Airline Affairs

Mohawk services will commence this July with all four aircraft being operational by the end of September. The aircraft will be used on Lloyd’s existing network linking Port Lincoln, Whyalla, Kingscote and Olympic Dam/Roxby Downs with Adelaide. Featuring a viable 200kt cruise speed, pressurisation, toilet and galley with a fight attendant, Lloyd’s hope that they will be able to compete more effectively with Kendell’s Metroliners and Saab SF340. Lloyd’s feel that while the SF340 is an excellent aircraft, most travellers don’t know when they are getting either the Saab or the smaller and confined Metroliner. Lloyd’s feel that their larger Mohawk will perform well both in terms of passenger appeal and economy of operation. The total cost of the four aircraft with spares and training is reported to have been $5m, a figure that means that Lloyd’s have acquired 26 seat aircraft for a similar price to the smaller Metroliners.

Australian Airlines Almost Certain to Withdraw From West Queensland:

At time of going to press, it appeared a fait accompli that Australian Airlines would withdraw their Jetstreams from their western Queensland routes.

This region of operation has consistently proven a fiscal graveyard to every carrier that has attempted to serve its low capacity, long distance routes. The primary problem is that these routes really only justify small Chieftain class aircraft in load terms yet because of the distances involved larger, higher cruise speed aircraft are required. This, of course, is a technical paradox and is the reason why Australian’s latest attempt has failed so miserably.

Put simply, with our dollar the way it is, the Jetstream is to all intents and purposes a very expensive aircraft with which to fly these sparse routes. Additionally, Australian is operating an aircraft to fairly luxurious crewing standards using two airline crew and a flight attendant to service only 15 paying passenger seats. In all, an impossible situation to even expect break even, even with a theoretical 100% load factor. Australian reports that it was not unusual that at some ports uplift was as little as one passenger while since the demise of the Fokker F278, passenger demand itself has actually declined. Australian also point out that in recent years the competing coach services have improved dramatically as has the overall standard of the highways concerned, thus allowing more people to simply use their cars.

In the meantime, a number of carriers are lining up to take on these black hole’ routes. Some of the reason for their enthusiasm in this regard is that the west Queensland routes might be tied in with the plum south east Queensland routes that are presently operated by Air Queensland. It appears that the Queensland Government (who was to have made a firm decision on this at press time but decided to put the matter on the back burner) is wishing to open up the intrastate system to more operators. Due to Air Queensland’s relatively high overheads, it is felt that these southern routes will ultimately be taken over by Sunstate, itself an Australian Airlines dual designator. Operators reported to be evaluating the entire package include Ansett, East West, Country Air, Sungold, Talair, Lloyds and Sunstate.

Whatever happens, it appears that Australia will have to bail out of its loss making western Queensland routes, may well lose some of Air Queensland’s south eastern routes, perhaps even some in the north and ultimately have to evaluate whether or not it continues to operate loss making Air Queensland under TN ownership.

East West Backs Total Deregulation and Opts for Share Flotation:

East West Airlines has, like Ansett, bitten the deregulation bullet and publicly opted for full deregulation as its favoured option for a post Two Airline Policy world.

To raise additional capital for this, the airline is also going public and announced its listing on the Sydney Stock Exchange before the end of this year. ÉWA will thus be the only listed airline on the Australian stock market. Objective of the bold move is to raise up to $100m of additional funds with which to ‘cash up’ in readiness for some form of dismantling of the existing Two Airline Policy. Regardless of almost whatever policy options the Government chooses, East West will be better off then it presently is and will thus require additional leased capacity at short notice.

The Stowe group intends to retain between 47% and 50% of the listed shares which technically could allow a single suitor at a later stage to attempt a takeover of the airline. In practical terms though this is considered a fair- İy unlikely scenario. Also unlikely is a takeover, through the stock market, of EWA by Air New Zealand, as has oft been rumoured, due to the constraints of existing Foreign Investment Review Board regulations.

In the meantime, the carrier has leased two ex-Saudi F28-3000s in place of the Boeing 737- 200 that they were seeking. The 737 market is virtually non-existent at present and thus EWA have selected additional F28 capacity in lieu of the bigger jet. East West, however, will still acquire a 737 for service entry later this year and additional aircraft at later dates as required. DotA capacity determination approval has been granted for both the additional Fellowships and the sole Boeing.

