Airline Affairs

 Airlines Ban Watches Linked to Crashes:

Leading airlines have banned the carriage of cheap Chinese watches which have been identified as a mysterious common denominator in several recent air disasters and incidents.

The watches were first brought to investigators’ attention when a Cathay Pacific Tristar reported a fire in its cargo hold and landed safely at Manila Airport in the Philippines. Subsequent investigation established that the watches were the blame for the accident, their poorly sealed lithium batteries having burst into flames in the aircraft’s humid hold. This incident was however dismissed as a freak accident.

At about the same time, however, the official inquiry into the crash of the South African Airways 747 Combi which plunged into the Indian Ocean during the mid eighties with no survivors, found that the same type of watches (as well as Chinese built lithium. computer components) were being carried aboard the aircraft and that there had been a fire in the hold which was almost certainly responsible for the loss of the aircraft. Then, more recently, it was revealed that the Lauda 767 which crashed in Thailand was also carrying a consignment of the watches.

This was enough for most leading airlines to ban the carriage of the cheap Chinese watches and other lithium components. While not being positively linked to the cause of the accidents, the fact that they were common denominators was enough of a coincidence for the airlines to take precautionary steps.

Boot on Other Foot:

Following our report in last month’s Newsdesk about Com- pass Airlines being a potential bidder for a stake in Australian Airlines when its shares become available, the immediate past chairman of the Trade Practices Commission, Mr Bob Baxt, has said that under the present laws governing company mergers, Compass itself could be bought out by either Ansett or Australian.

The rules are basically there to prevent a merger resulting in market dominance and/ or a lessening of competition. According to Mr Baxt it is entirely possible that an Australian or Ansett attempt to buy Compass would not contravene those rules because of Compass’s small market share. This of course is an entirely theoretical scenario and holds credibility only whilst Compass is the size it presently is. Once the carrier has its six aircraft fleet fully operational and a much larger traffic base then it would obviously be more difficult for the TPC to sanction such a takeover.

Nevertheless it does provide food for thought. Is it perhaps a way for the major airlines to reintroduce a de facto two airlines system?

 Tnt UPS and Downs:

The TNT group has had mixed fortunes lately, on the one hand revealing that its financial performance during the year 1990-91 will result in a substantial loss and on the other the establishment of a new worldwide air express and courier venture which promises great things.

On the negative side, a net loss of about $A187m is expected to be reported, comprising a $34m operating loss which will grow to $62m after tax and a massive $187m after anticipated abnormal losses are taken into account, including the virtual writing off of its $28. 5m investment in the bankrupt US airline, America West. The airline’s failure also affects TNT’s leasing arm, Ansett Worldwide Aviation Services, from which a healthy number of America West’s fleet was leased. AWAS has been described as a risk to its parent companies (TNT and News Corp) and if it collapses, TNT and Ansett could struggle to survive. AWAS also has four MD-80s on lease to recently bankrupt Trans World Airlines though repayments are reportedly being continued on these aircraft. The 1990-91 result compares with an after tax profit of $139. 88m in 1989-90.

The new venture is vital to the group’s future and involves the formation of an Amsterdam based partnership with the postal authorities of Canada, Sweden, France, Germany and the Netherlands. To be called GD Net BV, the venture will be the world’s fourth largest express package operation (after UPS, FedEx and DHL) and is expected to achieve a turnover of $US1. 1bn in 1992. The venture will be formally launched later this year.

The partnership will see TNT provide its international network and its TNT Express Worldwide operation, while the five post offices will contribute their delivery and pick

up networks. It is known that TNT’s European fleet of some 20 BAe 146 freighters is currently substantially under-utilised. GD Net’s activities will dramatically improve their load factors and yields.

 Eastwest Predicts Small Loss:

TNT-News Corp’s leisure airline, Eastwest, has predicted a loss for the year 1990-91fol- lowing a period of re-equipment with BAe 146s, vastly increased capacity and less than hoped for demand.

This is despite greater revenue than the previous year but results from reduced profit margins. A recent TNT company profile by Baring Securities estimated the airline’s 1990-91 loss as $16. 4m.

