Issue 73: December 1991

Then there is the spectre of deregulation. What does it really mean? What will happen to yield and will the of high flying new entrants actually make the runway or simply fade into obscurity?

Such was the scene just two short years ago. To think that we have come so far in so little time is nothing short of incredible. And it is all attributable to just one thing – deregulation.

The numbers tell it all. During the September quarter of 1989 the total Revenue Passenger Kilometers (RPK) logged were just 2. 2 million as against 5. 0m for the same quarter this year. This also compared dynamically with the 3. 4m RPKs logged in the September quarter last year, the final quarter under the restrictions of the Two Airline Policy, the dreamtime of the ‘heavenly twins’.

Deregulation has been more successful in getting Australians into the air than even the greatest optimist could have ever wildly imagined. Again the numbers tell it all. RPKs for the year ended 30 September were up 42% on the previous year yet load factor for the September quarter soared to nearly 80% as against an already healthy 74. 6% for the same period last year. And this hasn’t come through the airlines stifling capacity as a yield enhancer as one might at first suspect. In fact the airlines have been throwing capacity at the marketplace like it was going out of style. Available Seat Kilometers (ASK), the industry benchmark of capacity available, increased from 4. 7m seat kilometers to 6. 3m for the latest quarter. Meanwhile load factors have gone wild with the September top 20 route average recording a stunning 84. 8% while many of the primary routes logged load factors in the high eighties and low nineties.

However, it is when you consider that this incredible growth has taken place amidst the worst recession in half a century that you begin to appreciate the enormity of the success that airline deregulation has brought the Australian tourism and transport sector. Even more so when you consider the lack of growth elsewhere in the world where to even reach last year’s traffic figures is considered a major achievement. In a world of negative traffic growth Australia clearly stands out as a bastion of exceptional performance.

And the reason of course is simply that people can now afford to travel by air. For years this magazine promoted the concept that there was an enormous leisure market awaiting the first airline that would offer minimal restriction discount fares. We even wrote, albeit with justified cynicism, that the often touted discounts from the big two were for all practical purposes useless as they had to be booked months in advance and even then were often not available. Additionally the plethora of restrictions that came with them ensured that anybody below the rank of mathematics professor would be unable to comprehend them. It was thus hardly surprising that most people decided them to be of little practical value. As this is written you could fly between Melbourne and Sydney for as little as $79 and from Sydney to Perth for just $149. While obviously limited, fares of this ilk not only physically get people

into planes and out of cars, coaches and trains but also enthuse others to actually consider using the airlines when next they travel. And that’s what it’s all about.

Operationally the year has certainly been one of the most active in Australian aviation history. Ansett have not had the best of times with much of the year spent explaining their mysterious financial position. That their co-owners, TNT and News Ltd are both financially ailing in a most public sense has not helped though it would also assist ATI if it were, like its competitors, to publish an annual report. For the specialist finance and transport media to have to continually second guess the fiscal state of ATI is only doing a disservice to a great aviation company.

On the positive side, AT I launched their successor to the defunct Airlines of New South Wales, Ansett Express. This little carrier has great potential and will no doubt four or five years from now be a considerable force flying a number of key hub busting routes that are impractical for its big brother. ATI also had to make some hard decisions concerning Eastwest. T he former NSW intrastate F27 operator has seen many winters without a profit and consequently it was hardly surprising that through this year a major reorganisation of routes and support functions were initiated to reduce overheads and increase yield. A new image and a new fleet has also helped and during the September quarter EWA began to return dividends with an increase in RPKs of 48%. An improved performance that bodes well for the future.

Australian Airlines is looking better for privatisation as the months roll on. The airline recorded a modest operating profit for the 1990/91 year and is currently enjoying exceptional load factors with a fleet of minimal types. This is something that will greatly assist the airline in the years to come as it relies largely upon an all 737 fleet. Australian also launched Australian Airlink, a specialist jet operator to serve specific routes too small for the airline’s mainline equipment. Airlink has enormous potential and like Ansett Express will no doubt become a force in its own right in the years to come. Australian also took a significant step towards guaranteeing its feed with the acquisition of Sunstate and Eastern Australia in addition to further boosting its own Australian Regional operation.

Both Ansett and Australian introduced frequent flyer plans in addition to significantly upgraded business classes during the period whilst the former also upgraded its first class cabin. At the back of the bus economy travellers now sit in literally two classes – full economy and discount. This writer hasn’t quite figured out the difference yet, perhaps full economy get a better grade of coffee? Either way, to all intents and purposes both our major airlines now effectively provide four classes of service whether we want it or not.

And whether we do need all the trimmings is something that Bryan Grey of Compass feels is certainly overrated. So overrated that his airline is making an art form of what is a simple economy cabin concentrating on additional leg room and very friendly and sincere service. To all intents and purposes deregulation commenced on the morning of 1 December last year when YM331 pushed back for its inaugural Brisbane/Sydney service. That every market Compass has entered has seen rapiply falling fares, and consequently booming traffic, is something that hasn’t gone unnoticed by industry observers. If ATI and Australian provide the muscle for deregulation then diminutive Compass surely must provide the incentive.

And so onto Year Two. New airlines, well maybe. Continuing traffic growth, well maybe, though certainly not as much. Lower fares, doubtful, with an overall tightening of super discounts in favour of much needed yield. For those who can book ahead and travel out of peak time then the airlines are their oyster. For the business executive though things remain largely the same, high fares albeit at very high service standards. However, in 1992 this may change and it will be here, not at the back of the bus, where the next airline battle will be fought. Just wait and see!