Airline Affairs

Chairman, Jim Leslie though intimated that the carrier could be more profitable and efficient, in monetary terms, if it were able to reduce its presently high debt/equity ratio. Qantas presently has a debt/equity ratio of 76/ 24 whereas it is felt that it should be closer to 60/40. Mr Leslie cited an example of this – Qantas is investing over $3bn over the coming few years to acquire 747-400 and 767-300 aircraft to replace ageing aircraft and to meet increasing demand. It is being forced to pay ever higher finance costs whereas a partially privatised company could not only raise capital on the share market with a bonus share issue, but could also decrease its debt by using this new source of funding to reduce its overall level of debt.

 British Airways Merge With British Caledonian:

In order to stave off the impending threat from the large US mega carriers, calling BCal has merged with British Airways.

The new airline will be strengthened by the combination of new routes which don’t overlap to a great extent, particularly as BA is based at Heathrow and BCal at Gatwick. The merger will enable the combined airline to better meet increasing competition from the giant US mega carriers which have emerged over the past two years.

For 1986/87 BA carried over 20 million passengers flying to 70 countries with a fleet of 164 aircraft. Bal is considerably smaller, uplifting only 2. 4 million passengers in the same period and serving 21 points in North America, West Africa, the Gulf and the Far East. RCal also has a 50% shareholding in LIK charter operator, Cal Air, in addition to owning British Caledonian Helicopters. BCal presently has a fleet consisting of 4 7478, 8 DC-10s and 13 BAC111s, on order are 10 A320s and 9 MD-11s. British Airways on the other hand fly 7 Concordes, 34 7478, 19 L1011s, 26 7578, 45 7378, 25 BAC111s and 9 BAe748s. On order are 6 7578 and 17 7478.

Tnt Buys Into Lloyd Aviation:

As we closed for press, it was revealed that the Sir Peter Abeles TNT Group had purchased a shareholding in Adelaide-based Lloyd Aviation.

Lloyd Aviation operates a diversified general aviation company specialising in helicopter operations, charter and, more recently commuter airline services. Lloyd’s commuter airline division operates Mohawk and Bandeir- ante aircraft on regional South Australian routes as a feeder to Australian Airlines. Lloyd’s also now flies on behalf of Ansett out of Brisbane to service the southern Queensland on-carriage requirements for Ansett.

The interesting point though is that if TNT have acquired a majority interest in Lloyd Avia- tion then, along with its majority shareholding of Kendell Airlines (who are Lloyd’s primary competitor in SA), TNT, or more appropriately Ansett gains access to the entire South Australian market. Conceivably, at a later date, Lloyd’s then may also designate their on- carriage out of Adelaide to Ansett rather than Australia.

At time of going to press, senior officials of Lloyd Aviation could not be contacted for comment to either confirm or deny the extent of the TNT share acquisition.

Brisbane Airport Opening Delayed:

The official opening of Brisbane’s new airport, originally scheduled for September has been delayed by at least two months. DofA officials now expect the facility to be fully operational prior to the December peak, though at press time a firm opening date had still to be set.

Also scrubbed was the hoped for opening display by the USAF Thunderbirds demonstration team. This idea was really overtaken by events as basically it had been an arrangement between the US Embassy in Canberra and Peter Morris’ ministerial office. With the calling of a premature federal election, the subsequent loss of Mr Morris from his Aviation portfolio and the inability of Brisbane International to open on time, the entire project simply ran out of steam. Maybe next time! •

Fac on Ice:

The proposed Federal Airports Corporation, which was due to have taken over the operation of Australia’s key airports on July 1, has been put on ice. The surprise eleventh-hour move is just one in a continuing series of fiascos concerning the ill-fated FAC.

Since the first announcement of the FAC as a project, it has been handled indifferently by both the bureaucracy and senior government ministers. It never really had a realistic asset value attributed to it, personnel were moved in and out at will without any real plan of action and in the May Economic Statement, Treasurer Keating announced that its primary revenue base, international terminals, would be sold off to the private sector. If the senior management of the FAC were not already confused, then they certainly would be now as their long-term future has well and truly been thrown in doubt.