East West will however derive some tangible benefits of having these F28-3000s in their inventory. Essentially, the F28-3000 is a combination of the -1000 fuselage with the wings of the larger -4000. This provides better field performance and will allow EWA to uplift additional passengers out of Yulara than they presently do in the larger 4000. The aircraft will also operate better during the summer on EWA’s Queensland routes and may offer Skywes East West some operating benefits in the west also. Both aircraft are in a 64 seat configuration and are expected to arrive in Australia towards the end of April for entry to service in May.

Qantas Cargo Flying High:

Qantas air cargo this year is expected to contribute some $350m or 17% of the company’s revenue base. An excellent turnaround from the period when the dollar devalued heavily early in 1986 with a consequent catastrophic effect on inbound high value imported goods. For this year Qantas feel they could achieve an overall air cargo growth of some 20% aided by the fine tuning of the new Qantas computer consignment tracking system that is monitoring the movement of over 70,000 shipments a day at peak time.

 Canadian Pacific to Change Name:

Canadian Pacific Airways has changed its name to Canadian Airlines International. The name change follows a recent livery change and purchase by the Canadian Pacific Western Airlines group. CAI hope to be able to gain additional frequencies to Australia as they feel that a considerable increase in inbound Canadian tourism to Australia can be generated via a better spread of frequencies. This is to some extent borne out by figures which show that last year some 85,000 Australians visited Canada as against only 46,000 Canadians having visited Australia.

Us Merger Madness Continues:

As we closed for press another merger takeover battle was proceeding amidst the rapidly evolving US domestic air transportsec- tor. Latest players in this never ending game were USAir which was in the final stages of taking over Piedmont. USAir also acquired California’s PSA earlier this year and it was approved by the Dept of Transportation the USAir/Piedmont/PSA combine will be the sixth largest carrier in the US.

Record Domestic Airline Activity in 1986:

Provisional statistics released for domestic airline activity in the December quarter show continued steady growth, bringing annual activity in 1986 to record levels.

Total domestic airline activity (tonne-kilometres) increased by 5. 7 percent during 1986 (5. 2 percent December quarter 1986 over December quarter 1985). If this figure continues then total airline activity would effectively double by 1999. Passenger activity. the major component, recorded an annual increase of 6. 7 percent (6. 8 percent for the quarter). Cargo decreased by 0. 8 percent (4. 1 percent for the quarter). Regional Airlines reported growth in total task of 4. 5 percent for the quarter and 5. 1 percent for the year.

The growth in industry task was reflected in increased services operated. Hours flown increased by 2. 4 percent for the quarter and 3. 0 percent for the year.

International Tourism Stalls While Australia Booms as a Sought After Destination:

Isn’t it nice to be able to report good, indeed great news, about an Australian economic indicator. Our major exports may well be devalued, as is our currency, though fortunately, the latter is now fueling an inbound tourism wave that is assisting economic recovery in every corner of the land.

Official figures recently released by the OECD showed that while total world tourism stagnated during 1986, Australia topped the growth tables with a 23% increase in arrivals over the previous year. International tourism by comparison achieved a mere 2% growth rate compared with 8% for the previous year.

Our excellent exchange rate, successful overseas marketing campaigns by both the Australian Tourist Commission and the airlines and the numerous problems that haunted Europe during last year all led to a Down Under tourism boom of unprecedented proportions. This is proving good news for all international carriers operating to Australia and also to the domestic airlines themselves.

Cathay Pacific Report Record Profits:

Cathay Pacific has reported record profits for its 1986 trading year. The non-government-owned international airline recorded an attributable profit of a mammoth $A228m representing an increase of 58% on the previous year.

A nett profit of this size will again greatly increase the market potential of the Hong Kong based carrier. Following the flotation of the Company at the end of April last year, Cathay now boasts some 27,000 shareholders giving it one of the largest HK share registers of any public company in Hong Kong.

Capacity for the year increased by 14% despite a drop in Gulf States traffic, while load factor improved slightly to a very healthy 70%. One factor that helped contribute to the CX profit jump was the drop in fuel prices, down from $A1. 22 a US gallon in 1985 to only . 83cin 1986.

Cathay now operate a fleet of 13 Boeing 7478, 4 of which are -300EUD models which operate principally on the ultra-long-haul Hong Kong/Europe non stop routes. The long-haul nature of the EUDs is mirrored in their daily utilisation of 16. 24 hours as against the 747- 2008 with 12. 98 and the 9 Tristars with only 7. 34hrs. Cathay have 2747-400s on order with 7 more options and will certainly need this additional capacity if their growth continues as expected.

