Airline Affairs

Australian Chairman, Mr Ted Harris, said that the favourable results reflected the benefits of vigorous growth in all levels of air travel combined with major improvements in management of aircraft scheduling and utilisation, better control of seat sales (yield enhancement via its reprogrammed CRS) and substantial gains in the premium sector of business and first class travellers.

Total passenger kilometers increased by 10. 5% while in the final quarter, passenger growth increased by a stunning 14%. For the first time ever, total revenue exceeded one billion dollars while air fares increased by only 6. 7% as against a CPI increase of 7. 1%, maintaining the trend throughout the last four years of decreases in air fares in real terms.

However, Australian still requires at least $240m in short-term capitalization to enable it to reduce its debt burden to a manageable level. Following recent backdowns by the Federal Government in allowing the airline the option of privatisation, Australian is looking at selling its resort interests in the hope of raising up to $200m of capital. The airline already has its Adelaide office on the market and is not averse to selling off its earth bound assets to help boost its fleet for the coming era of deregulation. In the meantime, the airline continues its growth and is providing additional assistance to Eastem Airlines, of which it owns 42% and its new Australian Regional Airlines commuter airline, which operates Twin Otters in support of Barrier Reef services.

Tourism Continues to Boom:

Figures released for the first quarter of this year by the Bureau of Tourism Research indicate an increase in arrivals of 22% over the same period last year. This was a total of 526,900 which if continued will see Australia comfortably exceeding its 1988 target of two million visitors.

New Zealand remained as the primary source of visitors with 17% of the total though Japan is nowadays close behind with 15%, an increase of over 55% in just one year. The United Kingdom also boomed with an increase of 35% while numbers from North America declined by 7%. Arrivals from Europe rose by 32%

Expansion of Sydney International Terminal:

The Federal Airports Corporation has proposed a $170m expansion of the existing international terminal complex at Kingsford Smith Airport.

The FAC has planned fast tracking’ construction so that the terminal would be completed by mid 1992. It would complement improvements being carried out at the existing terminal, which will increase handling capacity from the present 1,000 passengers to 1,800 per hour.

The proposal included: • A new 47,000 square metre, four level terminal building to the immediate south of and fully integrated with the existing terminal. This would include all facilities for the processing of passengers and baggage, concession areas, office space and other facilities, while departing and arriving passengers would be handled on different levels as at present.

• Direct access to a new 17,000 square metre, three level pier as an aerobridge connection to six aircraft of Boeing 747-400 size and another two gates without the connection. The new aprons and taxiways would be built to provide access for aircraft to the new pier. The new terminal would also be designed to enable a second pier to be built later with four more gate positions.

Qantas Gears up for Another Record Travel Season:

Qantas forecasts continuing growth in air travel to and from Australia and so far plans to operate 154 extra round trips this summer to accommodate the anticipated higher demand.

These extra flights will be in addition to a substantial increase in regular scheduled capacity. New schedules to take effect in November reflect an increase each week of about 6,700 seats, equivalent to 17 jumbo jets, compared with last summer’s schedules.

The airline has arranged to lease two 747 aircraft, which will be in Qantas livery, to help operate the supplementary flight programme. Passengers on these aircraft will receive the full standard of Qantas service provided by Qantas flight attendants. Qantas has also brought forward new aircraft deliveries so that four instead of two Boeing 767-300 Extended Range aircraft will join the fleet before the end of this year. (Refer OF 767 feature this issue) Tokyo, Hong Kong, Singapore and Harare will gain most of the extra flights, with London, Rome, Athens, Kuala Lumpur, Jakarta, Honolulu, San Francisco and Los Angeles also figuring in the supplementary flight programme. On some other routes capacity in the peak period will be increased by operating 747 aircraft instead of the smaller 767.

Airline seats should also be better utilised this season now that many travel retailers require new clients to lodge booking deposits. Last year ghost bookings cost airlines in Australia more than $100m and denied many people the opportunity to travel. Australia itselt was the fastest growing OECD country in terms of international visitors, with 27% growth in 1987 and 21% growth so far this year.

Airlines Report First Half Traffic Gains:

The international traffic of IATA airlines rose a solid 6% during the first half of 1988. Commenting on the results (see below), the Association’s Director General Dr Gunter Eser remarked: “This growth rate is in line with our long-term average forecasts. We should not forget that 1986, with stagnant growth and 1987, when traffic rebounded, were abnormal years. An encouraging sign this year is the rise in passenger load factors, which I hope will benefit the bottom line. ” The results for the first half international traffic of IATA members are: (Totals for first half 1988 with % over first half 1987 in brackets) Pax carried 87,928,000 (6%); Rev Pax Km 269,500m (6%); Available Seat Km 405,000m (5%); Pax Load Factor 67% (+2pt); Freight Carried 2,939,000 tonnes (8%); Freight Tonne Km 15,260m (8%). Source: IATA Management Information Division.

