Compass Airlines Prepares to Launch

Compass is seeking $50m in equity and claims to already have a substantial portion of this in guarantees from a number of large institutions including backing from the Queensland Industry Development Board. Additionally Bryan Grey is taking up 10% of the available stock while institutions are expected to take around 60% with the remainder being purchased by the public and eventually employees.

Operationally the airline is set to fly its inaugural service early in December using the first of two leasedA300s on a two and a half year lease from a northern hemisphere operator. Initial services will concentrate on the Sydney/Melbourne route (on which nearly a fifth of all domestic RPKs are flown) with Perth being served from both cities at night. A fleet of fourA300s are expected to be operational by next Easter whilst the final two Compass A300-600Rs (from Polaris Leasing of San Francisco) will replace the two leased aircraft around mid 1992.

The Linchpin of the entire operation will be the airline’s ability to operate within a very low cost structure. Mr Grey cites that Compass will operate on a breakeven load factor of only 41% and an expected load factor of 60%, well below traditional Australian standards where around 75% or more is the norm. With none of the ‘fat’ that has accumulated with the present domestics via their four decades of luxuriating in the halcyon world of the Two Airline Policy (where an Act of Parliament virtually guaranteed annual profits), Compass hopes to be able to operate on a cost level of only 9c to 10c per available seat kilometre. By comparisonAnsett andAustralian endure around 15c to 16c due largely to the massive overheads that they have built up over the decades. Successful US new entrants such as Southwest,America West (of whichAnsett owns 20%) and Alaskan operate slightly below the projected Compass figure.

How Compass claims to achieve this relatively low cost structure is quite simple. Firstly it will fly 288 seatA300s with very low seat kilometre costs compared with any other domestic jet. With a fleet of only five aircraft, Compass will have low overall fleet costs whilst still being able to move large numbers of people and thus gain a reasonable market share. The airline is looking to claim around 15% of the equivalent 1988/89 market by 1994, though most of this is perceived as being new traffic rather than taking existing clients from either Ansett or Australian.

The other point on achieving a low cost operation is in aircraft utilisation. Compass will fly its first four A300s an impressive 4,800hrs annually with this dropping to 4,500hrs when the fifth aircraft becomes operational. Considering that the present airlines log barely 3,000hrs then the productivity gain is obvious. Additionally Compass will have Hawker Pacific performing their general day to day maintenance at Hawker’s projected Brisbane Airport facility, while heavy maintenance itself will be either undertaken offshore by the plethora of AsianA300 operators or locally. It is not envisaged though that the all new fleet will need anything other than routine A and B-level support for some years. In the short term this will save Compass considerably though in time they may well decide to invest in their own maintenance division, which is where the new airline begins the process of taking on additional investment and infrastructure overheads that, inevitably, bring it closer to ultimately inheriting the cost structures of the established operators. Whilst Brisbane will provide the airline’s administration and maintenance headquarters, all flight crews will be based in Melbourne whilst the aircraft themselves will be scheduled via Brisbane for maintenance as a part of their normal operating schedule.

As mentioned earlier, Compass will fly itsA300s in an all economy 288 seat configuration offering a generous 34″ seat pitch which is the same as presently offered byAnsett and Australian in their business classes. In flight catering will be to present economy standards and not the ‘no-frills’ level of service that many observers equate with traditional low fare operations. Fares will be set at 20% below the current jet economy levels for regular daytime flights whilst the nighttime flights connecting Perth with the eastern seaboard will offer a 50% discount, effectively making them barely any dearer than the fatiguing transcontinental coach service.

The A300s will operate largely on the east coast Adelaide/ Melbourne/Sydney/Coolangatta/Brisbane/Cairns routes during normal operating hours whilst utilisation will then be boosted by turning to serve the Perth market via the ultra low fare red-eye specials. Compass will be a part of the giant American Airlines Sabre CRS system and will also offer travel agents a 9% commission as against typically 5-6% for Ansett and Australian to make up for their lower fare structure. It is also expected that Compass will be able to heavily augment its revenue base by way of freight as theA300 is by far the most efficient aircraft in its class in this regard. Negotiations with major freight forwarders are well under way though no specific details were available at presstime.

If Compass can raise the $50m equity required in the coming months and can operate at the breakeven figures indicated, then its future in Australian skies could be very bright indeed.