Airline Affairs

Qantas already operates four inherited A300B4s which are fully depreciated so that essentially their only cost to operate is fuel, maintenance and crewing. As ownership costs represent a sizeable portion of newer aircraft Direct Operating Costs then the attraction of using these existing depreciated assets is obvious.

The Airbus argument is logical to say the least as it notes that there are currently around four dozen surplus B4s available for immediate lease at about a third the per seat cost of a new A300/310 or equivalent 767. The A300 also has an underfloor freight capability far in excess of that available in the smaller 767 in addition to offering a full international standard first class cabin.

On offer are up to eight PanAm B4s which were the last off the Toulouse line before that model was replaced by the-600 version. The aircraft are configured in a three class 252 seat configuration the same as has recently been converted to on Qantas’s existing four aircraft.

One possible scenario has Qantas selling off its seven 767-200ERs, replacing them with leased A300B4s. The used market for 767-200ERs at present is still fairly robust (in relative terms) so the airline (or Airbus) could look forward to disposing of these Pratt JT9 powered aircraft fairly quickly. Elimination of the -200s would also see Qantas return to operating just two makes of high bypass turbofans in its fleet instead of three as both the A300 and 767-300s are GE CF6 powered and the 747 fleet is the domain of Rolls-Royce.

The airline might also soon be running into capacity problems at Sydney airport. With Laurie Brereton now Aviation Minister, a man seemingly dedicated to reducing traffic at KSA, not increasing it, it is not beyond reason that per hour capacity ceilings will be initiated sooner than later. Qantas is already short of peak hour domestic capacity with only four A300s and a few available 767s of just 200 seats. Additional A300s would prove a boon if this occurs and will give the airline a boost over its competitor which would be in an even worse situation if this, as is likely, occurs.

Qantas could also operate the A300s through its growing Asian  out of Singapore and Bangkok, operating direct services into Australia’s secondary cities and benefiting via an increased freight capability in addition to having a proper first class cabin. Being fully depreciated, yet still a modern generation jet, the A300s would have seat kilometre costs well below that of the 767s they replace in addition to being able to explore significant long term high value freight markets.

The aircraft could also offer enhanced uplift on the Tasman. As soon as Ansett enters this market (1995?) Qantas will have to act fast to ensure it doesn’t lose too much market share to its primary competitor. Running high frequency A300s instead of 747s is one answer while even routes such as Auckland/Cairns/Japan could be viable with some lateral thinking applied to developing a through market for high value NZ agricultural products to Asia.

All it needs is a little old fashioned lateral thinking. Will it happen? Watch this space.

Indy Race Good for Qantas:

Just as entertainment events such as the Australian Grand Prix and Phantom of the Opera are good for the airline business, so too is the IndyCar Grand Prix at Surfers Paradise.

Qantas expects this year’s event to generate an extra $2m in revenue as it is the official airline for the race, carrying the drivers, support crews and spectators. The airline has special Indy-Gold Coast domestic and international packages to coincide with the event.

 Cabinet Reshuffle Bad News for Aviation?

The late December Federal Cabinet reshuffle has left potentially aviation in a worse situation than it has been since the days of Gary Punch as Aviation Minister during the latter eighties.

Out is relatively long time competent aviation minister, Bob Collins, to be replaced by Laurie Brereton, a rising force within the Keating government yet someone who by past performance appears to be fervently anti aviation. As one source put it, “It’s like putting the shark in charge of the swimming pool!” Laurie Brereton, in conjunction with MP’s Gary Punch and Leo McLeay have been instrumental in fighting against the construction of Sydney’s essential parallel runway since its inception. On top of that, Brereton has also to juggle the sensitive and time consuming portfolio of Industrial Relations along with Aviation, an almost impossible task for even a minister that sincerely has aviation’s best interest at heart.

The first casualty could be STARS. Scheduled for a startup at Sydney early in the new year, the STARS air traffic flow system would hopefully increase movements at the airport, relieve peak period congestion and enhance overall productivity for all involved. Ansett claim they are losing an average of more than 200 aircraft operating hours per week through traffic induced delays at Sydney, the situation would be even worse for Qantas. The ongoing cost of this to all airlines is tremendous.

No doubt this will now be scuttled as Brereton & Co were paramount in scrapping the original STARS trial phase in November 1992 after it had already been approved (with great fanfare) by Minister Collins. Also on the cards is a peak period capacity ceiling, limiting movements to ease congestion (logical) and reduce noise (unavoidable if residents choose to live within proximity of an airport or flightpath).

