Airline Affairs

Figures for pax actually not terminating at a major port vary from as low as 10% for Adelaide/Sydney to as high as 40% for Launceston/Melbourne. The general average is closer to a third.

Taking this data (courtesy of the DoTC) we have estimated that these non-terminating people could fill an additional 2,706 737-300 services at an average 70% load factor. This figure, whilst perhaps having little practical value does at least serve to illustrate the enormity of the potential market that exists to operators who choose to begin direct non stop point to point services using much smaller aircraft than have been used traditionally in the past. Certainly this should provide plenty of fertile ground for the Canadair RJ, Embraer 145 and Saab 2000 sales forces in years to come.

Compass Targets Golden Wing:

Compass has gone all out to catch a share of Ansett’s important business class travellers.

The airline is enticing Ansett Golden Wing members by offering two flights for the price of one to try Compass. The Golden Wing member simply has to book a flight with Compass at Ansett’s standard return economy class fare to any destination that both airlines serve. On presentation of a Golden Wing card, the traveller will automatically receive another ticket to the same destination, courtesy of Compass. The bonus ticket can be used to take along a partner on the same trip, or can be used on a subsequent journey.

Asked why the latest manoeuvre was aimed only at Ansett and not Australian, Compass CEO Bryan Grey mused: “It makes good sense to stay on good terms with your landlord, especially when you are in the habit of making a lot of noise”.

The Golden Wing incentive comes hot on the heals of another novel marketing strategy also aimed at attracting business travellers. In early February. Compass introduced a scheme in which employers can save money by booking travel with Compass for employees who would normally fly business or first class with either Australian or Ansett. The employer saves money by paying only the standard economy fare charged by the two major domestics over the same routes, while the employee receives the difference between the majors’ fare and Compass’ fare as a credit towards future travel and an Incentive to travel economy. For frequent fliers, credits may well accumulate to cover the next family holiday!

European Airlines Record 1990 Loss:

The Association of European Airlines (AEA) has predicted that its member airlines’ 1990 results will record their first combined loss since 1981.

The 22 member carriers recorded a traffic increase of 8. 3% during 1990, however costs rocketed while traffic noticeably slumped during the final quarter as the Gulf War and recession began to hit home. During the year the 22 airlines carried an estimated 107 million passengers, up eight million on 1989. Revenue pax km (RPKs) were up 8. 3% against a seat capacity increase of 9%, sending load factor down from 68. 2% to 67. 7%. Freight tonne km increased by 4. 6%.

However, despite the additional passenger numbers and freight volume, the additional business has not been matched by earnings, which were particularly hard hit by increased labour costs, but also soaring fuel prices, increasing government authority charges and a slackening of demand during the final quarter. Though financial results are not yet available, it is expected that the 22 AEA member airlines will record their first combined loss since 1981.

Besides the 1990 loss, it is not expected that 1991 will be a particularly rosy year. While European traffic during the first two weeks showed little change from the same period in 1989, the third week of the year (when Gulf War hostilities commenced) saw a rapid overall drop in traffic of 10%, and even greater in some areas. By the end of January traffic had slumped by 25%, with load factors down to the mid 30s compared to over 50% in the same period in 1989.

Plans for New WA Carrier Uncertain:

The proposed mid year launch of new entrant Australian North West Airlines has been delayed for an unspecified period.

The carrier was planning a fleet of Fokker aircraft to largely serve the WA/NT markets. Finance was said to be coming from both local and Asian interests with the possibility that the airline would also at a later date conduct charter flights into SE Asia.

Envisaged was a fleet of up to 6 Fokker 100s, 2 Fokker 50s and a helo service linking Perth with Rottnest Island. Primary ports to be served were Kalgoorlie, Port Hedland, Karratha and Broome though later services would link in with Yulara, Alice Springs, Cairns, Coolangatta and Darwin. At one stage it was rumoured widely that Australian was linked with the venture as a way of securing direct head to head competition with Ansett in WA. This has however been refuted by Australia, which AA believes has put on hold its possible WA expansion plans for the time being till the economy begins to improve. Meanwhile, the deregulation of WA intras- tate air services looks unlikely to proceed as the State Government realises that hard fought competition on many of the long thin routes within the State could well reduce air travel standards rather than having the opposite effect. The Government is due to announce its plans during the course of this issue though is believed to be more receptive to intrastate deregulation using an existing major airline rather than a mix of small under-financed commuter services.

