Airline Affairs

The long term implications for Qantas, JAL and ANA are significant to say the least (Qantas earns around 18% of its revenue from that route alone) and resulted in tit for tat sanctions imposed between the two nations earlier this year when Northwest ‘tested’ the market with the validity of their Sydney/Osaka/New York service. Northwest from this month transfers its service from NY to Detroit and is confident of being able to satisfy the 50% requirement as a result of this.

United meanwhile is chafing at the bit to begin its long stalled Sydney/New York service via Tokyo. The airline has filed initially for a twice weekly service but would like to expand this to a daily service. United regional director Ann Keating has stated that the airline will be supporting the US Govemment in taking a tough line in the upcoming negotiations and will not be necessarily accepting the Australian government’s 50% rule as either valid or legal.

Meanwhile, another round of negotiations on the complex Australia/China bilateral are set to resume later this year in Beijing. Hopefully decisions as to both dual designation and multiple port access will be finally resolved to enable this potentially vast market to be adequately served in the years ahead.

Anz’s New Korean Service:

Air New Zealand has announced a-new twice weekly service from Seoul to Auckland be- ginning in early November.

The Boeing 767 services will operate el- ther nonstop or via Air New Zealand’s hub Brisbane and are in response. to a 97% in- crease in Koreans visiting New Zealand in the year to June 1993, a total of 18,000 of them flying into the ‘Shakey Isles’ during that year.

 Continental Leaves Australia:

Continental Airlines is withdrawing its services to Australia by the end of October, blaming recession on both sides of the Pacific for their unprofitability.

The withdrawal of Continental’s 14 weekly flights from the USA to Sydney, Melbourne and Brisbane (plus other services to Auckland) leaves a substantial gap in USA/Australia services which will now be served by only Qantas, Air New Zealand, United and Northwest. It is possible that Qantas will apply to seek more flights to the USA to help fill the gap and the US carriers might do likewise.

Continental emerged from Chapter 11 bankruptcy protection in April this year and in the two months following that recorded a loss of $US24. 4m. The airline has since been cutting back and will shed some 2500 of its workforce by the end of the year. It will also cease flying to Vancouver and Dominica as well as immediately retire some 30 Stage II aircraft.

The ending of Australian services means the loss of 230 local jobs.

Distance Based Separation Trials Underway:

As anticipated and reported in previous Newsdesks, trials of distance based (as opposed to the normal time based) separation of commercial aircraft has begun on oceanic routes through Asia and the Pacific.

Separation is achieved through the use of onboard Area Navigation (RNAV) systems which keep aircraft separated to 80 nautical miles (148km) instead of the usual 10 minutes. RNAV equipped aircraft flying in non radar airspace within Australia have been using 30nm (56km) separation for more than a decade, and it is hoped the information gleaned from the trials will allow the International Civil Aviation Organisation (ICAO) to sanction a further reduction in separation minima to 50nm (93km).

Three years ago, the existing time based separation method was reduced from 15 to 10 minutes over oceanic routes in the Asia/ Pacific region, resulting in substantial savings for the airlines. Since the reduction of the time separation, Qantas has saved about $10m through reduced fuel burn and the distance based method will produce more savings The air traffic services of Australia, Indonesia, Singapore, Papua New Guinea, Fiji, New Zealand, French Polynesia and the USA are taking part in the trials.

 Ansett’s Mixed Result:

For the first time ever, Ansett Transport Industries has released full details of its financial per- formance and has announced a return to an operating profit for the year ending June 30 1993, but also an overall heavy loss.

The company recorded an operating profit before tax and abnormals of $59. 5m for the year (compared with a loss of $91. 2m the previous year, a considerable turnaround by any standard), but when foreign exchange losses are taken into account the result is an overall loss of $181. 2m.

Revenues increased from $2497m to $2668m and the group (comprising Ansett Australia, Ansett WA and Ansett Express plus the remnants of Eastwest) increased its revenue passenger kilometres (RPKS) from 9. 9 billion to 10. 7 billion. In addition, operating costs were reduced by 7%. The company is now beginning its programme of international services, concentrating on the potentially profitable Asian markets.