As Australia emerges from the recession it would be nice to think that we had a Minister that at least had our aspirations at heart, that understood our many problems and was able to work with industry to quickly and sensibly enact change that would boost aviation, not decimate it further. We live in hope!

Plans for Budget Backpacker Airline:

A new startup airline UODA Air and the Archerfield based Air Training Centre intends to commence a budget air- line service using three DC-3s.

UODA (Up Over Downunder Air) intends to use three 26 seat Douglas DC-3s imported from Thailand for services between regional centres and secondary airports at major cities. The service is designed to cater for the growing backpacker market, being coordinated through the Backpacker Association of Australia, operating along similar lines as Europe’s. The new airline intends to offer $1000 tickets valid for three months of unlimited travel on the network.

UODA aircrew will be provided by the Air Training Centre, with pilots graduating from the flight training school able to gain commercial flying experience with the new airline.

 Parallel Runway Ahead of Budget and Schedule:

Work on Sydney Airport’s parallel runway is progressing four months ahead of schedule and is currently $30m under budget according to the FAC.

Savings have been attributed to good management, the use of new methods of construction, the speed of work and the absence of industrial disputes. Construction of the third runway will be completed by year’s end although it will not be opened until the scheduled date of July 1995 when the CAA is due to complete its portion of the work. Incidentally, Badgerys Creek will be opened one month later.

Meanwhile, sewage sludge has been used to green the surrounds of the new runway. Some 20,000 tonnes of sewage sludge was composted and used for landscaping 140 hectares at the airport. The use of such sludge at the airport has in fact proven so successful that a number of farmers have shown interest in the technique.

Cathay Pacific Orders A340s:

Cathay Pacific has ordered six Airbus A340-300sworthmorethan $US800m, while it will lease four A340-2008 in the interim. The first of the A340-300s will be delivered to Cathay in July 1996, but in the interim the airline will lease four A340- 200s with first deliveries this October (the A340-200s were previously being built to an order from Philippines Airlines).

The A340s will complement Cathay’s larger 747-400 fleet, allowing more high frequency non stop services to centres in Europe, with other routes to be operated include Australasia and North America. Initially services will be operated to Amsterdam, Paris, Rome and Zurich.

Already Cathay Pacific has 10 A330 twins on firm order, with which the A340 shares considerable commonality benefits, while Boeing 777s are also on order. The leased A340-200s will be phased out of service when Cathay takes delivery of the higher weight A340-300.

Virgin Atlantic has taken delivery of the first of four A340s it has on order. Christened “Lady in Red” in a flam-boyant naming ceremony involving the Princess of Wales, the A340 is configured in a three class arrangement, with Upper Class featuring a lounge and bar, while in all classes inseat video entertainment systems are provided, offering a choice of 16 channels, inflight shopping and even gam- bling.

Like Cathay, Virgin’s A340s will fly non stop services from Europe to Asia, and will be used to inaugurate this February the carrier’s London/Hong Kong service.

 Successful Hamilton Float:

Investors have oversubscribed the $115m share float of Hamilton Island, the sale closing in just two weeks.

The float followed previous unsuccessful attempts to sell the resort island, which has been in the hands of receivers since 1992. The Island’s airport though will remain 50% controlled by Ansett.

 Fac Reports Another Strong Year:

1992/93 again proved a boom year for the Federal Airports Corporation.

The a consolidated profit before tax of $82. 3m, down 7% on last year though revenue increased from $394m to $429m. The total return to its sole shareholder was nearly $169m representing a return to the Federal Government of nearly 40c in the dollar. On top of this the FAC recently repaid a Federal Government “loan” of some $300m taking its payments to Government since its inception well past the one billion dollar mark.

Despite this the Government is still actively arguing that it’s return on investment should be factored higher whilst FAC management is lobbying for a downwards re-evaluation of its loss making GA airports in an effort to at least get them realistically valued. The general consensus within industry, and the FAC itself, is that the initial valuation given on the bulk of its assets, andin particularitsGA airports, was greatly inflated and did not take into account the effects of several years of recession upon real estate values.

Of the FAC’s 19 airports, only seven (refer table) made an operating profit, all these being the primary centres where non aeronautical activity greatly boosts the overall revenue base of the airport concerned. Small GA and secondary airports simply don’t have this luxury and despite reducing losses, will probably never really become true profit centres till their overall operating debt is realistically revalued.

Meanwhile, to further boost its revenue base the FAC embarked on a $US200m Eurobond issue in late ’93 and effective January 1 increased the GAIT charge from $638 to $702 per tonne. At Group 1 airports the minimum landing from $25 to $27. 50 and GA parking increases from $10 to $11 per 24 hour period.

