Recce

A year later, thanks to the seemingly unquenchable ambition of a single megalomaniac Middle East tyrant, 28 nations of the world are involved in the largest military deployment since WW2. The newly free nations of Eastern Europe struggle to survive. The Soviet Union slides closer towards revolution (or worse) and Australia is having the recession “it had to have”, claiming tens of thousands of jobs and extinguishing the employment hopes of thousands of school leavers for reasons they cannot even be expected to understand.

Our own recession, which had been drawing closer since the heady days of the Bicentennial boom, is also creating situations in Australia’s air transport industry that not even Nostradamus could have envisaged just two or three years back.

Who would have thought, for instance, that Ansett would now be struggling under massive liabilities of its two, once very powerful, owners. Indeed the combined debt of ATI, TNT and News Corp is reportedly in the $10bn plus range, something that is definitely not considered healthy in this day and age. Rupert Murdoch’s News Corp has also agreed to shed just over one billion dollars of its assets in the coming year as a key component of its international financial restructuring. Will its half share in ATI now officially be on the market? For the past eighteen months this magazine has believed that this has been so and it was only the pilots’ dispute that scuttled the sale program. Australian is also still suffering from the longer term effects of that dispute, a dispute which cost the three major airlines a conservative $500m in lost revenue and profits at a time when they had already flown through three consecutive quarters of reduced traffic, and is now having to radically trim with the expected loss of a minimum of 1,250 jobs over the coming year. Ansett will also no doubt be having to trim its staff numbers as will the CAA, by as much as a third in some areas.

There are other factors involved of course. The surge in fuel costs these past six months has caused considerable fiscal hardship at a time when all the Australian carriers are into a discounting frenzy in an attempt to trade yield for cashflow and market share. While this works in the short term its benefits in the longer term are dubious to say the least. And that is the problem our carriers have at present. Due to the recession, business traffic is flat with the result that the very lifeblood of the primary carriers is being reduced at a time when ordinarily they could have traded off the earnings from a strong premium fare market against a variety of low yield cashflow/traffic generating leisure travellers. You don’t, for instance, make money selling $99 tickets between Sydney and Melbourne- and nobody needs to be told that twice! If our domestics are struggling, then spare a thought for Qantas, which once more is enduring major problems that are well beyond its control. Since the commencement of hostilities, it has been losing an estimated $600,000 to $800,000 a day as new bookings to Europe fall by around 50% and to North America by 20%.

A stroke of luck, not imagined at the time, was Qantas’ 70th anniversary 30% across the board discount fares launched last October. This neatly filled its aircraft at a time when they would have been hard pressed to attain 50% load factors without the avalanche of prebooked seats that took place well before the Gulf became a major issue.

In this environment Qantas is looking to retrench up to 5,500 people over the coming year, as like Australian, it leans up for privatisation, something that should have been done three or four years ago when it would have been far more viable than now. Though that’s a story in itself! Meanwhile, talk of Qantas buying a share in Ansett still is rife but where will the dollars come from? Conversely the opposite is also spoken of, as is a merging of Qantas and Australian, an industrial relations nightmare almost too horrific to imagine.

Internationally the scene is no better and in some cases, such as in the USA, it’s worse. The reason is simple-terrorism. Americans are staying home whilst US flag carriers (and also BA) are considered as prime terrorist targets as their long haul load factors are cut in half and flights are cancelled en masse. Ironically this has seen airlines such as Qantas and Air New Zealand gaining a little (or losing less) from the mayhem as US travellers shift their allegiance from their own airlines to something considered. a little ‘safer’ with a lower profile.

The fiscal nightmare that Saddam Hussein wrought upon the world with rapidly rising fuel costs- much of which was totally unnecessary has also brought about the final death knell of Eastern Airlines whilst PanAm and Continental struggle on only with the assistance of Chapter 11 protection. TWA is just a step behind while even the darlings of the US industry – Northwest, American, United and Delta-all fly in a sea of red ink.

One positive aspect of the events of recent weeks though is the effects the launching of Desert Storm on Jan 16 had on both the cost of oil and the world stock markets. Reacting obviously to a little old fashioned gumption from the US and its allies, the world’s stock markets did not flinch at the spectre of war as many had feared whilst the oil price dropped dramatically with the spectre of massive supplies reentering the market once Iraq and Kuwait again begin to pump oil beyond their borders.

So what does the future hold? Hopefully Desert Storm won’t drag on for too long and air power will make an inevitable land battle a less bloody affair. At time of writing though anything was possible with the entire region being a veritable Pandora’s Box of fearsome scenarios. What if, for instance, Hussein uses chemical weapons, will there be a like, or even tactical nuclear, response from the allies? Imagine for one moment if he did indeed have a rudimentary nuclear device and had it neatly situated inside a building in Kuwait City just awaiting the arrival of allied forces for it to be detonated by an in situ suicide team.

One way or another though it will all end, as it always does, and then the emphasis will be on rebuilding from the ruins, something that will then hopefully be good business for carriers re-entering the Gulf region. Fuel costs will be down, probably the lowest in real terms for a decade, whilst if there aren’t any major airline terrorism incidents then confidence will also quickly return to the international travel industry whilst Australia will stumble through “the recession it had to have” for the rest of ’91 and hopefully begin to recover through next year.

While these may be all surmises, one thing is certain though, and that is that yield in the Australian domestic airline environment will never again be what it was prior to deregulation. And that is not necessarily a totally bad thing as it also signals to all that now, for the first time ever, the average Australian can at last seriously consider air travel as a viable means of transportation within their own land.