Airline Affairs

However, it appears that the airline will now have to retrench many more workers than it had originally anticipated as the number requesting a redundancy package feel short by nearly 600. Many more workers though are expected to attrit in the coming months as Melbourne based staff are forced to move to Sydney, something that few wish to do for largely economic reasons. More than half of the 1835 positions targeted for elimination are Victorian based.

Qantas has shed over 3500 workers in the past two years while Australian has lost 1500. It is expected that by year end the combined Qantas/Australian workforce should number around 25,000.

New Terminals Tobe Built:

New common user terminals are to be built at Sydney, Melbourne and Coolangatta airports, with the $100m funding to be provided to the Federal Airports Corporation (FAC) by the Australian government. An additional $12. 7m will be provided for an international satellite building at Melbourne airport.

The move has pleased Compass as it abolishes the current ‘two gate’ policy which it is claimed severely restricts the airline due to of appropriate facilities at Sydneyand Melbourne and forces it to build its own terminals at Adelaide and Coolangatta.

The new terminals were first promised in February last year as part of the govern- ment’s “One Nation’ statement but has lain dormant since then-election’s certainly have their good points. . . .

Sunshine Coast on the Move:

Maroochydore’s Sunshine Coast Airport has had the number of passengers passing through it increase by 57% to 152,489 in the year to November 1992.

This growth will return Maroochy Shire Council over $1m in 1992/93 and has been partly responsible for the establishment of the Sunshine Coast’s own carrier, Air Maroochy Airlines, owned by the Fogarty’s Aviation Group. The airline will initially operate morning and evening services to and from Brisbane and plans to gradually expand into other parts of Queensland and northern New South Wales. Maroochydore has also been boosted this past year by a greatly increased presence by Eastwest and Australian operating jet services from the southern capitals directly into the Sunshine Coast/Noosa region.

Meanwhile, further north in Queensland, Cairns Airport has commissioned a $220,000 development report to plan for continued growth in the light of the impressive number the airport has been recording in recent times. A record 101,963 international passengers passed through Cairns in December 1992 (60% more than the same month of 1991) and 995,592 international passenger movements were recorded for the year. A 25% increase in international passengers is expected this year, while 1. 243 million domestic passengers used the airport in 1992.

 Ansett Back in the Black:

Ansett Transport Industries has profit of $37. 4m in the first half of the 1992/ 93 financial year.

Ansett had not recorded a profit since 1988/89 (it lost $144m in 1991/92) and the turnaround has been principally attributed to the restructuring which has been taking place over the last 18 months.

One of Ansett’s two shareholders, Rupert Murdoch’s News Corporation, is also showing signs of a profitable year after reporting earnings of $452m for the six months to the end of December 1992. This represents a 27% increase over the same period of 1991 and sets the scene for a possible $1bn profit for the full financial year. While revenue was similar to the previous year, a 22% reduction in interest costs and falling debt levels contributed to the improved result.

The problem for Ansett though is that it must find something in the order of $500min the coming six months so as to be able to adequately finance its international aspirations into Asia. Ansett can manage its trans Tasman routes using existing equipment though will need 767 and 747 Jets to be competitive in Asia.

The search for a strategic partner continues with ongoing talks between a number of airlines including, Malaysian, Cathay, SIA and Air New Zealand though most recently Cathay announced that such a shareholding would only serve to work against its existing relationships with its Asian neighbours.

 Klm Writes off Northwest:

KLM has written off its 20% holding in cash strapped Northwest Airlines following heavy losses, most of which have come not so much from KLM’s operations but from the fact that 20% of Northwest’s losses appear on the Dutch airline’s own accounts.

KLM has removed Northwest from its books by writing down the value of the holding to zero, but despite this is still pressing for an integration of services between the two carriers. KLM purchased 20% of Northwest’s voting shares in 1989 at a cost of $US100m as well as spending $US300m on dividend-paying shares. Northwest has since stopped paying a dividend on these shares.

Travel Agents’ Better 1992:

Travel agents had a better 1992 than the dismal previous year with net sales increasing by &. 9% to $2. 9bn whilst requiring 4. 8% fewer transactions to achieve the result.

International commission earnings rose by 7% to $174m while domestic commissions were up by 2. 7% to $68m. A significant figure was that of refunds, which decreased by a substantial 34% overall. The Gulf War had a major impact on 1991 results, particularly in the international market.