 Bdw Suggests 1994 a Boom Year for Airlines:

BDW Aviation Service’s Aviation Analyst publication has noted that a number of positive indications point to the domestic airlines experiencing close to boom conditions during 1994.

A combination of a number of factors points to a highly successful year, the most significant of these being the consistent and steady economic growth. 1993 saw the first signs of a pickup in traffic growth in line with improvements in the economy, with travel agents recording 20% higher takings for 1993 than in 1992, while traffic figures for the last quarter of ’93 in particular are expected to show strong growth. Overall domestic uplift in the Sept quarter UNITED AIRLINES was up almost 20% whilst Qantas recently reported that in the same period its international traffic was up by 19% and domestic 15% The December quarter was expected to exceed these figures comfortably. In addition, increases in traffic will absorb capacity and increase the airlines’ yields, while reducing the volume of discount fares on the market.

Another encouraging sign is the increase in the number of Australians choosing to holiday at home rather than overseas – a result of the effects of a relatively weak Australian dollar, plus the growing recognition and acceptance of the number and quality of Australian holiday products.

Furthermore, the low price stimulus effect that both Compasses had on introducing new people to flying has continued, with a significant proportion of these travellers becoming a permanent fixture of the air travel market. Thanks to deregulation, people who once travelled by road or rail are beginning to consider aviation as a viable alternative, particularly on the longer journeys where time at the destination is thus maximised through reduced travel time and less journey fatigue.

Strong growth in inbound international tourism numbers is also having a positive effect on domestic aviation. International tourist numbers grew by 15. 6% last year over 1992, with international travellers flying on average one to two domestic sectors during their stays. By 1996, based on continued growth in international visitors, these tourists could account for as much as seven million flights. Aviation Analyst also notes that international visitors often focus on pure holiday and tourism destinations, such as Alice Springs. Besides contributing to airline profitability, the foreign visitors effectively subsidise the expansion of new leisure routes for Australian travellers, thus continually contributing to the growth cycle.

BDW also noted that the announcement that Sydney is to be the host city for the 2000 Olympics could potentially have a *massive catalytic effect” on the stimulation of international tourism. Strong growth at alternative entry points to Australia, such as Cairns, Darwin and Perth is also good news, which for the domestic airlines translates into additional long haul domestic sectors (which again brings the indirect subsidy factor into play).

However, Aviation Analyst notes that prospects for international airlines (despite growth in inbound foreign tourists) are not so promising, with continuing overcapacity on many routes, and low yields. With many competitors on most routes, airlines are likely to be unwilling to take the initiative to raise fares.

Trans Tasman and trans Pacific routes are a different story though as the withdrawal of Continental has resulted in a substantial shortfall in capacity.

 Workers Unite!

United Airlines will become the USA’s largest employee owned company if the airline board’s decision to sell 53% of its stock to workers is approved by the various unions (including the pilots’) involved.

The $US5bn deal calls for wage cuts of up to 15% and other labour concessions including a five year wage freeze, no strikes for a time and productivity improvements in exchange for a minimum 53% of the stock initially, a cut which could eventually grow to 63%. The workers also gain comprehensive guarantees of job protection.

One new aspect of United’s operations to come out of the negotiations is a planned low cost airline (codenamed U-2) which would fly on routes shorter than 1200km.

Australia/Us Dispute Settled:

The lengthy dispute between the US and Australia over Australia/Asia/US route rights has been settled after a sometimes acrimonious battle, but already doubts have been expressed about the real benefit to Australia.

The agreement provides for two US designated carriers to each fly three services between Japan and Australia, while Australian operators can fly an equivalent number of services from Asia to the USA. Specifically excluded, however, is automatic access for Australian carriers to Japan/USA routes, and Australia as yet has no traffic rights between any Asian country and the USA. Japan says it will vigorously fight any application for such rights, while an Australian operator will be able to fly from Hong Kong, Seoul, Taipei and one other point in Asia to the USA, subject to approval by the relevant countries.

The agreement also retains the 50% upper limit on Japan/Australia passengers imposed on Northwest Airlines by the Japanese and Australian governments. Northwesthas acceptedthis condition, but United Airlines – which would be subject to the same restriction – has not accepted it as yet, nor has it agreed to fly the route. United however continues to lobby the Japanese authorities for route approval but an airline spokesperson did not think that this was likely to be resolved in the near future.

Specifically, the agreement allows for the removal of the restriction guaranteeing US carriers eight weekly services on the North Pacific route between the USA and Australia as a prerequisite to the first Aus- tralian service between Asia and the USA; a maximum of two carriers on the US/Asia/ Australia route from each country; a maxi- mum frequency of three flights per week for each carrier, one additional weekly service for an Australian carrier from Asia to one or more unused primary US gate- ways; approval for Australian carriers to use Mexico as an extra stopping point on Australia/US (and vice versa) services; and removal of some of the existing US restric- tions on ‘beyond rights’ to Canada, Europe and the UK.

