Airline Affairs

Another area where the two airlines will look to closer links is in the province of oncarriage. As Compass will only fly between the major cities, there exists a tremendous opportunity for Australian to be the preferred carrier for connecting services from the primary Compass destination. In this way a passenger from say. Canberra or Alice Springs, etc, could fly Australian to Sydney where they would then fly Compass to Melbourne or Brisbane, etc. The booking would be done under Compass codings via its Fantasia CRS system with Australian having the opportunity of flying the passenger on the sectors not flown by Compass. As the reverse does not apply the benefits to Australian are obvious Compass has also decided to offer . 1c options to its eventual 1,000 strong workforce with a maximum individual limit of $25,000. Compass president and chief executive, Mr Bryan Grey, stated that he wanted from the outset for the airline’s staff to have an active interest in their airline and for them to be duly rewarded when the carrier began to make money. The Compass prospectus promises investors that the new airline will actually be targeted to make an $18. 8m net profit in the current fiscal year and a $62m profit in 1991/92. The new option scheme would effectively give employees the opportunity to share up to 5% of the company’s operating profit each year. However, in light of rising fuel costs and a softening economy, this may well prove optimistic and would be a world first if it can be achieved.

Thames Estuary Airport Proposed:

Proposals have been submitted for a new £3. 3bn airport to be built on a Thames Estuary island to service London.

UK Ministry of Transport officials have been seeking alteratives to extend the capacity of London’s three existing airports to cope with the 45 million additional passengers expected by 2005. This latest proposal involves the construction of a fourth London airport- to be known as Marinair- on a 328q km artificial island on mudflats in the Thames Estuary, some 85km east of London. The airport would be built and owned by a private consortium and would have two main runways and an emergency runway, with provision for a third operational runway for post 2005 traffic growth. The airport would be capable of handling up to 60 million passengers per year, and development would include a hotel for transit passengers and a large marina for tour ships, commuting airport staff and an air/sea rescue centre. It would be connected to London by an underground motorway tunnel and rail link.

The Marinair consortium has pointed out several advantages associated with the Thames Estuary site. There is, for instance, virtually no land within 100km of London on which to build a similarly sized airport, and opposition from environmental groups and residents would probably rule out approval. With all takeoffs and landings at Marinair being over water and therefore not over populated areas, there is likely to be little public opposition and the airport could offer 24 hour operations with no curfew impositions. The completed airport would also provide tens of thousands of jobs in an area of previously isolated job opportunities.

Marinair executives believe it therefore provides a very sound alternative to the building of additional runways and terminal facilities at Heathrow and Gatwick, and could be built in time to cope with the projected 45 million passenger capacity shortfall expected by 2005.

Eastern Drops Titans:

EasternAirlines has sold its Tamworth/Brisbane service to Rockhampton based Country Air.

The good news is the service, which operates through Armidale, Lismore and Coolangatta, will operate twice daily, where Eastern only provided a moming fight from Tam- worth through to Brisbane and an afternoon return flight. Country Air has acquired East- em’s 9 seater Titan for use on the new services. Under the new arrangement passengers from northern New South Wales will be able to fly on directly to Rockhampton. Coun- try Air flies as a part of the Australian Airlines network.

Meanwhile, Easter’s planning manager, lan Menzies, says that the changeover is in line with an expansion program which will see it use only aircraft that will carry more than 18 passengers. From this decision Eastern’s smallest aircraft will now be its Bandeirantes. (Halden Boyd)

Qantas Punctuality High Despite Middle East Crisis:

Qantas data reveals that both arrivals punctuality and dispatch reliability have vastly improved over the previous year.

In the week ended 21 August, 74% of scheduled flights arrived at their destination within 15 minutes of scheduled time. This was down from the previous week’s figure of 76% but, compared with a figure of 56% a year earlier, was very satisfactory. The standard Qantas arrivals punctuality target is 75%. Dispatch reliability flights departing without station delay also was quite good at 71%, down on the previous week’s 76% but marginally better than the 68% average achieved in 1989. Aside from delays caused by the Middle East crisis – QF15/QF16 were still being delayed by 61⁄2 hours westbound and 2 hours eastbound due to congestion in Iranian airspace-a refuellers’ industrial dispute in Melbourne also delayed a number of flights, while a Department Control System automatic equipment failure delayed 15 flights on 2 August and two others later in the week, some 4,084 passengers being affected. Load factor during the week ended 18 August was 71%, down 2% on both the previous week and the same period last year.

