South Pacific Airlines Bloodbath

Air Tungaru demonstrates what can happen. Never were so few scattered so far as in Kiribati, where some 75,000 Micronesians occupy atolls sprinkled across five million square kilometres of ocean. As flag carrier, Air Tungaru operated a used Boeing 727-200QC for three years before it was forced by high costs and low loads to shut down. “It nearly sent the country bankrupt,” says John Schaap, former managing director and CEO of Air Pacific. The cost of aircraft for islands that survive on copra, fish and tourism can be overwhelming. Even Fiji, backed by one of the strongest economies in Oceania, blanched when it recently ordered a Boeing 767-200ER for Air Pacific costing $A185m. It was the single biggest financial transaction in Fiji’s history. It is small wonder then that John Yecoumis, project manager for the Tourism Council of the South Pacific, expresses deep concern “with the fragmentation of regional airlines into small, commercially unviable airlines.” As he told Islands Business, “Small island countries with small populations and embryonic visitor industries cannot possibly sustain viable independent national carriers operating large jets.”

Yet the trend in that direction continues. Last year’s launch of international flights by Solomon Islands Airways brings to ten the number of flag carriers in the islands. Even tiny Tuvalu is reportedly forming an airline with government backing. The Kingdom of Tonga and the Federated States of Micronesia (FSM) are the only major island nations still without a second level airline. Eventually both will probably launch their own airlines. “Newly independent nations always fall into the habit of establishing an airline,” says FSM president John Haglelgam. “We don’t want to get into something with a rope around our neck, so we’re looking atit but not yet.” By contrast, the only thing holding back Tonga’s third-level carrier, Friendly Islands Airways, is a lack of capital. Every other month the Kingdom floats a new idea — chartering a DC-8 from American Airlines, leasing an MD-87 from GPA, buying seats on Air Pacific’s ATR42, deals with Philippine Airlines or Taiwan — but in the end Tonga decides nothing because it simply lacks money.

Tonga’s desire to do as its neighbours is understandable. It has watched them launch airlines which bypass Tonga and leave it in a backwater. Other airlines stop at Tonga’s Fua’amotu airport, but they serve their own interests and the interests of their countries first. By contrast, says a former manager of Friendly Islands Airways, “Tonga is our thing.”

Sovereignty symbols are important to new nations. The thirteen Pacific island nations have been independent for an average of only sixteen years. Most are still struggling to attain economic independence, but deem all the sacrifices worthwhile. to see their name and flag on the side of a shiny new aeroplane. More than pride is at stake. As a report on essential air services in the American Pacific explains, airlines involve “public policy trade-offs [between] the financial health of carriers vs the economic and social development of the Islands and its people.” As that study acknowledges, expanses “of open ocean tend to isolate islands; air service is often the only, feasible way to bridge these distances.” These concerns, so critical to people in the Pacific, help account for the increase in government ownership of second level carriers.

Another major reason for this proliferation of airlines has been the steady withdrawal of major carriers. Flying between Australia/New Zealand and North America only a few years ago, Qantas, Air New Zealand, PanAm and others stopped to refuel, at the same time helping to promote tourist stopovers on a variety of islands. But the newer jets are longer legged, so the international airlines’ presence in the islands has steadily decreased.

Boeing’s 747-400, capable of routine Sydney/Los Angeles nonstops, is a bigger threat to island tour packages than malaria rumours.

Eighteen months ago, French Polynesia suffered a major setback when Qantas reduced its stops and Continental Airlines decided to overfly Tahiti. Whilst most of the Pacific enjoyed visitor gains, Tahiti’s tourism plunged 22%. With local tourist operators in panic, Air Tahiti is pondering whether to lease a widebody for flights between Papeete and Los Angeles. Air Caledonie International already made that move, filling the vacuum left by

UTA’s withdrawal from New Caledonia. Likewise, Airlines of the Marshall Islands has leased a DC-8 to supplement what its government regarded as unsatisfactory levels of service by Continental/Air Micronesia. These moves reflect islanders’ determination to control their own destinies.

Some have succeeded. After years of turbulence, Air Niugini and Air Pacific have emerged as relatively strong carriers. Recognising the importance of direct links with their tourist markets, both have expanded beyond the Pacific. Air Niugini now flies two Airbus A310s on routes into South East Asia, and Air Pacific plans in April to start its second weekly 747 service to Tokyo. Both have become small, but solid first level carriers. The idea of a single regional carrier for the Pacific is not new.