In addition, Qantas will be issued permanent route licences by the USA, removing the previous requirement to reapply every six months.

Some Australian industry observers are less than happy with the accord, phrases such as “cop out” and “window dressing” being used to aviation writers.

The main problem for Australian carriers is the need for Japan to approve any services between it and the USA. It has been reported that a source close to Japan Airlines said there was a “snowball’s chance in hell” of that happening, which makes any real benefit Australia might gain from this agreement a little obscure.

 Aviation Statistics Return:

After months of haggling with the two airlines, Dept of Transport officials have at last come to agreement on what constitutes a domestic and international passenger.

The dispute caused all issuing of domestic traffic data to cease from last July leaving a considerable gap in the intelligence available in assessing what is actually happening within the domestic airline environment.

As mooted in our November issue (p16) all concerned have wisely taken the view that a domestic passenger is one that is flying from one Australian port to another. The DoT has now issued two data tables, one with pax flying purely domestic sectors and ones who are flying a domestic sector (say Adelaide/Sydney to connect with QF1 or similar) to specifically connect with an international flight.

As this latter data almost solely refers only to Qantas and is small in itself, for reasons of sanity AA will group both fig ures together for our data tables which recommence in this issue. Unfortunately as the data is slightly skewed on what it formerly was the DoT cannot now directly compare current data with that achieved previously, thus it will be well into next year before the tables can again be used to determine whether or not traffic is actually growing or declining as the case may be.

A cursory comparison though of the September ’93 quarter shows an increase in RPKs in the region of 20% with Ansett again claiming market superiority with 52. 1% of the major airline market (aircraft of more than 38 seats) against Qantas with just 47. 9% RPKs for the Sept quarter were 5,631,752 against 4,696,429 for the same quarter in 1992, a period when for a few months traffic growth dried up as the re- cession hit its peak. It was, by historical standards, a bad time for Compass II to hit the jetway, if it had waited a year perhaps the situation would have been different.

We are also planning to produce our Top 20 Route data in a more relevant quarterly basis, something that will hopefully iron out the highs and lows of the various school holiday periods. This should commence in our next issue.

Qantas Ditches San Francisco:

Effective March 27 Qantas will cease serving San Francisco in favour of additional frequencies to Los Angeles.

The move was not unexpected and is believed to foreshadow similar route withdrawals to be announced during the course of this issue. To make up the US deficit the airline is adding an eleventh non stop 747- 400 each week from March 27 followed by a twelfth commencing June 20. Qantas will also replace its four 747 Combi flights to LA via Nadi with just two 747-400s, reducingtrip time but also reducing capacity into Fiji in addition to overall cargo uplift from Fiji to the US.

Qantas has served San Francisco since 1954 and now literally hands the market over to rival United which commences its new thrice weekly non stop 747-400 service from mid year. United should do exceedingly well on the route given Qantas’ departure and the fact that San Francisco is a major United hub allowing quick transfers to the vast UA domestic network in addition to further non stop services to the major European capitals.

Other Qantas Pacific changes involve the current six 767 per week Cairns/Honolulu services being replaced by four 747 Combis flying Sydney/Cairns/Honolulu/LA whilst the existing twice weekly LA/ Papeete/Sydney Combis survive intact.

 Sayonara Eastwest:

After a 46 year lifespan, one of Australia’s proudest airlines died without a whimper at midnight on December 31.

Effective that moment, Eastwest Airlines officially ceased to exist as a corporate and legal entity. As readers would be aware, the Ansett owned carrier had in reality stopped operations some months earlier after a relatively painless death through 1992/93 that progressively saw its various departments broken up and integrated within the parent organisation.

The carrier’s demise was due simply to the fact that Eastwest, no matter what surgery was performed upon it, never really seemed able to turn a profit, and unlike perennial loss maker, Ansett New Zealand, the parent did at least have the luxury of winding up the ailing carrier. The move is expected to add an additional one million passengers per annum to the ATI uplift figures whilst hopefully making a profit in the process.

The year just past was actually a bad one for Australia’s disappearing airline community. Gone during the course of 1993 was Australian Airlines, Compass II, Eastwest, Ansett WA and for all intents and purposes the old Airlines of NSW via its Ansett Express rejuvenation.

A major historical feature on Eastwest will appear in a future issue.

