Airline Affairs

Meanwhile, Compass has gone a step further by announcing that it now aims to eventually capture at least 25% of the domestic airline market, which would effectively threaten the profitability of both Ansett and Australian. Over the next four years Compass will work hard to attract additional patronage, building its own terminals at major airports as soon as possible. The next port to be served by Compass is Adelaide, which will be added to the airline’s network on 1 July, whilst it has also now introduced a direct Perth/Cairns service aimed directly at the holiday market. This is the first time that WA residents have been able to fly direct to northern Queensland and in particular Cairns, which is rapidly becoming a highly attractive winter holiday destination. Why this market was consistently ignored year after year by both Ansett and Australian is something that few tourism industry officials can answer.

As for continuing its aggressive marketing for the tourist and holiday-maker dollar, Compass is still doing more than just intro- ducing new routes. it recently announced new special fares, for instance it is making 20 seats available on every flight at about 70% off the standard economy rate of competing airlines. The special fares are available on a first in, first served basis. And in another special offer, Compass will now fly all surviving World War One veterans free, with discount rates for those accompanying the few who are still able to fly.

Airlines Negotiate for Panam Buyout:

PanAm’s unsecured creditors are reportedly negotiating with three US and four foreign airlines for the purchase of the financially strapped airline.

The four foreign airlines with which talks have been held are British Airways, All Nip- pon Airways, Singapore Airlines and Swiss- air. In the US, Delta, United and Northwest have also been involved in the talks. As well, several other potential non-airline investors have been approached. The negotiations are aimed at having any one of these inves- ‘tors (either airline or non-airline) or more likely a consortium to buy out the troubled airline or its subsidiaries, such as PanAm Shuttle, which may be sold in separate deals.

Delta apparently is the leading contender for the purchase or part purchase of PanAm itself. The airline could bring ready cash into the deal, having recently raised SUS476m in a stock offering intended primarily to fund international expansion; a purchase of PanAm would naturally facilitate expansion, as the airline still holds some lucrative routes on the transatlantic network, which for all three US carriers must be the main drawcard.

American Experiences Marketing Bonanza:

American Airlines has booked well over one million reservations in the US since it slashed airfares worldwide on 13 March to stimulate business.

The fares reductions were such that travellers could fly from the US west coast to Sydney for only $US898 and from New York for SUS898. Another example of American’s concerted marketing campaign was the offer to Sydney bound travellers for three nights accommodation at Olims Hotel, Sydney for just $US1. Similar bargain deals were on offer to US travellers flying to destinations in most other parts of the world on the Amer- ican network.

Meanwhile, American has notched up a major milestone with the flight of its one billionth passenger in April, 61 years after the airline flew its first passenger. Since 1980 American has been able to almost triple its number of boarded passengers from 25. 7m in 1980 to 73. 2m in 1990.

Taiwan Air Link Approved:

A direct air link agreement has finally been signed for airline services between Australia and Taiwan.

Taiwan is Australia’s fifth largest trading partner, but a direct air link between the two countries has long been delayed by the political sensitivities of having Australia’s flag carrier, and only international airline, serving Taiwan. China, also an important trading nation, regards Taiwan as part of its territory and views Taiwanese services by a flag carrier as de facto recognition of Taiwan’s sovereignty. The solution, long in negotiation, was to create subsidiaries of the two flag carriers concerned, Qantas and China Airlines (Taiwan). Thus, when services between the two countries commence, the Qantas subsidiary Australia Asia Airlines and the China Airlines subsidiary Mandarin will actually service the Taiwan/Australia air link.

Australia Asia will operate a 767-300 leased from Qantas, though details of its services at this stage remain unclear. Mandarin will probably use aircraft leased from China Airlines, which operates a mixed fleet of Airbus A300B4s and A300-600Rs, Boeing 747-200, -400 and SP models and 737-2008, with four MD-11s on order.

Another airline to possibly take advantage of the new agreement is Taiwan based Eva Airways, which begins international operations in July this year with 767-300ERS, and has on order four 747-400s, two additional 767-300ERs and six McDonnell Douglas MD-11s. As well as the US, Europe and SE Asia, the airline is known to have its sights on the Australian market. A lesser possibility is private enterprise challenger, Australia World Airways, which has been vying to fly between the two countries as a charter operator for some time.