Reflecting the softening market in the West, Skywest Airlines have also put on hold their plans to upgrade from the 18 seat BAe J31 Jetstream. Under consideration were the Dash 8, Brasilia and Saab 3408 though it is. expected that the longer the upgrade project is delayed the more it logically favours eventual acquisition of the 28/30 seat stretched J41 Jetstream which is due to gain certification late in 1992.

Qantas Resuming Third Party Maintenance:

Qantas is gearing up to resume third party maintenance work after a two year break.

Qantas ceased third party maintenance during 1988 because of a serious shortage of skilled manpower, brought about by government imposed wage restraints which prevented the airline from matching pay offers of competing industries and overseas airlines. An intensive hiring and training program has since built the workforce up so that the airline will again be able to offer maintenance to customers from the second half of this year, the first to take advantage of this being Evergreen which will lodge a 747 freighter with Qantas. The Qantas engineering workforce was built up with the recruitment of 1,423 new staff since May 1988, 394 of whom came from Britain, Ireland, Hong Kong, Malaysia and Singapore. Training of personnel was enhanced by the opening last year of a new $5m apprentice training facility at the Sydney Jet Base (with an initial intake of 300 apprentices) and the $2m skills training centre for refresher courses for existing staff.

In addition to halting third party maintenance, a significant amount of maintenance on Qantas’ own aircraft also had to be under-taken by outside firms, including ASTA; this cost Qantas at least $20m last financial year. Ramp servicing of Qantas and other airlines’ aircraft continued, as did some airframe work on Qantas airliners as well as engine overhaul work, this latter task being under-taken for several customers including Air China, ANZ and the

American Granted Increased Australian Frequency:

American Airlines, the largest Western airline, has been granted approval by the Dept of Transport and Communications for three additional flights per week to Australia.

The additional frequency will allow American to offer daily flights to the United States, and comes after one year of successful operations into Australia. During the first year of operations, American achieved a load factor of almost 70% on its Australia/US services and have brought in more than 1,000 US originating passengers a month to Australia, largely as a result of its US promotional activities. The additional flights will be important for the airline to boost its long term growth prospects in the Asia/Pacific region, giving better marketing opportunities for both tourist and business travellers.

American Airlines operates a fleet of 546 aircraft mostly on US domestic services. Figures for January reveal the enormity of American’s operations. During that month the airline flew 9. 3bn revenue passenger km (RPK), up 2% on the same period 1990. Available seat km were 16. 4bn, also up 2% on January 1990. American’s systemwide load factor was 56. 6% (up marginally from 56. 5%), with the US domestic load factor 57% (up from 55. 7%).

American Airlines Cargo carried 90m freight tonne km in January, up 9. 5% from January 1990. However, despite the high totals achieved, American have expressed some disappointment, though given the effects of the Gulf War and softening economies the RPKs remained strong. Continuing high performance on Central and South American routes helped achieve the relatively high RPK figure though the airline acknowledges that capacity systemwide will have to be reduced to boost load factor.

Ansett and Australian Battle for Business Travellers:

Responding to Compass’ repeated moves to also tap into the business travel market, the two major domestics have both upgraded their business classes.

Australian, for some time considered the leader in the domestic business travel market, will now guarantee business travellers either a window or an aisle seat by adopting four abreast seating. Current business (economy) class seats will be retained with the middle seat unused, providing more elbow space, particularly advantageous when tackling newspapers such as the monstrous Sydney Morning Herald, never an easy task at the best of times. Additional improvements include lighter, healthier meals; progressive upgrading of Flight Deck lounges; and revised east coast schedules to minimise disruption at airports.

Ansett has also reconfigured its business class as four abreast though may well hold the trump card as it is using dedicated first class seats at a minimum of 36in pitch against Australian’s use of conventional economy seats at a 34in pitch, the difference in seat width being considerable for a large frame person.

