Airline Affairs

Compounding the problem politically is the fact that Mr Unsworth’s electorate is adjacent to the airport and thus the Premier has reintroduced politics of fashion into the argument even though he does not live in his own electorate. Further complicating the situation was a July 30 press briefing by the Minister for Aviation, Mr Peter Morris, positively verifying that there would be no third runway at KSA under a federal Labour Government even though airport noise curfews were being reviewed for applicable aircraft.

The fact that a 737-300, a 146, an Airbus or 767 are all quieter than the relatively large number of turboprops that service the airport at night in a freighter role is unfortunately lost on the politicians in their attempts to sell their voters on the line that a smaller KSA is a quieter alternative.

Ansett Expands With Cook Islands Service:

Anselt have again expanded their operations base with the launching in August of a weekly service to the Cook Islands. Operated on behalf of the Cook Islands government, specially formed Cook Islands International Airlines will use an Ansett 767 flying direct from Sydney to Raratonga while Ansett’s recent commercial affiliation with Qantas now also allows it the opportunity to offer travel one way with Qantas via New Zealand or to Western Samoa with Ansett operated Polynesian Airlines.

Mentioned in Parliament:

From a publisher’s point of view it’s always nice when your magazine is mentioned in Federal Parliament, as was Australian Aviation recently when the Opposition spokesman on Aviation, Mr Bruce Lloyd tabled a question on notice to the Minister for Aviation, Mr Peter Morris, regarding ATC delays at Sydney’s Kingsford Smith Airport as per our article on page 56 of the January edition. When the veil of political ‘answerspeak’ is lifted, we don’t know if anything viable will eventuate though it is nice to see that at least the people at the top are aware that the rest of us do believe the ATC system can be improved.

We would also like to thank you, our reader, for your continued support through our change from a quarterly to a bi-monthly magazine. Despite in-depth research on the decision we still held our breath as the sales figures came in for the first bi-monthlies. Fortunately I can report that we are breathing again and our positive pre-decision research must have asked the right questions as preliminary (unaudited) figures for the first four bimonthlies indicate an increase of 9% in paid circulation.

A very sincere thank you to our readers for your support, though I must say it continually amazes me how many readers are happy to pay a lot more for this magazine than they need to. While our subscription base is soaring and now exceeds 4,000 subscribers, there are still well over 10,000 people out there paying some 63% more per annum than they need to. Like we say, why pay $4. 50 for this magazine when you can get it for a mere $2. 75? That’s a saving of $32 over a three year period so why not clip out the centrespread sub coupon in this issue and begin saving today. Now isn’t that a positive idea

In the long term Ansett, via CIIA, could also operate to the USA with appropriate non-twinjet equipment using the Cook Islands as a stopover en route to Australia. CIA presently has rights to operate to the USA and would in turn give Ansett de facto international routes of considerable magnitude. Ansett is presently involved in a number of overseas airlines including the revised Newmans Air in New Zea land (refer NZ News), services to Vanuatu, Western Samoa, the Cook Islands and even Uruguay in South America.

Defections Bad News for East West:

East West Airlines, long epitomised as the battler of the domestic airline scene, was shaken with the defection of two of its most senior executives during July. Mr Ron Entsch formerly of Air Queensland, and EWA’S engineering and operations director, headed north to join Ansett while even more stunning was the departure of EWA Managing Director Dennis Howe. Howe had long been considered the standard bearer for the battles the small carrier was waging against its large competitors in fighting the two airline system. That Howe chose to accept the position of assistant general manager at Australian Airlines has lett morale at a low ebb at East West. Neal.

For Australian Airlines, the move is good news as the government-owned domestic could well do with an injection of the flare and dynamism that Howe helped bring to East West. Australian also announced during July that Mr Jeff Pearce will fill the other post of assistant GM, both men will report direct to CEO Mr James Strong Australian Allan Aviation believes that the move had been coming for some time and that senior EWA management were beginning to feel the strain of the consistent legal barrage that was being directed at them by the larger domestics following the granting to anting to EWA of C of Queensland s year. Howe was also not happy with some senior staff changes within EWA while there have also been reports that EWA’s own Mr Ric Stowe, is tiring of the airline industry in its present highly regulated form and with a reduced capital inflow through the reduction in international energy prices eamt over the past year by his Carpenter Group and that he is now not as prepared underwrite EWA’s pioneering efforts as he coastal routes earlier this year.

