Airline Affairs

 Qld Airports Look to Go International:

The ever growing tourist trade into Australia generally and Queensland in particular has prompted several of the state’s regional airports to plan turning themselves into international airports over the next few years.

Proserpine, Hamilton Island, Mackay, Coolangatta and Rockhampton eventually plan to join Brisbane, Cairns and Townsville as Queensland’s international airports. Hamilton Island has already handled direct international charter flights while Mackay, Rockhampton and Coolangatta would be able to receive such flights with minimal modification.

Deregulation of the local airline industry has provided the opportunity for these airports to handle international flights. Theoretically, airlines operating scheduled services to and from overseas can operate to any airport they wish providing safety and operational standards are met but those airports must also have permanent Customs and Quarantine facilities.

Charter operators have more flexibility available to them as they can set up temporary facilities as required using staff from the permanent international airports. Most of the airports listed above would be able to handle international charters at relatively short notice.

Excess Capacity an Ongoing Problem:

With the world airline industry losing anettotal of about $A6. 7bn in 1992 (US operators lost a staggering $A16. 2bn), the International Air Transport Association (IATA) has noted little chance of improvement this year and that airlines must stop adding capacity.

In the period 1988-92, the world’s airlines recorded traffic growth of 22% but added 33% extra capacity during the same time. IATA has noted that the airline industry has nearly doubled uplift over the past decade and could grow at the same rate in the future, but also that a prolonged financial crisis could seriously damage its future and its contribution to the world economy.

By 2010, airlines could contribute $US1500bn annually to the world economy and be responsible for 30 million jobs. IATA also warned about the effects of “deficiencies of infrastructure, the unfairness of taxation and unrealistic concerns about the environment”.

Airlines attract more than 700 different taxes worldwide while IATA points out that aviation was the transport category which has contributed most to environmental improvement over the past few decades.

Swissair Joins Ansett:

The latest overseas airline to join Ansett’s ever growing list of confederates is Swissair, which is reportedly going to participate in the local airline’s frequent flyer programme as it gears up to operate overseas services. Cathay Pacific, United, All Nippon and Singapore Airlines are already involved, while participating hotel chains are Hyatt, Parkroyal, Centra, Travelodge, Regent (Melbourne and Sydney), Sheraton, InterContinental (Sydney and Melbourne) and some Queensland resorts. Avis Rent-A-Car and Diners Club are also involved. Ansett’s frequent flyer programme has some 130,000 members.

Payout to Caa in Dispute:

in what could be a landmark case, the Federal Court is to adjudicate on a $13m dispute arising from the collapse of the original Compass Airlines.

The owners of the aircraft which Compass leased-Monarch Airlines, Polaris Holdings and Canadian Airlines International- found when the time came to repossess the aircraft that unpaid landing charges of $13m were subject to a CAA lien and could not be removed from Australia until the amount was paid.

The lessors reached an agreement with the CAA and the debt was discharged by them, albeit under protest. They are now mounting what is in effect a challenge to the CAA’s powers and ability to recover debts from airlines, arguing that the liens meant that the Commonwealth had acquired an interest in the property of parties (the lessors) which had in fact not incurred any liability to it.

The question of whether this amounted to an acquisition of property on other than just terms was raised and was thus contrary to the Constitution. Part of the lessors’ argument was that as they had not received a service in return for the charges they had paid, the charges were a form of taxation. If that was the case, the fact that the charges were levied under civil aviation legislation ratherthantaxation legislation, couldrender them invalid. The case is still in its early days.

Ansett Needs Cash:

Brokering house McIntosh Baring has given Ansett Transport Industries a net value of between zero and $250m and has predicted the company will need a cash injection of about $100m in the near future.

The McIntosh Baring report predicts a $3m operating loss for the 1992-93 financial year (despite first half earnings of $40m) before taking into account predicted for- eign exchange losses of $50-75m. The report predicts profits in 1993-94 but highlights difficulties in reducing debt and finding a third equity partner to join current co-owners News Corporation and TNT.

According to the report, Ansett’s three main problems are a weak balance sheet, underperforming assets and an expensive and inappropriate fleet. The sale of assets such as resorts, Ansett NZ and Diners Club could raise $200-300m but this would not be enough to properly restore the balance sheet. An equity contribution of more than $100m from the current owners is needed, followed by an additional cash injection of $150-200 for a 25-30% stake in the company.

