Airline Affairs

Badgerys Creek was the preferred site over Wilton due to its being cheaper to acquire and better placed geographically to serve the people of Sydney. Wilton also sits atop large seams of coal which would have had to be ultimately left idle if an airport was built in the area, a decision which may have led to massive compensation claims in later decades. Development work on the new site however may not commence for another ten years as the DotA has stressed that the recent decision is aimed purely at securing land for the future airport. The Department estimates that land acquisition will cost $34m though local residents groups report that the DotA’s figures are vastly conservative and that the eventual amount paid will be closer to double this figure.

When the site is developed it will initially cater for General Aviation operations with freight and larger RPT services coming online as required. The eventual cost of the new airport is estimated at more than $4bn in 1986 dollars.

Meanwhile moves within the industry to develop a second parallel runway at Mascot have re-emerged as a more cost effective option to the new airport (refer to indepth report elsewhere in this edition). Cost of fully developing a second runway is estimated at below $1bn in 1986 dollars and would provide sufficient additional capacity at Mascot to see the airport operating on its own till at least 2020. The Opposition spokesman on aviation, Mr Bruce Lloyd has not supported the move to develop Badgerys Creek and believes that KSA should get preference as Sydney’s major airport. “The coalition parties believe that at site should be reserved for a second airport, the necessary planning should proceed and in Government, the coalition will honour any reasonble compensation commitments” he said. “However in government, the coalition will give priority to the upgrading of Kingsford Smith Airport, including the construction of a second parallel runway”.

The present Labor Government has recently stated officially that it does not intend to develop a parallel runway at Mascot despite the millions that are currently being poured into refurbishing the international terminal area.

Qantas Definitely Not Contributing to Government Balance of Payments Deficit:

Widespread media reports during late February and early March that Qantas was largely responsible for the trade blow out of the period are totally unfounded. Reports generally blamed the importation of Qantas 747-300 and 767-200ER aircraft for destabilising our monthly balance of payments and causing much of the trading deficit experienced during the early months of this year.

This is not so as all Qantas aircraft are nowadays purchased on a complicated but flexible payment arrangement utilising solely Qantas’ large pool of overseas derived income to pay for such purchases. During the last financial year the flying kangaroo grossed more than one billion Australian dollars off-shore. This money is also used to support the many overseas stations that Qantas must operate in addition to being used to purchase fuel abroad and to finance aircraft repayments in a variety of hedged currencies.

As Qantas proudly point out they not only provide employment for more than 12,000 Australians but bring in vast sums of foreign exchange each year in addition to keeping billions more in-country via Australians flying our national carrier rather than a foreign competitor.

 East West Close to Signing for Used Boeings:

As we closed for press East-West Airlines were close to signing medium term leases on three used Boeing 737-200 twinjets. The airline was awaiting final approval from the DotA in Canberra following its official submission to import the three aircraft in early March. The three Boeings will be flown exlusively on East West’s new Queens- land routes (which were subject of a Federal Government challenge by Ansett as we closed for press) and as such do not come under the umbrella of the Two Airline Policy.

East West has abandoned attempts to import an additional 737-200 and a fifth F28 to supplement its existing fleet for use elsewhere in Australia following more than a year of procrastination from the Department as to their eligibility under the existing guidelines of the TAP. To combat this East West filed notice of a High Court challenge (refer p14 Jan AA) late last year though this will now not probably be heard till this August due to the absence of Justice Lionel Murphy from the existing Full Bench. It is believed that several States and associated transport and tourism associations may also join with EWA in their fight against the existing TAP.

The airline is also actively engaged in studying a number of aircraft that may be suitable for its NSW rural services. In this area East West is looking at aircraft in the Brasilia to ATR42 class with the aim of being able to introduce more frequencies and direct services to their existing rural network. Senior management was overseas visiting a number of manufacturers during March and early April though a decision will not be made till after the NSW Government hands down its new transport policy via the soon-to-be-completed Review of NSW Air Services. High on the list of possibles were the Embraer Brasilia, Saab SF340, DeHavilland Dash 8 and the ATR42. The 36 seat Shorts 360 was essentially considered too slow and unattractive owing to its lack of pressurisation.