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is also the long mooted suggestion that Australian Arines might at some time actively consider purchasing EWA. With EWA’S overheads increasing greatly over the past year following the cessation of a number of servicing and terminal rental agreements formerly supplied by Australian, EWA might have to increase is fares base in order to ensure a viable profit. Australian would gain considerably from such a move as would instantly gain intrastate traffic nights against Ansett in Western Australia (via taking over Skywest), NSW and now the lucrative Queens land coastal routes which it might assign to Air Queensland. In the long term it would also ensure a greater level of on carriage out of Perth and an assured on carriage base in NSW, where Australian looks like having to enter into (NSW transport policy reform NSW.

permitting) direct competition to EWA and Ansett’s Air NSW to retain its all important Sydney on carriage it EWA should ever be allowed entry to trunk routes in a more deregulated environment. Perhaps speculation today but stranger things have happened in recent times in Australian aviation!

Fare Wars Erupt on Pacific and European Routes:

Fare wars, labelled by Continental as ‘economic lunacy’ have broken out on Australia’s primary international routes.

Late July saw United offer Australian east coast to Honolulu fares at a virtual 50% discount for travel taken between September and the end of November. The new fare of $849 was immediately matched by Qantas who then undercut United’s west coast fare by $100 in addition to raising the child age limit from 12 to 15 years. United has also tied in with Australian Airlines to provide domestic feed into its Sydney and Melbourne ports. While United will pay Australia for its domestic uplift the United passenger won’t pay any more than rival Cantas which, for instance, can operate direct from its Queensland ports. Continental meanwhile reluctantly joined the tray with an admission that fares as low as these spelt nothing short of economic lunacy.

Within two days of the Pacific fare cut announcement, British Airways unveiled a package of new low fares from Australia to Europe designed to stimulate the deteriorating Australian outbound market. The new fares cut some $500 off the standard economy excursion fare which now means that you can fly to Europe for as low as $1399 through the northern winter months. The moves, which have since been taken up by most of BA’s competitors, are designed to make up for the ever-falling value of our dollar which is now causing most Australian holidaymakers to seek their leisure locally rather than abroad.

British Airways also announced that it is commencing Sydney/London services via Bangkok on a one stop basis. Using the enhanced fuel efficiency of its newly refurbished 747- 200s with their upgraded D4 engines, BA will now offer the quickest Sydney/London service and will eventually fly up to four of its ten weekly Kangaroo Route flights via Bangkok as the availability of D4 retrofits increases through 1987. Flight Sme westbound is tagged at under 24 hours while eastbound the airline hopes to be able to operate the service in as little as 21 hours.

Continued Growth in Domestic Airline Activity in March Quarter 1986:

Australia’s domestic airlines are now carrying record numbers of people. Provisional statistics for the March quarter 1986, reveal that in the year ended 31 March, the total number of kilometres travelled by domestic airline passengers (passenger-kilometres) exceeded 11. 1 billion – an increase of 9. 3% over the previous 12 months. Total hours flown by domestic airlines increased by 6. 5% in the 12 months to the end of March and by 2% in the first quarter of the year.

Ansett Gains a Kiwi Entree:

Ansett has succeeded in gaining entry to the New Zealand domestic market by way of a new airline which will be operated in direct competition to Air New Zealand. The new airline is 50% owned by Ansett, 30% by Brierley Investments Pty Ltd and 20% by Newmans Air.

The move is seen as a direct challenge to Air New Zealand’s domestic F27 and 737 operations and follows a relaxation of governed foreign investment restrictions which now allow foreign companies to invest in local transport operations. The move will certainly herald a new customer for Ansett’s leasing subsidiary which could deploy a mix of Fokker 50 proplets, Boeing 737-300s or even larger MD-80 series twinjets to compete with ANZ’s less fuel efficient fleet of geriatric F27s and new but fuel thirsty and financially highly geared 737-200s.

Full details behind the historic move are outlined elsewhere in this edition in our New Zealand News section.