After that, the report suggests a public listing to raise a further $200-300m. It also suggests Ansett will need to find an outside partner to invest in its planned international operations or to provide aircraft for them. The report lists Ansett’s assets at between $2. 6bn and $2. 9bn with liabilities of $2. 6bn.

Tropic Air Planning International Services:

Tropic Air, headed by Hamilton Island businessman, Peter Phillips, is hoping to win International Air Services Commission (IASC) approval to serve Japan.

Tropic Air is proposing to use a single Boeing 767-200ER on a four times a week service linking Proserpine with Osaka’s new Kansal airport. The airline would additionally run a weekly service to Sapporo in northern Japan.

Kansai airport, which is being built on an artificial island in Osaka harbour is scheduled to become operational late next year and is presently the subject of an intense power struggle between Qantas and Ansett as to who will be granted IASC approval to serve the new airport in Australia’s name. There are just 14 weekly slots on offer with Qantas bidding on all 14 using 767 equipment whilst Ansett has bid on 8 slots using much larger 7478.

However, Tropic Air consider its chances good as it claims to have the necessary financial backing of a merchant bank for what would be a ‘minimal’ cost exercise. Aircraft could be wet leased and would be configuredina 250 pax single class arrangement. Japan is just a seven hour sector from Proserpine and Tropic Air is confident that negotiations to date with Japanese tour operators will provide adequate payloads.

One hindrance might be that Proserpine airport is operated jointly by Ansett and Aqua Del Ray, the former of course not being keen on a rival operating from its airport, though a clause in the airport lease (which is owned by local council) states that Ansett cannot legally exclude any rival operator. Proserpine of course is currently a major destination for Australian whilst most Ansett Group flights into the region operate via the Hamilton Island jetport.

 Qantas Into South America:

Qantas has increased its presence in the South American market through new arrangements with Brazil’s Varig and Chile’s Lan Chile.

The new arrangements give Australian passengers to South America more options than before including a daily connection between Sydney and Rio de Janeiro via Los Angeles using Qantas and Varig. Other routings are via South Africa (with Varig) and Tahiti (with Lan Chile). The new ar- rangement replaces a previous agreement with Aerolineas Argentinas.

Air Fares Cut to Holiday Destinations:

Both Australian Airlines and Ansett have introduced a series of heavily cut fares to key holiday destinations during the months of May and June.

The new fares-which feature discounts of up to 70% from the full economy rate-are designed to fill seats which would otherwise be empty during the period between school holidays. Destinations covered by the discounts include Cairns, Alice Springs, Proserpine, Maroochydore and Coolangatta. Advance purchase and other conditions apply.

Ansett Facing NZ Obstacles:

Ansett had urged the Prime Minister, Mr Keating, to pressure the New Zealand speeding up the establishment of a single Australasian aviation market during his visit to that country last month.

Ansett has technically had the right to fly across the Tasman since last November but is yet to do so due to slow progress in setting up the necessary Customs, Immigration and Quarantine infrastructure. For Ansett does not wish to proceed with trans Tasman services until it can operate on a domestic terminal to domestic terminal basis.

The bureaucratic delays could also have an unfavourable effect on Air New Zealand’s ambitions to enter the Australian domestic market at an early stage and it has been reported that the Federal Government is unlikely to look favourably on ANZ if the Ansett situation remains unresolved. Despite this hiccup in proceedings, it is considered that the single Australia/NZ aviation market will still be achieved by the end of next year.

 Qantas to Take Over Air NZ?:

Brokering firm Cavill White Securities has suggested in a client newsletter that Qantas could eventually take over Air New Zealand, the latter therefore forming closer links with British Airways and USAir to be part of a ‘mega’ carrier group with its associated ben- efits.

Cavill White says that Qantas could gain control of ANZ by buying out its major shareholder, Brierley Investments. Such a move would be most beneficial to ANZ, according to the newsletter, particularly in these days of strategic alliances among the world’s airlines. Qantas currently has (and is restricted to) 19. 9% ofANZ’s stock, so a takeover would require the removal of existing investment restrictions. Cavill White suggests this might be a reasonable thing to do considering current moves towards a single Australia/ New Zealand aviation market.

