Airline Affairs

The float was originally scheduled for a prospectus issue this October with the float taking place during November with 10% of the 75% remaining shares being allocated for international customers. The brilliant success of the recent Woolworths float augers well for the eventual sale of Qantas which in better times would be able to support a premium on the basis of travel inducements being offered to shareholders as so successfully employed in the original Com- pass float in mid 1990.

Governments delaying floats is nothing new and where appropriate is considered prudent practice. The UK government, for instance first mooted the flotation of BA in 1979. It was then scheduled for 1984 though did not ‘fly’ till 1986/87. The UK government picked its timing very carefully and ended up richer in the process, a lesson obviously not lost on those in Canberra.

Just days after the float delay announcement, Qantas also officially released the outcome of its financial analysis by Moodys Investment Services. Moodys had given Qantas a rating of Baa2, on a par with Standard & Poors earlier rating of BBB-plus. Reviewed in late 1994, both the ratings could be considerably better which would auger well for influencing the attitude the all important institutions hold towards investing in airlines. Handled professionally, investment circles suggest the delay combined with the expected improvements to Qantas’ profitability in the year ahead could increase its float value by as much as a billion dollars. A complete analysis of the benefits of delaying the QF float appeared on p4 of our July issue.

 Eastern Adds Another Dash 8:

Eastern Australia Airlines has announced it is to acquire a sixth Dash 8 turboprop.

The additional Dash 8 will help Eastern cater for increased services within NSW, most notably for its Sydney/Dubbo service, which is due to be inaugurated this month. The new addition coincidentally marks the fifth anniversary of operations of pressurised turboprops by the Qantas regional.

Prior to mid 1988, Eastern operated a fleet of Bandeirantes and Cessna 404s, which have now been replaced in service by four Jetstream 31s and five Dash 88.

 Airline Turnaround Anticipated:

Analysts have forecast that United States domestic airlines will record second quarter profits this year, signalling that the airline industry may finally be on the improve.

Predictions suggest combined second quarter operating profits of up to $750m, compared to a same quarter loss in 1992 of $880m. Contributing factors for the profit predictions include a substantial easing of the relentless price wars, growing traffic numbers, reduced capacity, and improvements via cost cutting and related efficiency measures. Following its dramatic restructuring and cost reduction efforts, USAir in particular is predicted to turn around sharply, posting its first profit in four years. Despite these encouraging signs, other analysts remain skeptical of real improvements in the airlines’ performance, saying that a sustained improvement has not yet been demonstrated, and that costs need to be cut further still to increase yields whilst load factors must move into the low seventies to ensure long term profitability.

Cxpilots Come Home:

Cathay Pacific has invited some of its 330 Australian pilots based in Hong Kong to relocate to Australia.

The airline expects some 250 of its Australian pilots to return over the few years, with its comparatively low living costs. Hong Kong has become very expensive for expatriate pilots, with relatively high inflation and some of the highest accommodation costs in the world. Cathay is also transferring a considerable number of its headquarters functions to Sydney.

In an unrelated move, Cathay Pacific is encouraging young Hong Kong women to become airline pilots.

The airline is hoping to attract female applicants for its 70 week cadet course. The drive to attract women and the promotion of equality is a result of intense competition among experienced and qualified pilots precluding the employing of any of the small number of women who have applied to join the airline through conventional channels.

The cadet scheme places all applicants on the same footing, giving women a much better chance of breaking into this traditionally male-dominated environment.

Back to Square One in NorthWest Dispute:

Gutsy protestations by the Australian Government and in particular aviation minister Collins and trade minister Cook came to nought during mid June when both Australia and the US generally agreed to cool the rapidly accelerating Northwest dispute by returning to the status quo. Northwest thus continues to operate its thrice weekly Sydney/New York service via Osaka and Qantas will not lose three of its ten weekly Sydney/LA non stops. The only change will come in October when Northwest will drop New York in favour of Detroit. All services are allowable on the provision that they carry at least 50% Australia/US through traffic. Northwest claims that it has been close to meeting this target since late last year and should be able to better meet the requirement once services switch to Detroit as this is the airline’s largest US hub, offering 300 connecting services daily to 90 US cities.

The majority of the US population (not including California) lives east of Chicago and north of St. Louis. People wishing to travel to Australia that don’t actually live in New York would naturally be reluctant to fly to that city to then track westward on what by any standard is an incredibly long jour ney. The potential uplift of Americans out of Detroit should thus be substantially stronger than it ever would be from New York.

