Airline Profile- Air Pacific

The Small Kid Grows Up

“We are still the small kid on the block. We have to wait for the market to change around us and we are driven by market pressures, at the same time trying to be innovative. ” Drysdale’s understanding of external pressures has seen him re-elected as Managing Director to carry the airline into arguably its most important phase in securing international status. Moving with the pace of the market and not being renegade in his approach to competition, Drysdale does not elect to expand Air Pacific beyond its capabilities into areas that will create unreasonable risks.

Its recent moves into the Asian market have been carefully designed to minimise risk and to tap into the continuing growth of that region. 1992/93 has been a tremendous year for Air Pacific’s twice weekly 747 services to Tokyo, with load factors averaging over 80% consisting predominantly of bridal couples and young office ladies, who have been specifically targeted in the company’s marketing strategies.

So satisfied is Andrew Drysdale with Japan that upon delivery of a 767-300 in the third quarter of next year, that services to Osaka will commence in September 1994 on a twice weekly basis, increasing to two 747 services weekly after the market establishes.

“If we could get another flight into Tokyo we’d be there tomorrow. ” But recognising the limitations of the fleet and the Japanese markets, Drysdale adds, “Four or five services each week is probably all the resources we would put into Japan. ” Routes beyond Japan are under active consideration with Taipei likely to become the twelfth port to be served by the carrier after the addition of Osaka next year. Hong Kong is also an attractive destination, allowing the airline to tap into the lucrative European market which could prove an invaluable experience in the event that Air Pacific flies directly to Europe before the turn of the century.

Other ports under investigation include Seoul, Singapore and Kuala Lumpur which could come on line in the late ’90s. “North America is a bit of a problem for us. The difficulty with America is, although the accommodation centres in Fiji would like us to fly there, the yields are so low that we would lose a considerable amount of money”, Drysdale admits.

Despite there being nine widebodied services operating between Fiji and the USA each week and with average seat factors on those services of below 60%, Air Pacific is constantly monitoring the routes for opportunities to take part in what would ultimately be a valuable market source.

“I can see little benefit in coming onto a route that is already oversupplied with very low yields, when there is a need for us to build new routes into the Asian market which is going to be the growth market of the future. ” Substantial yields on the Japan routes will provide valuable revenue to support the lack lustre performances on the Australian market which has been in decline for the last five years. Load factors on the routes to Melbourne, Sydney and Brisbane are averaging only in the low 50s at present, and that is all low yield traffic.

Part of this decline has been caused by the devaluation of the Australian dollar, which has seen less buying power for Australian tourists visiting Fiji which has an artificially fixed foreign exchange rate set higher than what many finance experts deem realistic.

New Zealand markets, although the fundamental growth will “Air Pacific must nurture and develop the Australian and come from the northern hemisphere. ” Since the delivery of a new 737-500 in August 1992, Air Pacific has recommenced services from Suvato Auckland and Christchurch, reaffirming its exclusive operation which it the services to Auckland has risen to levels equivalent to gave away upon the sale of the 737-200 in 1989. Patronage of those experienced during the -200 operations, while Christchurch is quickly following in a similar trend.

Air Pacific’s constant attention to yields over frequency and expansion of its network are based simply on the fact that the airline is a carrier of tourists, which by that market’s nature traditionally generates lower yields. The airline’s situation if it were to fly to the USA would be worse than for other carriers who have a greater opportunity to attract full fare business class traffic.

erous markets is what has kept the airline aloft and profitable, But not committing itself to volatile and potentially treacheven in difficult times.

Focusing on Efficiency

In 1991 a five year plan for Air Pacific was handed down by the board of directors. It was the first such document the airline had had in its 42 year history. “The first step was to teach the staff what a strategic plan was and what the implications were”, says Drysdale with a sense of accomplishment.

The plan outlined a number of objectives, sounding dramatic changes to the structure and philosophy of the airline. CEO Drysdale explains, “Philosophically and operationally what we’ve done is take a domestic thinking airline with some regional and international routes, and turn it into a fully fledged international airline based at Nadi. ” The planned changes on aircraft operations, maintenance capabilities, manpower and marketing have all been effected to some degree of completion, and the most significant of these changes, involving some 400 staff, has been the relocation of the operational headquarters from Suva to Nadi International.

Although the shift from the national capital to Nadi has necessitated the construction of major infrastructure including administration, training and maintenance facilities costing around $18 million, the improved efficiencies and operational independence gained from the exercise will contribute greatly to Air Pacific’s well being in future years.

