Airline Affairs

Airports Privatisationbackdo W N :

The Minister forTransport, Laurie Brereton, appears tohave backed down from the previous apparently uncompromising stance onfully privatising Australia’s airports bysaying there is “considerable merit inairports being leased for long periods”rather than selling them to private interests on a freehold basis. The move follows considerable opposition to the selloff plan from within the government and other areas and probably also comes with the realization that it will be difficult to find buyers for loss making airports such as Hobart, Townsville, Alice Springs and Mount Isa. There would be a considerable hike in charges at such airports if they were ever sold to commercial interests. Much of the interest in the profitable airports has come from overseas investors, creating another potential problem within the government and unions on the question of foreign ownership. Another aspect which would prove problematical to the government is the fact that if the airports aren’t sold (and the money therefore not raised), the government’s financial projections as presented in the last budget will become a fiction. AA Comment: It doesn’t matter if the airports are sold outright or leased. The end result will be the same except that they would be worth less money leased due to their new owners not having full ownership rights to their investment in the traditional sense. The minimal profit and presently loss making airports will still be fiscal dead ducks that either the aviation industry or the government will have to support and we certainly don’t need to tell you what the answer to that one is, do we! The only sane, logical and financially responsible options are to (a) keep the FAG as it is, or (b) privatise the entire operation. Anything else is nothing less than economic lunacy.

Airline Costs And Yieldsfall:

Even though the world’s airlinesmanaged to reduce their costs byrecord amounts in 1993, profitabilitydid not return because yields droppedby an even greater rate. According to International Air Transport Association (IATA) figures, the airlines recorded an overall traffic increase of 7.7% in 1993 along with a 6.2% reduction in costs. This was also countered by a 7.3% drop in yields. Capacity grew by 5.2%, the first time in five years it has been exceeded by traffic growth. Between them, the world’s airlines have lost $US16bn over the last four years, although IATA points out that about half now are breaking even and that the major losses have been suffered by only about a quarter of the industry.

Profitable Airlines Predicted:

The International Air Transport Association (IATA) has predictedthat overall, the world’s airlines will return to profitability on internationalservices this year. According to the Association, a $US1bn net profit could be recorded in 1994 if traffic increases continue to outstrip capacity gains and if cost cutting measures are effective. The prediction is based on the figures for the first three months of the year and assumes airlines will see 8% traffic growth and a 5% increase in capacity, with small decreases in both operating costs and yields also expected. Overcapacity has been one of the major contributors to poor airline performance in recent times, but in 1993 traffic grew faster than capacity for the first time since 1988. At the end of 1993 the world’s airlines had 2172 jet aircraft on order, a notable reduction compared with 12 months earlier.

Cis Air Safet Y Plummets:

The Commonwealth of Independent States’ air safety record continued its downward spiral in 1993 with the worst figures in a decade. CIS operators recorded 4.3 fatalities per million passengers carried in 1993. By comparison, the US.Ns equivalent statistic over the last few years has been: 1993 – no fatalities; 92 – 0.04 per million; 91 – 0.09; 90 – 0.20 and 89 – 0.30. There were 122 accidents during the year of which 17 have been classified as ‘disasters’. Fifty-five aircraft were written off and 348 people killed. Of the 122 accidents, 64 were by helicopters, of which 35 were written off. Another seven writeoffs involved small types such as the Antonov An-2 and LET 410. A report by the CIS Interstate Aviation Committee says that most of the accidents resulted from human error and that “increasing commercial pressures have contributed significantly to an increase in the number of accidents…” and that “…the wish of the operator to gain maximum profit at any price, even to the detriment of flight safety” has caused overloading, flying with insufficient fuel reserves and flying with “inadmissible malfunctions”, the latter indicating some serious maintenance problems in the CIS.