Bali is the first international port to be served and permission has also been given to fly to Malaysia, Singapore, Japan and New Zealand. The International Air Services Commission (IASC) has also recently approved in principle flights to Hong Kong (refer Airline Affairs, this issue).

Meanwhile, Ansett New Zealand continued to record losses despite an increase in RPKs from 631 to 705 million, while Eastwest has now virtually disappeared, being com- pletely incorporated into Ansett.

Cathay Out of Gatwick

Cathay Pacific will close its London Gatwick passenger operation this November in order to allow greater frequency to London. Heathrow and Manchester airports.

By offering more capacity to Heathrow, the airline says it is responding to travel trends and passenger preference as well as saving itself money. From November 1, Cathay will fly 10 Hong Kong/Heathrow direct flights each week along with daily direct flights to Manchester. In addition, it flies a daily UK freight service.

 No Ifs or Butts, Smoking Is on Finals:

A number of international air- lines have initiated non smoking flights on a range of sectors, reflecting a worldwide trend towards smoke free skies.

Since September 1, Garuda flights between Bali and Townsville, Darwin and Cairns have become non smoking, testing the concept’s acceptance for other Garuda services. British Airways meanwhile was due to implement ano smoking ban on all of its regional European services of less than 90 minutes duration from September 27. Already BA has made permanent a smoking ban on one of its two daily London/Hong Kong services, while trial non smoking flights from London to LA and San Francisco also began in September. Qantas, Cathay Pacific and Singapore Airlines are also at the forefront of introducing smoke free flights.

At an official level, the USA, Canada and Australia have banned smoking on domestic flights, while surprisingly China is following suit. ICAO has even set a 1996 deadline target for a blanket smoking ban on all passenger flights. Follow the leader. With the acquisition of Australian, Qantas is now the region’s second largest carrier, both in terms of fleet size and revenue passenger kilometres flown. The airline’s mainline jet fleet is now based on three principle types as pictured here, the 737, 767 and 747. The airline currently operates 31 7378, with two more due to be delivered, 20 767s with two more on order and 28 7478. (Andrew Briggs • PICK A NUMBER: The Federal

More Fbt Grabs on Way?:

The ports Corporation will introduce a new airline terminal ‘naming policy to the airports it controls by the end of this year.

Gone will be the familiar international and domestic terminology and in their place will come a numbers system such as that in operation at London Heathrow. All international terminals will be known as Terminal one, Qantas domestic terminals will be Terminal five and Ansett’s facilities will be Terminal three. Terminals two and four will be kept in reserve for future use. Terminal two may be used at a later date by Ansett for its international services whilst the numeral four represents ‘death’ in much of Asia and is consequently a no no in view of where much of our tourism is nowadays originating! One major international airport not controlled by the FAC is Cairns, which is run by the Cairns Port Authority. The Authority has been approached to adopt a similar system.

 American Predatory Pricing Charge Defeated:

An Northwest and Continental court action against American Airlines for initiating predatory pricing has failed.

The two airlines took American to court alleging that the carrier’s deep discounting in its Value Pricing Plan during 1902 was designed to eliminate competition. The US Federal jury dismissed the charges although Continental and Northwest are dissatisfied with the verdict, claiming that it was a very difficult case given the US’s complex predatory pricing legal standards.

Business Pushes for Bad Gery’s:

Business people and politicians in western Sydney have begun lobbying the federal government to speed up construc- tion of Sydney’s second major airport at Badgery’s Creek.

The NSW State Government has asked the federal government to end uncertainty about the project, while Penrith City Council believes the airport has become a “forgotten cause” since the March federal elections. It has hired a consultant to increase the proposed airport’s profile.

Badgery’s Creek airport has been listed by the Western Sydney Economic Development Committee as a key to future economic growth in Sydney’s west. Employment, business development and an easing of congestion at Sydney airport are all advantages Badgery’s Creek will bring, say its supporters.

Federal Government is considering yet another way of making life a group which provides jobs for many Australians; by imposing a fringe benefits tax on business people who travel overseas.

The possible crackdown on overseas business travel expenses (at a time when we need to promote exports to the hilt, you can’t do that by sitting in an office looking out the window! Ed) is accompanied by a look at “excessive expenditure on accommodation” for local business people.

