Airline Profile – Sunstate Airlines

The commencement of operations

Commencing regular operations from Cairns in July 1957, ‘Bushies’ fleet of venerable DC-3s plied the rugged and of ten flood isolated areas of northern Queensland under such guises as BPA and later, after the signing of an interline agreement with Ansett in September 1981, as Queensland Airways.

With the provision of two leased Fokker Friendships and the acquisition of the Gladstone/Bundaberg/Maryborough route, Ansett gained ownership of the operating name which, in December of that year, became Air Queensland. During the mid eighties, Air Queensland fell under Trans Australia ownership, and by 1987 was operating six F27s, four DC-3s, two ATR 42s and five Twin Otters. The odd arrangement between Trans Australia and Ansett’s interline agreement eventually forced the closure of Air Queensland’s operations in late April 1988, with two of the F27s transferred to Australian Airlines and other aircraft placed into storage pending sale.

Australian Regional was born out of Air Queensland’s operations, taking on the lease of two Friendship’s transferred to Australian, and five Twin Otters. The airline’s operations covered the northern Queensland resort centres of Cairns, Brampton, Dunk and Great Keppel Islands, Mackay, Proserpine and Rockhampton. The F27s were ultimately replaced with a brand new Dash 8 in 1991.

In more recent years the ARAQ operation was scaled down to include only five DHC-6 Twin Otters, with the Dash 8 transferred to Brisbane based Sunstate in July 1992.

Sunstate Airlines (Queensland) became part of the Australian Airlines fold in 1991 after having survived ten years as an independent operator based in Maryborough, north of Brisbane.

Founded in November 1981 by Maryborough businessman Bevan Whitaker, the airline commenced scheduled services on the Bundaberg/Maryborough/Brisbane route using a small fleet of 17 seat Bandeirantes.

With rising competition from Australian and Ansett’s Fokker Friendship services, Sunstate introduced the Shorts 330 and 360 over its developing network throughout Queensland. These aircraft have until recently formed the backbone of Sunstate’s operation under the ownership of Australian Airlines.

Today’s airline Today’s merged Sunstate, with 175 staff and 12 aircraft comprising four Shorts 360s, three Dash 8s and five Twin Otters, covers the length and breadth of the sunshine state with the exception of the western regions which are served by Ansett aligned carrier Flight West.

“The main goal of the merger is to get a more flexible operation as far as utilisation of the aircraft is concerned”, says Ashley Kilroy. This addressed such key issues as greater flexibility in maintenance capabilities and scheduling.

The 18 seat Twin Otters provide feeder services to the Qantas resorts off the north Queensland coast, while the 33 seat Shorts 360s are committed to the south east region of the state serving ports within a 900km radius from the Brisbane base. The roomy aircraft, often referred to as ‘the shed’, are ideal sightseeing platforms given the high wing configuration and large windows, providing a first class view of the scenery for which this region is renowned.

Acquired in the mid eighties, the 360s will be phased out over the coming years and ultimately replaced with the more sophisticated 36 seater Dash 8, which is used pre- dominantly on Sunstate’s coastal commuter service, linking Brisbane/Gladstone/Rockhampton/Mackay/Townsville/ Cairns in direct competition with Flight West. (The route is operated twice a day within hours of the Flightwest service, with a 5. 75 hour one way flight time BNE/CNS in the Dash 8, and 6. 5 in the Shorts 360. Having come onto the route in 1987, Sunstate is quite satisfied with its market share. ) In its desires to re-equip, however, the airline must have strict cost control mechanisms in place and be sure of a proper return on investment before purchases can be made. “Re-equipment involves moving from a $1. 25 million Shorts to a $6 million Dash 8 that carries the same number of passengers”, says Kilroy.

The re-equipment plan calls for a steady but controlled changeover, with plans to acquire two more Dash 8s within three years dependent on the profitability of the network and growth in the market.

The airline’s last Shorts 330 is currently being used as a relief aircraft while others in the fleet are painted in the Qantas livery. Dependent on future aircraft utilisation, the 330 may be retained for further adhoc substitution or sold.

Sunstate will also be considering the need for a 19 seat aircraft in its fleet. “There would eventually be an opportunity to use a pressurised 19 seat aircraft to places like Maryborough and Hervey Bay, but the big issue at the moment is bringing in a third aircraft type. I would suggest that at the moment, though, it is more economical to run a Shorts 360 to these places. ” In five year’s time, Sunstate, says Kilroy, should be looking to a mix of 36 seat Dash 8 and a 19 seat aircraft.