Japanese Tourist Numbers Growing:

Japan continues to be the main source of overseas visitors to Australia according to figures released by the Australian Bureau of Statistics.

A record 2. 6 million visitors came to Australia in 1992 of which 629,900 or 24% – were from Japan, a 199% increase over 1991. December 1992 established another record when no fewer than 266,800 Japanese visitors arrived in Australia, although there does seem to be a slowing of the rate of growth due to Japan’s own recession.

Visitors to Australia from other countries in 1992 included New Zealand 447,600 (down 7% on 1991), Great Britain 289,900 (10% up), the USA 262,900 (39% down), Taiwan 63,500 (up a massive 83%) and South Korea 33,600 (42% up).

As for Australians travelling overseas on short term trips, the 1992 total reached 2. 27 million, or 8. 4% up. The countries most visited by Australians during the year were New Zealand 340,700 (7% up), the USA 334,600 (8% up) and Britain 240,400 (9% up). Others of interest include China 19,900 (35% up), Korea 11,500 (34% up), Italy 44,900 (20% up), Indonesia 185,200 (% up), Hong Kong 140,100 (7% up), Japan 47,600 (negligible growth) and Singapore 101,000, also virtually the same as 1991. Reflecting the influence of the Olympic Games, Australian visitors to Spain leapt by 95% to 11,500 in 1992.

The figures reflect growth of 7. 5% in the Australian international scheduled airline passenger market compared with the previous year, while December 1992 showed growth of 13% over the same month of 1991. International traffic in and out of Australia has grown at an average rate of 8% per annum over the past decade compared with 5. 5% for the total world market.

Auckland/Sydney/Auckland remained the most heavily travelled route with 7% of the overall market, followed by Tokyo/Sydney/ Tokyo with 5% Strongest growth was shown by the Los Angeles/Sydney route, which in- creased by 31% over 1991 while at the other end of the scale, Honolulu/Sydney/Hono- lulu declined by a substantial 30%.

Indonesia-Walink:

Linksbetween Western Australia and Indonesia have re- ceived a boost with the beginning of serv ices between Perth and Jakarta by Indonesian airline Sempati Air. The airline- in which Indonesian President Suharto’s son has a major interest-flies an Airbus A300 on the route.

 Playing the System:

It seems the day of professional frequent flyeris here. Ansett and Diners Club have an arrangement by which every penny spent on the plastic translates to points for the airline’s frequent flyer programme members.

Seizing upon the obvious opportunity, a Melbourne man recently purchased a $100,000 Mercedes Benz on his Diners Club card, earning enough points to gain a first class around the world ticket (or two business class tickets) or a dozen flights between Melbourne and Adelaide. It’s alright for some!

China Leases From Ansett:

Ansett Worldwide Aviation Services (AWAS) has leased six airliners to two Chinese operators.

Air China’s Inner Mongolian division took delivery of the first of six Boeing 737-300s last April, while China Northern Airlines will lease two Airbus A300-600Rs from later this year. China Northern carries about three million passengers each year with its fleet of 21 McDonnell Douglas MD-82s.

AWAS is also now seeking to raise $350m needed to pay for five Boeing 767-300s it will be taking delivery of this year. The finance is being organised by the Bankers Trust Co in the USA and appears to be guaranteed by the US government’s export-import bank, EXIM. Such an arrangement usually covers 70-85% of the purchase price, thereby reducing the risk to banks.

Local Fashion Dresses Qantas:

After eight years wearing Yves Saint Laurent designed uniforms, some 25,000 Qantas air and ground staff will be dressed in Australian designs.

The airline is after a new ‘look’ for its staff and will announce the new local designer later in the year. The decision in favour of YSL caused some controversy when it was announced in 1986, local designers feeling one of them should have been selected. Although designed overseas, Qantas’ current uniforms have been made in Australia. Local designer Marilyn Said’s Covers label currently outfits Australian Airlines’ staff.

As yet another example of the importance of aviation/tourism within the general community it is worth noting that the letting of this contract will represent one of the biggest contracts of its type in the important clothing industry.