Airlines See Massive Growth Ahead in Holiday Package Market:

Both Ansett and Qantas have seen unprecedented growth in the domestic package holiday market this past year.

Qantas sold some 200,000 packages through 1993 and expects to sell 350,000 this year, an increase of 75% and more than double the 1992 figure. Ansett performed similarly while both carriers are putting the boom in domestic holiday travel down to a long overdue recognition of the diversity of destinations available at cost effective prices within our own country plus the weak exchange rate the Australian dollar ‘enjoys’ overseas nowadays.

According to Qantas GM Australia, Mr John Schaap, the Gold Coast is its number one destination with a growth of 38% in 1993, second most popular was Tasmania whilst surprisingly the destination that showed the greatest percentage increase was Canberra, up a phenomenal 373%.

“We are finding a very strong relationship between promotional work done by the States and the number of tourists they attract. Where local tourism bodies creatively promote themselves and arrange special events, the visitor figures can leap overnight. ” Stated Mr Schaap.

Meanwhile, rescheduling of existing Qantas capacity and a better utilisation of domestically flown 747 and 767 aircraft has given the airline an effective increase in capacity of around 15% compared with a year ago. Ansett is also boosting capacity by 28,000 seats a week with the introduction of three additional 737s and a new schedule effective this March. Ansett has increased overall capacity by 11% and will boost capacity to northern Queensland by 38%, southern Queensland by 22% and Hamilton Island by 41%.

Of particular interest was that both airlines attributed some of the strong interest in domestic tourism to the popularity of the various TV lifestyle and travel shows, in particular the ABC’s ‘Holiday’ and the Nine Network’s ‘Getaway’.

Boeing Further Cuts Production:

The continuing depressed state of the new airliner business has forced Boeing to further cut its production rates, following on from previous significant cuts announced last year.

The 737 and 747 are the models which will have their production rates adjusted, the former dropping from the current 10 per month to just 8. 5 per month in November this year and the latter from five per month to just two per month in January 1995. The 757 and 767 twinjets will remain at the current rates, although the effect will be that Boeing’s overall airliner production rate will reduce from 21 to 18. 5 per month by this time next year, the lowest for some years.

An unfortunate byproduct is the fact that these latest cuts could result in the loss of a further 3000 jobs at Boeing in addition to the 27,000 already announced for imple- mentation by the middle of 1994. The cuts are also bad news for Australia as Hawker de Havilland manufacture the 737’s composite ailerons and the 747’s entire wing. leading edge slats.

Southwest Expands:

Successful US carrier Southwest Airlines has broad-ened its horizons by purchasing Salt Lake City based Morris Air for $US130m.

For nine years a profitable charter operator, Morris Air began scheduled low fare services in December 1992 with a fleet of 21 Boeing 737-300s, the same aircraft type used by Southwest. The deal gives Southwest 14 new city destinations (it has 37 already) and will allow it to expand into the northwest US market. The airline has already begun an expansion programme which is taking it into the northeast.

Morris Air will initially continue to operate its current schedules under its own name, the full merger taking place over a two to three year period.

 UK Plans Departure Tax:

One of the last remaining ‘departure tax free zones’ Britain is to lose that pleasant status from October this year.

The UK govt expects to raise £330m (about $725m) in the first full year of the tax, which is to be introduced because “air travel is undertaxed compared with other sectors of the economy”, according to the Chancellor of the Exchequer.

The Brits will pay the tax not only as they depart for foreign shores, but also on internal flights. Flights within the UK and to European Union destinations will attract a $5 ($11) tax, and those travelling further afield will pay $10 ($22). Airlines and tour operators have raised strong objections to the tax, noting that rail, coach and ferry users (and Channel Tunnellers) will not have to pay it.

Australian air travellers are no doubt aware that our departure tax increased by $5 to $25 on January 1, boosting the government’s coffers via this tax to more than $70m this year.

Strike Costs American Dearly:

A five day strike by flight attendants last November is expected to cost American Airlinessome $US160m and wipe out the encouraging $US143m profit it recorded in the first nine months of 1993.

The strike effected two thirds of American’s operations and the airline estimates 1. 3 million passengers were lost to other operators. United Airlines is one which gained and reported an 11% increase in passenger traffic, most of it thanks to the problems at American.

Air France was another to suffer from union action late last year. A 20 day strike in October resulting in a 24% reduction in passenger numbers, revenue passenger kilometres (RPKs) were down by 12% and freight tonnage was halved during the month. Air France is set to declare a loss of $2bn this year.

 Airlines Show Some Growth, But. . .

Total scheduled traffic of the world’s airlines in 1993 was 3% above 1992 figures and international scheduled traffic was up by 7%, according to preliminary estimates released by the International Civil Aviation Organisation (ICAO).

