Interview – Neil Berkett

JS: Even though when you look at the various deals available there is not a big cash difference on many occasions, or has not been in the past, on what you actually pay for a comparable fare between the airlines.

NB: That is not quite true. Basically across the board there is a 20% differential between ourselves and Ansell or Australian. Twenty to 25% of our customers actually pay a full fare – but that is nothing compared to the percentage that AN and TN carry in terms of full fare – 83% or 84%. Our yielded fare is in the low70s but we can make money out of that. We have researched the marketplace and decided there is a customer out there who pays for himself and who wants a leisure airline. We wanted to be a leisure airline, so we started to put the two things together.

As you can image, after the takeover, the world collapsed. We were just starting to eat into or recover some of the losses. It was getting to the point where we were going to roll into the float with losses that were not too harsh, particularly with the cash injection. But after the takeover, the thing just fell apart again.

We cut our commission levels back to be on par with AN and TN. We had a fare increase. In those first few months we attacked the cost base but the revenue base also fell away. During that period we put together a strategic marketing plan for where we wanted to go.

This again centered around “We are going to be Australia’s number one leisure airline – how do we get there?” We took into account the fact that we were part of TNT and News and could take advantage of that and could exploit the multinational connection. We took into account the fact the skills that we had – that basically we were little Aussie battlers. We had some very battle scarred and experienced people. A lot of them had not necessarily won in those battles but they were battle scarred and that means a lot to an airline or to any company.

JS: You are talking about executives?

NB: I am talking about executives who had seen the tough times, that had operated in that commercial environment which was difficult, that had gone to battle and had lost on some occasions and had won on some. That is an enormous asset that we are carrying in to deregulation, because I have kept most of

East-West Airlines was seen by many as a catalyst for domestic airline deregulation until it was taken over by TNT Ltd and News Corp in 1987. The airline however still pursues an independent course, although behind the scenes it has been able to cut costs significantly by sharing infrastructure with its ‘big brother’ Ansett Airlines, also owned by TNT-News. East-West’s General Manager, Neil Berkett, spoke about its new directions with John Spiers

JS: Who exactly do you see as a typical EastWest customer and do you see EWA competing at all directly with Ansett itself?

NB: Our customers are the people who dig into their pocket and pay for themselves. Monday to Friday they wear their tie and travel Sydney/Melbourne on Ansell or Australian. Come the weekend or leisure time they become our customer. We also have customers who are first time customers, but basically the thing that draws the commonality between us and our customer is that they pay for themselves.

JS: Even though when you look at the various deals available there is not a big cash difference on many occasions, or has not been in the past, on what you actually pay for a comparable fare between the airlines.

NB: That is not quite true. Basically across the board there is a 20% differential between ourselves and Ansell or Australian. Twenty to 25% of our customers actually pay a full fare – but that is nothing compared to the percentage that AN and TN carry in terms of full fare – 83% or 84%. Our yielded fare is in the low70s but we can make money out of that. We have researched the marketplace and decided there is a customer out there who pays for himself and who wants a leisure airline. We wanted to be a leisure airline, so we started to put the two things together.

As you can image, after the takeover, the world collapsed. We were just starting to eat into or recover some of the losses. It was getting to the point where we were going to roll into the float with losses that were not too harsh, particularly with the cash injection. But after the takeover, the thing just fell apart again.

We cut our commission levels back to be on par with AN and TN. We had a fare increase. In those first few months we attacked the cost base but the revenue base also fell away. During that period we put together a strategic marketing plan for where we wanted to go.

This again centered around “We are going to be Australia’s number one leisure airline – how do we get there?” We took into account the fact that we were part of TNT and News and could take advantage of that and could exploit the multinational connection. We took into account the fact the skills that we had – that basically we were little Aussie battlers. We had some very battle scarred and experienced people. A lot of them had not necessarily won in those battles but they were battle scarred and that means a lot to an airline or to any company.

JS: You are talking about executives?

NB: I am talking about executives who had seen the tough times, that had operated in that commercial environment which was difficult, that had gone to battle and had lost on some occasions and had won on some. That is an enormous asset that we are carrying in to deregulation, because I have kept most of those guys. We have lost some, but we have kept the core of them. We as a team put together the plan that said, in everything we do let’s talk about the customer and about being a leisure airline. It just so happened that we then lost most of our business routes as a result of trade practices which sped up the process. So we put new fare initiatives into the marketplace. We formerly had 17 fares available. We chopped those out and put four in. The customer, did not necessarily want an instant special deep discount – what they wanted was some stability and easy-to-buy fares. We put fares out that were available 365 days a year. We put the cheapest fare we have ever put in the market place which is still there, the maxisaver.

JS: Which is what exactly?

NB: Fifty percent discount off standard fare.

JS: What are the conditions on that?