 Ansett Establishes Presence in Japan:

In anticipation of starting direct flights between Australia and Japan next year, Ansett has started marketing it- self in that country.

Talks between the airline, the Japanese Transport Department and senior executives from Japan Airlines (JAL) and All Nippon Airways (ANA) were held in Tokyo during April. Ansett and ANA are already linked through various commercial agreements includinga frequent flyer scheme and the provision of pilots and ground handling arrangements.

Ansetthas applied to the International Air Services Commission (IASC) for all new capacity being made available to Australian carriers at Osaka’s new Kansai Airport, Japan’s first 24 hour jetport. Ansett’s submission to the IASC also includes a commitment to spend $15m on promoting services to Australia.

in the Picture:

All Qantas Australian Boeing 737 aircraft will be fitted with Sony video screens, a novelty well received by passengers.

Sixteen domestic 737s are already equipped with the screens, while the remaining 15 aircraft (plus two still to be delivered) will be fitted with the system from July onwards with completion of the project scheduled for the middle of next year.

The Pyjama Game:

British Airways has come up with a new idea reminiscent of the age of the Imperial Airways flying boats with the announcement of a new first class sleeper service.

Available on night flights departing after 7pm, Sleeperseats will be made up for the night with quilt, pillows and sheets, while passengers will be able to slip into some-thing more comfortable cotton. ‘Sleepersuits”, or pyjamas any other name. No mention has been made as to whether the cabin crew member of your choice will beavailable to read you a story and tuck you in should you be lucky enough to partake of this service.

Qantas Cabin Crew Recruitment:

Qantas is reported to be considering employing a further 400 flight attendants to cater for planned expansions of services for its northern winter schedules later this year.

The final figure is yet to be established while the airline’s cabin crew numbers have risen by 156since February this year through transfers from Australian Airlines and internal redeployment. A further 24 mainly Asian speaking attendants will also be employed for flights within the Asia Pacific area.

At home, Qantas/Australian Airlines has announced a big increase in flights to the Northern Territory during the peak season between July and October. Eighteen new services will fly to the Territory, eight of which will service Alice Springs and Ayers Rock. If demand warrants it, some of the new services could continue into the traditionally quieter summer months.

Korea/ Qantas Non Stop Queensland:

Qantas has introduced direct flights between Seoul and Brisbane – the first such services-marking the start of new tourism and trade links between Queensland and what is regarded as one of Asia’s most important centres.

The airline will fly one Boeing 767 service each week and it has been welcomed by the Queensland government, which sees the Korean inbound tourism market becoming the state’s second largest market (after Japan) if Qantas and other international carriers are allowed to increase the frequency of flights between Korea and Australia.

Planes Versus Trains:

French domestic carrier Air Inter is planning a fleet expansion to counter competition from other airlines but mainly from the high speed rail systems which now operate not only in France but also in Germany, Italy, Sweden and Spain.

Air Inter estimates these very fast and comfortable rail systems have cost it some 4. 5 million passengers each year. The shorter the journey, the more attractive the train because its point to point time is quicker than the aircraft. The secret of course being that trains go from city centre to city centre whilst planes only fly from airport to airport, some of which are a great distance from their host city’s CBD. Fast trains are also more spacious, offer cheaper fares and cater for the not insignificant band of passengers who really don’t enjoy the flying experience.

On the 400km Paris/Lyon route, Air Inter’s traffic has decreased by 40% since the two hour TGV rail service was introduced, while on the 520km Paris/Bordeaux route, traffic has decreased by 20%.

The airline plans to introduce the first of eight or nine as yet unnamed 100 seat airliners by the end of next year, retire its fleet of Dassault Mercures and introduce the seven Airbus A321s it has on order. It currently operates 11 Mercures (the only operator ever to fly the type), 31 A320s (with eight more on order) and 22 A300s. It also has 15 A330s on order.

Air Inter’s operating philosophy revolves around cheap air fares, low overheads, frequent flights and no frills service. The latter is one area where the comfort offered by the trains contrasts sharply with the airline, which crams as many seats as possible into its aircraft at minimal pitch. Its A320s, for example, are configured with 172seats, com- pared with the 135 seats on board Ansett’s similar aircraft.

