Airline Affairs

An Aco-ordination committee is being set up with equal representation from both airlines to discuss and enact mainly operational decisions. These include the important issue of joint purchasing in areas such as spares and fuel purchases, computer software, ticketing, ground handling, maintenance and engineering and possibly fleet acquisition. The two airlines are now to sign a 10 year commercial agreement covering the various aspects of cooperation.

Once the dust has settled the involvement of BA in Qantas should enable the latter to greatly expand its potential throughout Europe, possibly even using BA’s modern Terminal 4 at Heathrow to better feed into BA’s vast regional network. BA on the other hand should now be able to feed into Qantas’ own hub and spoke system based around Singapore and Bangkok. Other benefits include a revamping of the availability of Qantas/BA round the world fares to better reflect the ambitions of a truly seamless service.

For its part, Singapore Airlines, whilst failing to attain its desired 20% shareholding, should be applauded by all Australian tax-payers as their not insignificant presence in the final negotiation sessions kept BA’s offer probably $100m higher than it would have liked to have paid. The public float of Qantas will now have to wait till after the federal election and should take place around mid year with hopefully $2bn being raised from the general public and institutional investors. Whilst all proceeds of the sale (probably around $2. 5bn or so) will go directly into government coffers the federal government has taken on $1. 35bn of Qantas debt to at last give the airline a debt to equity ratio equal to most of its regional competitors. This alone should boost the airline’s bottom line by several hundred million dollars annually as both Qantas and Australian Airline’s crip- pling debt burden have been the single greatest impediments to their profitably these past few years.

 Compass Uplift Figures Interesting:

During early December Compass carried its 250,000th passenger.

At first glance hardly an astonishing news headline though under closer examination an interesting window on how the new airline is faring in a pretty tough environment. The significant point is that this period roughly equates to the airline’s first operational quarter in trading terms given that during the first ten or so days of operation after August 30 it was not operating at full steam.

A quarter million pax in one quarter equates to 50,000 pax per aircraft. Thus with a seven aircraft fleet one would expect the new Compass to uplift in the region of 1. 4m pax for 1993/94, something that equals the pax uplifted for calendar year 1991 by the old Compass with its much larger capacity via five 220/280 seat A310/300s. When you also consider that the per seat leasing costs of the Compass II MD-80s is about one quar- ter of what the original Compass was paying then you can get some idea of the economics driving the born again carrier.

Of additional importance is that Compass II is not offering heavily discounted fares, two for ones, and all sorts of yield numbing free offers just to capture market share. It also has an excellent business class (which is actually cheaper than the competition’s standard full fare economy and has to be the best kept secret in Australian aviation) and a simple fare structure that makes yield management practices more viable.

Compass’s seventh MD-80s come on line in time for Easter and a planned expansion of capacity on its existing route system in addition to adding Coolangatta to the network. Compass might also begin to throw some seasonal weekend capacity into Tasmania and would, like Australian, love to have access eventually to the jetport at Hamilton Island in the booming Whitsundays.

 Ba’s Bad Patch:

British Airways has had an unfortunate time overthe Christmas/ New Year period, being forced to withdraw from its bid to purchase 49% of USAir and suffering a humiliating court defeat to Virgin Atlantic Airways on a matter of libel.

BA’s global ambitions received a setback with its withdrawal of the offer to USAir, an offer greeted with hostility by USAir’s American competitors. The withdrawal came on the eve of an anticipated negative formal decision on the matter by the US Department of Transport. It was assumed that a lack of reciprocal benefits for US airlines would result in a “no” from the DOT.

The setback has not thwarted BA’s plans for global expansion as it has recently bought into several airlines around the world and has gained 25% of Qantas. It seems the USAir issue is also far from over as BA has said it is examining as yet undecided new ways to form an alliance with the American operator and may well pursue these once the Clinton administration is settled in.