The estimates are based on incomplete data but indicate that total traffic carried by ICAO’s 182 member states on scheduled services would be about 1,166,000,000 passengers and 17. 5 million tonnes of freight. Freight traffic, which rose by about 6% in terms of tonnes kilometres, notably outperformed passenger traffic which rose only about 1% in passenger kilometres. Available seat capacity increased by the same amount, and passenger load factor therefore remained at 66% The international segment accounted for the greatest growth in both the passenger and freight segments, while the lower growth in total traffic results from a lack of significant growth in the US domestic market and a substantial decline in traffic recorded by the Commonwealth of Independent States (ex USSR) for the second year in a row.

Overall, worldwide domestic traffic fell by about 3% in 1993.

 Ansett Reduces Malaysian Commitment:

Ansett Australia has had its application to the International Air Services Commission (IASC) for reduced proposed services to Malaysia accepted and a draft decision issued in its favour.

Ansett’s application also involved delaying the start of its services to Malaysia by a year to January 1996 but the Commission has suggested an extension only to November this year, the date by which Ansett is required to begin its Hong Kong and Singapore services.

Ansett sought a reduction in its Malaysian frequency from the originally applied for and approved 3. 6 Boeing 747 equivalent units of capacity per week to six Boeing 767 services each week. With 3. 1747 equivalents already available on Malaysian serv ices, Ansett’s application when implemented – will leave 6. 5 units ‘up for grabs’ for other operators.

The Commission noted it would generally disapprove of applicants seeking to return awarded capacity and to indulge in lengthy periods between the granting of capacity and the commencement of operations, but circumstances allowed it to make some concessions on this occasion.

Caa Reorganises:

The Civil Aviation Authority is to undergo some organisational changes intended to improve its integration of planning services.

Changes include the establishment of a Planning and Strategy Division, the abolition of the Corporate Services Division and the revamping of the existing Corporate Finance Division which will become the Finance and Administration Division. This will include the Office of Legal Counsel, Insurance, Corporate Security and Corporate Secretariat activities.

The new Planning and Strategy Division will be responsible for planning coordination and implementation, public and government relations and industry and business development.

Compass Loss Hits WA Tourism:

Statistics released by the Bureau of Tourism Research indicate that the flow of tourists to Western Australia has been re- duced following the demise of Compass Airlines.

The figures show that only 252,000 domestic passengers flew into Perth Airport in the 1992/93 financial year, compared with 408,000 in 1991/92 when the original Compass was at its peak. The WA Tourism Commission says that WA is the state most affected by Compass’ collapse because in 1991/92 some 82% of all eastern state visitors arrived by air. This was reduced to 76% last year.

Qantas Backs Fbt Challenge:

Qantas has thrown its weight behind a legal challenge to the Australian Tax ruling that frequent flyer benefits are subject to fringe benefits tax.

The airline is supporting one of its frequent flyers, who is appealing her liability to pay tax on free air tickets obtained by redeeming frequent flyer points. Her case will test the legality of the whole issue, and Qantas is meeting the legal costs of the challenge, including the hiring of a Queen’s Council. We’ll report the outcome of this important test case as soon as it is known.

Ansett Debt Rating Upgrade:

Ansett Transport Industries has had its debt rating upgraded from B minus to B by credit rating agency Standard and Poor’s. The move reflects Ansett’s improved op- erational performance, return to profitability, strengthened cashflow and improved market prospects.

Ansett co-owner TNT Ltd has also been given a boost by Standard and Poor’s with its senior implied debt rating going up from B minus to B, its first upgrading for more than two years and again reflecting an improvement in performance and prospects. TNT still has a way to go to achieve its desired minimum investment grade rating of BBB minus, which will give it lower borrowing costs.

Standard and Poor’s has indicated TNT could be subject to further upgrading as its fortunes dramatically improve. Already, its share price has tripled in under a year and the company now looks set to retake its position as a profitable major force in worldwide transportation.

 Cairns Continues Growing:

Cairns Airport continues to record spectacular growth, the 1992/93 financial year showing total passenger movements increasing by 15% and reaching two million for the first time.

The strong growth helped the airport’s operator, the Cairns Port Authority, record a net profit of $10. 68m for the year compared with $6. 14m in 1991/92. Revenue increased by 24%, aircraft landings went up by 6% and international arrivals and departures reached 822,976 passengers.

Cairns is now the fifth busiest international airport in Australia and has not increased its landing charges since 1990.

More Seats to the Territory:

Ansett Australia is to increase its frequency of flights to and from the Northern Territory later this month.