Breakthrough on Australia/Us Air Services:

A major expansion of air services between the United States and Australia, together with a mechanism to prevent “dumping’ by US mega carriers, will flow from an agreement reached between the two countries during late August.

The breakthrough on aviation ends two and a half years of effective deadlock between Australia and the US and gives Qantas greatly expanded opportunities in the US, lifting from 4 to 15 the number of US cities the Australian carrier can serve.

In addition to serving the four cities to which it presently has rights – Honolulu, Los Angeles, San Francisco and New York – Qantas has won rights to serve three new cities of its choice, together with a further eight cities via *primary gateways.

It is likely that, in the first instance, Qantas will utilise its new rights of access to these eight cities primarily by securing, with US domestic carriers, ‘codesharing’ agreements of the kind Qantas entered into with American Airlines for traffic from the US west coast to New York in January this year. Codesharing is an increasingly important commercial practice whereby two airlines closely coordinate their flight scheduling, passenger processing and reservation arrangements to, between them, offer passengers an effective through flight.

Under the agreement Qantas also gains ‘beyond’ rights to fly via the US to a number of Canadian cities and the dropping, over time, of restrictions on existing routes to Europe and the UK. Australia’s right to fly via New Zealand to all its entitled points in the US is also now confirmed.

The agreement will allow US airlines to fly to Brisbane and Caims for the first time and to another Australian city to be chosen by the US, as well as eight cities beyond the ‘primary’ gateways. This will give US airlines access to virtually every international gateway in Australia and should provide a significant boost to inbound tourism. Before the present agreement US carriers could serve only Sydney. Melbourne, Perth and Darwin.

As part of the package of expanded entitlements, a new route between Guam and Australia for both sides was agreed. The US has also agreed that the existing route to the US via the North Pacific – presently available only to US airlines – will be opened up to Qantas once US traffic on the route develops. This will see Qantas serving the US from Japan and Continental serving Australia via Guam.

Understandings were also reached on market driven arrangements to allow for automatic approval of capacity increases in line with traffic growth and carrier performance. Under the arrangements airlines will be entitled to annual increases in capacity, dependent on growth in passenger traffic and prevailing aircraft load factors. This will ensure that there are adequate frequencies to allow the Australia/US market to grow and develop to meet future passenger demand, while while avoiding uneconomic excess capacity and dumping.

Strong Growth in Scheduled Domestic Airline Activity:

Provisional statistics recently released for scheduled airline activity show that the industry continues to experience strong growth.

Total passenger and cargo activity by domestic airlines (as measured in tonne kilometres) increased by 10. 1% during the 1987/88 financial year, almost double the average growth rate of the last five years while traffic growth in the June quarter 1988 was slightly higher than for the year as a whole at 11%.

Traffic growth has been boosted by Expo, with the number of passengers through Brisbane airport running 17. 7% higher in the June quarter of 1988 than in June quarter 1987, substantially above the long run growth rate for Brisbane services.

Northern Territory tourist routes also continued to experience strong growth, with the number of passengers travelling to and from Ayers Rock increasing at 24. 6% in the quarter. Ansett NT had the highest growth rate of all the airlines, performing 43. 2% more passenger kilometres in 1987/88 than in 1986/ 87. Meanwhile, the biggest percentage increase in passenger numbers was at Broome, which has recently been developing as a tourist resort.

Increases in traffic have been achieved in part through higher load factors, as hours flown increased by only 2. 2% for the quarter and 4. 1% for the year and domestic airline aircraft movements at the eight capital city primary airports increased by 5. 2% for the year.

Darwin Airport to Get New Passenger Terminal, Major Improvements Planned at Alice Springs:

The Federal Airports Corporation (FAC) is to build a new passenger terminal at Darwin Airport and will also go ahead with major extensions to the terminal at Alice Springs. This follows the Federal Govern- ment’s decision that the FAC should take over responsibility for the civil aviation facilities at these airports in addition to those at Townsville and Canberra.

The FAC said that mutually satisfactory financial arrangements for the transfer of Darwin Airport had been finalised with the Government and it would move quickly to commence work on new terminal facilities to be located on the northern side of Darwin Airport. The terminal and associated works, with a projected cost of $65m, will be targeted for completion within three years.

