Airline Affairs

But the potential value of the sort of free media publicity which Bryan Grey won in his ‘battles’ with the Independent Air Fares Committee over the viability or otherwise of services operated at such deep discounts has not been lost on the new owners of EastWest and coming months will see them stirring energetically in a number of directions.

Despite its avowed attention to developing tourism by building up a national network of services on a different pattern to Ansett and TAA, East-West still harbours a burning desire to be competing with them wingtip to wingtip between eastern capitals.

East-West’s reduction in discount levels was necessary to make the interstate services viable, according to Mr Bill Meeke, joint managing director.

The Federal Government’s Independent Air Fares Committee has extended its approval of East-West’s Sydney-Melbourne discount fares from June 30 this year to June 30, 1985. To cap it all, the airline has started serving free champagne on all flights – so much for the ‘no frills’ airline.

• TAA will sell or long-term lease one of its wide-body Airbus A300 aircraft to Air Nuigini if the Papua New Guinea Government accepts its airline’s recommendations.

This follows the finalisation of the lease of two of TAA’s five widebody Airbus A300 airliners to the Lufthansa charter subsidiary, Condor.

After receiving proposals from TAA and Ansett, as well as examining a number of other aircraft, Air Niugini has recommended acquiring a TAA A300 between next November and February for services on routes between Port Moresby and Singapore, Manila, Tokyo and Hong Kong.

Although the terms of the deal have not been disclosed, TAA’s price for a three-year lease which is believed to be about million lower than Ansett’s offer on one of its Boeing 767s, have been described by airline sources as ‘very favourable’.

The TAA Airbus would be re-certified from its current 158 tonnes maximum all up weight to 165 tonnes max AUW for operations with 200 passengers for Air Nuigini.

TAA took delivery of its fifth A300 earlier this year after leaving it unused on the ground at the manufacturer’s plant in France for over a year.

Meanwhile TAA has leased one of Ansett’s Boeing 727 aircraft to boost its fleet for six months while two of its larger Airbus A300 aircraft are away.

The leased aircraft, VH-RMZ, is one of Ansett’s older 727s and has been earmarked for conversion to a freighter.

Both airlines have reduced their fleets because of a reduction in domestic air travel and both have ceased to rotate aircraft through ‘rest periods’ because they could not find sufficient utilisation.

Ansett has leased three of its 727s to Wein Air Alaska and converted another to freight.

• Pan Am will soon introduce a sixth weekly Boeing 747SP direct between Australia and the US and betting is that it will step up to daily frequencies in the near future.

They and other US airline increases in capacity on the Pacific is expected to push the Australian Government into protesting to the US Government about airlines being unable to meet their operating costs.

All airlines flying between Australia and the US have recently added additional or are about to do so – mainly to cater for a projected strong growth in the numbers of inbound tourists visiting Australia.

Most airlines claim good load factors on their aircraft but fare discounting has become so extensive that many admit their financial yield is not adequate to cover all costs.

Qantas’ introductory offer of $US499 for a return trip from the US to Cairns has been swamped with bookings but senior Qantas officials admit that they are selling it far below cost to promote the new service.

‘We regard it as another form of advertising,’ a spokesman said.

‘We have a market of only 15 million in Australia but there are about 100 million potential visitors outside this country. ‘

But even when fares reach their full rate after the introductory period, Americans will pay only $US1100 for a low-season excursion Qantas ticket from the US west coast which allows stopovers in Honolulu, Cairns, Sydney, New Zealand and Tahiti before returning to the US.

They will be able to fly between Cairns and Sydney for nothing onthese tickets and to Melbourne and Perth return for$100 each.

The ticket also permits them to make a return trip from Australia to New Zealand before returning to the US from Australia.

According to some sources, Qantas would like to operate its own services to Alice Springs and Ayers Rock for international tourists.

Qantas openly admits that it is losing money on its Pacific services where it claims that major US airlines are trying to ‘squeeze it out’.

Although other airlines are less forthcoming, most admit privately that they are losing money or barely covering their costs on the route.

Continental will increase its flights to 10 per week in July. Continental’s extra three flights from June will add almost 1500 seats to the market per week.

• After a strenuous cost-cutting campaign, Qantas will make a healthy profit this year despite widespread under-the-counter airfare discounting by many airlines operating into Australia, according to its chairman, Mr J. B. Leslie.

Mr Leslie said he understood that some foreign airlines were giving up to 26 per cent discount to travel agents instead of the official nine per cent.

Despite continuous substantial over-capacity on airlines serving Australia the position has improved and Qantas were happy with its seat load factors.

In the past two years it has lost more than$70 million on airline operations – although this has been reduced by sale of assets and profits in other areas.