The airline will introduce a new daily nonstop service between Darwin and Sydney and will also introduce 24% extra capacity on the Alice Springs/Adelaide route. In addition, an extra daily Boeing 737 service will fly from Cairns to Ayers Rock and from Alice Springs to Cairns. The new services represent an overall 36% increase in Ansett’s capacity to the Territory.

Qantas is also contributing to the growth in capacity with a new non stop Tokyo/ Darwin service.

Low Oil Prices Help Airlines:

Dropping fuel prices are helping airlines’ attempts to achieve profitability as an apparently small reduction in the price of a barrel of crude oil can have a marked effect at the other end of the scale.

Ansett, for example, would save $US5m every year with a $US1. 00 drop in the price of a barrel of oil, or lose the same amount with a similar increase in the price. Qantas uses about 16. 5 million barrels of fuel each year, so the potential for savings (or increases) is obvious.

 Northwest Shows Improvement:

Northwest Airlines has recorded a useful increase in load factors in 1993, the result of passenger growth of 2. 4% in the US domestic market and capacity decreases overall.

Continually increasing capacity has been one of the major problems facingthe world’s airlines in recent times, capacity consistently increasing faster than passenger growth. Northwest has achieved capacity reductions of 2. 3% overall, 7. 0% on the Atlantic route and a substantial 9. 0% in the Pacific. Although capacity on domestic services increased by 0. 4%, the increase in passengers far outweighed this.

The result of all this is a general improvement in load factors and therefore financial performance. Overall it was 66. 7% in 1993 (up 1. 4%), while it was a very high 75. 1% on Atlantic services, 70. 4% in the Pacific and 63. 5% on domestic services.

Overall, Northwest’s passenger traffic decreased by 0. 3% in 1993 while freight went up by 3. 8%

Concerns Over Capacity Reduction:

Concern has been expressed by the Australian Tourist Commission over a reduction in capacity on Australia/Europe routes and the compound effect this is having on key Asian hubs.

According to the Commission, insufficient airline capacity is becoming a restrictive factor in several key European markets which in turn could restrict growth out of important Asian hubs such as Bangkok. With more tourists travelling from Europe to Australia but with fewer seats available, passengers wishing to travel from, say, Bangkok to Australia might find it difficult to book a seat. The long term damage this could do to Australian tourism is significant to say the least.

An indication of the growth in European travel to Australia is reflected by Germany, which now provides Australia with its seventh largest source of visitors. The first nine months of 1993 saw 71,000 Germans travel to Australia, an increase of 18. 7% on the same period of 1992. Italy is also showing strong growth despite fairly restrictive air links between the two countries.

Relief for Compass Ticket Holders:

There was some good news for holders of useless Compass Airlines tickets just before Christmas when National Mutual Trustees announced that any one holding an insured Compass ticket bought before the airline went into receivership last March is eligible for a partial refund.

The refund amounts to 62. 8 cents in the dollar and 11,500 ticket holders were immediately sent cheques for an appropriate amount. More than 25,000 people applied for a refund after Compass’ demise and the eligibility of some of these claims is still being investigated by the insurer.

Charges against former Compass deputy chairman Doug Reid are now unlikely to reach the committal stage until at least the second half of the year, although the matter is listed for mention in the Brisbane Magistrate’s Court this month. Reid does not have to attend this hearing and his existing bail has been extended.

 Airport Privatisation Recommended:

The head of the regional development taskforce, ACTU secretary Bill Kelty, has put forward proposals which could see some of Australia’s major airports privatised.

Among the taskforce’s proposals is one which recommends selling part or all of the airports now owned by the government, closing Essendon, selling Perth and upgrading Sydney’s proposed new at Badgerys Creek to international status.

The recommendations have met with a mixed response, opposition tourism and aviation shadow minister David Jull saying the plans were shortsighted because of their piecemeal approach. He said selling the airports could only be considered in a coordinated way but not merely as a short term means of raising funds for major rail and road projects.

The Committee for Melbourne has responded positively to the plan as it effects Tullamarine, saying that finding buyers for AIR CANADA it would not be a problem if a favourable tax and finance structure existed.

The Taskforce’s recommendation that Essendon Airport be closed has been hailed by some and criticised by others. The moving of Essendon’s facilities to a proposed secondary airport at Berwick in Melbourne’s southeast has been suggested.

Those in favour of closing Essendon point out its $5m loss last financial year (a loss covered by FAC profits at other airports) and the emotional issue of safety. Those who work or have businesses at Essendon have reacted angrily to the proposal, saying that a move to Berwick or anywhere else would result in job losses, cost $50-80m to perform and result in few if any gains in efficiency and safety.