Coaches Take On the Airlines:

A new, large coach company formed by the amalgamation of three previously separate companies will attempt to attract Asian tourists away from the airlines and rail services. Australian Coachlines Holdings has been formed from the merger of Pioneer, Greyhound and Bus Australia and will concentrate on improved customer relations as a way of luring Asian tourists on board. The company plans to appoint a Japanese speaking staff member at its Surfers Paradise office and the merger will see the end of the price wars which were so destructive to all three companies.

This inevitably means price increases but it is thought that better service and long term security will compensate.

Domestic Airlines’ Good 1992:

Australia’s domestic airlines carried a record 18,008,606 passengers in 1992, an increase of 4. 1% over 1991 despite the fact that the third and fourth quarters of 1992 actually showed a decline compared with the same period of 1991 when the discounting war was in full flight.

A new revenue passenger kilometres (RPK) flown record was also set-18. 45bn- and most of Australia’s domestic airports experienced strong growth, although some of this was due to the transfer of activity from major domestic to regional airlines.

Leisure destinations showed particularly strong growth, the number of passengers passing through Ayers Rock increasing by 24%, Coolangatta by 17% and Maroochydore by no less than 50% Townsville activity was up by 35% (thanks to Compass) while Tamworth dropped by the substantial figure of 85%, largely attributable to the transfer of operations there to regional airlines and the winding down of Eastwest Airlines’ activi ties there.

Available capacity increased in 1992 from 6. Ibn seat kilometres to 6. 7bn due mainly to the extra capacity offered by the arrival of the Compass II, while the overall load factor was down to 75. 6% in 1992 from 79. 4% the previous year.

Another notable event occurring in 1992 was the start of domestic passenger carriage by Qantas in November. The accompanying data tables give more detail of the statistics relating to the domestic airlines’ performance in 1992.

Eastwest Goes for Yield, New Image:

In an effort to survive as a stand alone airline within the Ansett Transport Industries group, Eastwest is pursuing a new image based on quality service and yield enhancement.

From February the airline began serving hot meals aboard its four 92 pax 146-300s and two 144 seat 727-200s in addition to offering a four-abreast style business class. The aim of the exercise is to dramatically increase yield and get away from the perennial bugbear of only carrying deep discount leisure travellers at load factors consistently five to ten percentage points below the norm.

The change will also allow Eastwest to better integrate its aircraft within the Ansett fleet, further reducing its cost structure whilst offering a better full fare product to the travel community by way of maximising the existing assets of both airlines.

Eastwest presently employs around 300 people with its headquarters in the Glebe, Sydney Traveland building, itself a division of ATI. Whilst much of the airline has moved south to Melbourne these past two years General Manager Ken Crawford is confident that the airline will continue to operate under its own name. “In 1992 over a million people took the decision to fly Eastwest by choice rather than a competing airline, that makes the Eastwest brand too important to simply fold into the parent airline”, stated Mr Crawford.

Crawford was pleased with the increase in yield during the first three weeks of the new schedule and hopes that in 93/94 the airline will become an independently profitable arm of ATI.

 New Chairman for BA:

Sir Colin Marshall has been appointed the new chairman of British Airways following the early retirement of Lord King.

Lord King brought his retirement forward by five months “in order to remove uncertainty and speculation about the future leadership of British Airways” and in the wake of the embarrassing and successful libel brought against BA by Virgin Atlantic Airways. Sir Colin was previously BA’s deputy chairman and chief executive officer, while Lord King will become the airline’s first president.

Compass Fights Back With Rejigged Marketing Plan:

Following the release of disappointing financial results for the first half of the 92/93 year, Compass Airlines is fighting back with a new marketing plan directed squarely at full fare business travellers.

Compass announced on February 23 a loss of $10. 9m on operating revenue of $40. 2m for the period July 1 thru December 31 1992. The airline became operational on August 30 with only limited services in the early weeks so the data more realistically covers the December quarter in terms of normal expected operations of the new airline (refer p17 Mar 93 AA).

The pre launch prospectus loss for all of 92/93 was targeted at no more than $7. 57m though going on revenue earned to date and a larger fleet it is possible that the fledgling airline could more than double its earnings in the second half which might go a long way towards reducing the overall first year loss. Ironically Compass CEO, Sam Coats highlighted a major image problem that the airline had in that on taking on the identity of the original Compass it effectively excluded itself from the majority of the essential business market that it so desperately needs. Consequently Compass had achieved a business/leisure uplift ratio of 35:65% when its competitors were virtually doing the opposite. To address this image problem the airline has relaunched its product to the business community via a multi million dollar advertising campaign directed by DBD Needham.