NB: That is a thirty day advance purchase fare, three days minimum stay, with cancellation fees, available 365 days a year. We yield manage it.

JS: What would be the average number of seats available?

NB: On some flight it might be half the flight, on other flights it might be none. The person who wants that fare is prepared to say “OK I wor’t travel on Tuesday I’m happy to travel on Wednesday at 7 o’clock in the morning. ”

JS: Grannies grandchildren. going off to see the

NB: You would be surprised the number of people that go for it. When you are flying from Sydney to Cairns or Brisbane to Cairns it is a large fare and sometimes people are quite prepared to swap around. The advantage it has is that it is a positive space fixed seat, whereas the deep discounts of AN and TN with their 40% and 45% discounts, you do not know when you are flying until the day before.

And we introduced another fare. We have always had Supersaver, the 35% discount. We introduced the Easysaver, which is now our prime fare – 20% discount excursion fare, no advance purchase, all you have to do is stay away one night. And that is a hot seller because there is nothing else like it in the marketplace. Again, it was using those skills that we had and just being a little more professional and commercial about it. I guess what I have brought to the organisation is being able to manage the initiatives that they always had but perhaps some additional professionalism and some commercial realities about what you do in the marketplace. Rather than say, “My God, we have not got anybody flying next week, let’s put some discounts in the marketplace,” we actually introduced some information systems so that we could see, one week, two week, three week, eight weeks, sixteen weeks out.

JS: For this you have imported a US yield management programme?

NB: We are growing our own, though we have brought in some US software. We also had a consultant from Avmark for a period to assist us in the process. So at the same time as looking at our fare strategy in putting something into the marketplace that the customers want, we will make sure that we manage it properly so we satisfy not only the customers’ demand but also our own commercial reality.

JS: I think that was when TAA/Australian which had been handling your reservations and other services, said to East-West “go row your own canoe. ”

NB: Yes. I think they started to get a decent schedule together about ’85/’86 and then that was lost when it went point to point again in terms of the schedule. We went back in and got it again in mid to late ’87. But we actually looked at our time of departure associated with the leisure customer. The example I always use is the 6. 35am departure out of Hobart. We are supposed to be a leisure airline. Who the hell wants to get up when they have not got their suit and tie on at five o’clock in the morning to catch a 6. 35 flight. The flight never worked that well, even though ii should have done. It was the quickest way to get to Sydney. It went Hobart/Devonport/Sydney. So we changed it to 7. 40. It was full every morning and funnily enough the suit and ties have started to come on it now because they hear about it, they know it,is always there and is the quickest way to get to Sydney. So by changing it for the 70% of the people that fly with us who are on leisure, It also became attractive to the 30% that fly with us on business. We went frequency -we now go five and six times a day to the Gold Coast because again the leisure customer wants the same freedom of choice that the business customer wants. In my experience frequency rules.

JS: What sort of utilisation are you getting now?

NB: It has dropped a bit because we are not doing the back of the clock flying. We get about 3,200 hours a year out of our jets.

JS: By back of the clock you mean the . . .

NB: . . . flights flying in the middle of the night. We get about nine to nine and a half hours a day out of our jets. We looked again at customer service. We put some customer service training programs into our flight attendants. Our flight attendants I believe are one of our major assets. They are friendly. They do not throw the pre-set tray at you and say “dinner”. We try and make as many points of contact with the customer in flight as possible. We do not have UHT milk. We have the milk jug so that there are points of contact that are initiated- “would you like some milk” – as opposed to its already being there. Every flight attendant went through a three day customer service program. Nothing to do with safety. Nothing to do with technical things. Nothing to do with all of the issues that the association are raising with Ansett and Australian at the moment.

It was purely about the customer and a day of that was on Japanese. Half day culture, half day language. We did not expect them to learn Japanese. The objective was to start to introduce our flight attendants to the Japanese culture because we have a large inbound market. We revised catering and we are in the process of revising it again to take us away from the pure no frills, which was virtually nothing, to introducing all flights being catered. We did not want to go to hot meals nor did we want to go to just tea and biscuits. We wanted something that satisfied some of the human needs that you have when you are flying around lunchtime. So you get the new catering product- maybe a chicken leg, a little piece of quiche, a real roll like a baguette slice filled with ham and salad etc. Picnic food I call it. Breakfast means maybe a little a bowl of muesli- not a cold croissant – but maybe a little fruit bun. Personally I find that far more attractive than overcooked scrambled eggs and a fatty sausage that has been sitting in there for so long that you cut it and it just falls apart.

We also changed our distribution channel. On the first of April we cut across to Ansett’s Ansamatic. And that overnight increased our distribution tenfold. Ansamatic is the in house reservation system that Ansett runs with all the Ansett regional airlines on it. There are ten times more screens out there now in agent’s offices which means that you can now get last seat availability on East-West.