International Air Traffic up 4% in 1986:

The world’s airlines carried about 4% more international traffic in 1986 in terms of revenue tonne kilometres (RTKs) than in the previous year (thus doubling annual pax numbers in around 17 years), according to preliminary estimates released by IATA. Total passengers carried internationally were 198 million (2% up on 1985). Three quarters of these travelled on services operated by IATA members. Freight traffic overall showed a 7% rise, with the actual tonnage increasing 6% to about 6. 3 million.

Due to capacity increases, however, load factors slipped slightly- the passenger figure coming down two points to 63% (IATA carriers 62%) with the weight load factor dropping to 60%. Commenting on the figures, IATA Director General Gunter O. Eser said “1986 could have been worse. Poor traffic on the North Atlantic was offset by healthy traffic in Asia and on routes between Europe and Latin America. Financially, the drop in fuel prices saved the airlines from severe losses. ”

Qantas Hoping to Operate via New Zealand to Us Under Improved Bilateral Agreement:

At the 15th Ansett Travel & Transport Writer’s Seminar held in Adelaide during early April the Chief Executive of Qantas, Mr John Menadue, outlined the considerable benefits of Qantas being able to operate to the US via New Zea- land.

Both United and Continental, in addition to Air New Zealand have traffic rights to fly their citizens from Australia to the US via New Zealand and vice versa, while Qantas must either exit or enter via an Australian gateway. This then provides problems for Qantas with its US package holiday traffic, almost all of which also visits New Zealand and must return to Australia for final departure to the US. This not only increases Qantas’s operating costs but also places it at a disadvantage to its competitors. Despite this, Mr Menadue pointed out that Qantas presently uplifts 70% of Americans travelling aboard its Pacific flights in preference to the substantial uplift from the US carriers. Mr Menadue estimated that QF would bring in more than 100,000 American tourists to Australia this year and that this figure could be increased by 15,000 if the airline had fifth free-dom rights from New Zealand.

This, of course, brings in the thorny subject of bilaterals with the US and New Zealand Depts of Transportation. The American carriers want access to North Queensland Cairns and Townsville and possibly Darwin. Qantas and the Australian Government would be willing to trade these rights for additional access to the USA, possibly into New York. This would be either via the existing US West Coast gateways or on a new routing from Australia to New York via Tahiti flying Boeing 747SPs and later 747- 400s. Due to equipment deficiencies though this route would not be operational till late 1989 at the earliest. Air New Zealand, also wants access to North Queensland for some of its westbound long-haul services.

Qantas is also now Australia’s fifth or sixth biggest export earner, according to Mr Menadue, with direct foreign exchange earnings this year projected at $1. 8bn. An additional $1bn of invisibles meanwhile is eamed through resident Australians buying QF fares in preference to foreign carriers where their money is then transferred largely offshore. Inbound traffic from the US last year rose by a massive 23% while the booming Japanese market grew by 49%, a factor that Qantas and JAL hope to build further via additional frequencies and a Nagoya/Cairns link slated for this October.

Qantas is still evaluating the MDC MD-11 trijet against the Airbus A340 and hope to be able to make a firm announcement on one of these aircraft in the coming year. Mr Menadue was particularly interested in the possibilities of operating Perth non-stop to London and Frankfurt with the A340. Qantas is also evaluating whether or not to shift more of its eventual one stop Australia East Coast/Europe flights from Singapore to the soon-to-be-completed Bangkok International Airport. Brit-ish Airways is already following this path as is Thai in developing more non stop flights to Europe from its own home base. Geographic- ally, Bangkok is better situated than Singapore for these flights, a factor that will also be further enhanced should hostilities between Iraq and Iran cease thus opening up the northern air corridors once moreover the Gulf region to civil air transport.

 Australian Links up With British Airways:

Australian Airlines has signed a joint marketing agreement with British Airways. The move follows on from last year’s similar agreement with Air New Zealand and was a reaction to the link forged earlier between Ansett and Qantas. A link that industry sources have quoted as having increased Ansett’s international carriage by up to a third.

Australian Airlines believes there is a lot of market potential in Europe and in particular the United Kingdom. Already the year to date figures show a 30% increase in the number of British and European visitors while the trend of VFR only (Visiting Friends and Relatives) visits from the region has now moved across to a greater mix of holiday travellers wishing to see Australia.

