Reece

Compass I went to thejetway after a float that raised $64m, its much smaller and leaner predecessor went with around $58m. Both had scant reserves left by day one, let alone after six months of not too brilliant performance (load wise) and fighting against a wide range of deep discount fares available from the big two, which now of course are bigger than ever.

However, if the original Compass had raised $200m it might well still have gone broke. It may have taken just a little longer than it did as its aircraft were far too large, offering just a single class, minimal frequencies and little operational flexibility in a highly competitive yet economically depressed operating environment.

Compass II had the correct size of aircraft and the right concept of a two class service offering realistic yet high value fares without onerous presale conditions. They also offered frequency which would have been boosted by the two additional jets due to have been flying as you read these words. Compass II, with seven aircraft, would have had a very low cost product. Compass II’s problem however was not costs, it was revenue.

Unfortunately the born again Compass was forced to some extent to pay for the sins of its father. Following the financially painful collapse of its namesake, travel agents simply did not trust it, not being helped of course by the simple fact that the majority of agencies are owned by one or other of the major airlines (refer p90 April 93 AA) or a ticket insurance scheme that was difficult to sell to what was largely a disinterested audience.

honically when Southern Cross took on the remains of a failed Compass it thought (like everyone) that it was buying a national icon. Indeed the ‘Aussie battler’ image so successfully built up by the original Compass through maverick CEO Bryan Grey’s constant media haranguing of both his rivals and politicians alike had won him the Australian sympathy vote by a wide margin.

During those highly emotive weeks following the cessation of flying it seemed that anybody that could get poor ‘ol Compass back into the air would be a national hero. Sadly however this fervour was not to last as by the time Compass II actually became operational, nine long months later, much of the euphoria had dissipated with most consumers tending to remember more the tears caused by the collapse of its predecessor rather than the successes that the new airline was hoping to achieve.

Consequently the already cautious travel agent community was generally unenthusiastic towards selling the new airline (which when you’re owned by a rival airline isn’t helped) while consumers generally were either not aware that there was a ticket insurance scheme or decided to play it safe with their hard earned dollars and opt for the security of Ansett, Eastwest or Australian.

The crucially important business community also tended to shun Compass. It seems that many frequent travellers simply were not aware of what the new airline had to offer the business community. Most acquainted the airline with its former namesake – big aircraft, ‘suits’ seated amongst holidaymakers, noisy kids and crowded terminals, relatively frugal catering standards and a low level of frequency. The second Compass of course was nothing like this and had everything going for it but an adequate capital base.

The airline began life in very difficult economic times and really needed at least four times the capital behind it than it actually had. What happened to some of the capital it did have also regrettably seems to be a mystery going on the recent comments of receiver/liquidator Price Waterhouse’s Richard Barber (refer Stop Press for update).

Consequently Compass II had flown itself into the same trap that has snared Eastwest for most of the past decade. It simply needed higher load factors at the per seat kilometre yield it was earning or preferably it had to increase both load factor plus yield through the sale of more business class and full fare economy seats. Eastwest for instance has consistently run load factors five to ten points below Ansett and Australian while not having the luxury of the larger carriers premium classes to boost the revenue base of each sector. Without that, the costs will eventually overcome you. What Compass needed was merely a moderate increase in traffic to see it through a period that was also not exactly a buoyant time for its competitors.

Indeed, a buyer wishing to enter the airline industry could have got their name on the board for probably $25m as that would have got Compass out of its immediate problems with the ‘hope’ that with the addition of the two additional aircraft (refer p18 last issue for full details on what this would have meant), a proper marketing campaign aimed at the full fare market and considerably reduced cost per seat kilometre through the additional utilisation would have had the airline trading in the black by this spring.

That Air New Zealand didn’t seize this once in a lifetime opportunity to gain immediate access to the Australian market at petty cash prices is something that will probably never be explained. ANZ of course is effectively owned 200/4 by Qantas, though the flying kangaroo has little real influence in matters of this ilk and certainly would have been unable to stop such a deal going ahead if ANZ had been serious about pursuing it.

Sadly though Compass needed nothing less in its final week of life than a grand saviour to walt. z in and pick up the shattered pieces to give the fledgling airline back the credibility that it took into the air six months earlier. Nothing less than the intervention of a major airline, financial organisation or similar would have saved Compass in its dying days.

As history now records, none were forthcoming as regrettably, after three plus years of recession, there are few fairy godmothers left at the bottom of the garden of the Australian financial community.

And that is why there will never be a. third independent domestic airline in Australia. The amount of capital required to launch and sustain such an operation through its first two years of operation are such that no self respecting investor would wish to be allied with same. The risk in commercial aviation is simply too great and the rewards mostly too tenuous. .

With the departure of Compass goes not only the jobs of seven hundred plus fine Australians but also the hopes that a predecessor will some day rise to keep the big two honest.

This is indeed a tragedy for all of us.