In consideration of the moves by the two governments, Northwest has dropped its Federal Court challenge to the validity of the 50% rule while the plan to arbitrate the dispute has also been put on hold. The Australian government will examine at year end the performance of Northwest in the coming months and issue a statement on the continuance of the services early next year.

Good on You Av Week:

The most influential aviation magazine in North America and indeed the largest selling aviation medium in the world-Aviation Week & Space Technology has come out in a recent editorial starkly in favour of Australia in the now temporarily settled bilateral dispute between Northwest and Qantas and their respective governments.

Au Week (as it’s known in the trade) states “Northwest is at fault here, and the US will not serve its best trade interests by vigorously defending the carrier. Northwest has ignored an agreement it signed with Australia just prior to the startup of services in October 91 on the New York/Osaka/Sydney route.

The editorial goes on to say “The operation of US airlines through the lucrative market in Japan is crucial to financially successful services to other Pacific destinations. But the US and Northwest would be served better to fight competitive issues on other grounds. They appear to have forgotten that the US airline is a guest in another country and that a signed agreement is a commitment. The US and Northwest should bow to Australia’s demand. ” Our sincere congratulations to Au Week for a realistic and unbiased approach to what has been a no win situation for all concerned.

Ansett’s Osaka Win:

Ansett has trumped Qantas by being awarded the majority of slots at Osaka’s Kansai airport to be allocated to Australian carriers.

In seat terms Ansett was awarded 2080 seats, while Qantas will get 1200 per week. The International Air Services Commission’s draft allocation (based on 14 landing slots and 17 Boeing 767-200 units of capacity) gives Ansett the right to operate a total of four 747 flights from Brisbane and Sydney, and two weekly 767-300 services from Melbourne. While Ansett had applied for all the available capacity, giving it daily 747 services to Australia (four flights to Sydney and three to Brisbane each week) and twice weekly 767-300 Melbourne services, it has aced Qantas who is only able to operate just five 767-300 or six 767-200services per week.

Qantas had hoped to operate twice daily 767 flights from Kansaito Australia, with the current draft determination meaning neither carrier is able to operate daily flights, and two landing slots will remain unused (allocating allslots would have denied Ansett the ability to operate 747 services).

In awarding the capacity the IASC seeks to encourage Ansett to operate direct Melbourne/Osaka services, although it cannot enforce this. A third carrier bidding for capacity, Tropic Isle (refer p17 June 93 AA), was rejected due to its incomplete business plan.

Ansett’s Osaka victory is regarded as very important to its overall plans as an international airline as its Japan flights will provide the backbone and greatest source of revenue in the near future. However, the IASC’s draft is delicately balanced to allow Ansett to develop as a viable competitor on the Japan/Australia route, without leaving Qan- tas so small a share that the route is not sustainable. At the time of writing it was unclear whether the two carriers would submit new submissions to the IASC in the light of the draft proposal’s arrangements. Kansai does not become operational till the final quarter of next year.

Ansett had requested all of the capacity to allow it to operate daily 747 flights from Kansai, with plans to operate three Boeing 747-300s, an investment of $A238m. It is interesting to note that very few 747-300s are on the market as it is still a modern and profitable aircraft. One source though could well be Singapore Airlines, which operates a fleet of 14-300s, which are approaching ten years of age at which time they are routinely replaced with newer equipment. Given Singapore Airlines high turnover rate of aircraft it certainly can’t be dismissed that some of the machines might well eventually appear in Ansett livery. Possibly an aircraft for equity deal is in the wind? Presumably the 767-300s it plans to operate will come from ATT’s leasing arm AWAS.

Ironically, the only carrier currently with direct flights between Osaka and Australia is embattled Northwest, with its controver sial thrice weekly New York/Osaka/Sydney service.

 Qf Sps to Be Used in Innovative Aircruise:

Independent travel organisations Bona Venture of New Zealand and Uniglobe of Australia, have chartered a Qantas 747SP for what is certainly an innovative exercise in aircruising.

They are offering two adventures; a two week Jewel of the Nile aircruise through Africa and a 19 day El Dorado’s Mine adventure taking in South America. The SP will depart Australia on the Jewel cruise on August 15 visiting the Seychelles, Harare (where 707s will transport the lucky participants to Victoria Falls), Aswan, Luxor, Jerusalem and onto London Gatwick. At Gatwick the SP will backload with adventurers on the El Dorado trip which departs London on September 2 bound for Barbados, Manaus, Iguassu Falls, Santiago and Easter Island before returning to Sydney on the 21st. Special events in the grand manner will take place at each destination while overnight accommodation will be at first class hotels.