JS: Previously East-West had actually gone onto a database in the US.

NB: That is right. We came off that on to Ansamatic. That did two things for us. It was cheaper – not that Ansett do us too many favours in terms of price – but it was in Australian dollars.

JS: Can you put a broad ball park number on the variation in cost.

NB: It probably saved us about 15% but the key thing is it was a revenue drive, not a cost drive, that cut us across to that.

JS: So what was the volume change?

NB: That you cannot specifically judge. How much do you judge your increase in traffic from the distribution system? How much do you judge it was from the schedule? How much do you judge it was from the fares? How much do you judge it was from the change in customers? We did all of these things at once and that I believe is the reason behind the dramatic turnaround we have had. The airline now makes money and it has done that in 18 months because we have done all these things at once. We sat back for three or four months – we did not just go and do them willy-nilly. We went about it in a professional way and the whole thing was all done within six or nine months.

JS: Is it making a return on assets employed?

NB: Absolutely.

JS: Redfern happy are they?

NB: Absolutely. Sir Peter is delighted with our performance.

JS: You must be raking in about a 40% return.

NB: I wish we were. The other thing we did with distribution was in July, we cut across to have Qantas represent us as a general sales agent internationally. Prior to that we had been getting ourselves into every CRS that we possibly could internationally.

JS: What was involved in that?

NB: We set up a guy who purely concentrated on international and interline arrangements and getting into the CRS – the Apollos, the Sabres, everything.

JS: So that basically means that when somebody rings up in Peoria or in Paris . . .

NB: . . . their local agent can see East-West on the screen in front of him. More importantly, if they want to go to the Gold Coast and the agent punches in the destination, they see that EastWest is an option and they see that we fly six times a day and Ansett only fly two and Australian only fly two and they say oh hell I think I will go with that guy in case I want to change.

JS: How does your screen display it, it varies according to the system I suppose?

NB: It does in terms of how much you pay and how friendly they think you are, in these socalled unbiased systems of which there are not a lot. Basically at the moment when you are looking domestically within Australia it is on time of departure and on stage length so there are some ways in which you can present yourself there as well.

JS: But getting yourself on to these things, this involves payment of fee.

NB: Well no, you pay as you use. It does not cost much at all.

JS: Obviously you have to generate a certain amount of business or they can’t keep you there.

NB: Well precisely and you pay X dollars for every time somebody books that.

JS: Can you run through the different topics headings where you have cut costs either by management changes you could have made anyway or by the fact that you now have a friendly big brother that you can tie in with? Can you put percentage savings on the different areas?

NB: I guess if you add it up to a hundred, I would say the largest cost saving we had was in the area of airports and that probably represents something like 40% of the savings that we have managed to make.

JS:And that is ground handling?

NB: It is principally ground handling. Take Devonport for example. We had about eight people employed there. I’ve forgotten the numbers now to be honest. But we sadly retrenched eight people although some of them we managed to find positions for on the mainland within the group. I must admit Ansett did not put on anybody.

JS: So who does the handling in Devonport?

NB: Ansett. We put the two together if you like and instead of having two people we ended up with one and a bit if you like. Instead of having twenty people we ended up with say 11. Same thing in Hobart. In Sydney we saved significant supervisory staff. In Brisbane it saved us putting on a lot of people so that was the area where we probably saved the most.

I guess in group purchasing if you like we would probably have saved another 20%.

Everything we do that is behind the scenes ie the customer doesn’t see, we try to do together.

In terms of straight direct management control in terms of fixation I’ve put into the organisation that says you know your budget and stick to it and this is not without internal rationalisation – I’d probably also put 10% to 20% on that.

Your budget is a contract, if you like it’s a contract between me and the person that works for me. They are the conditions on which we agree to work together. I think in terms of the costs that I’ve cut out of the organisation that’s probably 20% as well.

JS: And can you put a figure on how much that’s reduced costs overall?

NB: Its very difficult because the network has changed dramatically. We have reduced and increased if you like the amount of available seat kilometres we’ve had in-the marketplace in the last twelve months by 30%.

JS: Reduced it by 30%.

NB: And increased it by 30%·. So we’ve closed down 30% of our routes and opened up routes that make us as big as we were before we closed them down. When you do that to an organisation it’s just all over the place.

JS: You’re becoming increasingly an east coast airline.

NB: Very much so. At the moment it’s as far south as Hobart if you like, up to the Rock and northwards to Cairns.

JS: But that traffic out to the centre would surely be a very small percentage of your overall volume of business.