Inspiring these radical upgrades is per haps Compass’ targeting of Ansett’s Golden Wing membership (refer separate item) by enticing business passengers with free ticket offers and a guaranteed aisle seat with a vacant seat adjacent. Compass is also winning business travellers with their overnight business special which includes the standard economy fare with a night’s hotel accommodation free.

Both Australian and Ansett are banking heavily on attracting greater market share to their respective business classes from these relatively radical upgrades. European business classes are six abreast (737/757/A320 etc) with only KLM having gone to five abreast on its 737s in recent months.

Ansett GM Graeme McMahon noted: “Business travellers account for up to 60% of our passengers, but our research shows they regard business class on either of the two major domestic airlines as little more than economy class with free drinks. ” Further improvements to first class are also pending.

AA Comment: Is this the beginning of the end for first class? Why would you, for instance, pay a 50% premium on the standard economy airfare to fly first when for only 20% above economy you can enjoy the comfort of a first class seat (at least on Ansett), catering of a similar standard and seat pitch that would appease even a Harlem Globetrotter. Ansett dropped its first class in NZ due to lack of patronage and replaced it with a business class in 1989. It could well be that with the recession first class may follow a similar fate in Australia.

Few domestic carriers in other countries actually operate a first class service, even in the USA, while almost none operate in the three class configurations that have been the norm in Australia in recent years. With deregulation, recession and a whole new ideology towards yield, market share and product placement then we may well see just two classes emerge in domestic service – business and economy. Interesting times indeed.

Domestic Air Carriers’ Liability Amended:

New regulations governing domestic air carriers’ liability came into force on 1 February.

Previous limits were set at $100,000 for personal injury or death to passengers, $900 for loss of, or damage to, registered baggage and $90 for loss of, or damage to, unregistered baggage. These limits had not been increased since 1982 and were considered unrealistically low by today’s standards. The new regulations have therefore increased the financial compensation available to a limit of $180,000 for personal injury or death, $1,600 for registered baggage and $160 for unregistered baggage. The increases are broadly in line with movements in the cost of living since 1982.

Northwest Moves Quickly to Capture Eastern Assets:

Northwest Airlines moved quickly on the announcement of Eastern Airlines’ cessation of operations to secure its landing and takeoff slots, gates and other terminal facilities at Washington National Airport.

The move provides a greater presence for NWA in the east and makes Washington National NWA’s fourth biggest hub. The move will also be a boon to Washington DC downtown residents as NWA will be using ICAO Stage 3 jets from the airport whereas Eastern mainly still flew noisy Stage 2 DC-9-308 and 7275.

Meanwhile, NWA is still awaiting formal US Government approval to take up its recently won US/Australia rights, though it hopes that this will be cleared during the course of this issue for a commencement of services around mid year. In the meantime Hawaiian has returned to exercise its still operational Hawaii/Australia route via a weekly DC-8 service through Sydney.

Little Change in Activity, Despite Deregulation:

CAA data on aircraft landings for the first two months of deregulation reveals that there was little apparent change in Australia’s domestic airline industry activity.

At Sydney Airport the level of weekly landings remained consistent with normal monthly seasonality, with no outward sign of significant changes following deregulation. At Melbourne Airport, however, there was clear evidence of additional activity following the commencement of operations by newcomer Compass Airlines. This accounted for about seven additional landings at the airport. The reason Compass’ activities had little effect on Sydney’s activity rate is that it generally caters for a higher number of commuter, business and GA aircraft, so Com- pass’ flights were cancelled out by the apparent reduction in landings by these smaller aircraft as the decline in economic activity began to hit the aviation industry.

The major airlines, consistent with previous recessions such as that of the early 1980s, have not dramatically cut back services. In the past they have preferred to continue normal activity for about 12 months into an economic decline before significantly reducing services. In the current recession period deregulation may encourage the airlines to continue operations at normal levels while striving to fill seats with the incentive of cheaper fares to major destinations.

Qantas Introduces New Shared Services:

New marketing alliances with Canadian Airlines and Air New Zealand now allow Qantas to offer even more trans-Tasman and transpacific services.