Eastwest sees its future success as being based on not simply offering deep discounts, but concentrating on specific routes in the holiday market niche it is aiming for. Coolangatta, Cairns, Maroochydore, Hobart and Hamilton Island have become the airline’s points of focus following the withdrawal of services from Canberra, Rockhampton, Mackay, Yulara and Norfolk Island.

Maroochydore has recently become a more important part of Eastwest’s network following sister airline Ansett Express’s withdrawal from the Sunshine Coast market in late July. Eastwest has increased its services to Maroochydore as a result, competing with Australian Airlines.

Meanwhile, DoTC data recently published (and presented in full elsewhere in this issue) indicating that the overall market share of EWA had fallen from 6. 2% in the March quarter to just 4. 5% for the June quarter are not as bad as they first appear. This is traditionally a soft period for the airline, as is the present September quarter period. The airline actually increased its traffic base compared with the same period last year with 170,515 RPKs being performed as against just 136,104 in 1990, while passengers uplifted increased from 160,950 to 194,258 though load factor decreased slightly due to the increase in capacity being offered by the BAe 146-300s as against the significantly smaller Fokker F288. Eastwest is hoping to carry almost one million passengers this year.

 Overnighting to Beat Recession:

Ansett Express will not be establishing maintenance facilities at Coffs Harbour.

It comes after the announcement Ansett Express will be overnightning a Fokker F28 following a restructure of services on NSW routes which came into effect on July 29.

Under the new arrangement Coffs Harbour’s evening service will stay overnight and return in the morning to Sydney. A new later return evening service to Sydney will be triangulated with its Far North coast run to Ballina and Casino on Sundays through to Thursdays.

Ansett Express Far North Coast manager, Geoff Galley, says the plane will not need to be hangared or serviced, and the company presently keeps aircraft overnight at Rockhampton and Mackay under similar circumstances. The new scheduling will also see all morning jets to the Far North Coast triangulated with Coffs Harbour.

Ansett say a slump in passenger numbers has brought about the alteration to routes, and the triangulation has been structured so travellers from Ballina and Casino still receive direct morning flights to Sydney and direct return flights in the evenings. (Halden Boyd)

Australian Offers Politicians Media Proof of Arrivals:

Australian Airlines is offering politicians flying into Canberra an “alternative private arrival” to avoid the waiting media.

In a letter written to federal MPs, Australian Airlines noted that the media could inconvenience not only the politicians leaving the aircraft, but also other passengers. and those waiting to meet them. With the new Canberra aerobridges allowing such a system to be implemented for the first time, MPs and their colleagues will be able to leave the airport via a private exit, with their Com- car arrangements coordinated by the airline.

Which is a system that seems to suit all but two parties: the waiting media intent on hounding MPs at the airport, and MPs. seeking that extra morsel of publicity during the odd political scandal.

 Everyone’s a Winner!:

It’s amazing how the same set of statistics can be so differently interpreted and qualified to suit a particular purpose.

A Roy Morgan Interstate Air Travel Index Business Travel Survey covering the June quarter has been claimed by both Australian and Ansett Airlines as showing their airline as being tops with the business travelling public. Ansett’s press release on the subject is headed: “Business Travel Poll Votes Ansett as Number One”, while Australia’s says “Australian Favoured By More Business Travelers”.

According to Ansett, the survey shows it handled 40. 3% of business trips during the three-month survey period with Australian logging 38. 8%. Australian, on the other hand, says that the survey shows “Australian Airlines flew more business travellers than any other carrier. . . won hands down in a survey of key service attributes 38. 8% of business travellers preferred to fly Australian Airlines and 38. 2% preferred Ansett”.

Confused? It gets better.

Both airlines, as expected, were quick to claim foul play by their opponent. Australian: “We do not use confusing measures such as the distance people fly to claim market leadership. ” Ansett: “Australian is trying to muddy the market share statistical water. . . . they changed the rules to count passenger uplift as a new standard measure. . . ” and so on. It’s serious, this deregulation business.