An event which has assisted this increase in inbound British tourism was the Association of British Travel Agents conference, held at Surfers Paradise last October in which 4000 of Britain’s biggest tour wholesalers and travel agents were able to enjoy Australia first-hand. Previously, the majority of these agents had never visited the region and were not aware of what it had to offer. As a consequence, the active marketing of Australia at a street front level in the UK is now unequalled anywhere in the world.

The Australian Tourist Commission also reports that the results of the ABTA conference are already being seen with a dramatic increase in the number of UK wholesale tour companies wanting to include an Australian holiday programme in their range of preferred tours. Events such as the Grand Prix, America’s Cup and mega-movie Crocodile Dundee have all helped increase Australia’s attraction to the world.

The new Australian/BA marketing agreement should be highly productive for both carriers and provides Australian a better presence abroad than it formerly had. A major aspect of the agreement will be that Australian Airlines will promote British Airways on the international routes that BA operates. BA in tum will reciprocate through its worldwide network of offices.

Swissair Announces Profit and Order for New Aircraft Type:

Swissair has announced a profit for the financial year 1986 of $A62 million.

Although traffic grew overall by 3. 2%, total revenues decreased by 7. 4%, owing to the unfavourable impact of exchange rate movements, from $A4186 million to $A3875 million.

The airline’s total available capacity in 1986 amounted to 3. 24 billion tonne-kilometres, a 7% increase over 1985. Traffic volume for the same period was also up, at 2. 01 billion revenue tonne-kilometres, a gain of some 3%. Seat load factor, as well as overall load factor, dropped from 64 to 62%. At the end of 1986, Swissair’s route network linked 107 points in 72 countries.

Ansett Wins Battle to Operate Polynesian Airlines:

Ansett has fought off a strong challenge from Air New Zealand to win a ten year management contract for Polynesian Airlines, “the airline of Western Samoa.

Ansett will now be using their Polynesian Airlines/Ansett Vila services Boeing 727-200 on services linking Apia, the capital of Western Samoa, with Sydney, Auckland, Rarotonga and Tahiti. The same aircraft will also be leased by Cook Islands International for Pacific regional services to augment the existing Ansett 767 that links Raratonga with Sydney. Cook Islands International has also won traffic rights to operate Raratonga/Honolulu and consequently Ansett is presently in discussion with Continental as to operating a joint service on this route using the latter’s DC-10 trijet equipment on the long overwater sector and possibly onto mainland West Coast USA – a long time Ansett marketing objective, even if under the guise of another airline’s livery.

Government Still Considering Sale of Airport Terminals:

The Minister for Aviation, in attempting to answer a question in Parliament during March concerning the sale of Australian Airlines, refused to outline how the Government intended to find the millions of dollars needed to upgrade airport terminals so that they will be able to cope with the growing tourist boom.

The Shadow Minister for Aviation, Mr Bruce Lloyd, said that the Minister, Mr Morris, chose to ignore that part of his question concerning airport terminals.

However, the Minister’s silence on how he would obtain the hundreds of millions of dollars essential for those international terminals over the next five years at such places as Sydney. Brisbane and Darwin, gives some hope that the private investor and not the Australian taxpayer will provide the money.

“The offers are there- the need is certainly there. The only thing lacking is the will of the Minister and the Government to put aside their political dogma so that Australia is able to prosper. ” Mr Lloyd said that the sooner the government gets out of owning airport terminals the better, so that the private sector can more efficiently construct and manage the terminals and also allow new airlines to gain necessary terminal space if domestic aviation is to be more competitive.

 Cathay Pacific Move Closer to Their Eventual Chinese Connection:

In a not unsurprising move, Cathay Pacific has sold an additional parcel of stock to mainland Chinese interests. This now leaves the British Swire Group with a 50. 2% majority shareholding in the successful international carrier.

The new share issue, involving some 212 million units, was purchased for a reported $US257m by China’s government buying agency, the China International Trust and Investment Corp (CITIC). Swire meanwhile believes that it is of paramount long-term importance to have a very close relationship with their PRC neighbours, who takeover Hong Kongina decade, and also see the new PRC involvement as another means of stifling the aims of local rival, Dragonair, in commencing direct long haul services directly against Cathay Pacific.

Thai Has Another Great Year:

Thai International logged its 22nd consecutive profitable year in 1986 with the announcement that it had made an operating profit of $US57. 7m, an increase of nearly 50% on the previous year.

Revenue for the year rose by some 18% against a traffic increase of 6. 4% while load factor grew from 64% to 67%. While growth was solid through 1986 there has since been a substantial increase in traffic that has Thai officials predicting an even better 1987.

