moment. We are just building up, we are taking on ground and passenger handling for more and more airlines. We regard it as a service function in which we want to strengthen ourselves.

JS: Have you had discussions with any particular airlines, possibly Pan Am, about taking over part of their freight operations?

PA: No, we have had no discussions. We are not ready for that. I am talking in terms of future years, where we will in some way or other get more and more interested in freight operations.

JS: You touched before on international services and regional development. Are you looking there to further cooperation with different countries?

PA: There are many possibilities and opportunities and we are waiting for the international inquiry, we will make our submissions, but I can say we have no intention to go into long-distance 747 passenger operations. Not only that we cannot directly at this stage, but we are not even interested. It is a different business which I do not think is an area in which this group should be interested.

JS: When you say regional services

PA: For instance, we are operating on behalf of Air Vanuatu and I regard the Pacific basin as our area for regional operations, where our sized equipment is big enough to operate – where we do not have to go for bigger equipment.

JS: On the question of equipment, you are introducing new aeroplanes and refurbishing others. Obviously, things are very busy. How is that going?

PA: It is all going to plan, running remarkably smooth through tremendous co-operation from staff – engineering, flying, ground staff, everybody. We are introducing new Fokkers into Western Australia -we ordered four F-28s.

JS: What was the decider between that and the BAE146?

PA: On the practical side it is easier to introduce the F-28 because we have F-28 flight crews and we have F-28 engineering know-how and it is only an extension of the existing aircraft, so naturally it is cheaper and faster.

There are many varying attractions of the 146, and unfortunately for reasons of our market we had to make our decision very fast, but we have left the door open that in the second phase of development we could very well look at that aircraft.

With more time, it could very well be that in our regional and other operations, we find the need for two types of aircraft so we have not closed the door.

The 146 has not been delivered yet in commercial operations so we would like to see more experience on how this goes and, without any reflection on the company, it will take a while to settle down. We need more capacity for Western Australia very urgently.

We felt we could not afford to wait. There is no doubt the Fokker is a first class piece of equipment and available for us next year.

JS: When you said the second phase of your development were you speaking about everywhere?

PA: What I am saying is not just Western Australia. In the next phase we hope as soon as airport facilities and traffic control are available, for instance, we hope to move to jets into NSW, in Air NSW. The four aircraft that we have ordered are only the first phase. We will need more aircraft to completely renew the fleet for Airlines of Western Australia, and we can see a possibility that some of our associates will need more aircraft. So we will have another round.

JS: You have said that you will gradually drop out of F-27 type operations.

PA: Gradually, we should. In Ansett Airlines there are very few F-27s and we are looking at what we should do there. We will not keep buying F-27s or similar aircraft for Ansett Airlines but we will keep them operating until as far as possible we can make it an all-jet operation.

JS: So you do see the possibility of buying an F-27 aircraft replacement turboprop for some services?

PA: For some of our regional airlines, yes.

JS: But this would be distinct from Ansett Airlines. For instance, TAA I think is looking at its DC-9 replacement aircraft as being the smallest in the fleet. Would a similar thing apply to Ansett Airlines as distinct from the regional one?

PA: Basically we think the 737 will be the smallest in our fleet in years to come. There is still a bit of market growth needed for that. We will have the bigger Fokkers as replacements for the F-27s if needed, but we have not got our plans ready. I am sure one day Ansett will be an all-jet airline.

JS: On the 737 question, there is considerable speculation as to why Ansett bought what is a relatively old technology jet. Certainly, there are good marketing reasons.

PA: It is not an old technology jet. You can call anything an old technology jet.

JS: Well the engines are.

PA: First of all we felt there was no reason to keep on flying 11-year-old DC-9s without even knowing what to do to replace them. We felt the time had come when we should have new aircraft – they should be slightly bigger and certainly, the economy of scale and of fuel consumption is there with the 737. Certainly the 737 is an aircraft that will one day go from the 737-200 to the 737-300.

JS: Do you have any agreement with Boeing on a buyback or that type of thing?

PA: We have not got any firm agreement, but we are practically an all-Boeing operation now. We have no doubt about it that Boeing will always pull with what we want to do.

JS: So when you say ‘one day’ would that be in the relatively early stages of the availability of the 300?

PA: Well nobody knows yet. A lot depends on the market growth and on our overall decision. I do not think it is a secret that as some stage the 737s will have to be replaced and the variations are that you go for 757s, for a fleet of 757s, present-day 737s and 767s-that is one variation. But there is a variation where you bypass the 757 and go for the bigger 737 and the 767 fleet. The variations are so many that I do not think we can make a decision yet. In the next two or three years we will decide on our fleet for the ’90s.

JS: It has also been pointed out to me that in every country but Australia, the 737, with a few minor modifications, is certified to land on gravel strips and country strips. Do you see any prospect of ever being able to use those aircraft on West Australian routes?