Meanwhile, Qantas has recorded a record for its Japanese services, uplifting some 16,914 Japanese visitors to Australia during the first four weeks of this financial year (42% up on July 1989). According to Derek Baines, Route Marketing Advisor Asia, the previous record for a four week period was 16,162 set in the final four weeks of last financial year (an 83. 7% increase over the previous year). The passenger increases have been partly aided by the traditional basic pricing period of March-July and lower post pilots’ dispute air- fares aimed at stimulating the Japanese market.

 Newcastle Aims for Major Regional Airport:

The Newcastle Chamber of Commerce is pushing for the development of RAAF Williamtown as a major regional airport, offering a viable alternative to travellers who need not necessarily land in Sydney.

Already Newcastle is growing in importance with regional airlines, with Eastern and Queensland Pacific Airlines recently com- bining to provide direct flights from Newcastle to Brisbane and the Gold Coast. The Chamber of Commerce has commissioned a feasibility study into the upgrading of Williamtown to that of combined civil/military airport, similar in arrangement to Canberra’s Fairbairn. The Chamber is also conducting a survey or overnight air freight users in the Hunter Region to establish the potential of using Williamtown or another Newcastle airport as a major air freight centre because, as Mr Rob Chenery, Chairman of the Chamber’s Airport Task Force, noted: “The fact is we can get cargo into North Sydney and Syd- ney’s western suburbs faster than it can be delivered from Mascot because of the freeway, local clearances and industrial practices. ” Though Sydney should eventually get its third KSA runway and the second airport at Badgery’s Creek, the Chamber recognises that the use of Williamtown as a regional airport would provide short term solutions to Sydney capacity restrictions, and may establish an important regional airport that can service northern Sydney just as well as KSA and Badgery’s Creek, thus relieving some of the growing pressure on Sydney capacity.

Little UK Interest in New Atlantic Routes:

Just two British airlines, Virgin Atlantic and Air Europe, are applying for the two new North Atlantic routes created by the recent UK/USA bilateral agreement.

Virgin Atlantic has applied to service Manchester/Newark and is considering bidding for Manchester/Orlando, while Air Europe already has an existing Manchester/Newark application. Both airlines are applying for the new routes as a part of their plans for network growth, but will face strong opposition from US carriers, up to eight of which have applied to service Manchester. British Airways, opposed to the bilateral agreement which to some extent threatens its strength in the very competitive North Atlantic market, will not be applying for either of the two new routes on offer to British carriers.

Meanwhile, Virgin has signed letters of intent for its seventh and eighth 747-2008 and is considering a ninth to augment the recently acquired ex-Qantas -200s. These aircraft will allow not only the expansion of Atlantic services but also the better servicing of the soon to be flown Singapore and Australian routes.

Australian in Need of Privatisation:

Australian Airlines’ chief executive, Mr John Schaap, and chairman, Mr Ted Harris, have warned that the airline needs privatisation, preferably fully.

Following Australian’s announcement of its net 1989/90 financial year loss of $13. 74m and the burgeoning debt to equity ratio imbalance, the airline’s management have again come forth to publicly proclaim the need for privatisation. T hough the airline at this stage does not have a serious cash flow problem, it is in need of an injection of funds to help bring its debt to equity ratio back to a more manageable 65:35 following the blow out to 83:17 caused by the pilots’ dispute. At least $300m is needed for this task, an amount Mr Harris did not feel the Federal Government would provide, yet without a more manageable debt to equity ratio being achieved, the airline’s high credit rating will slip. This also would have an effect on the value of Australian, which Mr Harris has put at about$1bn, based on a projection of $100m yearly profit from 1990/91. Privatisation, therefore, is the only answer to the present problem, Australian’s management believes.

Australian has already approached the Federal Government to allow an increase in the current 15% foreign ownership limit. If full sale was then instigated, two foreign airlines could each hold a 20% stake in the airline, Australian Airlines staff could hold 10%, 20-25% could be held by a strategic investor such as a major Australian freight company. and the rest could be held by private Australian investors.