Qantas Schedules Korean Services:

Qantas will commence scheduled Korea/Australia services on 2 November 1991.

Flights between Sydney and Seoul will initially be flown once per week, utilising a 767-300ER. Services will be expanded at a later date if demand from this rapidly growing market proves sufficient. Competition on the route is provided by Korean Air, which presently fies a once weekly 747 service into Sydney, and from Japanese carriers JAL and ANA who can offer Korean passengers Australian holiday packages via Japan.

Hawaiian Departs Australia:

Hawaiian Airlines ended its weekly Australia/Hawaii service on 12 April, making way for Northwest Airlines, to whom it sold its Australian rights.

Hawaiian’s departure was some weeks earlier than expected, though it was able to cover all passenger tickets booked for flights after the final departure date with travel arranged on other carriers: Northwest have yet to announce the date of their first service, though it is expected to be within the next few months.

 Eastern Withdraws Coast Service:

Eastern Airlines has withdrawn its daily Newcastle to Brisbane Bandeirante service, blaming the economic downturn.

The service has been operating Newcastle return services for the last twelve years and ports affected include Taree, Port Macquarie, Coffs Harbour, Lismore and Coolangatta. Eastern says there’s no threat to direct Sydney services with Grafton, Port Macquarie, Kempsey and Taree.

Consequently, Eastern is selling two of its three Bandeirantes, VH-WDF and VH-WDI and interest has come from South East Asia for the aircraft. Eastern will however keep one of the planes, VH-HVS, for its Newcastle/Sydney service. The move signifies Eastern changing to an all pressurised fleet in preparation for New South Wales deregulation expected in 1992. Eastern has indicated it will aggressively target Lismore and Coffs Harbour in northern New South Wales with the arrival of deregulation.

Meanwhile Hazleton, which admits to a passenger drop of 12% because of the rural crisis, has axed its Navajo services to Condoblin and West Wyalong in central western New South Wales. (Haldon Boyd)

Jal Introduces New Exec Class:

Japan Airlines’ newly reconfigured and “luxurious” Executive Class has been introduced onto all its Australian services, and most systemwide international services.

JAL has reduced the number of seats in each row and increased comfort with wider cushions and tables, greater seat pitch and recline, adjustable head rests and dual position lower back supports. Executive travellers will also be offered a greater variety in JAL’S menu and wine selections. Also, until 30 June, First and Executive Class passengers flying out of Sydney can make use of a free limousine transfer from their front door to Kingsford Smith Airport.

Ansett Express Begins Shuttle Service to Canberra:

Ansett Express has begun a shuttle service linking Canberra with Sydney.

The new Express Shuttle service flies up to 16 services a day between the two cities. Owing to the fact that the air distance is a mere 128nm, Fokker 50 propjets are being used instead of jets. Recent changes to ATC requirements en route and into Sydney now allow the Fokkers to track direct whilst the jets still have to flight plan via Wollongong.

The F50 propjets also cruise at 14,000ft whilst the jets have to climb typically to 24,000ft where they stay for a very short time before descending. This results in a minimal real time difference in block time whilst allowing added frequency via the smaller aircraft.

Ansett have also increased legroom in the F50 by taking out a row of seats and now supply an enhanced meal service designed to suit the business traveller, which typically constitutes the bulk of this market. At Syd ney, the unpopular bussing arrangement has also been removed through the building of a special lounge specifically for Shuttle passengers. From the lounge, boarding is straight onto the ramp and into the aircraft.

Ansett Express also introduced its F28 jets onto the Canberra/Melbourne route from 8 April, replacing the F50 on this sector, which is about twice the distance of the Syd- ney/Canberra route and can get quite ‘sporty” during winter whilst crossing the mountains south of Canberra. Ansett Express will also introduce direct non stop Canberra/Adelaide and Canberra/Brisbane services later this year as additional F28 equipment becomes available. The airline also hopes to further expand its Queensland services through 92/93 and is ready to commence direct Launceston/Sydney services.