“My belief is is that three types of aircraft in an operation of this size is enough.

“The main savings as a result of the merger are in the areas of management, providing a more streamlined and cost effective operation. ” However, the merger goes beyond the significant advantages in aircraft substitution across the network to also include expanded self-sufficiency in maintenance operations.

Sunstate’s base at Townsville will continue to provide support for the five Twin Otters, but will also allow additional support for the 360 and Dash 8 as required. As schedules permit, the Dash 8s will be overnighted at Townsville for routine maintenance and checks. Use will be made of the former Australian hangar facilities at Brisbane for the overhaul and maintenance of the 360 and Dash 8 fleet.

As well as the greater flexibility offered by operation of two bases, the combined maintenance capabilities allow Sunstate to perform all routine and heavy maintenance on the airframes, engines and most components. Two Twin Ot ters have been fully refurbished recently at the Townsville base, requiring a complete stripping down of the airframe for corrosion control and structural inspection. The remaining DHC-6s will undergo similar work in the near future. Ground services throughout Queensland with the exception of Brisbane, Cairns and Townsville are contracted, ef- fectively reducing the staff resources required to keep the airline operational. To the end of 1993, Sunstate employed 175 staff, comprising 107 pilots and engineers, 24 flight attendants and 44 administrative personnel in marketing, sales, operations and finance. Ashley Kilroy is the only Qantas member of the airline, the remainder are employed directly by Sunstate.

Over the period of the merger, surplus positions such as those in senior administration were released, with the provided other positions within the Sunstate operation with some others accepting redundancy. Peter Ryan, previously manager of Australian Regional, now heads up the airline’s north Queensland operations based in Townsville.

“The merger of the two airlines also gives the staff a more secure feeling now being part of the larger Sunstate organisation,” Kilroy reflects.

“I can see a big future for regional airlines in Australia, and I think we’re following in the same tracks as the north American and European regional airlines in that these regional airlines are providing a lot better return on investment that the bigger jet operators. ” Ashley Kilroy was considering the increasing moves of major US airlines to establish separate regional operations using specialised aircraft to feed hubs and trunk routes, as opposed to utilising 100 seat plus airliners at low load factors to achieve the same means.

“In North America a lot of operations have been converted to regional operations with Dash 8-300s and regional jets. I can see a need for the Dash 8 series 300 in Australia, but not regional jets”, he says.

With most opportunities to develop routes within Queens land already having been exploited, Sunstate will now look to consolidate its existing network by increasing its total volume of passengers across the state.

State regulation has barred Sunstate from operating the Cairns/Weipa route, which for the moment at least, is exclusively the domain of Flight West Airlines. The other area dominated by Flight West are the ‘essential air services’ operated in the west of the state to centres such as Roma, Blackall, Charleville, Longreach, Winton and beyond.

Sunstate originally bid for the rights, however, the availability of aircraft to effectively operate the routes ultimately kept Sunstate from acquiring the highly subsidised con- tract.

“We did submit a proposal for western Queensland and we offered to operate the network there with a Dash 8. Flight West offered a Brasilia which is a cheaper aircraft to operate, and as a result Flight West didn’t have the same subsidy requirements that we had. ” Sunstate may reapply in two years when the contract is again thrown open to tender.

“Ideally a 19 seat aircraft is the right size to be operating out there, with the exception being to such places as Longreach. ” If Sunstate does actively consider reapplying for the contract, it could well force the issue of the need to acquire a smaller capacity aircraft.

Sunstate has already benefited from an increase in on- carriage traffic from both the international and domestic markets as a result of the Qantas/Australian merger last year, and claims that around a third of its total uplift is now supplied to it by the wider Qantas network. It expects to increase its frequencies on some trunk tourism sectors in line with increasing demand.

In September 1993 Sunstate inaugurated a Cairns/ Townsville/Proserpine route to cater for a growing number of Japanese tourists to the region. “It is a developmental route which was established specifically to provide connections from Cairns to the Whitsunday resorts such as Laguna Keys, Daydream Island and other local resorts.

The flights on the route are timed to connect in Cairns with arrivals from Tokyo, Nagoya, Osaka, Fukuoka and Sap- poro three days a week, reflecting the airline’s commitment to tailoring its operations to potentially high yielding sectors. Cairns’ growing importance as a regional hub for Qantas will significantly increase Sunstate’s opportunities for tourism.