Meanwhile, Australian is feeling the effects of the softening domestic market. With four of its eleven 737-400s now delivered, the airline has elected to lease the next two aircraft to Malaysian Airlines System to make allowance for the drop in passenger demand. It was decided not to lease or sell any of the air- line’s 7278 because of the current low value of these aircraft on the international market. The recent sale of a large number of 7278 by Braniff and Eastern in the United States has pushed their prices down, while the current high cost of fuel makes the 727 less attractive for lease than the 737. Leasing the 737-400s and retaining the 7278 is, therefore, more cost effective. The airline is also actively studying the sale of its A300s, expected to leave the fleet during the mid 1990s.

Ansett Nsw Recommending Norfolk Island Services:

After a break of almost three years, Ansett NSW is set to restart services to Norfolk Island.

The airline will offer an initial seven return services per week, commencing on November 1. Ansett NSW serviced Brisbane/Norfolk Island from 1984 to 1987 but was forced to relinquish the route due to apparent range restrictions inherent in the Fokker F28-1000.

With the introduction of the new longer ranged F28-4000, however, the airline is again in the position to service the route. which it will do with five flights per week from Sydney and two from Brisbane. The date of commencement of services is significant, being day one of deregulation and no doubt representative of Ansett’s desire to quickly consolidate its position in the market. Watch also for Ansett NSW’s Fellowships opening up a number of new non stop secondary routes that will at long last bypass the traditional KSA and Tullamarine hubs.

European Airlines Still on a High:

European airlines are still reaping the benefits of an above average growth rate in demand for European air travel.

According to the Association of European Airlines (AEA), June revenue passenger kilometre (RPK) figures were up 12% on those of June 1989. Overall, the 21 AEA member carriers experienced a growth in passenger figures of 10% over the previous year. The highest growth rate has been recorded in regional traffic, up 12. 4% on the previous year, the best growth rate since 1987. The North Atlantic also experienced above average growth rates with June figures showing a 15. 5% rise in passenger numbers, with airlines experiencing a very profitable 77. 4% load factor.

Though these figures would appear very good on the surface, there is concern that some airlines may ultimately suffer. While load factors are undoubtedly up, it has been pointed out that this is partly because more special services and discounts are being offered, particularly on transatlantic services. Thus airlines’ yields can be drastically affected.

Airlines Hit by Fuel Price Hike:

The Middle East crisis has resulted in a sharp increase in jet fuel prices, affecting both airline profitability and, inevitably, ticket prices.

According to Qantas Chief Executive, Mr John Ward, the dramatic rise in fuel prices will add between $100m and $200m to Qantas’ fuel bill this financial year. Fuel costs initially represented 12% of the airline’s overall costs but after the rise this figure rose closer to 16%. This effectively translates into an across the board fares price increase of 10%, with transpacific air fares rising by this amount on 1 September and other routes being similarly affected soon after. Price rises must also be expected within the domestic market, though the need to compete in a deregulated market will necessitate airlines absorbing at least some of the associated costs. Fortunately, Australia produces a surplus of aviation fuel, though production costs have inevitably risen. Australian Airlines Chief Executive, Mr John Schaap, in late August predicted an avtur price rise of 5-6 cents per litre by early October, translating to a 2-3% increase in fuel costs.

Overseas, fuel costs rose considerably soon after the invasion of Iraq and this was followed a little later by fares increases. An analysis of the Rotterdam Barge Price for aviation turbine fuel (the standard industry indicator) reveals the sudden effect of the Middle East crisis. On 1 July this year, fuel was priced at $US0. 50 per US gallon; on 1 August (the day of the invasion) fuel was $US0. 61 per gallon; the day after it had risen to $US0. 69; by 23 August (by which time the seriousness of the situation was fully appreciated) the standard fuel price was $US1. 06 per gallon! Even this does not fully illustrate the overall situation. International airlines such as Qantas were affected by local rises also, such as in Singapore where the price of fuel rose from $US0. 50 on 1 July to $US1. 11 by 23 August. Similarly, Los Angeles jet fuel was priced at $US1. 09 on 23 August, though on 1 July it had been pegged at a higher than average rate of $US0. 63.

Of the US majors, PanAm was the first to raise fares by 10%, though it was soon followed by other majors such as American and Continental. Some airlines such as Delta and USAir initially held back, preferring to absorb costs while attracting passengers with cheaper fares, though many smaller US regional airlines such as States West were forced to raise fares by 10% about the same time as PanAm earlier, incidently, than Qantas elected to do so.

Other international carriers initially decided to hold off fare rises until the situation became clearer, though most have now increased fares. Some, however, such as Garuda, have been forced to absorb much of the cost. Garuda had raised fares by 20% in June and was unable to inflict further increases on the Indonesian market, though international tickets such as those sold in Australia could be raised.