 BA Continues Travel Incentives Campaign:

In the wake of its 23 April day of free travel, British Airways has continued its campaign to get people flying by offering significant discounts on many prime routes.

For travel from 1 June the Australia/London return fare has been reduced $250 to $2,549; for travel to London in November/ December the savings are increased to $600 on a return fare. The discount fares are part of the airline’s Key to Britain promotional campaign, which is designed to get travellers back in the air with British Airways.

Meanwhile, however, the success of the World’s Biggest Offer, the promotional gim- mick offering free travel on 23 April to all BA passengers (either those who had originally booked for travel on that day or others selected in a worldwide draw) is being questioned. A UK poll found that the campaign had little or no effect on some 80% of would-be travellers, who were not swayed to fly BA by the offer; some would have flown BA anyway, others would still go for the best price, regardless of the carrier.

But whilst BA is intent on offering reduced fares worldwide, other airlines are making their own special offers. An example is a special $1,499 return airfare offered by Qantas and Canadian Airlines International. Called the Spring Into Canada Fare, it offers savings of up to $540 on normal economy fares for departures up to 15 June. Other airlines worldwide are also offering travel discounts, as airlines struggle to get travellers flying again in the wake of the Gulf War and worldwide recession.

Ansett UPS America West Stake:

Ansett Airlines has increased its shareholding in US domestic carrier America West, paying an estimated $1. 7m to lift its stake from 20% to 26%.

America West commenced operations in 1983 following deregulation in the United States, and Ansett bought into the airline in 1986. The airline performed reasonably well during the 1980s, though some industry analysts note that it may have performed better had management concentrated more fully on its niche markets rather than attempting a policy of growth at any cost. However the airline did manage to capture a 3% stake in the US airline market and in doing so joined the list of top 10 US carriers.

Safety Record Gets Premium Rate:

Qantas’ outstanding safety record is paying dividends in the insurance stakes.

Not only is the airline’s safety record a source of comfort to passenger, but so too to insurance companies. As a result of the relatively few claims the airline makes, its insurance premiums are the lowest in the world within the airline industry. The airline pays just US2. 5 cents per $US100 of fleet value, this being down 80% on the US32 cents paid during 1985, when the airline industry as a whole incurred huge, costly losses. Various factors are taken into account when detailing an insurance policy for the airline: aircraft (age and maintenance record): support spares and engines; passengers; freight: distances and destinations. In any one year the cost of insurance to the airline could be SUS30m; without its excellent record, the cost could be even higher

Malaysia Places Major Boeing Order:

Malaysian Airlines has placed an important new order with Boeing for six 747-400s with options for a further six, and 26 737s with options on 16 more.

The value of the deal, which includes aircraft and a substantial spares package, has been put at over $US2bn, and is representative of the reasons for Boeing’s confidence in the future airliner market, with airlines such as Malaysian planning for future growth despite current hard times. Malaysian’s managing director adds: “The new 747s are vital to our growth throughout the 1990s and are most important for the long haul sectors we are developing, especially into North. America, Australia and Europe. ” The 747-400 and mixed 737-400 and -500 order will add substantial capacity to Malaysian’s fleet for both long haul international services and intra-Asian operations, which are growing in importance with the economic growth of the region. The current fleet consists of five Airbus A30084, one Boeing 747-400, two 747-400 Combis, one 747-300 Combi, 12 737-200, one 737-200C, five DHC-6 Twin Otter, eight Fokker 50s, four F27-500 and six McDonnell Douglas DC-10-30s.

The Malaysian order brought 737 firm orders up to 2,924 and 747 orders to 1,157.

New Industry Group for Australia’s Airlines:

Australia’s five main airline companies have formed a new industry lobby group to represent their interests to all levels of Government.

The group, known as the Australian Air Transport Association (AATA), has been formed by Qantas, the Australian Airlines Group, Ansett Transport Industries, East-west Airlines and Compass Airlines. The group is to provide a focal point for industry leadership and coordination, and in particular present a common position on non-competitive issues concerning industry regulations, legislation, safety standards and gov- emment charges.