Virgin’s successful libel action against BA has cost the larger airline about $48m in damages and costs and forced a public apology for its ‘dirty tricks’ and ‘knocking’ press campaigns against Virgin and the fact that it poached passengers. Not surprisingly the reaction against BA in Britain has been considerable where Richard Branson’s cheeky Virgin has always played up its underdog image to great effect.

But even that issue is not yet completely over. Richard Branson has said he will initiate new legal action against BA in the US courts unless BA provides “an act of good faith”, namely the relinquishing of takeoff and landing slots at London Heathrow so Virgin can begin services to new destinations such as Singapore, Australia, San Francisco, Chicago and Johannesburg.

 Oxley Taken Over:

Port Macquarie based Oxley Airlines has been taken over by Hamerst Pty Ltd (better known as Impulse Aviation) but will continue operating under its established name and no staff changes will be made. The sellout became necessary to raise capital for expansion and reequipment (refer Traffic p68 for full details)

Qantas Merger Review Recommendations:

Rationalisation recommendations by Coopers & Lybrand, following the merger of Qantas and Australian Air, lines were released on January 18, and as expected, job redundancies make up a large proportion of the estimated $158m savings which have been identified.

The airline plans to shed 9% of its present workforce or 1835 staff, representing a sav. ing of $95m. Before the merger, Qantas and Australian shed some 5000 jobs between them. It is hoped that voluntary redundancies will keep forced retrenchments to a minimum.

Management is the area from which the greatest number of jobs will be lost as this is the area of most duplication following the merger. The breakdown is: corporate staff 198 jobs lost (14%), group sales staff 298 jobs (15%), commercial operations staff 93 jobs (28%), customer services 335 jobs (4%), operations 750 jobs (9%) and information staff 161 jobs (99%).

AA Comment: Have you been wondering of late if all this perennial job cutting is actually achieving anything? To lay off thousands of loyal employees costs the company concerned a lot of money in the short term.

Qantas for instance laid off 2622 people in 91/92 and spent $110m on retrenchment packages over the past two years though this will reportedly reduce staff overheads by around $60m this year. The CAA dismissed 1306 people in 1991/92 at a cost of $76m while its ambition is to trim from a peak of 7332 in early 1991 to just 3513by mid *96. This is an often necessary but human tragedy of immense proportions no matter how you look at it and in the short term one that can often be premature when growth returns to the marketplace.

Qantas cannot afford to cut back any more in areas of face to face operations. Bill Dix and John Schaap might like to remember that people are what make a great airline and any airline is really just in the business of selling seats. To do that you must be able to talk with a trained and knowledgeable representative of the airline. If you can’t then you will go elsewhere and that airline loses your business. Simple as that! AA recently endured an experience where this constant cutting in necessary human resources was brought home to us as little more than a gross inefficiency. We urgently needed some important information on our frequent flyer plan so naively rang the special advice number listed in the FF directory. What we got, when we could even get through, was an animated recorded message, music and ‘on hold’ waits that no busy executive, travel agent or for that matter even a retired person could consider a fair thing. Giving up on this option we resorted to faxing our simple request for information to the fax help line. At presstime, four days had passed with no response. If this is what the new Qantas Australian is about in customer service terms then they had better think seriously before issuing retrenchment notices to yet another battalion of experienced personnel.

Deregulation Is Good for Us:

According to a Bureau of Transport and Communications Economics study, Australia’s ‘open skies’ aviation policy is providing benefits for air travellers including more frequent flights, improved punctuality and more non stop services.

The report also finds that Australia has managed to avoid two of the problems associated with deregulation in the USA, namely perceived reduced safety and airport congestion. Service levels and comfort have also improved but on the other side of the coin is the fact that heavier bookings due to lower fares have resulted in a loss of some ground service quality-crowds at check in and baggage collection areas and a lack of seat availability on first choice flights.