New Kalgoorlie Airport Open:

The new Kalgoorlie-Boulder Airport in Western Australia is now operational following its $16. 5m upgrade which includes two new runways, a new terminal building and associated services.

The new main runway is 2000m long and the secondary runway 1200m in length. The terminal building covers an area of 1500sq metres while the project was financed by the city of Kalgoorlie-Boulder with the aid of a Federal Government grant made when the airport’s ownership and operational responsibility was transferred from the Government to the City Council.

The new airport has significant benefits for non stop Sydney/Perth flights, particularly by Boeing 737s in winter against strong prevailing winds as it can now be flight planned as an alternate meaning that the aircraft now has to uplift less reserve fuel out of Sydney.

In the Money:

Why am I always in the wrong business department. . . the collapse of Compass II may have left the airline’s creditors and shareholders wondering where their money was coming from, but the liquidator seems to be doing quite nicely from the deal.

Richard Barber (Price Waterhouse) was originally appointed receiver-manager of Compass after its failure in early March. His fee for the first seven days was a cool $202,676. 90, an amount which was approved for payment by the Queensland Supreme Court in April. Mr Barber is now the provisional liquidator, working hard to gain some return for the airline’s shareholders at the reported rate of between $330 and $380 per hour. . .

Meanwhile, Compass’ parent company, Southern Cross Airlines, has now been formally dissolved with debts of $28. 1m and assets of $12. 4m, leaving a shortfall of $15. 7m. Among the liabilities are the receiv- er’s $202,676. 90 as mentioned above, $2. 8m for employees and $25. 1m for other creditors and general debts.

Worries that stranded Compass passengers might again be left in the lurch for recovering the cost of their unused tickets have been only partially solved with the news that those who thought their tickets were fully insured will only recover between 30 and 40 cents in the dollar. This results from the insurance cover being reduced from $7. 5m to just $2m last December, a fact not known until the airline went under.

People who purchased tickets on bank issued credit cards may get a full refund following talks between Compass’ bankers (ANZ) and other major banks. (refer Recce this issue for more on the Compass wind-up).

More Woes for Mr Reid:

Former Southern Cross Airlines (Compass) deputy chairman, Doug Reid, has had his list of problems added to with the Westpac bank filing an uncontested $8. 1m judgement against him.

Mr Reid then applied to the Federal Court for bankruptcy, meaning his estate-which was already in receivership be placed under the control of the trustee. This means that his creditors will have to wait for what- ever they can get and also that Reid will offer no defence against the $9. 4m action brought against him by Compass’ provisional liquidator or other writs.

Instant Immigration:

New Zealand and Australian passport holders travelling between Christchurch, Wellington and Auckland and most Australian airports on Air New Zealand flights are now able to pass through immigration quickly thanks to electronic clearing.

These passengers are given a preclearance via the two countries’ Immigration services computers enabling them to pass straight through. The situation doesn’t apply to passengers other than ANZ ticket holders on ANZ flights. Qantas codeshare passenger have to follow standard procedures, as do Kiwi passengers on Qantas aircraft.

News Is Biggest:

Part owner of the Ansett group, Rupert Murdoch’s News Ltd, is tipped to be Australia’s profit maker in the 1992-93 financial year tipping out traditional number one BHP.

In what could be seen as good news for the future stability of Ansett, Barclays Australia Investment Service’s survey of some 150 financial analysts has predicted a $990m profit for News, an increase of 86% over the previous year. The Big Australian- BHP will come a close second with a profit of $983m, according to the survey, while it also suggests News’ profit will rise to more than $1. 2bn in 1993-94. News Ltd’s improved performance comes after a difficult time during which its debt structure was substantially reorganised.

Australian Drops Hamilton Action:

Australian Airlines has dropped its Federal Court action against Ansett’s monopoly on flights to Queensland’s Hamilton Island resort.

The action claimed Ansett’s monopoly breached the Trade Practices Act, but now Qantas’ domestic arm says it will instead concentrate on developing services to Proserpine on the mainland and other resorts in the Whitsunday Islands. It has already increased the frequency of flights between Brisbane and Proserpine and will introduce a Cairns/Proserpine feeder service in July.