 Qantas Fleet to Have New Look by 1988:

Qantas will refurbish its fleet over the next two years to the same standard as its new 747 Extended Upper Deck aircraft.

The programme, costing about $1 million for each of 18 200-series 747 aircraft, will include new interiors and the new exterior colour scheme. A former Qantas 747 will be leased from Air Lanka from September this year to March 1988 to allow the refurbishment to take place without disrupting services.

Work on the interiors will include new upholstery for the seats, new sidewall panels, carpets, laminates and wall dividers and the installation of bigger overhead lockers. Within a year all Qantas aircraft will also have inflight video systems which allow exciting new programme opportunities. Qantas also plans to launch a magazine-style programme suitable for screening on shorter fights where feature films cannot be shown.

 International Airline Profit. Ability Heading Into Turbulence:

IATA Director General, Dr Gunter Eser, has predicted a rough time ahead for the world’s airline community.

North Atlantic traffic is presently a fiscal graveyard due to the fall in value of the US Dollar (compared with European currencies) and the threat of terrorism which has served to dilute some carrier’s traffic base by as much as 25%. The other problem is that capacity grew by 16% in the first quarter alone while uplift has remained fairly static as compared with 1985. During the first quarter load factors slumped by 7% while nearly three million empty seats were flown across the Atlantic every day, equivalent to roughly 100 DC-10 sized airliners! Dr has emphasised that such negative passive effects of factors can easily offset the positive reductions in fuel prices which are being passed through to the airlines following the collapse of crude oil prices earlier this year. In various parts of the world the fall has in either the not been as much as it has been in USA or Europe. Additionally, as the Gulf states cut back on construction programmes and oil exploration, the requirement for traffic to those ports also evaporates, leaving many carriers with loss making routes that were formerly bastions of profit due to their consistently high Overall, IATA believe that the world’s airlines are heading for a loss in the region of $US1bn year. This is largely as a result of yield erosion though rather than traffic decline. While the Atlantic is down, most sectors are still recording growth; though IATA point out that no airline will ever return a profit when it consistently undersells its product in the face of cut throat competition from larger carriers who are better able to undertake predatory pricing to win a short term majority route share.

IATA believe though that more than ever the Asia/Pacific basin remains the bright spot in modern civil aviation. “During the past ten the Asia/Pacific share of worldwide international air rose from 19. 6% to 25. 7%, IATA economic and traffic forecasts up to 1990 indicate that traffic flows involving the Pacific and Far East areas will continue to expand fastest. Worldwide we see an average annual international traffic growth rate of between 4 and 5 percent,” said Dr Eser.

British Airways Opts for  Refurbishing 747 Fleet:

In the face of a less than sunny 1986 financial year due to the fall in in transatlantic tric traffic and further setting of privatisation due to delays in securing a Bermuda Agre Agreement BA has decided to Il refurbish its 747 fleet instead of a multi-billion dollar order of new generation 747-400s that would have only increased the carrier’s debt-to-equity ratio in relatively insecure times. BA will instead completely reconfigure all 28 747s with new interiors that will bring the air crat up to the e latest design while 60 of the air- Ine’s Rolls Royce RB211s will be upgraded to the more powerful and fuel efficient D4 standard. This in effect will give BA a fleet of ‘new’ aircraft for the cost of less than two 747- 400s. The airline will save some $A30m annually using the D4 upgrade engines which will also allow the non stop operation of routes at maximum payloads out to 5,600nm. The first such modified 747s are already entering operation and BA hope to have the entire refurbishment programme completed by early 1988

Qantas and Ansett Tie the Knot:

Qantas and Ansett Airlines have signed a commercial agreement that will serve to promote both carriers in areas where one or the other is presently inadequately represented. The agreement, which became effective on July 1, links 38 major non-metropolitan locations around Australia into the joint sales and marketing operation. Where Ansett now operates a large travel centre, Qantas will be heavily promoted as the recommended international carrier. Conversely, where Qantas operates a travel office Ansett will become the recommended domestic airline. This is crucial to both carriers but is of greater overall benefit to Ansett as Qantas will now be able to directly promote Ansett’s domestic services via Qantas’ vast overseas sales network.