US deregulation resulted in the ending of flights to many smaller communities. This has not occurred in Australia, although in some cases jets have been replaced with smaller turboprops operated by subsidiary or affiliate companies. This in turn however has resulted in increased frequencies and lower fares in many instances.

Japan Rights Increased:

The Australian government has negotiated a substantial increase in aviation traffic rights with Japan following talles between the Department of Transportand Communications and Japanese officials last December.

The bilateral talls have resulted in a 40% increase in airline capacity between the two countries over the next two years and Australian carriers will have access to Kansai International Airport when it opens in 1994. Despite this increase – which of course is a two way street observers have indicated it could still be insufficient to meet the demands of both Qantas and Ansett. Between them, the airlines asked for 21 weekly slots out of Kansai but were granted only 14. Kansai serves the Osaka region which is already the source of a quarter of Japanese visitors to Australia.

Bilateral agreements have also been made with Jordan and Russia. In the case of the former, Royal Jordanian Airlines will be able to start weekly services to Australia, increasing to two services per week after a year. Australian carriers can instigate a similar schedule and will be able to fly on to Europe from there.

The agreement with Russia enables Aeroflot to fly two weekly services to two Australian cities, while Australian carriers will be able to operate three services a week to any two Russian cities and on to European destinations.

Over Russia, With Love

Russia has agreed to allow flights between Japan and Europe to overfly Siberia, cutting up to four hours off the current flight time.

The agreement also allows for increased services between Russia and Japan following the completion of the Osaka Bay airport and Japanese airlines will now be allowed to operate to St Petersburg. Mutual flights between Niigata and Vladivostok and Hokodate and Yuzhno Sakhalinsk have also been authorised.

 Mrs Hazel Holyman:

It is sad to report the death of Mrs Hazel ‘Matron’ Holyman in Launceston late last year at the age of 93.

Mrs Holyman was the widow of pioneer aviator Captain Victor Holyman, co-founder of Holyman’s Aerial Services in 1932 along with his brother Sir Ivan Holyman and Captain Laurie Johnson. Holyman merged with Adelaide Airways in 1936 to form Australian National Airways. Victor Holyman died in 1934 when his DH. 86 crashed near Wilson’s Promontory, Victoria.

Mrs Holyman was Australia’s first air hostess, without leaving the ground, in the 1930s and she personally selected, trained and supervised air hostesses until her retirement in 1965. By her choice of women, their presentation and training, Mrs Holyman was able to bring high esteem to the job of air hostessing. She instilled a sense of pride and care for the passengers in her girls.

Mrs Holyman was Patroness of the ‘Down to Earth Club’ (an association of past ANA and Ansett hostesses and flight attendants) from its inception in 1967.

Advent Buys Into Compass:

In what is seen by the airline as a positive move, the Advent Tourism Fund (a Melbourne venture capital company specialising in tourism and hospitality industry investment) has been confirmed as the driving force behind the December purchase of 4. 9 million Compass Airlines shares.

The shares were bought for an average 34. 5 cents each and are believed to have been sold by “sub underwriters to the original float connected with an offshore leasing group”. Associates of Advent are also believed to have been involved in the purchase.

World Airline Traffic Recovery?:

Figures released by the International Civil Aviation Organisation (ICAO) and covering the first eight months of 1992 indicate that world airline traffic is recovering from the decline suffered in 1991 and reaching the levels achieved in 1990.

Total international and domestic traffic for the period grew by about 6% in 1992, while international scheduled traffic showed stronger growth of 99% in passengers carried and 6% in freight tonnes. The lower overall growth of 6% is attributable to sluggish growth in the USA and a significant decline in the Commonwealth of Independent States. Load factors increased slightly to 67%, mainly due to seat capacity increasing at a lower rate than the number of passengers.

Qantas Back to Paris:

After an 11 year absence, Qantas is to resume flights to Paris this March, operating three Boeing 747-400 flights per week from Melbourne via the – it must be said – fairly tortuous route of Sydney, Singapore, Bangkok and Frankfurt.