With aviation now assuming the role of a sub-department amongst the very large Dept of Transport and Communication many observers feel that the new minister, Senator Gareth Evans, will move quickly to speed the introduction of the proposed Civil Aviation Corporation, which could include the remnants of the FAC following privatisation of the airline terminals, etc. It is believed that this matter, plus the Government’s plan for domestic air transport following the abandonment of the two airline policy in 1990, will be announced in the coming (Sept/Dec) session of parliament.

It is early days yet though the government will have to move fast as the level of uncertainty that surrounded the issue at presstime was doing little for either employee morale or government credibility.

Air Niugini Selects A310:

Air Niugini has ordered one Airbus Industrie A310-300 long-range airliner.

The aircraft will be delivered in November, 1988 and will replace an A300B4 that has been for several years leased from Australian Airlines. Australian will take back the A300 at the end of next year and will then stabilise their wide body fleet at 4 aircraft. Air Niugini’s order brings Airbus twin-aisle sales to 458 from 61 customers.

Anz Reports Yet Another Highly Profitable Year Amidst Plans for Privatisation:

For the fourth successive year, Air New Zealand has increased its net profit from $181. 1 million (all figures in NZ dollars) last year to $210. 5 million in 1986- 87.

The airline’s annual report still managed to put the company’s financial performance far ahead of industry averages, despite managing director, Mr Norman Geary’s forebodings last year of a marked flattening out in revenue and profits.

The operating profit this year was up by nearly $3 million to $108 million, though the consolidated net profit after tax was down about $7 million to $179 million. Dividends, paid and proposed, amount to $40 million.

In all, the company’s net profit over the past three years amounts to 12. 3% of the revenue earned, compared to the International Air Transport Association’s airline average of 1%.

While revenue increased by 10. 5% during the year, it was outstripped by expenditure which went up by 11. 2%.

The timing of the report coincided with a Government announcement that a quarter privatisation of the airline would be allowed to go ahead, a move the airline has been quietly pressing for since it was first mooted by former chairman, Mr Bob Owens, in 1983.

Present board chairman, Mr Hugh Fletcher, looking to the future, was highly critical of overcapacity and “unrealistic fare levels on international routes. “These festering problems are now being exacerbated by the apparent determination of a handful of American aviation giants to use their critical mass to dominate route areas overseas. A global stranglehold, if allowed to develop, could have significant implications for non-US carriers,” he said.

The decision to part-privatise Air New Zea- land was announced by Finance Minister, Mr Roger Douglas, in his budget. It was welcomed by Mr Geary who revealed that the airline had suggested a 25% public shareholding to the new Labour Government in 1984.

Mr Geary predicted strong public interest when the shares were offered, and said the move would “unleash the airline from the shackles of government processes which were both burdensome and restrictive. ” Benefits of privatisation enjoyed by British Airways, Singapore Airlines and Cathay Pacific would no doubt accrue to Air New Zealand.

Details of a timetable for the public float have yet to be announced. During the past year, fully paid-up capital of the airline was increased to 200 million $1 shares by the allocation of 80 million shares to the Government as a bonus issue from the company’s revenue reserves.

Mr Geary also said he was keen to see a large staff shareholding, as an added spur to motivation, interest and efficiency. The staff reaction was mixed, with union criticism of the principle of a public sell-off, and determination to see as much of the company as possible retained in employee hands.

Airline Pilots’ Association president, Captain Tony Dodwell, was first to announce that the union, as a whole, was considering buying into the company. “NZALPA needs more say and control in running the airline,” said Dodwell. He was followed by the secretary of the Airline Stewards and Hostesses Union, Mr Tom Downey, who said that he would be recommending the union purchase of share blocks, even though it went against principles. A similar stance was taken up by the engineers who said that they would prefer shares going to staff rather than to institutional buyers.

Previously, unions were formally advised by the Labour Department that they had no legal powers to invest in companies. Now a new industrial relations act recognizes their rights to invest in government bodies that have been privatised.

Whatever, the airline float looks like being fully subscribed and may require government direction on the way stock is apportioned.

Qantas Boosts Export Drive With $14M Cargo Terminal Expansion:

Australia’s export drive will benefit from major extensions to the Qantas Air Cargo Centre at Sydney International Airport.