The loser was of course Australian Airlines, who Qantas simply did not feel were as commercially aggressive as Ansett. For their part, Australian will now seek a closer relationship with a number of overseas airlines including a specific link-up with Air New Zealand.

 Bryan International Grey Returns With Charter Aspirations:

Bryan Grey, the man who took East West Airlines from being a staid rural feeder to an aggressive and highly visible contender for national operations is back in aviation and not surprisingly is again finding his battle is beating the e bureaucracy.

Bryan Grey’s latest venture operating a leased 747-200 proposes ga O configured for 508 passengers which would operate a weekly charter flight from a large number of US cries.

The charters would operate out of medium and large bases and on an annual basis serving cities such as El Paso, Buffalo, Phoenix and Tampa in addition New York onto the larger ports such as New York and Chicago. Offering extremely viable airfares, fully tied in with a comprehensive land content p package, Grey is confident that he can get sufficiently high load factors aboard his weekly charters to make the venture a success. Presently Qantas is prohibited from operating such a service while Grey’s flights would not operate into San Francisco or Los Angeles as they are presently served by Canvas.

The proposal, which has won acceptance all the necessary Government Departments to date except Aviation, foresees up to 50,000 additional US tourists visiting Australia annually via the new service. Grey suggests that many people in America would like to holiday in Australia, particularly as it has never in been cheaper for them to do so, yet most don’t know how to go about organising such a holiday and and so other more traditional vacation spots win out instead. Grey suggests that if he could operate a 747 direct from their home town then combined with his affiliation with a major US travel group, the convenience factor alone would attract many tourists to Australia that would not have ordinarily come.

As we closed for press the DotA had already rejected the proposal on the grounds that it intended to uplift tourists from Honolulu as an American port rather than as merely a transit stop. Apparently this causes problems with Qantas and the existing US transPacific carriers. A revised proposal has now been submited and it is hoped that by the time you read these words the Department has clarted its position.

Rediffusion Win Ansett Simulator Order:

Britain’s Rediffusion group have won an order from Ansett Airlines for 737-300 and A320 simulators.

The 737-300 unit will be installed during mid-1987 while the A320 unit will come on line to-wards the end of 1988. Both simulators have been designed to meet the DolA’s level 5 requirements and will include digital control loading and hydrostatic motion systems of the most advanced type.

 Turbulence Hits People Express:

The darling of US deregulation, People Express, has entered a period of financial turbulence. People found earlier this year that it was coming under ever increasing pressure from the larger US airlines who were offering similar discount taros ar at superior levels of service on select routes to deny PE market share. The carrier then introduced an across the board fares increase in an effort to an effort to increase yield but this backfired and People had to hurriedly return to its former lower fares. Attract higher yield the carrier has now introduced a fully fledged first class service yet is hampered by not having the necessary back up services demanded by first passengers at is often antiquated and overcrowded terminals. Following a first quarter loss of some SUS47m the carrier sold its recently acquired Frontier Airlines to United for approximately $US146m and is considering the sale of Bri Airways and PBA if additional capital is required.

To problems are symptomatic of those to affect some of the new entrant airlines that founded their route networks on good quality used aircraft. People, for instance, purchased most of its fleet from 1981 through to 1984, by 1990 most of these aircraft will be between 15 and 25 years of age and will need replacing.

As it is only in a recession that large quantities of quality used airliners are generally available at affordable prices then such carriers will have to plan their fleet replacement cycles with recessions in order to be able to acquire the replacement aircraft they need in the quantities required. The fallacy of this is that in a recession the first airlines most likely to be hit are the low-yield operators flying old generation fuel fuel inefficient and maintenance-intensive aircraft where the the hunter rapidly becomes the hunted.

In short, airlines like People Express eventually fall into the same fiscal trap as the majors they attempt to take take on in their early days. From initially being lean and low capitalised operations they are soon forced to road to acquire the trappings of the larger long-established majors -large maintenance facilities, expensive computer reservations networks, costly terminal facilities and an ongoing personnel training requirement. PE for one is at this point now and is under attack from the likes of United and America who are beginning to dominate US domestic aviation with their giant fleets and region hubs.

PE will need to regain its yield and watch its expansion rate in order to keep load factors above breakeven if it is to survive in the long term.