North Atlantic Traffic Continues to Fall:

At a time when Pan American is switching its primary market strategy towards a massive 206 transatlantic services a week, IATA figures indicate that the market potential on this route is deteriorating rapidly. Latest figures covering the month of December, 1985 indicate that traffic grew by 6. 6% while capacity increased by 14. 6% or nearly twice the traffic growth. Overall load fac- for dropped by 4. 4% to only 59%, below break-even for most international carriers.

Following threats of renewed terrorism by Libya and extremist Arab groups against US and European facilities, particularly airports, and highlighted by the recent bombing of a TWA 727, many American tourists have cancelled their planned vacations and are now looking at safer destinations. This will only serve to reduce transatlantic yield even further.

For Australia, the news is all good as Americans are now taking advantage of our relative security and the strength of the US dollar. A good omen for Qantas and all regional carriers as travelling Americans are now looking westwards for leisure rather than to traditional Europe.

 Fare Slashing on Kangaroo Route Gains Momentum:

Airfares from Australia to the UK and Europe continue to fall. Following a bout of fare slashing earlier this year most major carriers have again offered bargain fares to Europe for the month of April that set new records in lowering the cost of travel on the route. Both Qantas and BA, in retaliation at Asian carriers poaching of Australiantravellers, introduced a $1499 return economy fare for the October/November period, $1699 for the shoulder season and $1899 for the northern summer peak. These traditionally are around $500 cheaper than the official fares and between two and three hundred dollars cheaper than is commonly available ‘under the counter.

While ensuring high load factors and guaranteeing market share the new fares also boost the carriers short-term cash flow as payment has to be made by the end of April, though as before the offer may be extended into May it the battle continues as expected.

Record Year for Domestic Airline Activity in 1985:

Continued growth in all four quarters brought activity in the domestic airline sector to a record annual level in 1985.

In releasing the provisional statistics for the December quarter, the Minister for Aviation, Mr Peter Morris, said activity in this quarter was even higher than the normal seasonal peak quarter of September.

Overall activity – total tonne-kilometres performed- increased by 12. 9 per cent on the corresponding quarter in 1984, while passenger kilometres rose by 13. 0 per cent and freight tonne kilometres by 14. 8 per cent.

The corresponding annual increases for 1984 were 8. 8 per cent, 9. 6 per cent and 4. 6 per cent respectively. Total hours flown by domestic airlines increased by 7. 5 per cent in 1985 signifying increases in both load factor and yield.

Although overall activity for regional airlines as a whole grew strongly by 20. 9 per cent in 1985, there were wide variations in performance within this segment.

Mr Morris said the exceptionally strong rise in the December Quarter was very encouraging and increased the prospects of sustained growth through 1986/87.

Taa to Change Name, Adopt New Livery and Image:

TAA has decided to drop the Trans from Trans Australian Airlines and from mid-year will be officially known as Australian Airlines. The carrier will also adopt a completely new livery which will be revealed when TAA takes delivery of the first of 12 Boe- ing 737-300s in July. It is though that an overall theme of grey and white will be adopted which would be in line with the remodelling that has taken place at most TAA terminals in recent months.

Few details of specific change were given by TAA management, though the airline plans to fight more aggressively for traffic and may int- end to better publicise its present range of discount fares in order to gain greater market share. It has been generally felt within tourism circles that while the discount fares offered by both domestics are good value the problem is that the average traveller has to be a Sherlock Holmes to be aware of them. Furthermore, often availability of discount seats is so scarce that in practical terms they are largely unavailable.

Qantas Gets a New Chief Executive:

Mr John Menandue will replace Mr Ron Yates as the Chief Executive of Qantas effective July 1 this year. Mr Yates joined Qantas in 1946 and took the post of Chief Executive in 1984 following the sudden death of Mr Keith Hamilton.