Qantas’ joint operational and marketing alliance with Canadian will provide daily flights to Canada, with a daily shared service to Vancouver and to Toronto three times per week. The flights will share joint Qantas/ Canadian Airlines flight numbers between the two countries. Passengers will fly in a 747 from Melbourne/Sydney direct to Honolulu, where they will join a Canadian Airlines flight to Vancouver; the Toronto services will soon be offered daily. Two 767 flights per week will operate from Brisbane and Cairns to Honolulu to connect with the Canadian services, giving Queensland passengers four Canadian services per week.

A code sharing agreement has also been signed with Air New Zealand. From the end of March, many trans-Tasman services will only be operated by one of the two airlines, but with a joint QF/ANZ flight number. On the services operated by ANZ, Qantas will buy blocks of seats for its passengers; ANZ will do the same for Qantas services. On the Pacific flights, ANZ will code share on Qantas’ Sydney/LA service while Qantas will buy seats on the ANZ Melbourne/Auckland/ LA route. Besides offering greater transtasman and transpacific marketing power, this agreement frees up one Qantas 767 for Asian services and facilitates the sale of additional 747-200s.

Lufthansa Boosts Australian Capacity:

Lufthansa is to withdraw its 747 Combis from the Australia/Germany route effective 1 May and replace them with all passenger 747-400s.

The change reflects an increase in LH 747 freighter services into Australia which are operated in concert with Qantas. Lufthansa will now operate four passenger services a week, two from Sydney via Bangkok to Frankfurt with two others routing Sydney/ Melbourne/Singapore/Frankfurt.

All services provide late afternoon departures with early morning arrivals at Frankfurt, with the Bangkok services departing on a Thursday and Sunday and the Melbourne services on a Wednesday and Saturday. An interesting feature of the new schedule is that flights from Germany now depart mid morning for an arrival in Australia during the following afternoon.

Ansett Move May See Demise of Radio Pool:

For just over three decades all domestic jetliners have had their radios checked and maintained by the Australian Aviation Radio Pool.

The pooling of radio resources, under the umbrella of AWA, was said to lead to efficiencies in maintaining the various airlines’ radio equipment of what were mostly complementary aircraft types. Ansett have now announced that they are setting up their own radio workshop facility at Tullamarine and as AN/ EWA provide around two thirds of the Pool’s total workload, it is likely that the Pool, employing 75 specialists, will now fold. Remaining members are ipec, Australian and the CAA’s Flying Unit while Qantas undertakes its own inhouse radio maintenance.

Qantas Offers Better Economy:

In one of the first moves to follow British Air- ways’ economy upgrade announcement, Qantas has launched enhanced economy class services.

Qantas now allows economy class passengers to pre-select seats, a service previously restricted to first and business class passengers, and a vast improvement over joining the long economy check-in queues desperate for a window or aisle seat. A new economy lounge offering free cold drinks, tea and coffee has also been opened.

Other services and products on offer to economy class travellers include: pre takeoff. drinks and towels; amenities kit with eyeshades, earplugs, sockettes and “do not disturb” stickers for longhaul flights; new ergonomically designed seats with an adjustable meal table; tooth brushes and razors on request; new menus with a choice. of main meals, with meals served on china; smaller bar carts for faster drinks service; electronic headphones; more inflight videos: an electronic map showing the aircraft’s position and fight details; specially designed children’s meals and entertainment; and baby travel packs including disposable nappies.

About 88% of Qantas passengers travel economy class (generating about $1. 6bn. revenue per year), which has been made an even more important passenger class with: the recent drop in business travel. Other improvements are also being made to both first and business classes.

Meanwhile, Qantas has moved to reschedule the delivery dates for some of its optioned 747-400s. Qantas has 18-400s on firm order with 10 in service by the beginning of March. None of the firm ordered aircraft will be rescheduled and the first of the optioned aircraft was due for delivery late in 1992. None of the future 767-300ER orders or options are being rescheduled due to the growing importance of these twinjets in a softening market.

 New Era in Australian Aviation:

The Bureau of Transport and Communications Economics (BTCE) is holding a conference by this name on 6-7 May 1991 at the Hyatt Hotel, Canberra.