The level of accommodation allowed will be in line with public service levels, meaning that any Sydney room costing more than $116 per night would be considered exces- sive and therefore subject to FBT at the rate of 49%. The effect this could have on future three to five star CBD hotel building projects is extreme to say the least and has already been flagged by tourism and development authorities as potentially damaging to an important sector of Australian industry The $116 limit applies to executives earn ing more than $61,100 per annum, while those on less money will be restricted to a Sydney accommodation limit of $87 per day. (Has anyone out there tried getting anything other than a glorified broom cupboard in the Sydney CBD for $87 a night recently? Even $116is severely pushing it!) A food and drinks limit of between $52 and $62 per day is also under consideration.

Oh well, just another example of the “clever country’ at work-if all else fails, tax the buggery out of them! A review of the carrier’s Australian operations will see many of Lufthansa’s services operated by its charter and leisure arm, Condor from next year. The decision was made in the light of double digit growth in the numbers of tourists from Germany and Europe visiting Australia over the past few years, a period when business traffic has remained relatively static. The substitution of Condor over Lufthansa offers a number of benefits given the leisure carrier’s lower cost structure, while a number of flights may be operated out off cities other than Frankfurt, giving Australia further valuable exposure to the lucrative German tourist market.

 Northwest Survival Plan Completed:

The last points of Northwest Airlines’ plans to avoid filing for Chapter 11 bankruptcy have now been put in place.

Following the wage reduction for equity deals struck with its major union groups, Northwest has moved to cut costs by $US1. 2bn over three years, while $US1. 5bn worth of payments to both suppliers and creditors have been renegotiated and extended.

A 1989 loan for $US1. 3bn with its bankers has been extended and revised, as have repayments of a special $US250m loan by Airbus, KLM and United Technologies. Payments to equipment suppliers (Airbus, GE and United Technologies) will also be made under a revised and stretched out timetable.

Every Little Bit Helps:

anyone who has flown from Australia to Britain knows, that early morning arrival at Heathrow can be a pain-you’re probably tired and feeling grubby and even if you can get to your hotel quickly, they probably won’t want to know you before 10am.

However, relief is at hand for British Airways first and business class passengers plus holders of BA’s ‘Executive Gold Club’ or ‘Premier’ cards with the recent opening of the Heathrow Arrivals Lounge.

Passengers will be able to take a shower, have their clothes pressed by a valet, eat breakfast or just relax before leaving the airport. The facility has 23 private rooms, each with shower, vanity units and space for a suitcase. Towels, shower caps, soap, shampoo, razors and hair dryers are all provided while light breakfasts are also available for those passengers who wanted a little more sleep on the final stage of their nightime sector and missed breakfast on the plane.

Qantas Us Fares Up?:

Qantas has indicated an increase in fares to the USA following Continental’s announcement that it will end services to Australia.

Continental’s departure from the market removes one element of the intense competition on US services and the fare increase if it comes – will be despite Qantas being expected to increase its passenger loads.

Qantas says fares to the USA had fallen to the levels of a decade ago while acquisition costs had increased by some $100m per aircraft.

 Is There Something We Should Be Told?:

We all know that Qantas has a preference for Boeing’s products and that Airbus doesn’t seem to get a look in, but the latest Qantas international and domestic timetable takes things a bit too far.

It will be remembered that when Qantas and Australian got together, the latter’s Airbus A300s were included in the deal. The above mentioned timetable has seating plans for all the airline’s aircraft and on one of them it quite clearly says “BOEING A300B4”! Has international co-operation reached new heights? Has the American manufacturer nullified its opposition by taking it over? Will the timetable’s copywriter ever be invited to Toulouse again? I think we should be told!

Reid to Face Enquiry:

Former Southern Cross Holdings (Compass Airlines) deputy chairman Doug Reid is to be summonsed to testify at a public bankruptcy hearing later this year, the intention being to unravel the financial web of his family’s local and offshore trusts.

The bankrupt Reid also faces Corporations Law charges of providing falsified information to the Compass board and is being sued by Compass liquidator for nearly $9. 5m. Creditors claim to be owed nearly $24m following the Compass II collapse in March this year.