Presently the Secretary of the Dept of Trade, Mr Menandue has a long record in both public and private sector endeavours. His primary assets will certainly be his excellent grasp of the political world and his appreciation of the vast market that awaits us in increased Japanese trade. This comes from his long period as a private secretary to Gough Whitlam (1960-67) and more recently as Secretary to the Special Minister of State and his period as Australian Ambassador to Japan from 1976 to 1980.

Transcorp Most Definitely Still in Operation:

Rumours that TNT-owned Transcorp had ceased operations are without foundation. What has occurred is a shift in emphasis of operations from Melbourne and Perth to Sydney and Brisbane.

Transcorp stopped serving the Perth/Brunei market due to the irregularity of demand from the WA primary produce market. Additionally, an inability to operate the non-hush kitted 707 into Tullamarine during the night obviated the need to serve the lower half of Australia in the medium term. The carrier now routes from Singapore/Sydney/Brisbane/Brunei/ Singapore and is concentrating on uplifting goods from the Eastern seaboard to Asia.

Meanwhile, Transcorp’s own freighter is presently awaiting clearance of its Hong Kong Air Operators Certificate so that it may take over the role currently being performed by leased aircraft. Transcorp also have a paid deposit on a hush kit and hope to have this fitted to their own 707 later this year, a move which would reopen Tullamarine to night-time Transcorp 707 operations.

Polynesian Airlines Drops Vila and Introduces Business Class:

Owing to the cessation of Ansett Airlines’ involvement with Air Vanuatu, Polynesian Airlines have decided to drop their Vila stop-over on their regular Australia/Pacific sectors. The carrier has also introduced business class on its 737 services which will now be offered on their international flights between Apia and Rarotonga, Nuku’alofa, Nadi, Auckland, Papeete and Sydney.

Us Traffic up in 1985:

According to the US Air Transport Association, US domestic airline activity was up 11. 3% during 1985. US airlines operating on international sectors also experienced a growth of 9. 6% despite a significant tapering off of activity in the final months of the year.

Travel to Europe and the more exotic destinations has fallen owing to the threat of terrorism which has had a beneficial effect for Australia in making this country a more popular travel destination than would normally be the case. Inbound figures are rising steadily and are likely to continue as such while the spectre of hijacking and airport violence hangs over Europe and the Middle East.

 New Airways Charges to Raise Regional Airlines Fares by 3 per Cent:

East West Airlines claims it will be forced to raise air fares an average of 3% if the Federal Government adopts a proposed new system of air navigation charges. The proposed change, which is expected to bring significant reductions to the charges paid by Ansett and TAA on their trunk routes services, will cost EWA an additional $1. 6 million. It would increase the annual air navigation charges payable by the airline from $2. 2 million to $3. 8 million.

The Managing Director of East West Airlines, Mr Dennis Howe, said it was quite certain that the airline would not be able to absorb a cost increase of this magnitude and that it would have to be passed on to passengers.

“We are intensely aware of the delicate state of the rural economy, on which we rely for a substantial part of our passenger numbers and of the negative effect of any fare increases that we would have to introduce to pay for the extra ANC’s. East West led the Australian Airline industry by lifting passenger numbers in 1985 by 43 per cent,” he said.

Mr Howe said that East West was greatly concerned that charges could substantially benefit Ansett and TAA while disadvantaging other sections of the industry.

*The present system includes a surcharge upon Ansett and TAA’s exclusive access to the major air routes of Australia. It is proposed that this be removed. This plus the benefit to these airlines of being able to use larger aircraft, for which we have trouble obtaining Government import permits, should bring them an annual saving of some 10% on their air navigation charges. This leads to an even greater concern that when considering these savings in conjunction with the record profits posted by both airlines last year, the Government may decide that the industry can afford a further overall increase in ANC’s. It cannot. ” “It seems that East West, the four regional airlines of Ansett and TAA’s Air Queensland and their passengers have been chosen to bear the brunt. We believe that commuter airlines have won concessions from the DotA due to the needs of rural communities. ” “We are aware that there has not been an increase in ANC’s for three years and we do subscribe to the policy of ‘user pays’ within the airline industry, although other transport systems in this country receive continuous public funding to the tune of 1 billion dollars per annum. ” “We have asked that the proposed increase be phased in, but that the DotA chooses to remain insensitive to the special requirements of rural air services while favouring the majority of air travellers using the protected trunk route system,” Mr Howe said.