The route, which was previously operated three days a week with the Dash 8, has increased to a daily service with a Shorts 360 as part of the coastal commuter service, and is actively being promoted in Japan by the Queensland Tourist and Travel Corporation (QTTC) and Qantas. “We are encouraged by the early and positive response of the Australian tourism industry and overseas tour wholesalers to our Cairns/Whitsunday services, and we are confident that there will be a need for even more flights from Cairns to the Whitsundays in the future. ” Although it regularly works with tourism organisations to develop tourism opportunities, Sunstate worked in cooperation with the QTTC and the Whitsunday Tourist Association to actively promote this region of Queensland which is expected to be the focus of enormous growth in traffic over the coming years.

Another area where Sunstate has picked up traffic is to Maroochydore on the Sunshine Coast, providing a feeder and backup operation to jet services from major ports such as Melbourne and Sydney via Brisbane.

Traditionally traffic from Melbourne routed via Sydney to connect with direct services to Maroochy. However, with congestion at Sydney Airport and the number of bookings from Sydney itself increasing, Brisbane has become the favoured transit point and has created a substantial increase in passengers between the state capital and the Sunshine Coast. Given the high frequency of services, Sunstate is achieving loads in the vicinity of 60%.

Although Sunstate focuses its marketing effort on holiday products given its close associations with key tourism organisations, the airline’s total uplift comprises 60% business traffic, especially on routes to resource industry centres such as Bundaberg, Emerald and Blackwater. Ten per cent of uplift is package holiday product, with routes to Lord Howe Island almost exclusively catering to package buyers. The remaining 30% comprises independent travellers and VFR traffic.

“We are more than happy with the mix of business and leisure traffic that we’re experiencing at the moment”, Kilroy says. Seasonality does affect Sunstate’s operations to ports such as Maroochydore and those servicing resorts such as Gladstone. The higher yield business traffic allows the company to effectively amortise its route costs across the network throughout the year.

Though Ashley Kilroy describes the network as ‘quite profitable’, he says “Most of the regional airlines in Australia at the moment are doing quite well, and it’s because of the fact that they are run lean and mean. Sunstate is very conscious of controlling costs.

Part of the bigger picture Peter Moore, Qantas’ Australian Regional Airlines Director, sees the merger of ARAQ and Sunstate as an important objective in securing Qantas’ share in the domestic and regional market.

“What we are attempting to do with the regionals is firstly to provide a safe, efficient and profitable service to the public, secondly to provide a level of seamless service from the regionals through to the trunk domestic and interna- tional routes, and out of that we are hoping to achieve revenue oncarriage to the trunk and international routes of Qantas as well. ” “Each airline will retain its own regional identity which we believe is important from a state and local viewpoint. But clearly, they have to be operated efficiently and profitably”, Peter Moore says.

Although all regional operations, including Sunstate, will have their aircraft painted in the familiar red and white flying kangaroo scheme, there is a strong desire to keep the regional operations as separate and distinct business units within the Qantas group.

Peter Moore says that consistency to service is paramount to the objectives of the single Qantas brand and image. Factors such as catering, cabin interiors and other passenger services will be streamlined to provide the seamless service desired both by Qantas and its main rival.

The rationalisation of brands, systems and fleets within the regional airlines will provide both cost and operational advantages. One area of particular attention in this respect is the management of spares and stores whereby a centralised system will be instituted to more effectively manage working capital than has previously been done. Rather than duplicating spares holdings in areas like Townsville and Brisbane, Tamworth, Mildura and Sydney, there is the opportunity to reduce some holdings and consolidate these into one holding.

“Given the route network, the obvious place to establish a centralised stores and spares holding would probably be in New South Wales”, Peter Moore suggested.

“But the major priority over the next twelve months is to bed in the single branding concept. ” If Sunstate’s increasing activity allows them, all their aircraft will soon be painted in the ‘new’ corporate colours. Originally one Dash 8 and one Shorts 360 were scheduled for repainting during January, however, with all aircraft in the fleet hard pressed to meet demand over the peak season, only one Shorts 360 has emerged from the in Tamworth sporting the new colours. Further refurbishment has had to be postponed until a relaxation in traffic allows individual aircraft to be withdrawn.

Predicaments like this would probably be the envy of many airlines throughout the world.