On the subject of government charges, Captain David Wiltshire, chairman of the AATA, stated: “Our main aim is to ensure that airline companies do not pay any more than is necessary for the provision of aviation facilities. This has clear benefits not only for the airline companies, who pay tens of millions of dollars a year in government charges, but also for airline passengers and cargo customers, who ultimately must pay for the services. The Australian Air Transport Association intends to monitor the charges and procedures of the Civil Aviation Authority and the Federal Airports Corporation, which not only impose direct costs on the airline industry, but add to the price of air tickets. ”

Thus with the new Association, the major airlines will have a concerted voice to safe-guard their interests and present “a united response to the myriad of proposals that are fed to the industry each year”.

Gulf War Kept Panam Flying:

Having experienced dramatic traffic drops during the January-March Gulf War period. PanAm was only kept flying by revenues generated by the military usage of its aircraft to and from the Gulf region before, during and after the war against Iraq.

PanAm experienced an 18% drop in traffic in January, about the same in February and then 25% in March (including an incredible 43% drop in demand for transatlantic flights). However, during Operations Desert Shield and Desert Storm PanAm flew a total of 38,500 military personnel to the Gulf on 100 passenger flights at US12 cents per available seat kilometre (ASK). As well, the airline operated four cargo 747s on the route during the military build-up, averaging two trips per day at US50 cents per ATK, or about SUS300,000 per flight. The airline was also able to make about $US15,000 on each return flight during the build-up. It is also benefitting, but to a lesser degree, from the return of US military personnel from the Gulf following the cessation of hostilities.

Govt Doubles Departure Tax:

Australia’s departure tax will double to $20 from 1 June this year.

The increase is part of a deal struck last year by David Simmons, tourism minister, who was able to convince Cabinet of the need to present the Australian Tourist Commission with an additional $23m for operational and promotional purposes. The most obvious way to raise this income was through raising the departure tax, which not only raises the extra $23m for the Tourist Commission but also adds to the Federal Govern- ment’s coffers.

Direct Australia/Vietnam Air Link Approved:

Final approval for a direct Vietnam/Australia air link has been received following the successful four month trial by Qantas and Sydney based charter operator Direct Flights.

Direct Flights will now offer monthly flights between Melbourne and Sydney and Ho Chi Minh City (Saigon), in what Qantas believes may be the forerunner to regular, scheduled services between the two countries. The first Vietnam charter flight was flown last December under an agreement between Direct Flights, Qantas and Air Vietnam. Most of the passengers onboard the flights during the trial period were people of Vietnamese origin visting relatives and friends, however organisers believe there is the potential to open up Vietnam as a tourist destination and therefore broaden the market base for the services.

Charter operations will also enable Qantas to establish itself in Vietnam before relations between the United States and Vietnam are firmed and US carriers, including industry giant United who have already signalled their intention to offer US/Vietnam services, move in on the as yet largely untapped market.

Boeing & Deutsche Aerospace to Coordinate Sst Studies:

Boeing Commercial Airplane Group and Deutsche Aerospace (Germany) have signed an agreement in principle to coordinate efforts related to the study and development of a future supersonic transport.

Both parties have until now been pursuing independent assessments of a high speed commercial transport and will now conduct further discussions on marketing, financial and technical elements of such a program. Both companies are also members of the larger Supersonic Commercial Transport International Cooperation Study Group that is addressing environmental, business and technical issues related to the proposed next generation SST. This larger group also includes Aerospatiale, British Aerospace and McDonnell Douglas.

The agreement between Boeing and Deutsche Aerospace will focus upon study activities that extend beyond the scope of the more general issues addressed by the larger, international study group.

Airports for Art Appreciation:

Contemporary Australian art worth over $500,000 will be exhibited at two new airport terminals at Darwin and Alice Springs.

The airport exhibitions are part of a new FAC policy aimed at both raising awareness of Australian art both in Australia and overseas, and also making the airports themselves more attractive for travellers. When the new Alice Springs and Darwin terminals are opened in August and October respectively, they will feature tapestries, mosaics, photography and paintings from living and contemporary Australian artists.