PA: Well it will need two variations. We need different landing gear and the market has to grow to a stage where it would be big enough that frequencies would not be influenced by it, but in five years time, it may come.

JS: You would have to get around the Department of Transport for a lot of that.

PA: It is not a question of getting around, even the department would say it was all right if the frequency was right and there was a big enough market. We believe the frequency is the major factor – the philosophy is do you need frequency or do you need size? We believe the market still needs frequency and we would not substitute any of our services if the frequency were not right even if we were allowed to. That is why we think the Fokker or the 146 are the right type of aircraft for those routes.

JS: But at the moment even the F-28s need dispensation to use some of those strips in Western Australia?

PA: Yes but don’t forget there is another possibility, one day those strips will be changed.

JS: There has also been suggested a re-engining of the 727.

PA: I do not know enough about it.

JS: The 767 – you are going to introduce that with a three-man crew. I understand Boeing is providing a kit where it is very simple to switch from a three to a two-man crew

PA: It is the other way round. In America every 767 will be operated by a two-man crew. In Australia, the reality is that with the union arrangement, I do not think in the foreseeable future that it will be considered.

And I would like to say that with the number of people flying, I often – more so as a layman than an expert – wonder whether the right decision is not to fly with three crew. We are flying with a lot of people – over 200 – over long distances. I often wonder whether, with all the possibilities in flying – in principle, you could fly a 747 with two – the fact of having a third man certainly helps. It does not mean it could not be done with two but I wonder whether we should not have three for the number of people that are flying.

JS: Do you know what it costs you to have that third man on the aeroplane?

PA: It certainly costs us a lot of money, but we are going into an area where we are carrying over 200 people so I still think we have an economy of scale in the number of passengers carried.

JS: What sort of guarantee or promise of backup do you have from Boeing for the first few months of operation, bearing in mind it is such a new aircraft? PA: Full back-up.

JS: They will have their own teams out here?

PA: Yes. Whatever we need.

JS: Have they given you guarantees as to performance or limits on downtime?

PA: We have everything covered to an extent that only a company like Boeing can offer.

JS: You mention the American experience, how much of your general management philosophy here and your marketing is traceable to that and how much is it a personally developed thing? I have noticed a lot of your advertisements are starting to quite closely resemble the style of what you see for some American airlines for domestic services there.

PA: I think it would be untruthful if I did not say we always like to learn. There are so many others in the world we try to get the benefit of experience everywhere. On our cabin services, we have looked very heavily at Europe, and at our style. On marketing, we are looking to America. It is a combination.

JS: Ansett General Aviation. You have said it is now performing satisfactorily.

PA: Reasonably satisfactorily, that is true. It is certainly out of the area where we were distressed. It is now profitable. We are running on budget and have some plans for development.

JS: What, in your view, was the main trouble?

PA: A combination of market, and possibly management, attitudes in the head office, and the cost of operation – no reason, but it is freshened up and it looks very hopeful. It is certainly not yet proven for the long-term but at this stage it is certainly much, much better than 18 months ago.

JS: If somebody offered you the right price, you would probably sell it?

PA: I do not think so. I do not like selling. I am only interested in selling for two reasons: a, I come to the conclusion that we just cannot deal with it or, b, if it is completely outside our genuine scope of operations. I cannot say that Ansett General Aviation is not within the scope of the company and more and more I am starting to believe that the company can do it and so I am not interested in disposing of it.

JS: It would appear that they did dispose of a rather promising helicopter agency there.

PA: Yes.

JS: Do you have any regrets about that?

PA: No, I have no regrets.

JS: There is, of course, ongoing speculation about the involvement of News Limited in Ansett and also your personal relationship with Mr Murdoch.

PA: As far as I am concerned, Mr Murdoch and I have been here together for a long, long time.

There is no question of New Limited selling out and losing interest in the company. Our interest is the same as when we started and our personal relationship has never been better. There has not been a flaw in our relationship right through the episode.

JS: It is unusual to have joint managing directors in an operation your size.

PA: Yes, it is unusual when people are tripping over each other, but do not forget Mr Murdoch and I have enough to do whether Ansett exists or not. And I certainly had full confidence in what Mr Murdoch is doing when he is at home and I am away and apparently he has the same confidence in me.

We are not people who are trying to fight for the same occupation and protect our jobs. We both have enough to do without it. Whether strange or not, it not only works but there has never been a flaw in our relationship – not for one second.

People are planning for problems but there has never been even a flaw.

I talk to Mr Murdoch three to six times a week, wherever we are.

I do not think joint management would work when people are not busy enough and have no other interests. More than anything, they have to be friendly with each other.

JS: You sound as though you know a lot of people wonder about the relationship.

PA: Everybody is asking me the same question. I do not blame them. Personally, I would, too.

NEXT ISSUE: To obtain the Qantas perspective on the current international environment we interview Mr Jim Leslie