Singapore Looks To India:

Singapore Airlines (SIA) and Bombay based industrial company TATA (which formed the predecessor of Air India in 1932) are examining jointly forming a new Indian domestic carrier. A feasibility study is now underway and if all goes well, the airline should be up and running by the end of next year. SIA already flies to Bombay, Calcutta, Delhi and Madras (and has a cargo service to Bangalore) and its involvement in the project is seen as a plus in the current debate over safety and service among India’s recently established independent carriers.

Uk Airports Upgrade:

British airport operator BAA (formerly thegovernment owned British Airports Authority) is to spend $US2.lbn improving its seven airports over the nextthree years. Most of the money will be spent on London Heathrow, including preliminary spending on the planned Terminal 5. Not included in this costing is a further $US450m which will be spent on the Heathrow Express, a high speed rail link between the airport and Paddington station in London.

Lufthansa In The Black:

Lufthansa recorded a pre tax profit ofDMlO0m (about $A88m) in the first sixmonths of 1994, the first time the airline has been in the black since 1989. Lufthansa is to be ‘privatised’ later this year and is undergoing an extensive restructuring programme which includes rigorous cost cutting, cutbacks in capacity, job losses and cooperation with the unions, which in turn have exhibited wage restraint. The result has been a 10% reduction of unit costs and a 15% productivity improvement. On the operational side, better marketing, improved service and improved management of reservations have all contributed to the latest result. Co-operative agreements with other associated airlines have also helped, allowing Lufthansa access to more destinations and more direct connections. Lufthansa is also attaching great significance to its co-operative agreement with United Airlines. This has opened up the American market for the German carrier and means that between them, Lufthansa and United have more trans Atlantic flights than any other airline. Royal Brunei recently commenced twice weekly 757 services between Bandar Seri Begawan and Brisbane. The twice weekly flights will operate via Darwin on Mondays (departing Brisbane at 9.45am and arriving in Brunei at 4.30pm) and Fridays (departing Brisbane at 1.20am and arriving in Brunei at 8.10am). The new services sees Brisbane become Royal Brunei’s 25th international destination. (Wally McLeod)

Northwest Pulls The Plug:

As expected, Northwest Airlines hasended its services to Australia, flyingthe last of its once weekly service between Sydney and Detroit via Osakaon August 28. The airline suspended its thrice weekly Sydney/Los Angeles service earlier this year as well as reducing the Detroit service frequency from three per week to just one. Northwest blames poor results on the decision to leave Australia and leaves behind it bitter memories of last year’s ‘war’ over bilateral rights which caused considerable friction between the Australian and US governments. Though Northwest played it down, industry observers noted at the time of the excessively aggressive confrontation between the two governments and the airline that much goodwill would be lost with the travelling public, something that obviously did get translated to fact.

United Showing Profitability:

Fresh from the news of shareholder approval of its historic employeebuyout plan, United Airlines has announced a net profit of $US55m for theJune quarter of this year. This compares with a $US22m profit for the same period of last year and is all the more impressive when the fact that one off $US19m after tax charges associated with the employee buyout are not included in the figure. The result brings United’s loss for the first six months of 1994 to $US42m compared with $US134m in the first half of 1993. Compared with the 1993 June quarter, revenue increased by 6.3% and operating costs were up by only 3.8%. On the other hand, yield fell by 1.6% but load factors improved to 72%. Breakeven load factor has been calculated at 68%, again slightly up on the 1993 figure. A significant feature which points to a better future was the gross operating profit figure of $US167m, twice that of the 1993 period. United is looking to a strong third quarter operating performance but this will be tempered by expected additional costs of $US130m associated with the buyout plan. American Airlines and Northwest also enjoyed highly profitable second quarters, a sure sign that things are at last beginning to improve in the North American air transport scene.