 Fares Remain Down:

A Prices Surveillance Authority survey has revealed that on average, airfares on the 21 routes examined declined by 29% in the September 1993 quarter.

The PSA says that since domestic deregulation in late 1990, airfares have fallen by about 25% while passenger growth of 59% has been recorded. The data suggests that discounting remains an important marketing tool for the airlines and that demand for interstate services continues to strengthen.

As far as international airfares are concerned, there are suggestions that the recent ‘fare wars’ which have resulted in heavy discounting may be over.

Long haul carriers have already an- nounced fare increases to the UK and Eu- rope from the end of this month (on top of the usual peak season rise), while the with- drawal of Continental from Australia/US services has resulted in a shortage of seats on these flights and therefore no need for the remaining airlines to fight for custom by offering large discounts.

Two for One Deals a Winner:

The two for the price of one’ deals offered by initially Ansett and then followed by Qantas on domestic flights in January and February have proved to be enormously popular.

The idea was to fill otherwise empty seats in a traditionally quiet period, examples of the bargains on offer from Ansett include return tickets for two from Sydney to Melbourne for just $299, or $328 less than the full economy return fare. Ansett also offered Avis car hire for three days at the two day rate. Some 170,000 travellers. took advantage of the offer, 100,000 of them choosing Ansett’s deal and the remainder Qantas’.

A big winner was Tasmania, which ac- counted for rankings of first (Hobart/Sydney), third (Hobart/Melbourne) and fourth (Launceston/Melbourne) out of the 375 Ansett routes on which the discounts were offered. There was about a 50:50 split of Tasmanians travelling to the mainland and mainlanders travelling south on these routes.

London Airports Need More Capacity:

London’s three airports (Heathrow, Gatwick and Stansted) will need an increase in capacity to meet future demand, according to a report by the British Airports Authority.

The BAA predicts that by the turn of the century, London’s airports will handle one third more passengers than the current 67 million per annum, an average annual growth rate of a conservative 3. 5%. In addition, the BAA expects cargo through London to increase by about 8% per annum in the same period.

Heathrow is and will remain London’s prime airport, although Gatwick is also extremely busy most of the time. Stansted (which has not yet lured a substantial number of operators and therefore passengers to it) is presently underutilised.

The BAA has noted that many travellers drive past Gatwick in order to get to Heathrow, which is needs more large capacity widebody airliners operating to it to help relieve the situation.

The discontinuation of general aviation flights to Heathrow will help, as will the planned further development of Redhill aerodrome for GA and commuter flights (refer p13 Oct 93 AA). Redhill will also help ease congestion at Gatwick, from which it is only 8km distant.

 Like a Wounded Bull:

Airlines are up in arms about the landing charges. proposed for Japan’s new Kansai Intemational Airport and talk of refusing to pay and court action is in the air.

Kansai management proposes to impose a landing charge of $US9525 (about $A13,600) on a Boeing 747-400, considerably more than major airports in other countries. By comparison, Frankfurt charges $US4654 for a 747-400, Amster- dam $US3903, Paris CDG $US3713, New York JFK $US2326, Hong Kong $US2291 and Manila $US1773. Perhaps surprisingly, landing charges for the same aircraft at London Heathrow and Los Angeles are bargain basement value at just $US648 and $US324 though the latter has increased substantially in recent months.

Tokyo’s two international airports are both at the very expensive end of the scale, Narita (presently the most expensive in the world) charging $US8616 and downtown Haneda $US6523 Representatives from the International Air Transport Association (IATA) have met with Kansai International Airport Company (KIAC) officials to express concern and try to point out the deterrent effect the high charges could have. Pressure is being applied to the Japanese government by interested parties to force the KIAC to reconsider its position.

 Hazelton Float a Major Success:

The sharemarket float of Hazelton Airlines has proven a major success reflecting the current boom in sharemarket activity and the long term economic viability of the growing regional.

Listed in late December were 10 million $1. 00 shares which were oversubscribed so rapidly that the issue was closed off a day earlier than first planned. Total funds raised was $10. 5m though at least $700,000 of this has gone to pay the army of advisors and consultants required in this modem era to float a company. Unlike the two Compass’, Hazelton shares have performed strongly since their listing, hovering around the $1. 50+ region at presstime, a remarkable performance by any measure.

The additional funding will be used to consolidate Hazelton’s financial position and allow it to embark upon a programme of acquiring the modern generation commuter aircraft that it requires to serve its current and planned route structure.

The noteworthy success of the float augurs well for Qantas and a possible public float of a portion of ATI in the coming year and a half.