Both business and economy fares are on offer with tariffs ranging from $A11,600 to $A14,600 for the all inclusive holiday. aced Qantas who is only able to operate just five 767-300 or six 767-200services per week.

Qantas had hoped to operate twice daily 767 flights from Kansaito Australia, with the current draft determination meaning nel- ther carrier is able to operate daily flights, and two landing slots will remain unused (allocating allslots would have denied Ansett the ability to operate 747 services).

In awarding the capacity the IASC seeks to encourage Ansett to operate direct Melbourne/Osaka services, although it cannot enforce this. A third carrier bidding for capacity, Tropic Isle (refer p17 June 93 AA), was rejected due to its incomplete business plan.

Ansett’s Osaka victory is regarded as very important to its overall plans as an international airline as its Japan flights will provide the backbone and greatest source of revenue in the near future. However, the IASC’s draft is delicately balanced to allow Ansett to develop as a viable competitor on the Japan/Australia route, without leaving Qan- tas so small a share that the route is not sustainable. At the time of writing it was unclear whether the two carriers would submit new submissions to the IASC in the light of the draft proposal’s arrangements. Kansai does not become operational till the final quarter of next year.

Ansett had requested all of the capacity to allow it to operate daily 747 flights from Kansai, with plans to operate three Boeing 747-300s, an investment of $A238m. It is interesting to note that very few 747-300s are on the market as it is still a modern and profitable aircraft. One source though could well be Singapore Airlines, which operates a fleet of 14-300s, which are approaching ten years of age at which time they are routinely replaced with newer equipment. Given Singapore Airlines high turnover rate of aircraft it certainly can’t be dismissed that some of the machines might well eventually appear in Ansett livery. Possibly an aircraft for equity deal is in the wind? Presumably the 767-300s it plans to operate will come from ATT’s leasing arm AWAS.

Ironically, the only carrier currently with direct flights between Osaka and Australia is embattled Northwest, with its controver sial thrice weekly New York/Osaka/Sydney service.

 Qf Sps to Be Used in Innovative Aircruise:

Independent travel organisations Bona Venture of New Zealand and Uniglobe of Australia, have chartered a Qantas 747SP for what is certainly an innovative exercise in aircruising.

They are offering two adventures; a two week Jewel of the Nile air cruise through Africa and a 19 day El Dorado’s Mine adventure taking in South America. The SP will depart Australia on the Jewel cruise on August 15 visiting the Seychelles, Harare (where 707s will transport the lucky participants to Victoria Falls), Aswan, Luxor, Jerusalem and onto London Gatwick. At Gatwick the SP will backload with adventurers on the El Dorado trip which departs London on September 2 bound for Barbados, Manaus, Iguassu Falls, Santiago and Easter Island before returning to Sydney on the 21st. Special events in the grand manner will take place at each destination while overnight accommodation will be at first class hotels.

Both business and economy fares are on offer with tariffs ranging from $A11,600 to $A14,600 for the all inclusive holiday. Bonaventure spokesman Kenneth Irons said the company hoped to attract 150 adventurers each from New Zealand and Australia and noted that several people had already booked the round trip. For more information call (02) 959 4461.

Certainly an innovative use of what presently represents surplus capacity within the mainline QF fleet, should be more of it and we wish them well. Now how about somebody with initiative and imagination getting those once very popular Antarctic day flights up and running again?

PNG Route Redistribution:

Following Talair’s sudden withdrawal from operations, the company’s route licences have been withheld in preparation of a reallocation of services.

Former Talair routes have now been awarded on a regional basis to Papua New Guinea’s six remaining large regional operators. The PNG government froze Talair’s routes as a security measure for the benefiting of regionals, some of which had already placed provisional orders for new equipment in anticipation of new route awards. PNG plans to regulate its regional airline industry to preclude another carrier dominating important routes and subsequently ceasing operations.

Such was the case with Talair, which originally ceased operations in 1987, bringing with it political chaos. Carriers will also be allowed to compete with Air Nuigini on domestic trunk routes subject to a approved fare structure. •

Airlines Get Anxious as Olympic Decision Nears:

Whilst press reports in late June that Qantas had budg eted $100m in free airfares for Olympic com- petitors and their families were quickly refuted it is obvious that if Sydney does get the nod on September 23 that carriers serv- ing Australia will be quick to formulate com- petitive specials to ensure that just one carrier doesn’t get the lion’s share of the traffic bonanza.