Apart from increasing full fare business traffic the airline will also benefit greatly from the introduction of two additional MD-80 jets during the course of this issue. These will effectively boost total fleet capacity by 44% owing to their ability to increase aircraft availability and spread over- all operating costs over a wider base.

With five aircraft Compass operated 139% of capacity on its competitive routes, with seven this will increase to 20%. At year end the airline claimed to have secured 15% of the business and 23% of the leisure market for a total of 14% on the routes it flew against Ansett and Australian Load factor averaged just above prospectus estimates with the better routes consistently running in the high sixties and the less effective routes in the high fifties. Premier routes were Sydney/Melbourne and Sydney/ Brisbane with Queensland generally shaping up as a high growth market.

The impact of the two additional MD-80s is significant to say the least. A seven unit fleet will greatly increase overall utilisation and enable Compass to offer a greater number of daily non stops between Melbourne/Brisbane. This will tap into a bustness market presently denied the carrier whilst the overall cost difference between overflying Sydney and making a stop in that congested city represents a saving of around 25% in perseat mile costs through reduced sector time, increased asset utilisation, reduced fuel burn, reduced landing charges and increased yield through a more viable passenger uplift.

The introduction of two additional aircraft will also reduce breakeven load factor by around 10% due to the mathematics of amortising greater capacity over a fixed operating base.

Other points that contributed to the worse than expected loss was an increase in oper- ating costs of 4% due to congestion related delays at Sydney (which filter down through the entire network as the day progresses and cost between $30,000 for all carriers on a good day to as much as $300,000 on a bad day), a reduction in capacity during October and a lower than expected interest in the airline’s excellent business class by full fare passengers. Per seat kilometre yield was running at 14c whereas the airline was after at least 17c and load factors in the low seventies.

Hopefully the new corporate marketing plan, the additional capacity and more premium route non stop services will ensure the airline heads towards profitability by mid year, though this will really depend upon Compass and boosting load factors to at least the low seventies. Compass year end results will be released this September.

Ansett Attacks Fac Pricing:

In a submission to the Prices Surveillance Authority (PSA), Ansett Transport Industries has attacked the Federal Airport Corporation’s (FAC) pricing policies as containing “considerable and inequitable cross subsidisation” and has accused the FAC of using its monopoly status to earn excessive profits.

Ansett also claims it is in effect subsidising international facilities (international terminal work at Sydney and Melbourne airports), arguing that the costs of such developments were borne to a large extent by the domestic airlines. The FAC has just spent $278m expanding Sydney’s international terminal and a further $178m is currently being spent at Melbourne.

According to the Ansett submission: “Operators at a number of airports are effectively overcharged. . . the cross subsidisation distorts the true demand for some facilities. . . artificially high (or low) demand may lead to inappropriate investment by the Corporation”.

Ansett also said that the FAC has been unwilling or unable to provide details of cost breakdowns which would support its methods of raising revenue, therefore the veracity of its pricing policy and work practices could not be established.

 American to Help America West:

In an effort to trade its way out of Chapter 11 bankruptcy, America West Airlines has announced that it will seek court approval to commence negotiations with American Airlines to develop joint marketing arrangements.

Upon court approval, American will explore the provision of support services to AWA, which may include linking the two carriers’ frequent flyer programmes and coordinating advertising and promotional campaigns. It is hoped that the new arrangements will enhance the profitability of both airlines.

America West’s chairman, Bill Franke, said “In order to successfully emerge from Chapter 11, AWA needs to focus on a market niche that takes advantage of our ability to provide low cost service. “We expect that discussions with American will contribute to that effort”.

There is no implication of a possible buy in by American, and America West is seeking third party investment for capital injection. “Under the scenario envisioned by these discussions, AWA would remain an independent and viable carrier, and would utilise its own aircraft and properties”, said Franke.

America West flies to over 45 destinations throughout the USA and Mexico and is relatively strong in the regions where American is weakest.

Compass Keeps ‘Em Honest”:

Compass Airlines has introduced a new series of airfares called ‘Keep ’em Honest’ and designed to match fares promoted by Australian and Ansett.

Available between February 27 and April 7, the fares are available on a 14 day advanced purchase basis and include economy class return prices of $169 for Sydney/Melbourne, Melbourne/Adelaide and Sydney! Brisbane; $369 for Sydney/Cairns and Townsville and $269 for Adelaide/Sydney.