The $14m extensions almost double the terminal’s capacity to 170,000 tonnes a year. This should be reached in a few years with the strong growth in air trade. Exports carried by Qantas have increased by 38% in the past six months alone.

The first stage of the $40 million centre, one of the best equipped in the world, was opened in 1983. It can handle export and import consignments of all types, ranging from the biggest airfreight containers to a pet budgie. Almost all freight is transported on pallets or in containers and these are moved within the terminal on computerised vehicles.

The Sydney terminal is the heart of Qantas cargo operations. More air freight passes through there than through the airline’s other Australian terminals combined. It handles transhipments as well as air cargo for 13 other airlines. Until the end of 1985, Qantas and other airlines traditionally had carried more Australian imports than exports. Now exports predominate. The airline’s latest figures showed its export tonnages were half as much again as imports.

Scheduled Domestic Airline Activity Continues to Grow:

Provisional statistics released during July for scheduled domestic airline activity show continued steady growth in the June quarter. Total activity (tonne-kilometres) increased by 4. 7% in the June quarter relative to June quarter 1986 by 5. 3% in 1986/87.

The passenger component increased by 5. 3% for the quarter and 6. 8% for the year, while the cargo component recorded a small increase of 0. 2% for the quarter but a decline of 5. 2% for the year.

In 1986/87 the two major airlines share of passenger tonne kilometres stood at 87. 4% Following declines in activity in each quarter of 1986/87, their share of annual cargo tonne kilometres was 83. 6%. Hours flown increased by 6. 1% for the quarter and 5. 7% for the year. Domestic airline aircraft movements at the eight capital city primary airports increased by 4. 9% for the quarter and 2. 8% for the year.

Quarterly and annual increases were recorded at all eight ports except Adelaide, due to the cessation of Airlines of South Australia in June 1986 and Hobart, which showed a decline of 2. 3% for the quarter.

Lloyd Aviation Enter Queensland Commuter Market:

Lloyd’s have decided to attack the southern Queensland market with their new Mowhawk 298 aircraft. Commencing mid August, Lloyds initiated a Queensland network that would ultimately serve Bundaberg. Gladstone, Blackwater, Emerald, Thangool and Bileola from their new Brisbane base. Meanwhile, to cater for the increased market, Lloyd’s have exercised their options on the remaining three Mowhawks to take their eventual acquisition of type to seven.

In the short term, two Mowhawks will be operated in Queensland with a further two, plus one Bandeirante, listed for SA services. The carrier hopes to be able to commence South Australian Mowhawk services during September, linking the ports of Kingscote, Whyalla, Olympic Dam and Port Lincoln with Adelaide.

An interesting, and somewhat unique, situation has also arisen where Lloyd’s will be an Ansett dual designator operating out of Bris- bane and an Australian Airlines dual designator in SA. There is no real conflict here though as it would have been impossible for Lloyd’s to have entered the southern Queensland market in competition against Australian-backed Sunstate whereas now Ansett has a viable commuter link into this important market. It is also worth noting that in Adelaide, Lloyd International Travel is one of the largest writers of TN tickets, something that neither carrier would wish to lose.

Sia Now Offering Video Games:

For those who are travel-weary and enjoy video games, Singapore Airlines has just the thing for you.

SIA is now offering a number of hand held games on all Australia/Europe 747 aircraft. Games include Electronic Poker, Backgammon, Gin Rummy and Chess. You can rent the unit of your choice for $2 an hour from a vending machine aboard the aircraft and you only pay for how long you actually use the game. It is believed that SIA is the first airline to introduce this latest attempt to increase the amount of entertainment available to the long distance traveller.

 Qantas to Serve Nagoya as Part of Further Boost to Japanese Services:

Qantas will introduce four new services each week to Japan within a year, to make the most of the growing tourism from that country to Australia. The airline planned to introduce three of the new services in October this year. They would comprise the first service between Nagoya and Australia and two more Tokyo services. From October Qantas will have a daily Qantas 747 service between the East Coast of Australia and Tokyo. A second Nagoya service will follow in April 1988.