 Minister Proposes Non-smoking Flights:

The Minister for Aviation, Mr Peter Morris, has written to Australian airlines asking their reaction to a proposal that they introduce non-smoking flights. Mr Morris said his request followed representations to the Government for a better deal for non-smokers.

“Because of concern about the possible effects of smoking on health and comfort, I have suggested the airlines consider a proposal that they move as a group to introduce a ban on flights of, say, less than one and a half hours’ duration,” he said.

“Airlines at present, of course, provide non-smoking seats to cater for the non-smokers, but nevertheless there has been a continuation of representations to me on this subject. ” Mr Morris said a ban such as he had proposed might go some way towards achieving a more acceptable compromise between the views of smoking and non-smoking passengers. Mr Morris has written to Ansett, TAA, East West and Air Queensland with his proposals.

United Has a Bad 1985:

United Airlines had a mixed 1985. On the one hand it acquired PanAm’s Pacific Division in addition to signing a multi-billion dollar order for up to 116 new Boeing jetliners. On the debit side however, was its debilitating May/June strike which cost the giant carrier dearly. So much ground was lost during the four-week strike that UAL posted an operating loss of $US88m in 1985 compared with a net profit of $US252m for 1984. If the strike was not bad enough, which helped buoy United’s rivals, UAL had to engage in savage discounting to try and win back some of its lost market share in the three months period following the strike. This eroded yield while load factors themselves did not reach the levels that UAL had hoped for. Things have pretty well returned to normal though and the giant carrier is busily opening new hubs at Washington’s Dulles Airport and further expanding its Denver base in order to compete with American Airlines which more than any other carrier profited from United’s problems in 1985.

 Qantas Orders Another 747 to Meet Traffic Growth:

Qantas is to purchase another Boeing 747-300EUD (Extended Upper Deck) aircraft to be delivered in December this year. The aircraft would give Qantas the capacity needed to meet the continuing upsurge in inbound tourism, particularly from the United States and Japan.

The $US115 million aircraft will join the four other Qantas 747 EUDS on the premier Kangaroo route, enabling all 10 weekly London services to be operated by this flagship aircraft. This will free other 747s for expanded Pacific operations in 1987. The London flights are the daily QF1 and QF2 services which operate via Singapore and Bahrain and the three weekly one-stop services from Melbourne to London via Bombay.

The 747 EUD has proven to be most popular with travellers, particularly business people. since the first entered service with Qantas just over a year ago. Each carries up to 413 passengers and 13 tonnes of cargo.

A first class cabin with 28 sleeper seats occupies the forward zone of the main deck, a business class cabin with 38 seats takes up the entire upper deck and economy zones throughout the rest of the main deck accommodate 347 passengers.

The Qantas 747 EUDS are powered by the latest fuel-efficient Rolls Royce RB211-524D4 engines, giving them a range of 10,200km with a full payload and will be the 12th Rolls Royce-powered 747 in the Qantas fleet. The new aircraft will bring the Qantas fleet to 23 Boeing 747s and six Boeing 767s, 11 of which have been bought since November 1984.

Taa Discontinue No Frills Service From Canberra:

With much regret from the local populace, TAA have abandoned their F27 no frills service linking Canberra with Melbourne. East West originally wanted the rights to operate this service but were refused under the guidelines of the Two Airline Policy as first right of refusal must be offered to Ansett and TAA. If either carrier accepts the service then EWA is effectively prohibited from entering the market.

After many months of delay from both majors and the Department, TAA finally announced that from last October it would operate a once daily F27 service at a cost of only $75 as against $147 for the jet fare. To say the service was popular was an understatement (refer p14 Nov 85 & p15 Jan 86 AA), so much so that TAA commenced a second daily service in late 1985 to better utilise the aircraft and crew and cope with growing traffic demand. Unfortunately, Ansett, who originally was not interested in the service at all, began its own no frills F27 from early March linking Melbourne/Canberra/ Sydney. TAA felt that it was suffering yield dilute-Canberra/Melbourne turn on its overall services using the Fokker as surveys indicated that 47% of the no-frills travellers were on business. TAA naturally felt that this was coming directly off their jet services though as many Canberra business people will attest not everybody is a first assistant secretary, etc and can afford what amounts to the second most expensive per kilometre airfare in the nation.