The real winner was perhaps Compass, which although it logged only 5% of the surveyed market, did so with just three aircraft in its fleet and a limited route structure. It continues to make inroads into the business market at the expense of the two larger airlines with a claimed third of its patronage being business travellers. This is expected to increase with an expanding schedule and the recent availability of undated bulk ticket purchases at discounts that would stretch the ambitions of any corporate travel department.

However, one indisputable result from the survey is that Compass is making its presence felt (in all areas); another is that both Australian’s and Ansett’s share of the business trip market was lower than the previous survey.

 Qantas Loses Discrimination Case:

Five female Qantas flight attendants have successfully won damages from the airline following an 18 month battle through the Equal Opportunities Tribunal.

The women, who were forced to retire at age 35, were each awarded $40,000 damages plus costs, the maximum amount the Tribunal can order. The quintet – all of whom are still employed by Qantas-claimed they were sexually discriminated against and were denied the same promotional opportunities as men employed by the airline.

British Airways Signs Agreement for New Russian Airline:

British Airways has agreed to join forces with Aeroflot, the USSR Ministry of Civil Aviation and the Republican Innovation Fund of the RSFSR, to establish a new international airline based in Moscow.

An agreement to begin work on setting up the new airline, which would be known as “Air Russia”, was signed in London on 26 July. It will be subject to certain other agreements including financing and ratification by the relevant Russian and Soviet authorities. The agreement also includes the construction of a new international terminal at Domodedovo Airport, which is now the main domestic airport in Moscow. This is to be developed as an international hub for Air Russia.

British Airways will have a 31% stake in the venture. Other participants in the Soviet Union and the Russian Federation will jointly hold the balance. British Airways’ investment in the venture to take Air Russia to the point of commercial operation is expected to be £20m ($A43,600,000). A leasing company has been established to provide aircraft to Air Russia.

This second stage agreement, to go ahead with the formation of Air Russia, follows a protocol authorising final feasibility studies which was signed in Moscow last October.

Subject to all necessary financing, including trade credits, being arranged and the new airline being granted route licenses, landing slots and other approvals, it is expected to start operations in 1994. Construction of the new terminal at Domodedovo is expected to take two years to complete.

The plan is for Air Russia to operate with an initial fleet of seven new Boeing 767-300ER aircraft serving destinations in Europe, North America and the Far East. Air Russia will operate as a designated Soviet airline, under the Soviet and Russian Republic flags.

Flying Not So Expensive:

A survey conducted by the Royal Automobile Club of Queensland has revealed that with the current heavy discounting of air fares, travel is only slightly more expensive by air than it is by car. Assuming the use of a Holden Commodore car and petrol at $0. 68 per litre, (half your luck! Ed) it costs $170 to drive from Brisbane to Sydney and return, compared with about $180 by air. Over longer distances the flying advantage is considerably greater as overnight accommodation and additional meals have to be taken into account. Brisbane to Adelaide and return by Commodoreis calculated at $409 and by air $340; while for Brisbane/Perth/Brisbane the estimates are $868 and $530, respectively. And this does not take into account your wasted time and the very real possibility of being involved in an accident en route or at the least the possibility of contributing to State police revenue by being the victim of one of our many 60km/h zones on what are otherwise loosely described as highways.

A smaller car like a Ford Laser is notably less expensive ($104 versus $180 on Brisbane/Sydney/Brisbane, for example) but over the longer routes the difference gradually diminishes until it disappears completely on a Perth trip.

The cheapest commercial way to travel is still by coach, but even using this unbearably horrible method is not substantially less expensive on the shorter runs like Brisbane to Sydney, and almost identical on the medium and long distance routes like Brisbane to Adelaide or Perth and return. Again, the figures also don’t take into account the loss of time or the money spent on what is nothing more than junk food en route.

Eastern Rising?:

Defunct Eastern Airlines will rise from the ashes in a new form, if a group of 170 (mainly former pilots) have their way.

Each has invested $US5,000 for a total of $US850,000 to start the ball rolling on this “New Eastern” and plans are to begin services by December this year. The only trouble is, the amount raised so far is a mere $USB49m (yes million!) short of the dollars the syndicate says it needs to get the venture off the ground!