Compass has also introduced another fares initiative called ‘Off Duty’ air fares designed for any serving member of the Australian Defence Force or current RSL member and their immediate family. The offer opened on February 1 and continues to the end of March. Examples of one way economy class prices include Sydney/Melbourne/Brisbane/Gold Coast $75, Melbourne/Adelaide $75, Melbourne/Gold Coast $105, Sydney/Cairns $190 and Melbourne/ Cairns $200.

Qantas Crew Vigilance:

The crew of a Qantas Boeing 767 en route from Bangkok to Bali recently took action to avoid avoidamountain after being told to descend before clearing an 8000ft mountain range.

The aircraft, with 190passengers on board, was about 50nm north of Ball when Indonesian air traffic controllers instructed the aircraft to descend from 10,000ft to 3000ft and to change course. The crew was aware of high terrain near the flight path and requested confirmation of the instructions.

This was given, but the pilots reduced their rate of descent and proceeded with great care preferring to put practical experience and years of training ahead of blind obedience to what appeared to be conflicting data. As the 767 came out of cloud an 8000ft mountain was seen to be uncomfortably close to the flight path and avoiding action was taken.

AA Comment:

Forget all the so called cheap seats to XYZ, this is why we, and people who know, fly Qantas by choice. Remember, in aviation you mostly only get one chance to get it wrong!

Proserpine Looks Ahead:

Proserpine Airport near Queensland’s Whitsunday Islands is looking to take over from Hamilton Island as the major tourist gateway to the area following the negotiation of Japanese tourist flights and the start of a major refurbishment of the airport. Airport lessee Whitsunday International Aviation – owned jointly by Aqua Del Ray and Ansett – has negotiated tourist charter flights to Proserpine in July with two Japanese tour companies. The airport is to be upgraded to international standards by October this year with the addition of a further 1125m to the existing 2073m main runway. In addition, a $100,000 refurbishment of the airport’s terminal will begin soon.

In other Queensland air transport news, SirDennisBuchanan,thechairmanofFlight West’s review of Queensland regional airline operations is moving too slowly.

According to Sir Dennis: “The aviation industry has been expecting the state government to make its decision on . 1<ey routes such as Cairns to Weipa and Cairns to Thursday Island (Horn Island) early in the year, but it now seems they won’t be making the decision. . . until August”.

Flight West operates scheduled flights from Thursday Island to the Torres Strait Islands but cannot operate Cairns to Horn Island direct as the rights for this sector have been awarded to Australian/Sunstate Airlines. Ansett operates the Cairns to Weipa service. A profile on Flight West can be found on p63 of this issue.

Air France cuts back:

Following forecast losses of $US570m for 1992, Air France has taken dramatic steps to ensure a return to profitability by cutting international fares, rationalising its fleet and freezing wages.

The airline has already shed 5000 employees or nearly 10% of its workforce since 1991. The fare cuts involve reductions of up to 75% on new last minute’ ticket sales on North American and European flights. The airline will withdraw older A300, DC-10,727 and 747-100 aircraft from service and replace them with 17 new aircraft due for delivery this year: nine A340s, four 737-500s, two 767-300s and two 747-400s.

The wage freeze results from new productivity deals with the pilot and air navigation unions.

Ansett Express Move to Melbourne:

Ansett’s hub buster, Ansett Express has moved its small executive division to Swanston Street from Mascot.

The airline, headed by Julie Smith and an all woman team, operates nine Fokker F28s (5×4000, 2×3000 & 1×1000) plus four propjet Fokker 50s. Launched in late 1990 from the ashes of Airlines of NSW, Express serves a diverse range of ports including Wagga, Albury, Launceston, Mackay, Rockhampton, Mt Isa and Norfolk Island, (which is fondly referred to as the airline’s international destination) from Sydney and Brisbane.

However, Canberra is the jewel in the crown for the airline which operates 84 services a week between Sydney and the national capital on its highly popular shuttle service. Additional Canberra/Brisbane non stops, which came on line in March are also proving popular while, like Eastwest, Express is augmenting Ansett equipment when a smaller aircraft is required.

BA to Taiwan:

Shades of Qantas. . . British Airways has begun operating twice weekly services from London to the Taiwanese capital, Taipei, through its wholly owned subsidiary British Asia Airways.

The aircraft will fly in different livery to the standard BA colours and carry no flag or official insignia so as to not offend Communist China, which, due to sovereignty claims, takes extreme offence at the mere mention of the word “Taiwan”.