Frankfurt is Qantas’ European hub and the flights to Paris are an extension of those services. The airline currently flies to Frank-furt four times a week and this will increase to five in March, three of which will go on to Paris.

Qantas began services to Paris in 1974 but due to a lack of traffic these were discontinued eight years later. The airline says that Australia-France traffic has doubled since then with 24,000 French residents visiting Australia and a similar number of Australians flying to France.

Garuda Increases Australian Capacity:

Garuda Indonesia has announced increased services between Australiaand Indonesia from late March, upping its capacity on these routes by 18% The airline will increase its weekly operations to Bali and Jakarta by one flight from Melbourne (now six per week), Adelaide (three), Perth (six), Darwin (three) and Cairns (three). Garuda will operate Airbus A300-600s on its Australian routes except for those to Darwin which will use a Boeing 737-300.

Thai Reorganises:

After a lengthy period of mismanagement by its military masters, Thai Airways International is set for a major reorganisation following the appointment of new president Chatrachai Bunya-Ananta.

Despite these internal matters, the 1991 government coup and other problems, Thai managed to record a profit of $US120m in the year to September 1992, largely due to a sound middle management and good cargo, maintenance and service practices. The airline’s future will build on these assets and the very necessary standardisation of its fleet which now includes no fewer than 18 aircraft and 23 engine types.

The airline has already stopped operating its BAe 1468 and three DC-10s but is committed to continue operating MD-11s and to its orders for Airbus A330s and Boeing 777s.

Hiring of new staff will be frozen, unprofitable intercontinental flights will be consolidated, reduced or dropped and the airline will concentrate on developing its profitable Asian route network, reinforcing Bangkok as a regional hub and introducing new routes in the area. Fares on domestic flights will also be increased. Some local routes requiring a 200% load factor to break even!

The Power of Youth:

Lufthansa has introduced a series of discounts for young people between the ages of 12 and 24, a fixed price of $1500 to Frankfurt from Sydney, Melbourne, Brisbane, Adelaide, Canberra and Hobart which represents a saving of up to $509 compared with the normal adult return economy fare.

Imaginatively (for want of a better word!) called the Lufthansa Freak Out Fare’ the offer was introduced in January and expires at the end of March this year. It also entitles ticket holders to a free side trip to any of Lufthansa’s 86 European destinations from Frankfurt as well as to ports in the Middle East. Stopovers in either Singapore or Bangkok are permitted in either direction.

Northwest Cancels Orders:

Financially troubled Northwest Airlines has cancelled several large orders for new aircraft and deferred delivery of others.

The main victim of the cancellations is Airbus Industrie, which has lost North-west’s orders for the second 50 of an order for 100 A320s and all 24 of the A340s it had contracted for. The airline has also deferred delivery of 40 Boeing 757s and four 747-400s. On the positive side, Northwest has concluded a series of finance deals which will ensure its continued operation and has organised a one year moratorium on interest repayments of $US340m. Nearly $US1bnhas been raised, some of it from suppliers such as Airbus and General Electric) some from shareholder KLM and the remainder from various financial institutions.

The cancellations leave Northwest with one of the industry’s ‘noisiest’ fleets, including 140 DC-9s, 60 Boeing 727s and some early 747s which do not comply with Stage 3 noise requirements. To meet the deadlines for the phasing out of the older, noisier aircraft, Northwest will have to either re- engine or hushkit these.

They Like Us:

Figures released by the Japanese government show that while the overall number of tourists who travelled outside Japan in 1991 dropped by 3% com- pared with 1990, the number who went to Australia rose substantially.

A total of 10. 6m Japanese travelled overseas in 1991, of which 483,269 came to Australia, an increase of 14% on the previous year. This means that Australia’s share of the Japanese tourist market increased from 3. 9% in 1990 to 4. 5% in 1991 and Australia maintained its ranking as the sixth most popular destination behind the USA, Korea, Hong Kong, Taiwan and Singapore. Figures for the first six months of 1992 also show growth, with 245,098 Japanese visitors travelling to Australia, a 9. 6% increase on the same period of 1991.