In its annual report released in December Qantas budgeted for break-even in its financial year ending in March, but Mr Leslie admitted: ‘We are lousy budgeters. ‘

He said discounting had increased but Qantas was getting much better load factors than forecast. Most of the improvement had come on Asian routes with Pacific and European routes remaining relatively flat.

Qantas could not economically match heavy discounting by some airlines which were being subsidised by their Government ‘which might be unaware of the finer points of economics,’ he said. Qantas’profit this year would ‘look like a pretty reasonable return on capital,’ Mr Leslie said.

He said the improved profitability was mainly as a result of cost cutting in the airline which has seen its break-even seat-factor reduced from 70 to 55 per cent.

‘Our revenue has tended to come down if you graph it monthly but the costs have come down much more steeply so the margin has increased,’ he said. ‘That is very encouraging and now we are pretty well poised with a good cost basis world airline terms. If we are right in thinking that revenue is going to go up we can take off very well. ‘

• After several years of trying Qantas has finally sold one of its older 747s for a price believed to be $32-34 million.

The buyer is Air Lanka, which ironically enough is one of those Asian airlines heavily into the sort of under-the-counter discounting that Qantas complains about so bitterly and tries to control through the yield-improvement programme (YIP).

City of Canberra, Qantas’ first 747 delivered in 1971, is one of six 747s which Qantas has been attempting to sell for some time before it takes delivery of three new 747-300s, with stretched upper decks, valued at about $130 million each, and six 767ER (Extended Range) airliners between this year and early 1986.

Although Air Lanka does not operate its own services closer to Australia than Singapore, it has been one of the leading unofficial fares discounters between Australia and Europe on special nett fares offered in conjunction with some airlines operating services into Australia.

There is a further sweet irony in a former Qantas aircraft being used by Air Lanka on the highly price route between Singapore and Europe in competition with Asian airliner, particularly Singapore Airlines, which has been a major force in fighting with Qantas on discount fares out of Australia.

Air Lanka has been pressing for several months for rights . to operate its own aircraft into Australia, but is unlikely to be able to induce Qantas and the Federal Government to agree to a reciprocal services agreement between Australia and Sri Lanka.

According to Qantas, sales of its six earliest 747s prior to introduction of the the 747-300 and 767ER aircraft would its total fleet passenger capacity remained almost unchanged.

The aircraft which is being sold, VH-EBA, Is currently on lease to Air New Zealand which has had paint problems with its own 7 47s, and was returned toQantasinApril before being turned over to Air Lanka in June.

Qantas agreed with Boeing to trade in six of its earliest 7 47s for the new aircraft but in the deal with Air Lanka it is believed to have secured $3-4 million better than that offered by Boeing.

Qantas’ current fleet stands at 24 747s including two 747SP (Special Performance) aircraft and three part-cargo 747 combi’s.

The airline admits that several of its older 747s have been substantially under-utilised for some time and have been temporarily grounded for varying periods.

Qantas is considering a number of international charter flights, but these will be limited by demands on its fleet for new direct SP services to the US as well as direct services from the US to North Queensland from April which will increase its fleet utilisation substantially.

• British Airways choice of April 1 to announce a £250 million ($387 million) annual profit is as good an indication as any of how carefully one should treat the public claims of airline management.

The profit means nothing more than that BA will finally climb out of a deep sea of red ink and into a very thin line of black.

It will at last have about £30 million in its corporate kitty – peanuts for an enterprise of its scale, which aspires to operate to commercial criteria, but a major improvement on a few years ago when its liabilities exceeded assets by about £250 million.

In other words, it was well and truly broke, with only HM Treasury guarantees on its borrowings, saving it from becoming another airline to go down in corporate flames.

From April 1, BA became a private limited company instead of being run by Acts of Parliament.

However, its shares (like Qantas) will continue to be held by the Government until early next year when it goes on the market for sale to private enterprise.

Since Lord King took over as chairman three years ago when BA lost nearly £550million,it has cut staff by 22,000 (about 40 per cent) and dropped 62 unprofitable routes.

Last year, even the supersonic Concorde made a profit. of £12 million according to BA, and could soon start flights to Toronto as well as New York, Washington and the Miami route.

Last year operating profit for BA is better than its total profits in the 12 years to 1982, but with strong pressure by private rivals – led by British Caledonian- to take over some of its key routes, the British Government will have to make some difficult choices between money or principles before BA is sold.

Current plans call for the selling of shares to begin in the first half of next year.

Estimates of the worth of BA vary from £500 million to £1. 2 billion. However, the UK has been reviewing its civil aviation policies and as the major asset of any airline, outside its fleet which these days is often more leased than owned – Is its route licences.

If these are not safe, it will greatly reduce the airline’s value.

British Caledonian has made a less than generous offer of £200 million for some unspecified routes.

The British Government is thus in something of a Catch 22 – it either gives British Caledonian some routes or makes some routes less secure to please entrepreneurial elements