The Australian and Japanese Governments agreed during June to increase flights on the route and Qantas is taking up it’s full entitlements immediately they become available. The increases come on top of an almost doubling in Qantas capacity on the Japan route within the last two years to meet the remarkable growth in Japanese tourism to Australia. Qantas traffic on the route is now climbing at an annual rate of about 40%.

Nagoya, to the west of Tokyo, is in a region that already generates many Japanese tourists to Australia. Neighbouring cities include Osaka, Kyoto and Kobe. The area has a thriving industrial base and its companies include such familiar names as Toyota, Brother and Noritake. The Nagoya service to begin in October will be operated every Monday by a Boeing 747. The service will go Melbourne/Sydney/Brisbane/Nagoya/Brisbane/Sydney. At the same time a seventh weekly 747 service between the east coast and Tokyo will be introduced on Tuesdays, operating Melbourne/ Sydney/Tokyo/Sydney/Melbourne.

The third service to commence in October will be a Boeing 767 flying Sydney/Cairns/ Tokyo/Cairns/Sydney. This will be the second Tokyo/Caims service (operated jointly by Qantas and Japan Air Lines) and it will operate on Mondays. This service will allow North Queensland tour packages of less than a week to be introduced and it will make the region even more competitive with Hawaii.

 Who’s the Boss?

Believing official market projections issued from government departments is always a dubious exercise for those in or out of the private sector. A recent incident between the Departments of Aviation and Sport, Recreation & Tourism though highlights the problem that nowadays even Canberra’s mandarins don’t always believe their own data fonts.

In its annual projection of aviation activity the DotA tells us that international arrivals into Australia for 1987 are expected to increase by 7% over the previous year. Now if that sounds a little thin then consider that the Department of Sport, Recreation & Tourism is predicting an increase of some 23% while pointing out that in the year up till September 1986, even the DotA’s data showed that the rate of international arrivals had increased by twice the rate predicted in their 1987 projection. Imagine the consequences of making a mistake like that in the real world!

Ansett Acquires a Shareholding in America West:

In another far-reaching move, Ansett Airlines has invested $A61m in a 20% shareholding of America West Airlines.

Ansett and America West have had a close business relationship for many years now with Ansett’s leasing organisations having leased a number of 737 jets to the booming US carrier in recent years. Ansett has also sold its twelve 737-200s to America West and acquired its Ansett New Zealand 737-100s also from the US carrier.

Ansett have gained a seat on the board of America West and will now be able to fully tap its expertise. If ever full deregulation comes to Australia, then Ansett will be in a strong position by being able to call upon real world practical experience in establishing, operating and expanding what has become one of America’s most successful smaller airlines.

Klm in the Black Again:

KLM has recorded its 11th consecutive profitable year. The Dutch flag carrier logged a traffic increase of some 9% in a difficult year for European carriers. Profit was an impressive $A203m though revenue in Dutch Guilders was down 9% owing to exchange fluctuations against the Greenback which generally spelt trouble for most European based airlines.

During the year KLM also added 10% additional capacity, a move which resulted in a slight decline of its overall load factor from 67. 3% 10 66. 7%. KLM is also boosting its services to Australia from one to two a week and is hoping for a bigger share of the rapidly growing Europe-to-Australia holiday market.

 Qantas to Provide Maintenance Support to NASA:

Qantas is to play an active role in the space age following the negotiation of an engineering and maintenance contract with the United States’ National Aeronautics and Space Administration (NASA).

The contract involves the overhaul of four engines from NASA’s 747-100 aircraft used to transport the space shuttle. The $4 million deal will see Qantas upgrade the four Pratt & Whitney JT9D-7AH powerplants to 7J configuration; effectively increasing the power potential of each engine.

The maintenance deal signifies another successful attempt by Qantas to market its engineering expertise overseas. Qantas earns more than $40 million annually from contract work performed by its engineering and maintenance division. The agreement with NASA allows for Qantas to perform work beyond that stated in the contract if both parties believe it will enhance reliability and performance.

This contract follows a $20 million deal negotiated last year to perform engineering and maintenance work for the Boeing fleet of the Chinese airline, CAAC. Qantas last year also won a $2 million contract to modify four engines for the Brazilian airline Varig. Other major clients include Malaysian Airline System, Cathay Pacific and the Indonesian Air Force.