Record June Quarter Hides Flat Market:

The level of domestic airline activity in Australia increased to new record levels in the June quarter according to recently released data by the DoTC.

Activity in the June quarter was the highest on record for any June quarter with passenger numbers up 8% and Revenue Passenger Kilometres increasing by almost 12% on the same period last year. However, RPKsfor the June quarter were almost identical with those of March, reflecting stalling demand for domestic air transportation since early this year. Overall traffic though is running about 9% higher for the first half of this year compared with the same period of 1992.

The 1992/93 year, with some 18. 6m pas- sengers uplifted, suffered from particularly weak September and December quarters (by comparison with the previous year) which tended to pull the year total down to just a minimal traffic increase over 1991/92, a year which saw RPKs soar by almost 35% For the June quarter the Ansett group recorded 2. 4m RPKs, an increase of 14% on the previous year whilst the Qantas group recorded 2m for an increase of 12%. For the 1992/93 year, Ansett recorded 9. 6m RPKs (all figures rounded, refer tables for precise data), uplifting 9. 2m passengers. Qantas meanwhile recorded 7. 9m RPKs and 7. 7m рах.

Market share for the year thus worked out at 51% for Ansett and 42% for Qantas while Eastwest recorded 4. 7% and Compass II 2. 4% against 6. 5% for Compass I the previous year. Ironically, if the second had attracted as much patronage as its original name sake it would have probably been the most successful airline in aviation history.

Load factor remained very strongby world standards with Ansett achieving 76. 4% and Qantas a stunning 79. 1%. These figures are typically 10 to 15 percentage points above the US and European norm. Meanwhile, ailing (now essentially non existent) Eastwest at last began to log load factors (72%) that if recorded years earlier may have led to its long term survival whilst Compass II managed just 59. 8% against 71. 8% of its forebear. It is obvious that apart from being critically underfunded, the second Compass simply did not attract enough passengers to ensure survival in what is very much a cashflow orientated business.

Hawaii Not the Flavour of the Month:

Hawaii is beginning to suffer the same fate as many of the Pacific’s smaller islands in recent decades.

Traffic into the island is falling rapidly as tourists begin to go elsewhere with their limited holiday dollars and more and more airlines overfly the Hawaiian Islands. Prior tothe advent of the ultra long range 747-400, it was mandatory to refuel enroute from the continental US to North Asia and vice versa. Some traffic went via Anchorage in Alaska. but most favoured the westbound track. Today much of that traffic flies non stop, even from New York to Tokyo and Hawaii consequently not getting the traffic feed that it did even five or six years back.

This is not a new phenomenon and was something experienced by Fiji (and others) with the advent of the longer-ranging 747-200 in the early seventies. Previously, the 707s and DC-8s had to refuel at Nadi before heading onto Hawaii and the mainland. The 747-200 arrived (via Qantas) and Nadi rapidly dropped off the schedule.

Whenthe 747-400 arrived in the late eighties Hawaii suffered a similar fate. To make matters worse, in recent years Australians could fly to Hawaii on Qantas, Air New Zealand, Continental, United, American or Northwest. Nowadays you can only fly with Qantas and via Auckland with Air New Zealand as all the US carriers have realised that the ultra low yield traffic on the Australia/ US route via Hawaii is simply not enough to make operations viable.

During the first six months of this year Hawaii suffered a 25% drop in visitors from Oceania, a market about two thirds comprised of Australians. This figure is now expected to deteriorate further as capacity has been significantly reduced in the past year alone.

More Australia/Hong Kong Flights:

The International Air Services Commission (IASC) has issued draft determinations which will allow Ansett to begin services to Hong Kong from April 1994 and Qantas to operate additional services from October this year.

The proposals will enable Ansett to operate the equivalent of three Boeing 747 services between Sydney, Melbourne and Hong Kong per week from next year and a further two weekly services from April 1995. It is expected that Ansett will use both 747 and 767-300ER aircraft on the route. Ansett has also applied for capacity on the fast grow ing Australia/Korea route and hopes for an IASC ruling by year end.