Ansett in the meantime can better amortise their larger F27 than TAA as the aircraft is slated for the Canberra/Sydney run anyway. Additionally, Ansett has a large and flexible F27 fleet whereas TAA had operational problems when one of its three Fokkers had to go in for maintenance as there was little backup in their small fleet. It is believed Ansett will remain on the run as if it drops out then the Department will find it difficult to refuse East West rights on the route that it wanted in the first place.

Bilateral Negotiations Sink Immi- Nent British Airways Privatisation:

The on-going negotiations with the US Dept of Transport (and not a little in the State Dept) on renegotiating the all important US/UK bilateral air rights agreement between the two countries has effectively sunk BA’s plans for an April 1 privatisation.

BA derives almost a quarter of its total revenue base from the North Atlantic and both the government and the board feel that they cannot launch privatisation till potential shareholders know exactly what rights the carrier will have on this, the artery of its operations network.

global BA is also a little concerned about fatigue problems in some of its older 747s. The airline presently operates 16 older Pratt & Whitney-engineered aircraft and is eager to replace them with up to 20 of the latest 747-400s, a single order that would be possibly the largest ever placed in civil airline history. Again the carrier cannot seek finance from this will show up in the government’s public sector borrowing requirement while at the same time the airline is hamstrung in dealing freely on the open market due to it being a nationalised company.

BA also has 44 Boeing 737-200s on lease which it is hoping to dispose of before the end of this decade. Replacements would either be BAe 146-300s, A320s or later versions of the 737 itself with a buyback agreement, taking note of the potentially massive 747 order, for 7J7 propfans. Either way BA has to privatise first before taking any long-term decisions and the short-term key to that is to successfully be able to negotiate a fair and economic air trans- port agreement with the US via the Bermuda 2 treaty.

Merger Madness Hits the American Airways:

Observers of deregulation have always stated that inevitably the weaker carriers would be consumed by the stronger. This can certainly not be argued against if the events of recent months are any indication of what is in store in the years ahead for US civil aviation.

Still not fully sanctioned but expected to proceed smoothly, is the early March move by New York financier Carl Icahn to merge his recently acquired TWA with Ozark Air Lines. Both Trans World and Ozark base out of St. Louis and the deal is seen primarily as giving overseas orientated Trans World a better domestic market base from which to feed. This is essentially what PanAm desperately requires but did not fully attain in its late seventies acquisition of ailing National. Ozark will add some 27 million additional passengers to TWA’s annual uplift, an increase in the region of one third. TWA have also signed a traffic agreement with Piedmont for that carrier to funnel overseas-bound passengers into the giant TWA base at Kennedy, New York.

Meanwhile the big news came from Frank Lorenzo, the dynamic chairman of diminutive Texas Air, who looks set to merge Eastern Airlines with his Continental and New York Air combines. Lorenzo paid a reported US$600m for alling Eastern which will result in America’s largest carrier overall though United would still be the largest operating under one banner. Continental was also close to purchasing a large number of A300/310 transports but may hold off as newly acquired Eastern already operates 34 A300s and some of these aircraft may well be deployed into the existing Continental fleet in place of new aircraft.

The merger would effectively result in an airline that flies some 55 million passengers annually (about five times the total RPT uplift of Australia) serving 212 domestic and 71 overseas destinations. Additionally, the scope for Australian holiday-makers (and businessmen) having even greater access to internal low fare packages via Continental is expanded somewhat. In all the combine would operate over 400 aircraft.