In 1986 Qantas was awarded the Australian Department of Defence Quality and Achievement Award and the previous year the Air Transport World award for Best Technical and Engineering Management.

Additional Non-stops for Cathay:

Cathay Pacific have commenced several new non-stop flights out of Hong Kong to Europe.

Of the five new direct services to Frankfurt, two will continue on to Amsterdam and one to Paris, giving these cities better direct connections with the East than they previously enjoyed. Paris will also retain its direct twice weekly non-stop CX 747-300 service which is presently the fastest way between the two major cities.

the route reorientation reflects rapid growth by the Hong Kong carrier. Already this year in the period between January and April CX recorded a growth in pax uplifted of a startling 25% on a capacity increase of some 20%. Despite some reservations about the long-term future of the Crown Colony, CX seems to go from strength to strength and is expected to be ultimately purchased out of British Swire Group control over the years by the PRC Government as it appreciates the credibility Cathay has in the international marketplace by comparison with its own CAAC.

 London Stolport Heralds the Start of an Entire New Air Transport Era:

During the course of this issue London’s new Stolport is due to initiate its first revenue passenger flight. While that on the surface of things down here in Australia probably doesn’t sound all that fantastic, it is worth recording the event, due in mid October, as it ushers in an entirely new world of intercity air transport.

The great attraction of the Stolport, situated amidst the once decaying Docklands region, is that it is a mere 9km from central London and takes less than half the time to reach by taxi as does Heathrow. What this means is that you can fly in a Dash 7 quicker from the Stolport to Paris than you can using the large jets of either BA or Air France out of Heathrow. Additionally flights are being planned to service Amsterdam, Brussels and a number of destinations in the UK.

Two airlines have operating rights to date, Brymon and Eurocity, which is owned by the British Midland group. As the Stolport appropriately has only a 2,500ft runway (enough to put Lord Howe into the international class!), then it also represents a boom for aircraft such as the DHC Dash 7, which is standard operating fare for both carriers. Eventually BAe hope to be able to certify their 146-100 for Stolport operations as does DHC with the Dash 8-100 and Domier with the Do228-101.

In the longer term it is envisaged that many major cities will have space available in what is presently low yield industrial areas for development into similar Stolports using preferably 1000m strips. The development of ultra quiet aircraft in the 146 and Dash 7 class would open up new marketing and licence opportunities worldwide as a new breed of inter city shuttles develop to defeat the ever-worsening road congestion that plagues access to most major international airports, which invariably are being situated further and further from the city centres they were originally designed to serve.

A New Us/Australia Bilateral on the Way?

Hopefully by the end of this year, Australia will have a new and fairer bilateral air agreement with the USA.

The present bilateral, negotiated in 1946 when the Pacific was justifiably an American lake, greatly inhibited Australia from much of the potentially vast American market. Qantas for instance can only operate into three US ports (Hawaii, LA and San Francisco) and would dearly like to fly on to New York if it could pick up additional passengers out of its west coast ports. Though it presently has rights to New York, it would not have sufficient traffic to warrant 747 aircraft for such a service. With a massive increase in US capacity by both Continental and United over the past year, Qantas is beginning to feel the pinch on a route sector that represents a third of its total annual revenue base.

Other international news revolves around the initiation of Hawaiian Airlines services from Hawaii, via Pago Pago to Sydney commencing this November. Another newcomer will also be Japan’s All Nippon Airways, Japan’s second international flag carrier, which will be commencing a once weekly service Tokyo/ Sydney in October with this going to twice weekly next April Meanwhile, negotiations continue as to an approval for Korean Air Lines having access to the Australian market. At present this is being challenged by Qantas as unnecessary on the basis that KAL would use it to merely syphon off some more traffic from the already over-serviced Australia/Europe market. Presently in Korea there is a ban on all residents below the age of 55 years travelling outside their country. As this then effectively kills the bulk of an inbound Korean tourist market, there may not be an approval for KAL till this law is changed, something that is likely to occur only if a new government takes charge in the Korean state.