Meanwhile, Qantas will be able to operate two additional Boeing 767-300 services each week between Cairns, Brisbane and Hong Kong from this October. Qantas currently flies between Hong Kong and Australia 21 times per week. Some 140,000 Australians visit Hong Kong each year while 82,000 Hong Kong residents come to Australia. This is expected to increase to more than 100,000 by the end of the decade.

The IASC has also released a draft determination which will allow Qantas to fly a third weekly service to the Philippines. The service will operate Sydney/Manila/Brisbane/Sydney and will give the Australian airline greater opportunity to compete with Philippine Airlines, which currently operates 70% of the flights on the route.

Other recent IASC decisions include one to allow Qantas to fly a third weekly service between Sydney and New Caledonia and another allocating freight operator National Airlines freight capacity to New Zealand. National will operate dedicated overnight freight services between Auckland and Sydney using a Boeing 727-100.

 Northwest Complains About Germany:

Hot on the heels of its recent fracas with Qantas and the Australian government over services from the US to Australia via Japan, Northwest Airlines has now filed a complaint against Lufthansa and the German government after Lufthansa forced Northwest to stop its codesharing flights into Germany.

Northwest claims a German court order prevented it from operating codesharing flights with KLM from Boston and Minneapolis to various points in Germany via Amsterdam. A temporary injunction was issued by the German court which banned the “misuse” of codesharing and imposed a $US294,000 fine. In addition, Germany is threatening to renounce the bilateral agreement between itself and the USA.

Northwest is now asking the US Transportation Department to suspend Lufthansa’s authority to operate to at least six of the US ports it now serves. Seems we’ve heard it all before. . . .

 Budget UPS Tourism Spending:

Due to increased levels of funding, the Australian Tourism Commission was one of the few groups to welcome the much criticised Federal Budget.

Funding for overseas marketing increased by $38m, which will allow the Commission to promote new initiatives and special interest areas (such as rural and ecotourism) and to maintain advertising momentum in important markets in the US and Japan, where the falling dollar has eroded the Commission’s buying power at a time when they need to promote hardest.

The Tourism Commission has targeted 6. 82 million arrivals for the year 2000, a target which could result in the creation of 160,000 new jobs over the next seven years.

Over 2. 6 million tourists visited Australiain 1992, while figures for the first five months of 1993 show an increase in arrivals of 15% over the same period of the previous year.

 Passport Demand Drops:

The demand for Australian passports dropped in the 1992/93 financial year to 738,000 compared with 781,000 the previous year.

However, we’re sure you’ll all be delighted to hear that the Department of Foreign Affairs still managed to balance the books, reaching $64m income target for the year thanks to increased passport fees!

PSA Backs Off:

The Prices Surveillance Authority (PSA) has criticism of the Federal Airport’s Corporation’s charges policies in its enquiry final report, but has not changed the underlying theme of its earlier and very critical draft reports.

The PSA has repeated its call for the FAC to move to ‘airport specific’ charges and move away from its previous uniform network pricing policy which used the profits from larger airports to offset losses at smaller ones. It maintains that charges should be directly related to specific services.

The report also says the definition of aeronautical services should be widened to include activities such as airport check-in counters, maintenance, refuelling and baggage handling so their pricing would come within the scope of the PSA.

The report also suggests that the FAC’s $2. 8bn capital works programme will result in a 200-400% increase in landing charges over the next 20 years, which reflects an average increase of 5-10% per annum. It has also recommended a doubling of peak time fees at Sydney Airport to $500 per movement, something which will substantially harm regional operators with smaller capacity aircraft.

One of the non profitable airports currently being subsidised to some extent by those that make money is Sydney’s general, aviation airport at Bankstown. The FAC says Bankstown could be forced to close if a user pays’ system – as proposed by the PSA is applied to it, aircraft owners being forced to move their aircraft elsewhere.

The FAC says landing charges at Bankstown would double under the PSA’s plan and that annual airport charges would in- crease from $638 to $9115. Other things would flow on from there-the cost of a PPL would increase by a third, the decrease in activity would mean 30 FAC jobs would be lost and hundreds of others employed by private companies on the airport would also be rendered jobless.