If Sydney is successful then it is obvious that Qantas though will be in the commanding position of having the maximum amount of capacity into Australia by a wide margin. It will also be able to feed traffic through its many existing entry points, feeding them into Sydney via domestic services that its competitors don’t have. Ansett of course by that stage will be in a similar situation and might well formulate special arrangements with a number of the internationals that it presently doesn’t have commercial oncarriage agreements with to satisfy their Games requirements.

Whilst the proposition that Qantas would in the year 2000 provide the equivalent of $100min free airfares is stretching reality to say the least the prospect that a special $1000 return fare from North America, Europe or northern Asia does have credibility in view of the fact that Sydney’s geographic isolation is perhaps the major impediment toit being selected as a Games venue. Either way the Olympics will be a massive boost for our airlines and speed development of a wide range of development projects long overdue in Australia’s most populous city.

Just an afterthought – It was almost exactlyten years ago, September 27 1983, when Australia celebrated that impossible ‘America’s Cup win. Could we be just as lucky again a decade later – let’s hope so.

Qantas Debt Success

Qantas has achieved what is though to be the biggest ever private placement of debt by an Australian company in the USA.

Qantas had aimed to secure $US300m ($A450m) in debt as part of its restructuring of over $1. 2b in liabilities inherited when it took over Australian Airlines. The US Bond market, which is well versed in the airline industry, oversubscribed the debt raising by $US75m ($A112m), which is seen as a great reflection of confidence that the international market has in Qantas

Pacific Airlines Pool Resources:

Three airlines which operate in the southwest Pacific – Qantas/Australian, Ansett New Zealand and Air Pacific-have introduced an airpass system designed to stimulate tourist travel in the region.

The South Pacific Air Pass offers two fixed fare levels, Group A which costs $160 per sector and Group B which costs $210 per sector. Group A passes are available for Australian domestic sectors (except Perth and some Queensland island resorts) while Group B caters for Perth, Great Barrier Reef islands and some international sectors, for example Sydney and Brisbane to Fiji, New Zealand to Fiji and Fiji to Vanuatu and Western Samoa. Sale of the passes is not dependent on the tourist arriving on any particular airline.

Congestion Near Critical at Sydney:

Ever-increasing congestion at Sydney airport is forcing aircraft to be placed in holding patterns well away from Sydney in ever increasing numbers.

Airborne delays of over 1000 hours a month are now commonplace, costing air- lines millions of dollars as demand at peak periods exceeds capacity in some instances by more than 30% A CAA plan designed to alleviate congestion and save airlines money by advising of congestion before flights leave their point of departure, allowing them to hold before takeoff and not be forced to circle near Sydney has not been particularly successful.

Airlines have noted that even when delaying their departure they still may be placed in holding patterns enroute, thus delaying the flights twice. Also it appears that airlines would prefer to leave on time and face delays at the end of the flight and have passengers blame ATC, rather than at the point of departure where theirire would be focused on airline staff.

Although the average movement rate at Sydney is 53 an hour, controllers are commonly faced with more than 72 flights per hour wishing to depart or arrive. Bad weather can compound the problem further when the movement rate can drop to 36 per hour.

The CAA is currently developing a revised runways usage programme which is de- signed to improve Sydney’s handling capa- bility by 15% The STARS system (refer p6 Dec 92 AA) that was due to be trialled last December would also alleviate peak time delays though has been expressly forbidden to be employed for evaluation by the Fed- eral Government which is worried more about losing votes than increasing produc tivity at KSA.

Unfortunately a permanent fix won’t arrive until 1995, when the parallel runway is due to open, alleviating much of the congestion problems.

Qantas and Australian Are Now One:

The integration of Qantas and Australian Airlines has gained official CAA recognition, with the granting of a new Air Operators Certificate to Qantas.

The new certificate, which was handed over in an informal ceremony at the Qantas Jetbase in late June, supersedes Qantas’ and Australian’s individual AOCs. The Air Operator Certificate recognises that the ‘new’ Qantas has met the requirements of the Civil Aviation Act, which includes appropriate maintenance, engineering and flight operation standards.

 Tnt Into Asia:

TNT Express Worldwide has commenced overnight express freight operations in Asia using BAe 146-300QT freighters.

Pacific East Asia Cargo has begun operations between Singapore, Manila, Brunei, and Taipei with two 1468 as the first stage of a general expansion in the region. Novemberwill see the addition of Jakarta and Hong Kong, while a third phase in mid 1994 will see Seoul, Bangkok and Penang added, while a port each in China and Vietnam are also under consideration for this stage.