 Perth to Get Airport Business Park:

A business consortium of Australian and overseas investors is to develop a $150m resort style business park adjacent to Perth airport.

The business park, similar to the Llanherne Park commercial centre being developed at Hobart Airport (refer p. 13 Sept 90 AA) but on a larger scale, is to be built on a 110ha site near Perth’s international terminal, with work commencing within the next two months. Most of the FAC leased site will be devoted to establishing a resort style complex with a 200 room two storey hotel, an 18 hole golf course and other sporting facilities, all set up in a “parkland atmosphere”. 30 hectares have been allocated for commercial buildings such as offices – 24,000sq metres of office space will be provided in several blocks of two storey 1,000sq metre units – and showrooms, medical facilities, Perth’s first 24 hour retail centre, a 24 hour Brasserie tavern and some relatively small warehouse complexes.

The business consortium includes several Australian companies with expertise in various areas of interest, with Japanese owned Victoria Co (a property developer) providing a foreign stake. The development is expected to cost at least $120m, though on completion should be valued at $150m. At least six international hotel operators have shown an interest in the site, while several multinational freight and transport operators are being attracted by the site’s distribution centres and warehouses, which will be the state’s first integrated freight centre with bond stores and cold storage facilities.

Sas Buys Continental Stake:

Continental Airlines chief executive, Frank Lorenzo, has sold his 6. 9% share in the airline to Scandinavian Airlines Systems (SAS) whilst officially withdrawing from the airline he essentially created.

The $US17m sale raises SAS’s stake in Continental to 16. 8% of equity stock and 18. 4% of voting stock. Sale of the stock was reportedly negotiated at some three times their current market value, perhaps signifying SAS’s intention to gain a better hold on the United States and Continental’s markets. The sale ends a period of controversy within the airline in which Lorenzo was facing increasing employee resistance against most of his proposals. Lorenzo had led the airline in a rapid recovery program following the granting of Chapter 11 bankruptcy protection in 1983, but at the cost of half the air- line’s workforce.

Since 1988, recovery of the airline has stagnated, with the absorption of the bankrupt Eastern Airlines tying up resources and largely preventing essential company reorganisation from taking place and reportedly also harming the airline’s viability. With Continental now saddled with the poorly performing Eastern Airlines, SAS has bought into an airline which must now reorganise and improve labour relations so that it can effectively fully recover from bankruptcy and remain a strong market force.

Air New Zealand to Commence Second Adelaide Service:

Air New Zealand’s Auckland/Adelaide service has apparently proven so popular that the airline will now fly two return flights per week.

Air New Zealand commenced operations into Adelaide on 21 December last year, with the demand being such that an additional service per week will commence on 29 October, in time for the 1990 Adelaide Grand Prix. Both Auckland/Adelaide services will utilise a 209 seat Boeing 767.

Stronger Australian Airlines/ British Airways Links:

Australian Airlines and British Airways have forged a new marketing alliance to strengthen their respective market positions.

A Memorandum of Understanding has been signed between the two airlines for closer cooperation in marketing and services support, including sales representation. Aimed primarily at business class travellers, benefits for passengers include an extension of reciprocal arrangements for members of Australian’s Flight Deck Club and BA’s Executive Club, and an integration of the airlines’ schedules at BA serviced airports in Australia so as to maximise convenience for passengers.

The MOU, in effect, creates a three way global agreement, for both Australian and BA already have similar arrangements with US carrier United Airlines.

Big Lift in International Tourist Flights to Perth:

Perth International Airport is preparing for a dramatic increase in the number of overseas flights into Perth from November 1990 until March 1991.

The northern winter schedules show a growth of 27% per week in the number of passenger aircraft scheduled into Perth. This lifts airline traffic to 126 services a week for four months. The increase in incoming passenger capacity is 24%. Currently, the projected growth of Perth International Airport is 9% a year until 1995, with an average from now until the year 2000 of 8%. This means Perth will be looking at 2 million international passengers by 1995.

 Compass and Fantasia Unite:

Compass Airlines and Fantasia Information Network have jointly developed and are bringing to an operational standard Compass’ computer reservations system (CRS). The CRS commenced operations at Com- pass’ Brisbane head office on 24 September and is already taking bookings for services which commence during early December. Further CRS terminals will be installed at the airline’s airport facilities at Brisbane, Sydney, Melbourne and Perth by December, and in Adelaide, Coolangatta and Cairns during the first quarter of 1991, giving the airline more than adequate CRS capabilities very early in its operations.