Air Pacific was in fact supposed to fill that role. After changing its name from Fiji Airways, its major shareholders Qantas, Air New Zealand and British Airways promoted it as a regional carrier and a number of island nations invested in it for that purpose. Western Samoa was perhaps typical, deciding in 1969 to buy shares in the Air Pacific consortium. But the regional concept failed. As described by Christopher Kissling and Michael Taylor in Transport and Communications for Pacific Microstates: “Control and management of this venture remained firmly in the hands of Australia, New Zealand and the United Kingdom, and its apparent purpose was to be no more than a monopolistic regional carrier feeding the trunk routes operated by its principal shareholders. In other words, cooperation was purely to the advantage of monopoly capital in the form of the major airlines.”

Within a year Western Samoa realised that Air Pacific did not serve its needs. By 1971, Apia had refinanced its own Polynesian Airlines, the government buying 70% of its shares and launching it as the flag carrier of Western Samoa. As others did the same for similar reasons, the idea of a regional Air Pacific died. Regionalism made a comeback in the early 80s in the form of Ansett Airlines. When Polynesian Airlines was about to default on the lease of its Boeing 727, Ansett came to the rescue with a financial package. In exchange, it received the right to manage the airline. Anxious to circumvent Australia’s policy reserving all international rights for Qantas, Ansett entered a similar arrangement creating Air Vanuatu. It managed the new airline, which flew a 727 wet leased from Ansett. In the same way, Ansett launched Cook Islands International.

Each was a separate carrier, although Cook Islands and Polynesian shared a 727 with the livery of one airline painted on each side. With common control, however, they offered common fares to multiple destinations, complete interlining, and most other attributes of a regional carrier. They even bypassed Fiji with a direct route between Port Vila and Apia – truly unprecedented in Pacific aviation. If Ansett had succeeded in its bid to manage Air Pacific —it was one of three finalists for that role — the Pacific aviation landscape might have looked quite different today.

But outside help brings its own problems. As a symbol of nationhood, the flag carrier loses something when someone else calls the shots. Cook Islands International now has no plane as a result of Ansett’s decision to drop Apia/Rarotonga flights. Landing rights were a persistent problem; so long as Ansett ran Air Vanuatu, New Zealand was never willing to grant any. No one knows whether Polynesian, which Ansett still runs, will face similar problems if it goes ahead with plans for flights to Honolulu. One issue never resolved in the short lived Air Pacific experiment is who would set policy for a bona fide regional airline. The Pacific Forum Line is frequently cited as an example of successful regional transport. But cargo containers and passengers have little in common. As the essential air services study notes, “the airline is a link to social mobility.” Locals want reasonably direct flights at reasonable frequencies. Ease of access is also critical to tourism.

Clearly, each island nation has its own agenda. Each wants direct flights to its tourist markets and the countries where it has its closest links. Islanders are skeptical of regional airline proposals. Outside of Scandinavia, they claim that national rivalries have doomed such schemes everywhere else in the world. They know the old Air Nauru was the closet thing to a regional airline the Pacific ever had, but it failed for the simple reason that Nauru was no better than any other given island as a hub for the entire region.

This determination by each nation to control its own destiny was evidenced in Vanuatu’s breakaway from Ansett and the Honiara government’s purchase of all shares in Solomon Islands Airways. Since then, each airline has developed predictably, with Port Vila and Honiara as the respective centres of route networks stretching to Australia and New Zealand. It is unrealistic now to expect island nations to scrap ten airlines and revert to a single regional carrier. That notion still has adherents, but it ignores irresistible pressures the other way.

This does not mean regional cooperation should be ignored. Indeed, it may be the key to long term survival. The Vanuatu government has promised Air Vanuatu $A2m a year for three years, with the hope that it will break even this year. If it does not, how long can Vanuatu afford such a drain on its resources? What will Solomon Islands do when the euphoria of its own airline wears off? In one year of high fuel prices, Air Nauru lost $A15m. No Pacific government can sustain those kinds of losses. But cooperation must come in small steps, without threatening the prerogatives of any nation. Island leaders rejected a proposal to create a regional agency to buy and maintain aircraft for the various airlines. But operators of the ATR42 and ATR72 (Air Caledonie, Air Pacific and Air Tahiti) have studied forming their own ATR maintenance station, rather than flying planes back to Europe.

The idea of a multi-carrier leasing company also deserves another look. The International Air Transport Association is considering a mutual leasing company, supported by Japanese

financiers, that might acquire planes through finance leases and deliver them on operating leases to member airlines. Any member would have a stake in the residual values. Such a plan certainly has scope within the South Pacific.

The new South Pacific Regional Aviation Development Program at the Forum secretariat in Suva is also an encouraging sign. Its director, Letele Siaosi Vaeau, has the right background. A Western Samoan, he recently completed a study of South Pacific aviation for the International Civil Aviation Organisation.

As the former head of both Western Samoa’s and Nauru’s aviation ministries, his insights will be invaluable.

The answer to Pacific aviation’s challenges lies not with outdated notions of a single regional carrier, but with joint ventures, interlining, and other forms of cross border cooperation that preserve the identity of individual airlines.