TNT currently utilises scheduled carriers. in Asia for overnight delivery, and Pacific East Asia Cargo will allow early morning delivery to most points in the network with afternoon and early evening bookings.

Due to the difficulties of gaining access to major airports, because it is not a national airline, TNT has partnered with the Philippines, who has taken an 80% share in Pacific East Asia Cargo, allowing it to take advantage of that country’s bilateral arrangements.

$500M Us Fuel Tax Causes Concern:

United States airlines are highly pessimistic about a proposed 1. 13c US per litre transportation fuel tax which will cost them $US500m ($A735m) per annum.

Although lower than the previously planned 2c US a litre tax and the proposed British Thermal Unit energy tax, the plan would be disastrous for a number of struggling airlines, adding yet another high cost to an already profitless industry.

Over a five year period the new tax, which is currently before the US Congress, would cost the industry $US2. 5bn ($A3. 6bn). USAir alone, which consumes 4. 5 billion litres of fuel per year, would be forced to pay $US52m ($A76m) per annum.

The airlines are also expecting it to be difficult to pass the tax on to their customers, as USAir studies have shown that just a one per cent increase in fares leads to a 0. 7% drop off in bookings.

A life extension programme of the rugged Ilyushin 1-76 airlifter will see a development aircraft fly next year with new Perm PS90A turbofans and a 6. 3m fuselage stretch. The stretch and new, more efficient engines will increase the maximum payload to 52 tonnes, while range will be increased by almost 50%. New build -76MFs will be assembled at the Tashkent manufacturing plant, Ilyushin says it will costless than Lockheed’s Hercules. (Bill Lines)

Australian Carriers Healthy:

Leading brokerage house CS First Boston has indicated that both major Australian carriers should post healthy profits in the coming years.

The broking house believes Ansett could record an operating profit for, the 1992/93 financial year of almost $60m, growing to as high as $90m in 1993/94. Qantas (which includes Australian) is expected to achieve growing profitability, also, remaining the country’s most profitable airline, with the domestic operation expected to post profits in the order of $90m for the financial year just past.

Eastwest meanwhile is believed to be making significant losses, $20m in 92/93. Almost all of Eastwest’s operations have been amortised into Ansett Australia, see- ing the niche leisure carrier remaining in name only. Ansett is keen to retain the well known brand name without its poor financial performance.

The good results are predicted despite a slowly growing economy, due largely to cost cutting and improved yield management.

Boeing’s Six Month Airliner:

Speaking at Paris, Boeing Commercial Airplane Group’s executive vice president Robert Dryden has stated his company’s aim to deliver aircraft just six months after the order is first placed.

The move is part of Boeing’s latest initiative to maintain a strategic advantage over its competitors by understanding customer requirements, adapting both in manufacturing and office processes. Boeing aims to provide “customers with airliners that are less expensive to purchase, more reliable to operate and less costly to maintain. ” Already Boeing has reduced the time between final assembly and delivery on its product line, by as much as 16% for the 757, 11% for the 737 and 747, and 99% for the 767.

Coffs Harbour Goes International:

The arrival of Air New Zealand Boeing 737 charter flights is set to provide a boost to tourism in northern NSW.

Two flights, scheduled for July 31 and August 7, coinciding with the Coffs Harbour Cup and race week will bring passengers from Auckland, increasing the town’s off peak tourism. The two flights are being underwritten by the Coffs Harbour City Council to the value of $90,000.

Americanafter Maintenance:

American Airlines is vigorously seeking maintenance work from other airlines following the retirement of most of its labour intensive DC-10 fleet, leaving gaps in its maintenance timetable at its vast Tulsa base. This move (and the retirement of 69 7278) follows the layoffs of 390 mechanics and other workers at Tulsa, and the closure of American’s overnight maintenance facility in Denver, plus the furloughing of 50 to 100 pilots.

Competition for maintenance is becoming increasingly cut throat as operators retire older intensive aircraft with later models and types which require far less work hours. Qantas is in a similar position where a few years ago operating a large fleet of 747-200s it was short of aircraft maintenance engineers, whereas now with a young fleet of 747-400s and 767-200/300s, its requirements for maintenance staff has fallen dramatically.

The vigorous push to attract offshore work from the major US carriers as they park older airframes is bad news for Qantas and ASTA as both organisations have been working hard to attract major 747 airframe work to Australia. Highlighting the continuing boom and bust cycle of aviation it was only a few years ago that there was a critical shortage of engineering and maintenance capability worldwide.