 Air Fares Cut:

Perhaps inevitably, Australian Airlines, Ansett and Eastwest began offering substantial discounts and two-for-one deals in the traditionally quiet new year period, deals which were immediately matched by Compass.

The special fares (which end in late February) see Australian offering discounts of between 61 and 71% with minimal conditions. Examples are Sydney/Melbourne for $138 return and Melbourne/Brisbane $218 return. Ansett offered deals such as two Sydney/Melbourne return tickets for $276 and two Sydney/Perth return tickets for $676.

Coolangatta Looks Ahead:

Plans to expand Coolangatta Airport in- clude a main runway extension which will permit operations to Japan, South Korea and Hong Kong as well as providing a new terminal area twice the size of the existing facility.

Plans are now at the final draft stage and envisage the main runway being extended to 2890m (9480ft) from the current 2012m (7000ft) and the building of a shorter parallel runway for general aviation. If introduced, the changes would allow Coolangatta to handle upto 40,000 airline and 140,000 GA movements annually.

Taxation Stupidity:

The federal goverment’s decision to apply fringe benefits tax (FBT) to workers who have the benefit of employer provided parking has been roundly criticised by almost everyone, the Institute of Chartered Accountants describing it as ridiculous, unworkable and an accounting nightmare.

Many diverse groups have attacked the plan as it effects not only top executives (the intended targets) but also tens of thousands of ordinary workers in factories, schools, offices and countless other places of employment. Qantas has calculated the tax will cost it up to $6m per year, and has indicated it may not be prepared to continue providing free parking for its airport staff.

Our government obviously still believes that “greed is good” and like the ill founded luxury car tax (and a plethora of other business disincentives) will in the end cause more fiscal damage than it is worth.

Asian Frequent Flyers Programme:

Cathay Pacific, Malaysian Airlines and Singapore Airlines will this year introduce a joint frequent flyer programme designed to attract and increase the loyalty of regular travellers based in Asia.

The programme will work in the same way as other ff plans – members will earn points for kilometres travelled and these can then be redeemed for free travel with the participating carriers. Tie-ins with major credit card companies are also planned and other Asian airlines have expressed an in- terest in joining the scheme. The programme is due to be launched by July.

Snake in the Grass:

Imagine the scene: you’re sitting quietly in your seat as the Pakistan International Airlines A310 in which you are travelling serenely taxes out for takeoff.

At that point, a snake falls from the over-head baggage locker and into your lap. . .

That’s exactly what happened to a passenger travelling from Quetta to Karachi last month, and not surprisingly, general panic, mayhem and pandemonium followed! The flight was postponed and the aircraft searched and fumigated over a two day period while the errant reptile was unsuccessfully sought out. Perhaps it’s still there. . .

More Classes to Choose From:

Two Asian based airlines are now giving their passengers more options with the introduction of the choice of four, rather than the normal three, classes.

Japan’s All Nippon Airways and Taiwan’s Eva Airways have both introduced a new economy class, with slightly differing approaches to the matter. ANA’s new econ- omy class is for passengers who buy full fare rather than discounted tickets (and get a better standard of service as a result) while Eva’s new economy class offers busi- ness class space (38in seat pitch and eight, rather than ten abreast in Boeing 747-400s used on trans-Pacific services) for pas- sengers paying the full economy fare.

Both airlines will however be retaining their first and business classes.

Fac Promotes Cargo Park:

The Federal Airports Corporation is looking for industry support for a proposed major air cargo and freight handling centre at Brisbane Airport.