The project will later be expanded to include other Federal Airports Corporation airports, with former chief executive of the Australian Council for the Arts, Ms Jean Battersby, having been appointed by the FAC to advise on selection of works. The artwork will be selected to reflect airport regions, Alice Springs and Darwin therefore having more Aboriginal works than would Sydney or

Melbourne, for instance.

 Lufthansa Reduces Rubbish Output:

Lufthansa has cut its yearly rubbish output by introducing a unique scheme which is both cost-effective and environmentally friendly.

The airline now lets passengers make their own snack selections for German domestic services, most of which are of less than 40 minutes duration, by using a “gate buffet”. Rather than serving meals on the aircraft themselves, the airline utilises a snack buffet at gates which allow passengers to select what they want to eat. Thus Lufthansa does not have to pre-package onboard meals for all its passengers, and therefore saves 3,700 tonnes a year (comparable to some 140 railway wagons) in waste. Some 60% of passengers said they did not want (so did not take) plastic or paper packets of sugar, milk, salt or other additives. Lufthansa is now searching for an alternative to plastic cups.

New Airlines Can Expect Significant Problems Claims Law Firm:

The establishment and growth of new Australian airlines may be hampered because of the Federal Government’s failure during the last 40 years to ratify an important Geneva Convention, according to banking and finance lawyer Cathy Walter.

Mrs Walter, a partner with corporate law firm Clayton Utz, said recently that companies entering the newly deregulated market could expect to have trouble obtaining foreign loans and could face operating restrictions which may be commercially unattractive. She said the problems had their origins in the fact that Australia had never ratified the 1948 Convention on “international recognition of rights in aircraft” which it signed in 1950.

“As a result of this failure, Australia does not have a formalised central register which lists the owners of large aircraft and the financiers who hold security interests in those aircraft,” Mrs Walter said. “In the absence of that register, and given that Australia has not ratified the Convention, finan- ciers cannot be confident that if an Australian airline gets into financial trouble they will be able to enforce their security interests.

regardless of where in the world those aircraft or their major components such as engines-might be. Without the Convention, lenders who try to enforce their security interests face the complexities and uncertainties of a host of foreign laws, procedures and practices. Ratifying the Convention would ensure that the rights of enforcement existing in Australia would be recognised in all countries which have ratified the agreement.

According to Walter, “In the past, with only three major airlines in Australia, two of which were government owned, lending for new aircraft was done largely on the basis of reputation”, she said. “Lenders wishing to ensure that the aircraft title was unencumbered and that they would hold an enforceable security interest regardless of where the aircraft was, considered representations from the borrower, inspected the aircraft and took the air- line’s good name into account. Because Australia is not under the Geneva ‘umbrella’, lenders can advise other parties of the security interests they hold only by installing easily removable plaques, notices and engravings on the aircraft. This creates the possibility that several financiers might be lending money for the same aircraft without knowing that their competitors also have secured interests. Such a scenario recalls the spectre of the now defunct National Safety Council of Australia.

“In the more buoyant and simplistic environment of previous years, lenders assumed that if an Australian airline got into financial difficulties while its aircraft was abroad, it would ‘do the right thing and return the aircraft to Australia so that the security interest could be enforced.

“Those procedures are not appropriate now, given the current climate and the replacement of Australia’s two airline agreement with an open skies policy”, she said. “Aircraft costs are soaring, the industry worldwide is in a financial crisis, there are unknown players coming into the market and Australian aircraft-or their key components – are being used more frequently overseas as part of routine “off-season’ and ‘equipment exchange programs. This ability to make aircraft and components available to foreign carriers is important to an airline’s financial wellbeing. In the 1990s, Australia should ratify the Geneva Convention if it is to provide potential European and American financiers with the security they will now be seeking before agreeing to lend to fledgling airlines.

“Failure to ratify the Convention may mean that newcomers will be denied access to these sources of funds. Alternatively, they may find their aircraft banned from flying through or operating in those countries where security interests cannot be enforced”, Mrs Walter said.