The airline considers now that it has reached a stage of consolidation and has sufficient aircraft to operate the routes it needs to survive.

Overall, US carriers lost a collective $A1bn in the first quarter this year though that period is traditionally the lowest revenue earner due to seasonal factors. The US Air Transport Association estimate that largely due to low fuel prices (which th have fallen by up to 70% as against an average 10% or so in A Australia) t will return a nett profit in the region of $AZ this fiscal year which will be a reasonable achievement considering the massive increases in capacity that have been put in place this past year.

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Jal Feeling After Effects of 747SR Crash:

Japan Air Lines has recorded a dismal performance for fiscal 1985 with domestic traffic down almost 11% in the wake of the August, 1985 Boeing 747SR crash. In the aftermath of the crash JAL lost most of its board and senior management, including one to suicide, and a large share of its important domestic traffic base as Japanese travellers shunned the giant carrier en masse.

Internationally the situation wasn’t as bad and JAL recorded a traffic gain of 4. 6%. The overall loss though stood at US$39m in a year when JAL was set to post a near record profit in the hope of venturing into some form of privatisation.

New Taxes Another Rip off for Aviation:

The introduction of the Fringe Benefits Tax on July 1 1 ushered in a new range of taxes that in the longer term will have to be financed by higher air fares.

Australian Airlines GM, Mr James Strong recently lashed the Federal Government on the tax claiming that it would cost the airline some $4m annually and required an additional 20 employees just to administer it on behalf of the Government. Ansett claim a similar figure while Qantas could possibly be looking at an even higher tax burden due to its larger employee base and the higher fare structure of long haul international travel. Including the smaller second level operators the net cost of the tax in the first year alone is expected to conservatively impost an additional burden of some $16m upon our airlines.

FBT applies to the airlines where employees are entitled to free or discounted sub load travel within the carrier’s network. The fact that the employee is usually occupying a seat that otherwise would have been empty has been lost on the Treasury, claim the airlines in their criticism of the tax.

At a recent National Aviation Press Club lunch, James Strong stated that the new tax not only placed an unfair administrative burden upon the airlines but that it would have to be taken right from the bottom line in financial terms as there was no economic justification for the tax in the first place. “The way in which fringe benefits tax applies means that, technically the airlines have an unlimited liability to pay tax on benefits at their employees own in native. How on earth anyone can accept that as a proper business principle completely escapes me,” he said.

In addition to FBT the international airline community has had to pay for the collection of the $20 Departure Tax from July 1st, another burden that at least has been allocated across to Cost Recovery to finance the DotA’s massive empire.

757 Sets Distance Record:

Royal Air Maroc, the national carrier of Morocco, set a distance record for the Boeing 757 during July when its first 757 arrived in Casablanca after a 10 hour, 15-minute fight from Seattle.

The distance covered was 9,097km (5,653 miles). Payload on board was 23,467 pounds and fuel used in the record flight was 66,880 pounds (9,923 gallons). Including crew, 38 persons were on the flight.

Aviation and the Grand Prix Circus:

Adelaide comes alive again this October with the staging of the second Formula One Australian Grand Prix. If last year is any guide then aviation also comes alive as the GP Circus’ is nowadays supported by more aviation uplift than your average Rapid Deployment Force Both domestics will have their fleets fully utilised to support the massive inflow of visitors for the October 26 GP while a number of 7475 will be used to transport the cars, their teams and the hundreds of tonnes of equipment from the previous GP in Mexico. Last year Adelaide saw Australian Airlines operate 38 services into Adelaide on race day and the Ansett group some 36 also, both airlines plan more for this year and are offering half-fare discounts for Adelaide people wishing to travel in the opposite direction.

Qantas are meanwhile hoping to operate a charter from Mexico City direct to Adelaide via Tahiti while last year a Lufthansa 747 Freighter was used solely to transport tyres. Additionally, a British Airways Concorde will operate a special Grand Prix charter package from London at a cost of around $12,000 per person. BA expect the flight to take 13 hours which will also be the first time a Concorde has landed at Adelaide airport.

If you are going to the GP this year then set aside some extra time to visit Parafield and Adelaide International itself as it is sure to play host to as many interesting foreign aircraft as you could possibly hope to see anywhere in the world, or at least till the next GP.