Two hundred thousand square metres have been set aside next to the planned new international terminal site for the cargo centre which will cost between $50m and $80m. The intention is to use the centre to help Australia’s trade push in the Asia-Pacific region. The FAC says that cargo handling facilities have not kept pace with demand in Australia and the establishment of the centre would make Brisbane a major hub, especially to the growth export markets of Asia. Cargo movements through Brisbane are expected to grow at a rate of 5-7% annum and are currently worth about $80m annually.

Regional Airlines Agreement:

Discussions between Airlines o Tasmania and Moorabbin (Vic) based Aus Air have resulted in a cooperative agreement between the two operators.

The agreement, which came into effect in October, includes joint occupation of Air- lines of Tasmania’s terminal at Launceston, which will be renamed the Regional Airlines Centre. Full interline facilities between the two operators are now in place, giving passengers a wider choice of destinations and productivity gains for the airlines.

Aus-Air will continue to offer more than 120 flights per week on its network which includes Launceston, Devonport, Wynyard, Smithton, Flinders Island and King Island along with holiday and travel packages. Air- lines of Tasmania will offer passengers a choice of Essendon or Moorabbin for its passengers travelling to Victoria.

 Wings Over Russia:

Northwest Airlines has become the first western airline to operate a trans Pacific passenger flight through Russian airspace, when a Detroit/ Tokyo flight flew about 4000km over Russia in October this year.

The Russian route is dubbed ‘Siberia II’ and makes possible a shorter route to Asia which all Pacific operators will be able to use when permanent authority is granted by the Russians. To date, passenger flights have had to fly around Russian airspace, adding time and fuel burn (and therefore cost) to the journey.

Cairns Set to Top a Million:

Cairns International Airport is set to han- dle more than one million passengers this year, according to the airport’s planning and development manager, Mr Neil Bentley.

The projected growth rate for arrivals is 30% and if the figures are achieved Cairns will become Australia’s fourth busiest international airport by the turn of the century. Cairns handled 900,000 international passengers in 1992, most of them from Japan. In order to cope with the expected increase, a fifth aircraft parking position will open in October this year and the passenger terminal will be enlarged.

 Airport Privatisation Plan Sparks Foreign Interest:

The Federal Opposition’s plans to privatise Australia’s major airports if it wins government at the next election has prompted interest from several overseas organisations.

The plan is expected to raise some $5bn and enquiries have already been received about the purchase of Melbourne, Brisbane, Coolangatta, Darwin and Alice Springs airports. Interested parties include Lockheed Air Terminals, Singapore Air Terminals, the Betchtel Group and the British Airports Authority which was itself privatised in 1987. Overseas interest has also been shown in purchasing the Federal Airports Corporation, which controls Australia’s 23 major airports.

United Cuts Jobs:

With continued losses in the US airline industry comes more job cuts, this time by United Airlines which lost $US332m in 1991 and $US166m in the first nine months of 1992.

United intends reducing its annual operating expenses by $US400m. It has already announced a reduction in aircraft orders and intends to lay off 2800 of its 83,000 staff, introduce salary cuts of 5% (10% for directors) and accelerate plans to retire up to 40 older aircraft in 1993. The first to be retired will be the airline’s Boeing 747SPs.

Ansett Alliances Grow:

Ansett has signed a commercial alliance with Lufthansa, the German airline joining United, Northwest, Alitalia, All Nippon, Garuda and Malaysian on the list of overseas airlines with which Ansett now has joint promotion and preferential selling deals.

An existing frequent flyer agreement with British Airways will have to be terminated with the latter’s planned purchase of a share in Qantas-Australian Airlines, and talks with Lufthansa were primarily instigated as a result of that situation.

Brits Prefer Air New Zealand and Qantas:

The annual British travel writers’ unofficial awards – as they traditionally appear in new year travel supplements in British newspapers – have given Air New Zealand and Qantas an influential boost.

– Mark Ottoway and David Wickers of the Sunday Times named the two airlines as their favourites while The Observer’s Sue Arnold chose ANZ as her favourite. Between them, these writers are read by more than six million people and their annual “best of” listings are eagerly awaited.