The move to Nadi was a practical one in terms of the airport’s ability to handle every aircraft in the Air Pacific fleet. Suva’s Nausori airport could cater only for the airline’s 737, where routine maintenance was performed in the company’s own hangars. Engineering and technical staff performing maintenance work on the airline’s larger aircraft previously had to be flown from Suva to Nadi, creating inefficiencies in cost and time.

Throughout the changes, Drysdale remains cautious about where the airline’s new maintenance capabilities will leave it at the conclusion of the first five year plan. “We don’t want to try to run before we can crawl. We’re talking about modern very high technology aircraft so for the moment all we are aiming to do is perform our own A checks on the 737, 747 and 767. “It’s a matter of developing at a rate we feel comfortable with. We will develop capabilities for the 737 up to C check level, but it will be some time before we take the 747 and 767 beyond A checks. ” However, Drysdale also sees that a significant future source of revenue will come from third party work, and he wants to gradually develop the resources to increase capabilities. A lot will depend on how much contract work is obtained in the short term. “If we begin to get a flow of contract work, that will in turn support additional manpower which will then give us the volume to perform advanced checks.

During 1992 Air Pacific performed heavy maintenance on two Royal Tongan Airlines Twin Otters and it is hoped that this is a prelude to larger and more frequent maintenance contracts.

“We want to develop a reputation for good quality work at a reasonable price. ” Air Pacific has the potential to attract customers not only in the Pacific basin, but also Australia and New Zealand as a result of the lower labour rates in Fiji. “Medium technology labour intensive work such as undercarriage overhaul and aircraft painting will be offered, but we don’t intend in the first instance to get into high technology avionics type work. ” Operationally, Air Pacific’s all Boeing fleet is the result of growth out of smaller aircraft categories such as the ATRS it operated for four years from September 1988. The five year plan originally showed that additional turboprop capacity would be required throughout the region. However, with increasing jet competition arising in the Pacific region the management was required to reconsider the plan and the decision to lease a 737-500 was made.

“Rather than increase the fleet of ATRs, we said “Where do we want to be five years from now?”, explains Drysdale. “We were simply growing out of the ATRS. ” The -500 series also allowed Air Pacific to operate to Christchurch, and to re-establish the popular services to Auckland from Suva. Further parts to the corporate plan include the financial and manpower plans which will allow the airline to address its immediate and long term resource requirements.

Air Pacific needs $200 million between now and 1996 when the second 767-300 is delivered. The amount represents a huge capital investment for a country the size of Fiji, and the airline is currently investigating funding alternatives which may include equity and/or sale and lease back of aircraft. The financial plan is expected to be completed by the final quarter of 1993.

The levels of staffing and skill must also be addressed as the consequences of improving and increasing infrastructure and services will bring the 590 staff of Air Pacific to its reasonable, limitations.

Whilst the airline sees the training and development of existing staff as a priority, it also understands that it will soon face a constraint in its existing skill levels without a plan to establish an in house training facility. Its patriotic reluctance to employ non-Fijians means it will have to draw from an unskilled labour market and provide training in every area of its operations, and especially in engineering and maintenance. An existing graduate trainee scheme already exists in Air Pacific whereby university graduates are employed for around two and a half years, after which time the trainee may apply for any vacancies that may be on offer. This scheme has proven very successful, and has effectively supplemented other trainee schemes throughout the broad range of the airline’s activities.

The manpower plan, which is being undertaken concurrently with the financial plan, is expected to be in place by October 1993.

Operations

1993 is also the year that Air Pacific changes allegiance in its 747 operations from Qantas to Air New Zealand.

Since 1985 the airline has leased a series of four 747-238s from Qantas. VH-EBK was the first aircraft leased then successively -EBJ, EEI and finally VH-EBB which was subleased from Qantas (leased to QF by Potomac Investments, USA) until that aircraft’s lease ended and was returned to the lessor at the end of June 1993.

An interim aircraft, VH-EBR, was operated in hybrid Qantas/Air Pacific livery for a period of two months until Air Pacific took delivery of an Air New Zealand 747-219, ZK-NZZ, in August 1993.

That the Qantas aircraft, which was one of the remaining two Pratt & Whitney powered aircraft in the fleet, was returned to the USA required Air Pacific to seek an aircraft from another source. The Australian carrier would have needed to take in a replacement aircraft if it had leased a 747 to Air Pacific, which was financially undesirable.