Ansett Rating Up:

Ansett hashad its credit rating upgraded onepoint to B plus by ratings agencyStandard & Poor’s. The improvement comes as a result of an improved domestic aviation market recovery and a successful cost cutting programme, these in turn leading to improved profitability and a better cashflow situation. However, Standard & Poor’s still sees some problems which may inhibit further upgrading in the near term, notably Ansett’s $2.4bn debt and its exposure to leasing arm Ansett Worldwide Aviation Services. Garuda is to divest itself of its ownership of Merpati Airlines in 1995. The move, according to the Indonesian government, comes as the two airlines have differing missions, Garuda primarily operates internationally, Merpati domestically and regionally. Pictured is a Merpati airliner configured L-100 Hercules. This upgrade is Ansett’s second in the space of seven months.

Qantas To Introduce Many More Smoke Free Flights:

18 Australian Aviation September 1994 London, Bali and Manila will soon join the long list of destinations served by Qantas flights which are totally smoke free. Qantas Executive General Manager Marketing and Corporate Affairs, Geoff Dixon, announced recently that another 102 flights a week would be completely non smoking in the next three months. “The decision was taken after closely monitoring passenger preferences,” he said. On August 28 the non smoking requirement will apply to all return services to HK from Sydney, Brisbane, Cairns, Melbourne, Adelaide and Perth (via Singapore). From the same date Qantas return services to Manila and Indonesia will also be smoke free. The Indonesian flights include those from Sydney to Bali, from Sydney to Jakarta (including extensions to Singapore), and flights to Bali which continue to Bangkok. Qantas flights between Perth and Bali and between Darwin and Bali are already non smoking. From late October the daily QFl/ QF2 flights to and from London and three new weekly Melbourne/Auckland/Los Angeles return services will be non smoking. Existing non smoking services include the second daily London flights, the QF9/10s, and seven Los Angeles flights which fly either nonstop from Sydney or via Fiji. By the end of October Qantas will have 532 non smoking international flights a week. More than 80% of seats on other international services are now designated non smoking. All Australian domestic flights are non smoking.

Polynesian’s Capacity Reduced:

Western Samoa flag carrier,Polynesian Airlines, has suffered a setback to its recent expansion plans withdisruptions to its aircraft schedules following the return to the lessor of oneof its jet aircraft and temporarily denied landing rights in the United Statesfor its recently acquired 767-200, reports Julian Green. The airline’s 737-300QC, 5W-FAX, was returned to lessor ILFC during June and is now believed to be destined for Lufthansa Express service. Polynesian had been using the aircraft in a dual freight and passenger role, operating successful trans Tasman freight services for Ansett. Also in June, Polynesian took delivery of a 767-200 to replace the 767 series 300 aircraft which had been wet leased from Air Canada for the airline’s long haul services to Sydney, Honolulu and Los Angeles. However, Polynesian ran into difficulties with the new aircraft following the denial of landing rights by United States authorities at Honolulu and Los Angeles until the aircraft has been modified with TCAS equipment to US standards. The work, being performed by Qantas at the Sydney JetBase, has caused a disruption to scheduled services, seeing Polynesian sub-loading passengers on QF trans Pacific services. The acquisition on lease of the ex Kuwait Airways 767-200 is intended to provide a more cost effective solution to the airline’s $2 million a month lease of the Air Canada aircraft, which had resulted in heavy subsidisation by the Western Samoan Government by in excess of 20% of the small island nation’s tiny GDP. The 767-200, the only one of the type remaining in Kuwait Airways service since the Gulf War, was delivered in Sydney at Kuwait Airways’ expense, carrying a full load of spares including a spare engine as part of the competitive lease package. Interestingly, the Kuwaiti aircraft’s manifests were destroyed during the Iraqi invasion. Polynesian Airlines has previously chartered aircraft from various US carriers including World Airways and Express One, supplementing services to meet increasing demands. Ansett, meanwhile, is using an Arrow Air DC-8-62 to continue its trans Tasman freight operations until a long term operator can once more be established. These recent developments at this hard working airline come at a time when the flag carrier traditionally looks forward to an upturn in traffic, and follows an aggressive marketing campaign to attract even more tourism traffic since the withdrawal of US carriers from the region.