Alice Springs’ recently commenced $1. 3m upgrading project will proceed as planned. Alice Springs actually handles around 125,000 more passengers per annum than does Darwin. An upgrading of Darwin will hopefully see it used more by international carriers.

The FAC will shortly be responsible for the operation of 23 airports throughout Australia, including all capital city airports. Darwin and Alice Springs are among six new terminals to be added to the list of airports for which the FAC is already responsible. The most recent additions also include Mount Isa and Mackay. as well as the civil aviation facilities at Canberra and Townsville airports.

Tourism Boom to Continue in Light of Relaxation of Key Asian Travel Requirements:

It now seems certain that Australia will comfortably exceed its target of two million visitors this year. According to the Australian Tourist Commission that figure was already surpassed in the 87/88 financial year with growth continuing to snowball from month to month as the calendar year came to a close. The big growth market for the years ahead though is now seen as the middle income, middle aged population of Asia, a group that has been consistently growing in affluence over the past decade. As most of the 300,000 plus Japanese tourist to Australia this year were honeymooners, capturing an element of the vast older generation tourist market is now the aim of future ATC campaigns in Japan.

The other big future growth market will be from South Korea and Taiwan. Both nations have recently decided to greatly ease the previously stringent travel restrictions affecting their populations. It is now expected that long time efforts by Korean Air to gain access to Australia will be successful with Qantas also linking Sydney with Seoul sometime in 1989. Services to Taipei of course present somewhat of a political hurdle due to our association with the PRC and the existing Qantas/Air China services to Beijing. However, if the Qantas/Air New Zealand share deal does proceed then this might allow the latter to funnel into Taipei from Auckland and Sydney without attracting the political embarrassment that a direct Qantas/China Airlines service would involve.

Airborne Movies a $38M Industry:

The supply of movies and entertainment audio tapes for the world’s airline system was valued at $A38m during 1987, according to the World Airline Entertainment Association.

Of significant interest to Australia is that Crocodile Dundee was the most sought after movie during 1987 with Croc I being booked by no less than 39 international airlines. Furthermore, it is expected that Croc II will also top the 1988 listings, which is not a bad effort. Good one Oz!

Air Agreement Between Malaysia and Australia Expanded:

A new air agreement between Australia and Malaysia will see MAS operating additional services to east coast Australia with Qantas being able to operate on-rights from Kuala Lumpur to Hong Kong and Japan.

The move follows a number of similar agreements in recent months which have served to not only open up Australia to additional foreign carrier services but to also offer Qantas a large increase in fifth freedom rights into and out of previously restricted markets.

Air Freight Booming in America:

Figures recently released by the US Air Transport Association have revealed that underfloor cargo is rapidly becoming the boom area of US airline operations. The first six months of this year saw a growth in belly hold air freight of no less than 18. 9% versus a growth in passenger uplift of only 5. 3%. Air cargo also boomed during 1987 and if the trend continues it will auger well for those airframe manufacturers who have deliberately tailored their designs to carry a maximum of underfloor cargo.

A strong US domestic growth in air freight may also see the established package operators begin to dedicate freighters for the carriage of a wider range of products. This could also force up the price of surviving DC-8 and 707 aircraft that have been hush kitted and configured for cargo carriage.

 Britannia Australia Bound:

UK charter operator, Britannia Airlines, has been granted Federal Government approval to operate a weekly 767-200ER service between Luton and Stansted to Australia over a 20 week period commencing this December.

Britannia will alternate services between Perth and Cairns and is expected to bring in an additional 5,000 British holidaymakers during the period. Tickets will be available only in the UK and the service, it successful, will be expanded upon during the following northern winter.

Britannia is England’s second biggest airline and is also the largest charter operator in the world. In 1987 it uplifted over 6 million passengers, or more than either Ansett or Australian in the same period. Its fleet comprises 7 767-200s (which each fly some 4,000 hours per annum!) and 27 737-200s and employs 2,600 people. Britannia is part of the international Thomson organisation, one of Britain’s largest tour wholesalers and specialist magazine publishers with titles that include Interavia and the various Jane’s publications.

Thomson’s also acquired Horizon Travel in August, which also now gives them ownership of Orion Airways, another large UK charter company. It is not known at this stage though whether Britannia will merge Orion into its own operation.

Another carrier to gain recent approval to serve Australia was Tonga’s Friendly Island Airways. FIA, which may change its name to Royal Air Tonga, is planning to operate its Tonga/Sydney service twice weekly using a leased GPA MD-87 twinjet configured in an 8 first and 107 seat economy arrangement.

 Airlines Planning to Boost Domestic Terminal Facilities at Major Airports:

Under proposals submitted to the Federal Airports Corporation, Ansett and Australian Airlines are expected to spend over $300m redeveloping their passenger terminals over the next eight years.