The conference will review developments in the domestic aviation industry in the period leading up to, and following, deregulation in Australia, and also consider current international aviation issues. Discussion topics include: a review of local and international trends in aviation regulation; view-points of the aviation and tourism industries, unions, consumers and government; infrastructure and aviation services; the sale of government owned airlines. Speakers will include analyst Dr J Maldutis of Salomon Brother Inc, of New York; the Hon Kim Beazley, Minister for Transport and Communications; Mr David Buckingham, head DOTC Domestic Aviation Division; Ms Christine Goode, head DoTC International Aviation Division; Dr M Haddad, Director of BTCE; and Mr Rob Lee, Director of BASI.

With the changes in the aviation industry of late, both domestic and international, this conference should be of great interest. Con- tact: Brad Jennings, BTCE, GPO Box 501, Canberra ACT 2601. Fax (06) 274 6816.

Qantas Defers Korean Services:

Qantas has deferred its planned introduction of services to South Korea, citing the “uncertain world aviation economic climate” as the principal reason for this.

The decision comes in line with the airline putting back the delivery schedule for several of its 747-400s and other cost cutting measures made by the airline in recent months. It leaves just Korean Airlines operat- ing two services a week between Australia and the potentially lucrative South Korean. travel market. The Australian Government meanwhile is attempting on Qantas’ behalf to persuade the Japanese Government to per- mit the airline to fly Seoul/Fukuoka/Australia. However the Japanese are at this stage still holding out on making a decision.

Meanwhile the Gulf War continues to adversely affect Qantas operations. Following the commencement of Desert Storm bookings fell short of the expected volume by 55,000 systemwide for February/March travel. If the trend continues with the threat of terrorism remaining in the air, losses for the airline could well mount to over $200m. Already losses are at the stage where at least 3,000 employees will be laid off by the airline in the coming months. Other cost cutting measures include: a virtual freeze on all new capital expenditure; a further deferral of existing capital expenditure (mainly new aircraft) wherever possible; a reduction in operations wherever this will improve Qantas’ short term cash position. One move is to incorporate Frankfurt into some of the air- line’s London services, thereby enabling the three QF5/6 services per week to be temporarily suspended.

New Air Pacific Schedules:

Air Pacific, Fiji’s flag carrier, now offers 13 return Australia/Fiji services weekly, with Qantas cooperation.

Five Boeing 747 services now depart Sydney for Nadi each week, three of these being operated by Qantas under a seat lease agreement. An additional 767 flight will also be flown from Sydney, while four 767 services will operate from Melbourne and two from Brisbane, thus effectively making the airline more competitive now that post coup Fiji is again gaining popularity with tourists.

Meanwhile, Hawaiian Airlines has resumed its weekly Honolulu/Pago Pago/Sydney return flights using a DC-8. The airline, which previously ceased its Australian service because of low yield, is expected to continue operating into Sydney until the traffic rights are formally taken over by Northwest, to whom it sold its Sydney rights.

Compass Again Cuts Fares:

February Compass again cut fares on its routes, by up to 16. 3%.

The reductions, which ranged from 8. 5% on the Brisbane/Perth route to 16. 3% on the daylight Perth/Sydney service, brought Compass fares back below the level it was at prior to the 7. 5% fuel price induced fare increases imposed during January. The move has been designed to capture an even greater slice of the domestic travel marketin the current soft (recession bound) economy. Such fares now allow travellers to fly, for instance, Brisbane/Melbourne for $260, Brisbane/Perth $540, Sydney/Melbourne $160 and Melbourne/Perth (curfew) $254.

Awas Place A300 With Garuda:

Ansett Worldwide Aviation Service (AWAS) has leased six A300-600Rs to Garuda Indonesia, through its US associate Ansett Worldwide Aviation USA.

The six aircraft will be delivered to Garuda between August 1991 and December 1992. Each will be powered by Pratt & Whitney PW4158 engines and will carry 242 passengers in a three class configuration, on both domestic and regional routes including services to Australia. Garuda already oper ate nine A300B4s.