The Fantasia CRS is the regional derivative of American Airlines’ Sabre CRS, the largest such system in the world. Compass has placed much emphasis on the availability of its CRS, quite rightly believing it is one of the keys to achieving steady sales in the deregulated airline market. Mr Bryan Grey, Compass chief executive, noted that the airline “will be available for booking through Fantasia by more than 1,400 travel agencies in Australia and over 17,000 worldwide. ” Meanwhile, Compass aims to commence services to Sydney, Melbourne, Brisbane and Perth from early December. Its first two leased Airbus A300-600Rs are expected to be delivered in mid-November, giving crews and maintenance personnel a short working up period prior to the launching of revenue services. Adelaide, Cairns and Coolangatta will be serviced from late in the first quarter of 1991, when the airline’s third and fourth A300-600Rs become operational. Thus, according to Mr Grey, Compass’ network will effectively cover 80% of current air travel movements within Australia, the airline placing much emphasis on cheaper fares and enhanced passenger comfort to attract customers.

Hazelton Introduces Albury/ Sydney Service:

Hazelton Airlines has commenced Albury/Sydney services as the latest stage of its continuing expansion of regional services.

Hazelton previously provided the only air service to Albury during the pilots’ dispute and now offers the Albury/Sydney service permanently. The airline currently Australia’s largest independently owned airline- now offers three return Albury/Sydney flights per day using 35 seat Shorts 360s or Saab 340s. It thus adds to its growing airways network which now services no less than 37 airports in NSW, Victoria and Queensland.

Like the major airlines gearing up for deregulation, Hazelton also have a wide range of interesting discount fares on offer, including the special Apex, Excursion and Student fares. Also of interest is the Travel- pass, targeted at the frequent flyer and offering 10-20% discounts off normal fares. with no restrictions as to when the passenger can travel. A Grandfare offers senior citizens 60 years and over a 35% discount on most flights in the Hazelton network. For city bound travellers, the Hazelton City Stay packages of return airfare and accommodation allows passengers travelling to Sydney to stay at any of six Travelodge motels for as little as $75 per night.

 Ansett Nsw Asks for Licence Clarification:

Directors of Ansett New South Wales want the NSW State Government to clarify air service licencing arrangements so they can plan for future operations.

Ansett’s board recently met in Coffs Harbour to discuss general business and look over the city’s tourist facilities. Coffs Harbour is the ‘golden nugget’ in Ansett NSW’s network, which has been eroded as new licences have been progressively awarded by the New South Wales Air Transport Council. These include routes to Merimbula on the NSW south coast taken over by Hazelton, and a parallel licence granted to Hazelton on the Sydney/Dubbo run.

Ansett NSW chairman, Sir Roden Cutler, says the company’s current licence to operate out of Coffs Harbour will expire next Jan- uary and the company wants to know where it stands. He says although the government has said it will inform the company before the end of this year, it’s hardly good for administration and sensible commercial planning.

Meanwhile, Ansett NSW manager, Jon Hutchinson, says the company plans to bring Boeing 7378 to Coffs Harbour. At this stage, Mr Hutchinson says that they’ll only be used for charter flights for business conferences and the like. The message is that Ansett is looking to attract more international tourists to Coffs Harbour which already has a strong domestic tourist following.

For the burgeoning domestic tourists, Mr Hutchinson says that they will be catered for adequately by the Fokker F28-4000 from EWA and Ansett WA, which are expected to come into service early next year. Ansett’s intentions have put the ball in the court of Coffs Harbour City Council which will have to upgrade Coffs Harbour airport facilities. To this end the council has mooted a referendum in September asking residents and ratepayers whether they agree to funds being used to bring the airport to international standard. (Halden Boyd)

Lightning Detector Spinoff:

Casino council in northern New South Wales has approached the Bureau of Meteorology to have a lightning detector installed at its airport.

The council believes the equipment could have direct spinoffs to the CAA who could advise aircraft of storm activity in the immediate region. The area is prone to a high level of thunderstorms during the summer months when warmer moist sea breezes collect over the Great Divide. The council says Casino is virtually in a direct track used by large RPT aircraft heading into Coolangatta from Sydney, and a detector would be a valuable aid to these aircraft. (Halden Boyd)