Thai operates a fleet of 18 Airbus A300s, 6 Boeing 747-200s and 2 DC-10-30s. Thai also has a number of A300-600s on order in addition to two new DC-10s and two 747-3008 scheduled for delivery over the coming year. The carrier is presently deciding on whether to order the A340 or the MD-11 (though has a ‘provisional’ order for the MD-11) in addition to examining a proposed merger with Thailand’s domestic operator, Thai Airways Co.

Qantas Join the 747-400 Club:

Qantas at last firmed up its long held delivery slots for the latest Boeing superjet, the ultra-long-range 747-400, during March with a firm order for four backed up by options on fifteen more.

The four aircraft will be delivered in April, May, June and September of 1989 and will be principally deployed on one stop flights on the Kangaroo Route via Singapore. Qantas presently flies one stop flights via Bombay, a route taken not because of market popularity but more for obvious geographic reasons.

The 400 series has a range of 6700nm, which is more than 1200nm further than the current 747-300s. They also have a 37,000lb (16,800kg) improvement in takeoff weight over the present model’s limit of 833,000lb (378,000kg). Qantas will now also be able to operate the -400 on the non stop Australia to LA and San Francisco routes of some 6500nm. In this situation, the -400 is expected to be able to reduce per passenger cost by at least 30% over the present 747SPs.

So as to lessen the balance of trade implications for Australia, the billion dollar order will be financed through Qantas’ overseas eamings with sufficient capital being raised in four years to theoretically pay off the debt though the aircraft of course will be depreciated in the normal manner through ten to twelve years of QF service.

Engine choice has yet to be made and will be between the Rolls Royce RB211-525D4D, the General Electric CF6-80C2 and Pratt & Whitney’s PW4000. The Rolls engine is favou- red as Qantas have chosen this engine for all their 747s since the late seventies though strong representations by the American engine manufacturers are not to be ignored.

The order by Qantas now puts it on an even commercial footing against its major competitors, Singapore Airlines, British Airways and Cathay Pacific, who will all be operating 747-400s into Australia before the end of the decade. The first 747-400 is due to be rolled out from Boeing’s Everett, Seattle facility next January and to have entered service with Northwest Orient by year’s end.

British Airways Sale Proves Massive Success:

The long-awaited public flotation of British Airways on the London Stock Exchange has proven a massive success.

The initial stock offering of some 720 million 99c shares was oversubscribed by a factor of 11 to 1 while a second-stage offering a week later saw prices increase by more than 80%. Finance specialists estimate that the carrier grew in book value by some $A700m in less than a week.

The successful float will fuel arguments in Australia for the eventual sale of all or portions of Qantas and Australian Airlines, something that is already stated in Coalition policy. The UK Government has meanwhile had considerable success with its policy of privatising previously government-owned institutions, the most successful of which was British Telecom in 1984 and British Gas last December. Next on the list is aero engine manufacturer Rolls Royce, set for listing this May and the profitable British Airports Authority which owns and operates seven of Britain’s major airports.

Australian Drops Trans Tasman Service and Gains Air Queensland On-Carriage:

Australian Airlines has dropped its Boeing 727 service linking Hobart with Christchurch from March 1 through to December 5. The decision was made following poor commercial prospects owing to the Tasmania/NZ market effectively being split following the introduction of Qantas 767 services from Hobart to Auckland in 1986.

Australian Airlines General Manager, Mr James Strong, stated that the market was not big enough to sustain three carriers and that his airline would lose significantly if it were to continue servicing the route during the low traffic period.

On a happier note for the Government owned domestic, the Queensland Supreme Court recently found in favour of Air Queens- land’s attempts to have its on-carriage moved over from Ansett to Australia. Australian Airlines purchased Air Queensland during early 1985 but at the time failed to appreciate that the Queensland regional had a watertight on-carriage agreement with Ansett.

Australian has since worked feverishly to have the previously secret agreement between the two carriers rescinded but to little effect. The February decision in the Queensland Supreme Court dismissing Ansett’s attempt to have the on-carriage agreement extended through to 1990 represents a major victory for Australian and one that will ultimately be worth a reported $8m annually in on-carriage to the airline. The move will become effective from this October.

North Atlantic Shows Signs of Recovery After Drop in 1986:

Encouraging growth on the North Atlantic during the last two months of 1986 helped to keep airline traffic for the year as a whole close to 1985 levels despite the summer downturn. The total number of passengers carried on scheduled services was 19. 7 million, compared to 21 million in 1985-a drop of 5. 9 percent.