The people behind the move, the Airline Acquisition Corp (AAC), claims to have tentative loan commitments of about $US550m, including investors from the Middle East and Mexico. Under US law, at least 51% of an airline must be owned by US citizens with no more than 25% of the voting stock being owned by foreigners.

Plans include the use of leased or purchased DC-9s and MD-80s, services to 12 east coast USA cities initially and expansion to 40 cities in the first year. The management structure of the “New Eastern” is to be set up by former Braniff president Rus Thayer. We see what-if anything happens.

Speaking of Braniff, the old airline has emerged from its latest bankruptcy by way of Braniff International, newly formed by the purchasers of the airline’s assets after it went into Chapter 11 bankruptcy, for the second time, in 1989. The syndicate also purchased Texas based Emerald Air, with which the new Braniff has been merged. Operations began in July, with flights between New York, Orlando and Ford Lauderdale.

Greed Is Good Dept:

Perhaps not surprisingly, proposed increased airport and airways charges in Australia – some of them up by 50%-have met with stiff opposition from the airlines, all of which will face greatly increased costs as a result.

Qantas, for example, currently pays about $135m per annum in such charges, a figure which will increase to somewhere in the region of $200m if the proposed charges go ahead Compass, with just six aircraft on strength, expects to pay over $58m per annum through 1991.

The Federal Airports Corporation’s charges will be particularly targeted by the Board of Airline Representatives of Australia and the newly established Australian Air Transport Association. They claim that one proposal- to put the cost of anti-terrorist security at airports onto the operators is outside ICAO rules which make it clear that this is the responsibility of the state, not the carriers.

As a matter of interest it’s worth noting that the FAC’s operating profit in 1989-90 was $43m on a revenue base of just $A266m; for 1990-91 it is projected to be around $80m on a $400m turnover. This represents a 20% return on revenue, a figure which is nigh on impossible to even vaguely approach in private enterprise and about six to ten times better than even a successful airline logs in a boom period.

1,000 Take Redundancy:

Nearly 1,000 Qantas employees have applied for voluntary redundancy packages in the wake of the airline’s plan to cut 3,500 jobs overall

and to save $243m annually (refer p. 31 Aug 91 AA). The airline’s ground staff had until mid July to accept a redundancy payout, while cabin crew had until the end of the month.

Delta Acquires Pan Am Routes:

The “airline which taught the world to fly”- PanAm has for all intents and purposes ceased to exist after a long period of financial struggle.

Most of its international routes, its hubs in the USA and Germany, the PanAm Shuttle and 45 aircraft have been purchased by Delta Airlines for the bargain basement price of $US260m, a sum well below the value of the individual assets. The result is that Delta now has PanAm’s prime routes including those between New York and Frankfurt, Paris, Rome, London and other European centres plus Miami/London and Detroit/ London. In addition, Delta gets all of PanAm’s active and dormant fifth freedom rights to a large network of cities in Asia, Europe, Africa and the Middle East from Frankfurt.

Other assets obtained are PanAm’s hubs at New York’s JFK Airport and Frankfurt and the PanAm Shuttle that serves Boston and Washington from New York’s La Guardia Air port. The 45 aircraft included in the deal are 24 Boeing 727-200s used by the Shuttle, seven Airbus A310-200s and 14 A310-3008. Not included are PanAm’s Boeing 747 heavy maintenance base at JFK, the 727/A300/ A310 maintenance facility at Miami, the Latin American and Caribbean routes and other aircraft.

Too Much Capacity:

According to Compass Airlines boss Bryan Grey, both Ansett and Australian Airlines are cutting their air fares primarily to reduce an over-capacity problem.

He says they have between six and 10 Boeing 737-sized aircraft too many and little prospect of being able to sell or lease them on a difficult international market. Grey says. his often criticised decision to opt for a large capacity widebody fleet has resulted in unbeatably low seat kilometre costs of 7. 5c per kilometre for his Airbus A300-600Rs and A310-300s against Ansett’s and Australian’s average of about 14. 2c per seat kilometre.