The latest spate of mergers reflect a period of rapid change in the US air transportation system. Earlier this year Northwest Orient purchased Republic to make it at the time the third largest carrier while late last year People Express acquired Frontier and Britt Airways in addition to PBA. United have already commenced operation on PanAm’s Pacific routes and indeed it is felt that PanAm itself will inevitably fall prey to merger mania as it moves its primary marketing objectives towards enhanced transatlantic operations, an area that in re- cent months has seen massive falls in demand and load factor amidst a sea of over capacity.

Air Caledonie Acquires Caravelle:

Noumea-based Air Caledonie has purchased the previously leased Caravelle (F-GEPC) that it has been using since early 1985 to service its Pacific and Noumeal Brisbane route. The newly purchased Caravelle is presently undergoing a major in France and has temporarily been replaced by another of the breed, F-GFBA. Air Caledonie will use the Caravelle, for which they paid less than one million dollars, in a 114-seat economy configuration.

As we went to press it was also confirmed that Ansett had formally pulled out of its arrangement with Air Vanuatu and that that carrier was now linking in with Air Caledonie. Meanwhile, the relatively young carrier is hoping to further expand its operations in the region with a successful tie-up between Qantas and the arrival of new ATR42 aircraft. Air Caledonie presently leases capacity from Qantas on QF91 which flies weekly with a 767 from Melbourne/Sydney/Noumea and Retum, an operation that figures heavily in the Air Caledonie network.

To further boost its resources the carrier was recently acquired by the French Polynesian Government for a reported $A3m, a move that will help underwrite the purchase of additional capacity in the years ahead.

New Australia-Japan Air Agreement:

A new air service agreement between Australia and Japan is expected to give a major boost to tourism from Japan.

The National Airline of Japan (JAL) may now operate to Darwin and any four of Sydney. Melbourne, Perth, Brisbane, Adelaide, Cairns and Townsville. It may also operate on a separate route between Japan and Sydney via Guam. In return Qantas will now be able to operate into a maximum of four cities in Japan.

Under previous arrangements, Japan’s airline could only operate to Darwin and Sydney and Qantas was only permitted to fly to Tokyo. The agreement, together with others will provide up to 25% more seats between Australia and Japan, compared to 1985 levels. Qantas and Japan Air Lines proposed to operate joint services to Tokyo from Perth and Brisbane/Cairns from April 1986. ”

Australia to Seek New Agree- Ments on Us Pacific Rights:

Ironically on the very day that United’s first flight landed at Sydney, the Minister for Aviation, Mr Peter Morris, announced that a far-reaching review of trans-Pacific air services would take place.

Mr Morris stated that the substitution of Uni- ted for PanAm makes it timely for Australia to review the aviation agreement with the US which was drawn up over 40 years ago. “There have been progressive changes over the years which have distorted the original concept of a balanced situation between the two sides”, said Mr Morris. “For example, the US airlines enjoy much more generous rights to operate via Australia to other countries than the rights that Qantas has to operate via the US. Their very extensive domestic networks allow airlines such as United and Continental to exhibit significant marketing advantages over Qantas that were not taken into account when the aviation agreement with the US was drawn up in 1946,” stated Mr Morris.

“The concept of fair and equal opportunity between the airlines of both sides has long been the cornerstone of bilateral agreements in international aviation. It is time to correct the imbalance that has developed in our arrangements with the US,” stated Mr Morris.

Qantas Returns to Malaysia:

Qantas resumed direct services to Malaysia on April 3. The airline will now have the only non-stop services between Sydney and Kuala Lumpur, reducing the travelling time between the cities by almost two hours. The service will operate in Melbourne/Sydney/Kuala Lumpur and return every Thursday and Saturday using the new Boeing 767ER aircraft.

 New Radar for Brisbane:

New radar equipment is to be installed at Brisbane Airport at a cost of $1. 4m. The contract which has been awarded to Cossor Electronics of the United Kingdom, covers the supply of an advanced technology Secondary Surveillance Radar (SSR) sensor which will be the first of its type in Australia.

The new radar system uses a sophisticated technique known as signal processing which provides Air Traffic controllers with more accurate and higher quality surveillance information than is available from present SSR systems.

The position of aircraft will be updated at a higher rate than that provided by the present radar system in Brisbane.