British Asia will fly from London to Taipei via Hong Kong, giving a potentially alternative route for Qantas passengers travelling from Sydney to London.

Qantas Profit Sets Scene for Float:

Qantas is on course for a successful public float later this year following the announcement of an operating profit for the second half of 1992.

The figure has not been announced because only preliminary unaudited accounts were available, but a profit for the full 1992/93 financial year is also expected. The airline earned an after tax profit of $137. 3m in 1991/92.

Qantas’ recapitalisation – from a government capital injection of $276. 2m and the government taking over Commonwealth guaranteed debt valued at $1. 07bn-results in a reduction of the airlines’ overall debt and a sustainable debt-to-equity ratio, greater than major Asian carriers but substantially less than most US airlines.

In 1991/92, debt servicing cost Qantas $219m but the recapitalisation will significantly reduce this. British Airways’ $665m bid for 25% of Qantas was due to be settled on March 1.

Coolman:

America’s innovative (and profitable!) Southwest Airlines has introduced a new, cool look for its pilots-black flying leather jackets with epaulets, imprinted wings and name tags.

The idea was to break away from the old businessman pilot image and create something a little more relaxed. The jackets have to be purchased by the pilots, and so far more than 1000 of the airline’s 1250 flight deck crew have done so. So attired, Southwest’s pilots have been dubbed Herb’s Angets, after their unconventional but highly successful chairman, Herb Kelleher.

Domestic Holidays Boom:

The recession and the recent lack of value of the Australian dollar against foreign currencies have resulted in benefits to the domestic holiday market as more people turn away from expensive overseas trips and consider the cheaper local packages being offered by airlines and under-occupied hotels.

Ansett’s holiday programmes are up 52% for the financial year to date compared with last year, while its ‘Big Deals’ special packages have increased by 75% The latter is currently generating about 75,000 room/nights per quarter and the results represent the most successful year the airline has had in holiday packaging since they were introduced.

Fbt Putsairlinesina Bind:

The Australian Tax Office’s decision that fre- quent flyer programme benefits will be taxable as fringe benefits or income has left the airlines with a problem of protest over the ruling.

The airlines have no recourse to a direct legal challenge and can only fund an appeal undertaken by an individual taxpayer. Because that option is a lengthy and costly process which would pass through the tax office, the Appeals Tribunal and eventually the High Court, it is considered unlikely the airlines would go that way.

Interestingly, it appears Compass Airlines has benefited from the ruling. The airline’s frequent flyer scheme, the Corporate Appreciation Programme’ would not be FBT as its benefits are passed directly to companies which have paid for the flights rather than the individual traveller.

 Qantas/Australian Integration Begins:

Qantas and Australian Airlines begin flying scheduled services for each other’s passengers under a new timetable from late March, the schedule reflecting the integration benefits derived from the merger of the two airlines.

Qantas Boeing 767s operating with Australian flight numbers will carry passengers between domestic terminals on some Sydney/Cairns and Sydney/Perth flights, while Australian 737s will be used between international terminals in Sydney and Melbourne as part of Qantas flights from Japan and Hong Kong and to Wellington, using Qantas flight numbers. Qantas 767s will also be used by Australian this Easter to serve Coolangatta.

An unconfirmed rumour at presstime was that the next Australian Airlines 737-400 delivery, due into Tullamarine mid April, would actually be in the ‘new’ Qantas livery. Worth watching for!

Virgin Looks to New Fleet:

Virgin Atlantic Airways will spend up to $US1bn on new aircraft between 1993 and 1996, replacing most of its current fleet of eight Boeing 747-200s with about 14 leased aircraft.

Four Airbus A340s are expected to have been ordered by the time these words are read (for delivery starting this year, the first three from Northwest’s cancelled order) while a similar number of 747-400s will also be ordered.

The airline also plans to introduce Boeing 777s in the second half of the decade, and will increase its route network by establishing new routes to the USA, South Africa and the Far East, including Australia.

Newba/Tatnetwork:

The recently established British Airways/TAT alliance has taken advantage of the new ‘open skies’ airline policy in Europe by launching new business routes linking three European countries with France, TAT’s home base.

The services are designed to provide same-day round-trip travel from both ends of the route. The services link Paris’ Charles de Gaulle Airport with Munich, Stockholm and Copenhagen along with services linking London’s Gatwick with Lyon and Marseille.