NB: And it’s all inbound. Sixty to sixty five percent of the Rock is inbound which actually brings us on to inbound. We spoke about distribution but all the things we’ve done in terms of changing the airline becoming Australia’s leisure airline are resulting in an increase in the amount of inbound business. The amount of international people that lly with us has grown lrom two and hall years ago when it was two and half percent of our total whereas now it’s ten. Same with our holiday traffic, that is the people that buy an East-West package, ground content, the car and the air fare- that’s grown from five percent to ten percent in about eighteen months. So the structure and the customer profile is changing and I mean the only constant in East-West is change. It’s because it’s change that allows you to be able to react to your customer and to react to your competitors and it’s managing change that is the secret and that is what we’re becoming very, very good at, managing change. Communications within the airline is absolutely critical and the key. We’ve introduced what I call a team briefing process where once a month, same time same place, we have staff meetings right across the whole of network. ·wherein it starts from a briel that I prepare that I present to my team, they add to that and present it to their team and they add to that and they then present it to their team. It’s a three fold thing and it happens every month. So everybody knows what we’re doing, why we’re doing it and what’s happening.

JS: So every single person.

NB: Every single person in the airline hears that.

JS: Goes to at least one meeting.

NB: Correct. Managing the crew in that process is sometimes difficult.

JS: That’s almost sacrilegious in the Australian management terms. I mean I thoroughly agree, I think it’s great but it’s . . .

NB: It’s the only way that you can go through the sort of change that we’ve been through in the last eighteen months and hang onto the people and keep them running and let them understand what you’re doing. Because you know the mushroom theory doesn’t work, stick ’em in the dark and feed them bullshit. I mean you’ve got to tell the people what’s happening and sometimes you tell them the wrong thing

because you can imagine through that environment. We might make a decision one week but the implementation ol that decision might have changed in the next two or three weeks because we’ve got some more data and because we’ve been trying to tell the staff as soon as possible we’ve made a couple of mistakes, we’ve said hey we’re going to do this and then a month later we’ve gone and done something quite different and they say hang on what’s going on here and you go back and you say “we changed our minds”. But you’ve got to be honest about the process and that’s very important.

JS: Did you have to get your new fare packages checked out by Ansell.

NB: The way it’s working within the group is very good. We are a different product and we are marketing a different product. We have merely got common owners and you take advantage of that but at the same time we still have a lot of internal fights.

JS: When you say you have a light I m _ ean does Ansett complain about some of the thing’s you are doing?

NB: Oh John would they?

JS: Do they go whining to the boss?

NB: Could you imagine them doing that?.

JS: Yes! .

NB: No we have 100 percent support in were

we’re going, I mean obviously we don I do anything that is going to be in such conflict that the group suffers but then the products complement each other rather than hit each other head on. In tare structure we sit here, they sit there, in market profile they on business we concentrate on leisure so 1I s 70, 30 leisure business, it’s 70, 30 business, leisure. So the products do complement each other very well.

JS: What’s your seat pitch compared to theirs?

NB: About the same. On the F28s we run 32 inch and the back of a 727 is actually thirty one and a hall but the 737-300 is 32, 33 inch in economy.

JS: What is the lleet mix at the moment and what is it going to be in the near future?

NB: The fleet today is 7 F28s and 7 F27s, by Christmas it will be 10 F28s and 4 F27s .

JS: And the 737s, when do they came in?

NB: You said the aircraft type, I d1dn t, but we II be getting new aircraft in late 1990. JS· 1 wasn’t aware that there was any dispute.

NB: Oh yes, we have not gone publicly and said what aircraft we are going to purchase, because we have not actually made a decision yet but we are very close to _ it. There s been a bit of supposition by a 1ournahst we both know who put one and one together and got about fourteen. It’s all part of the group and I don’t suppose he’s that far wrong.

JS: Who knows Sir Peter Is good at doing

deals package deals

NB: Absolutely but that is the advantage we have in that we don’t have to rush that dec1s1on because Ansett worldwide AvIatIon Services (AW. AS), the leasing arm ol the group has got 737_500s, 3oos, -400s, 757s : 146s, MD-83s, MD-80, almost anything you like.

JS: For a price you could have 1ust about

anything you wanted.

NB: Basically. The advantage that gives . us . 1s not price because we pay what everybody else

would pay but it gives us slot times.

JS: And the reduction in the turboprop fleet

e11ects your move 2i. way 1rom being regional.

NB: It reflects the loss of the NSW routes primarily. With the loss ol Port Macquarie and Armidale, we have two aircraft immediately available lor sale. We’ve also won the LADS contract, the navy programme with the _ F27 with the laser in the belly. We will soon find a home lor the other aircralt which will take us

down to the four.

JS: Talking of maintenance generally, you are obviously keeping Tamworth going.

NB: Growing Tamworth, growing. Tamworth

is an enormous asset to the group. A regional maintenance centre outside Sydney and

Melbourne is just beautiful.

JS: How are you going for finding . . LAMES).

NB: Tell me about it? Actually is also another advantage we have. There is a group . of LAMES in the world that find somewhere like Tamworth as opposed to Melbourne very attractive.