Qantas Doubles Korean Capacity:

Qantas is almost doublingcapacity on its nonstop flights to Koreaand is also adding a first class service. The move comes as a result of replacing two class Boeing 767-300s on the Sydney/Seoul flights with three class 747-400s. Qantas introduced direct Sydney/Seoul flights in November 1991, adding a second weekly service in October 1992 and a third in July 1994. A fourth weekly flight was temporarily added between July and August this year to cope with added demand created by the Korean summer holidays.

Ansett Upgrades Nz Cargo:

The departure of several US airlines from this part of the world and the substantial easing of the ‘red tape’ requirements for freight travelling by air between Australia and New Zealand has created new opportunities for freight operators. Ansett is one set to take advantage of this, replacing the Boeing 737-300

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Previously used with a Douglas DC-8 freighter leased from Miami based Arrow Air. The DC-8 has a capacity of 38 tonnes, more than double that of the 737. The move was prompted not so much by a commercial decision but because the 737 being used (which was chartered from Polynesian Airlines) has been repossessed by its owner, ILFC.

More Qantas Indonesian Capacity

The International Air Services Commission (IASC) has issued a draft determination which will allow Qantas to operate additional capacity between Australia and Indonesia from November this year. This will enable Qantas to operate an additional Boeing 767-300 each week while still leaving sufficient shelf capacity to allow a further three 767-300 services per week for Australian carriers. The number of Indonesian visitors to Australia in 1993 increased by 50% over the previous year, much of the increase coming from tourism.

Ups Invests In Melbourne

International courier company United Parcel Service (UPS) is planning a $15m investment in Melbourne over the next five years, starting with a new operations centre at Ascot opening early next year. The company says the expansion will increase its market share of the Australian parcel distribution market by 20%. UPS’s Australian business is growing by 48% annually and of the total volume, more than one third goes to or from Melbourne. The Ascot Vale facility will save the company $400,000 in operating costs over the next five years and its location – midway between the city and the airport – will save driver time, significantly reducing vehicle running expenses. UPS’s worldwide operation handles three billion packages each year in 190 countries. It operates 468 aircraft and 123,000 vehicles.

Kansai Lowers Charges

Osaka’s new $US14bn Kansai International Airport has succumbed to airline pressure and agreed to lower its proposed scale of landing charges by about 9%, bringing it in line with Tokyo’s Narita Airport as the most expensive in the world. The original fees included a figure of $US9525 for a Boeing 747-400, about 10% higher than Narita and more than four times the cost of landing a similar aircraft at Sydney Airport. Proportionately higher charges also applied to other aircraft types. The criticism has been loud and strong. The generally profitable members of the Orient Airline Association were surveyed on the issue and it was discovered that 40% thought flights to and from Kansai would be unprofitable in the first two years, while a similar number were uncertain. Kansai – which is due to open this month – also has problems on another front. An engineering triumph, the airport has been built on a man made island 4km offshore in Osaka Bay and is joined to the mainland by a double deck bridge. Landfill came from nearby mountains, but an ongoing subsidence problem has been largely responsible for a 40% budget blowout. The airport has been literally sinking and when opened it will be 5.5m above sea level, half a metre lower than five months ago. At the moment it is sinking at a rate of half a millimetre each day and is expected to take approximately half a century to stabilise. Simple arithmetic tells us that at this rate, Kansai will become a flying boat base in about 30 years!

Air India To Be Privatised

The Indian Government plans to divest 20% of its holding in Air India as part of its plans to privatise state owned companies. Shares would firstly be offered to employees and the Indian public before the launch of a European share issue. Air India needs funding for a major fleet expansion programme, where it intends to purchase 12 long range medium capacity aircraft to replace the existing 747-200 fleet. The carrier would need $US2bn by 1997, while it has already spent $833m on four of the six 747-400s it needs.