The younger Air New Zealand aircraft was available after the delivery of the third series 400 aircraft, and given the favourable exchange rate between New Zealand and Fiji, a deal was struck that satisfied Air NZ who were able to place an aircraft, QF who did not have to replace a leased out plane, and Air Pacific who benefited financially from the arrangement.

Air New Zealand will also allow the aircraft to be serviced to A check level in Fiji, maximising the immediate capabilities of the new maintenance facilities in Nadi and importantly giving Air Pacific the opportunity to further develop the skills Qantas, all work other than routine line maintenance had to be to perform 747 maintenance. Under the lease agreement with carried out in Australia.

That the Fijian airline is an all Boeing operator is not necessarily by design. Serious consideration was given to the A310 in selecting an airliner in the 200 seat range. However, three considerations lead to the acquisition of a 767-200, being that the Airbus’s range specifications would not allow suffi- cient margins on range for Air Pacific’s Japan routes, the type was already operating ETOPS in the region with Air New Zealand, and in 1989/90 there simply were not any surplus A310-300s available in the marketplace.

The 767-219, DQ-FJA, was already configured in an appropriate layout for Air Pacific’s requirements (C18/Y194), was packaged with spares, and a maintenance agreement was drawn up between Air New Zealand and Air Pacific for the regular overhaul of the airframe, avionics and engines.

The range of aircraft capacities within the small fleet allows substitution when required, and the 737 has operated the NAN/MEL sector on a number of occasions in place of the 767 when loads have been lower. The addition of more 737s in coming years will further enhance the airline’s ability to fine tune its operations to maximise yields in a tight and competitive market. Air Pacific and Qantas will continue the bilateral seat purchase arrangements that were started in 1980. On the MEL/BNE sectors Qantas purchases blocks of seats on the 767 services of Air Pacific, while on the SYD route each purchases seats on the other’s aircraft. This has proven an invaluable tool to both airlines which benefit from the improved frequency of the arrangement. There is no seat purchase agreement with Air New Zealand.

The 26,134km network serviced by Air Pacific covers the major tourism routes into the country. The airline presently flies over 50% of the total volume of inbound tourists to Fiji and is the single largest expender of advertising dollars on promoting the nation that last year attracted 279,000 visitors, about a third of the population. Over 2. 3 million visitor days are spent in Fiji each year.

In 1991/92 Air Pacific’s net profit was just under $4 million, continuing a succession of six profitable years. An amazing achievement by any standard. However, 1992/93 is expected to be somewhat tighter, being largely attributable to a decline in inbound tourism from Australia, and the costs associated with moving the centre of operations from Suva to Nadi. It’s a lean organisation, but is competitive in its market. By not taking the risks which have thrown many airlines into oblivion, Andrew Drysdale and the small management team at Nadi have successfully weathered just about the worst the international economic climate could put up. Air Pacific may be the small kid on the block, but it’s also tough and canny to the fickle tourism markets.

Historical Note

Fiji Airways was started by Harold Gatty in September 1951, linking the major ports of Suva Nausori, Labasa, Savu Savu and Taveuni using Dragon Rapide and Drover aircraft.

Qantas’ first involvement with the Fijian carrier was in 1958 when it purchased Fiji Airways. A fleet of four DH Herons were operated until the last one was withdrawn in the mid seventies. A HS. 748 was added to the fleet of four Herons in 1970, and two years later the first of three BAC 111s were delivered, opening services to Auckland. 1972 was also the year that the carrier changed its name to Air Pacific. The Fiji government began acquiring Air Pacific shares from Qantas, Air New Zealand and British Airways in 1974 until by 1978 it had a 93. 1% interest.

Increasing traffic in late seventies saw the introduction of a 737-200 which was used on the Auckland and Brisbane routes. A little known fact is that Air Pacific leased a DC-10- 30 from Air New Zealand from 1983 to 1984 to test the Nadi/ Honolulu market. After experiencing low traffic, however, the company pulled out of the route.

In January 1985 Qantas renewed their interest in Air Pacific by providing a three year management agreement, which has now been extended to 1996. In 1987 the Australian carrier purchased a 20% equity in Air Pacific with a new Commercial Agreement between the carriers was signed in July.

In 1991/92, Air Pacific’s major shareholder continued to be the Fijian government with 79. 55%, followed by Qantas (10%) and Air New Zealand (1. 94%). Other shares are made up of various Pacific nation government holdings and a 7. 5% holding by Sea Com Corp.