Compass has achieved about 20% of the Competitive route domestic market with only three aircraft (June qtr DoTC data) with the combined Ansett/Australian/ Eastwest fleet of about 80 aircraft, nine of which are widebodies. With the delivery of two more aircraft later in the year, Compass expects to achieve 30% of the competitive route market. On the Perth/Sydney route it has already achieved 32%.

The 1990-91 financial year has seen a record 14. 2 million passengers carried by the airlines but with that went a large increase in available capacity and a substantial drop in yield. Average load factor decreased slightly from 72. 1% to 70. 8%, but the revenue earned per passenger was considerably less.

Despite this, Ansett’s general manager, Graeme McMahon, claims that the current massive discounting of air fares is actually boosting profits as it was lifting the airlines” revenue to a point where it was offsetting the effects of recession, due to the filling of seats which would otherwise be empty.

AA Comment: Maybe your editor is getting old and senile but he distinctly seems to remember many a speech over the years by a wide assortment of Ansett and Australian senior executives bemoaning the fate of the industry if deregulated. Word was that this would be the end of them and that they could never make money by selling fares that real people could actually afford to purchase and use as a viable means of travelling within their own country. Ah! How times change.

Virgins Wanted:

If female flight attendants working for western airlines think they have it tough if told their services are no longer required after reaching a certain age, they should spare a thought for the employment qualifications thrust-it that’s the correct word-upon their counterparts in China. It seems China’s national airline, Air China (ex CAAC), is facing a shortage of “hosties’ due to a lack of healthy virgins! The airline has received plenty of applicants but many were nearsighted, unhealthy or no longer virgins. No explanation has been offered as to why normal, healthy, sexually experienced women are not acceptable.

Whilst dealing with below the belt subjects, Continental Airlines pilot Jessica Steams is sueing the company because ‘she’ was sacked after a sex change operation. Jessica used to be John Stearns, a Vietnam war veteran and the father of a 22 years old daughter. We think Jessica’s chances of gaining employment with CAAC as a stewardess are fairly remote!

Postal Contract up for Grabs:

Australia Post has put its $40m air freight contract up for tender in the hope of attracting a better deal, now that deregulation is in full flight.

Before deregulation, the work was split between Ansett and Australian Airlines, with Australian taking over exclusively from April 1990. Its contract officially expired in August and 50 organisations have been invited to tender for the work, including Australian, Ansett, Compass, Qantas, Eastwest, TNT and Ipec. An announcement by APO on the successful tenderer was expected by early September.

 Trans Tasman Freight Boost:

International airfreighter Air Express international has launched a 24 hour door to door service for bulk dutiable goods between Sydney and Auckland.

The service reduces the transit times for such items by up to three days and means that New Zealand companies will be able to reduce stock inventory costs by reducing the amount of stock it has until now been necessary to hold.

The company will use a Boeing 727 freighter for the service, which will depart Sydney shortly before the evening airport curfew comes into effect and arrive in Auckland at 3. 30am local time.

 Fare Wars Hit Surface Travel:

The recent fare cutting battle between the domestic airlines has had a devastating effect on rail and coach travel as more people are attracted to the airways.

Australia’s best known train, the Sydney/ Perth ‘Indian Pacific’ could even be forced out of business if things don’t improve. In June, the train registered only 20% patronage compared to its usual 80%, and well illustrating the change in Australians’ travelling habits is the fact that about a third of Compass’s recent passengers have been ‘first timers’ in the air.

Money for Nothing:

A scam run by an unlicensed Sydney travel agent has been uncovered and prosecution is being considered.

It worked like this: telephone canvassing told ‘customers’ they had been chosen to receive two “free” return air tickets to London, worth $5,400. To be eligible, respondents had to purchase a $249 voucher and then agree to stay at London’s Conrad Chelsea Harbour Hotel for 22 nights. For this, of course, they had to pay, at the extraordinary cost of about $608 per night, or more than $13,300 for the trip! The 15 customers who were silly enough to take the agent up on the offer (and then discover the true cost) have had their $249 voucher fee refunded by order of NSW Consumer Affairs.