The airlines are required to submit development proposals to the FAC as part of leases over domestic terminals which have been negotiated in respect of Sydney, Brisbane, Adelaide, Perth, Coolangatta, Hobart and Launceston airports.

The proposed development works will provide greatly improved terminal facilities for the travelling public and will assist both existing airlines and new entrants in the deregulated environment after October 1990. Most observers though feel that the small number of uncommitted gates available to new entrants will be insufficient to service the needs of any new major domestic carrier. Both airlines are to provide 2 gates each at Melbourne and Sydney and 1 gate each at Perth, Adelaide and Coolangatta. Ansett will also provide 1 gate at Launceston while the FAC will itself ensure access to suitable facilities at Hobart and Brisbane. Clearly the success of deregulation will be very much dependent upon the ability of new operators to gain access to airport facilities, which in the past have mainly been tailored to meet the requirements of Ansett and Australian.

The key provisions of the leases provide for • The redevelopment and expansion of terminal facilities by the airlines, enabling them to more effectively meet the public’s needs; • Access for future new entrants to the industry and continued access for existing small carriers; and •The airlines to pay greatly increased rentals and to accept full responsibility for the maintenance and operation of their entire terminal facilities – the cost of which was previously borne by the Government.

The leases set out the minimum facilities that will be provided for new operators at the airports. In addition, the FAC will be able to make alternative existing accommodation available for new operators at Brisbane and Hobart and as necessary it will be able to construct alternative facilities or offer sites for airlines to develop their own terminals – all designed as a means of providing further scope for competition from new entrants.

Under the leases Ansett and Australian are required to undertake significant expenditure on future terminal developments with the FAC providing complementary infrastructure. The FAC also verifies that the airlines’ development proposals must recognise the commercial needs of existing airlines, while also giving new entrants the opportunity to gain access to terminal facilities-which is essential if there is to be real competition.

The US Congress Introduces a Whistle Blowers Bill:

Following a spate of commuter accidents and lapses in maintenance procedures over the past year, Congress has introduced a whistle blowers Bill that allows any regional airline employee to call a toll free FAA number if he or she suspects that a prescribed maintenance procedure or practice is being abused. By law the phone number must be displayed in the workshop area of each maintenance facility.

The Bill is being introduced as a result of the revelation that a large number of US regionals had been deliberately misleading FAA airworthiness examiners as to the proper state of maintenance of their fleets. With the massive growth of the total US airline fleet in recent years, and in particular that of the regionals, and the decreasing number of FAA officials available to police safety standards, the FAA moved to introduce teeth into its revamped regional airline safety legislation by way of discreet employee reporting.

Provision has been made against disgruntled employees making unwarranted calls in bad faith though in the main the FAA hopes that the new system will keep both operators and crews on their toes in regards to following maintenance and operational proper procedures in the longer term.

United to Increase Frequencies:

United are now offering daily services to and from Melboume and two services daily to and from Sydney to the USA from October 31.

The summer schedule will offer a daily nonstop from Los Angeles to Melbourne via Sydney using Boeing 747SPs and a daily service from Los Angeles, via Honolulu and Auckland, to Sydney using Boeing 747Bs. Uni- ted will now have 14 flights a week between Australia and the USA with the new schedule.

Airlines Win Arrival Fee Case:

In a landmark decision, the High Court has ordered that international airlines operating into Australia do not have to hand over to the Federal Government $5m of funds collected from passengers for the now defunct Arrival Fee.

The Arrival Fee was introduced late last year in a last minute, and extremely ill-conceived attempt to extract additional revenue from passengers entering Australia. It was the first time in history, anywhere in the world, where you had to pay to enter a country as well as depart it, a situation that angered local tourism authorities, passengers and airlines alike. That the objective, to pay for provided immigration services, was laudable under the Govern- ment’s user pays philosophy, it was generally the unprofessional and incompetent manner in which it was employed that finally caused its scuttling on June 30th this year.

Rather than amalgamate the fee with the existing Departure Tax, the additional fee had to be paid separately with the result that most arriving passengers had no idea of its even being due. The confusion eventually necessitated the airlines operating as government tax collectors, a position that they naturally objected to and one which in hindsight has turned out to be to their benefit.

The High Court decision by Justice Gaudron rejected the Government’s case and also ordered it to pay costs. From the beginning, the airlines insisted that the Government’s legislation was legally invalid and it was for this rea- con that they refused to make any payment. With their challenge slated for October in the High Court, the Government moved early to recover its funds with the result that Justice Gaudron found in favour of the airlines.