Airline Profile — Impulse Airlines

A Short But Successful History

Impulse has been undertaking a calculated expansion programme since its takeover of Oxley Airlines in January 1993 after the Port Macquarie based regional collapsed under the weight of what Impulse calls ‘flawed management’. In the months preceding the collapse, Impulse had been operating freight services under contract to the Fairfax Group for the air shipment of newspapers and magazines on the NSW north coast and southeast Queensland.

With Beech 1900 aircraft purchased for the specialised freight services performing freight duties overnight, an approach made by the Port Macquarie based Oxley Airlines for Impulse to fly daytime passenger services to supplement Oxley’s capacity was to have provided an ideal opportunity to generate additional revenue from aircraft otherwise grounded during the day.

Three months into the operation, Oxley’s insolvency became apparent, and with the carrier’s debts mounting, a receiver was appointed at the same time Impulse moved to recover money owed to it. The ensuing deal saw Impulse take over the assets and rights to the name of Oxley Airlines, which included a fleet of twelve Piper Chieftains and two Beech King Airs.

A further three months after taking over Oxley’s operations, and an opportunity to ‘feel out’ the market, Impulse began to make the necessary severe changes that would allow the new airline to operate profitably and provide a reliable commuter service to communities in eastern NSW. Impulse had to regain the faith of a potentially huge market, facing issues such as old aircraft, single pilot operations as well as the cancellations and rescheduled flights with which the name Oxley had become unenviably linked.

Making Changes

“We put in modern business practices and started to clean out the whole organisation,” states McGowan. Impulse purchased new Beech C99s for services out of Port Macquarie and introduced a policy of two pilot operations on all of its services. At the same time Oxley’s fleet of ageing Chieftains was sold off and in so doing helped reduce the debt carried over from the defunct carrier.

Unprofitable routes such as Lord Howe Island, Wee Waa and Gunnedah were dropped from the network and in their place new rural ports Inverell and Glen Innes were developed. More important was the addition of a Newcastle to Brisbane service, the style of hub bypass operation that the company sees as the key to its ultimate success.

For fourteen months after the takeover, the airline continued to operate as Oxley Airlines to maintain market access. This period also enabled the management to ‘de-bug’ the takeover before the predetermined move to the new Impulse image once the reorganisation was complete and standards were sufficiently high.

With a new management philosophy introduced, new aircraft livery and corporate identity, passenger uplift over the network has increased from 55,000 pax per year to around 240,000. Impulse is adamant this is a reflection of both market potential and the opportunities squandered by Oxley through its spurious management style.

Receiving what the company calls a ‘baptism of fire’, having entered the passenger market in such circumstances and during the aviation industry’s most depressed economic climate, Impulse is not letting history stand in its way. It is getting on with the job of expanding its 14 port network that now stretches across eastern NSW to southeast Queensland, Canberra and Melbourne.

Marketing

Impulse has had to work very hard to shake off the lacklustre reputation of Oxley and to brand its own style of business and service in both established and new markets around NSW and Brisbane. Much of its success to date, says the management, is due to its style of operation, which is modelled closely on regional carriers in the United States, flying high frequency services on a hub bypass network.

Though the theories of operation in the US regional industry may suit Impulse, there are some very obvious differences, however, between the operating environment in the two countries. “We are performing equal to or better than similar airlines in the US. However, high government charges in Australia certainly reduce the profitability of regional carriers,” says Ian Dawson, the Group’s Corporate Manager.

Like many other Australian regional and commuter airlines, Impulse is very critical of the excessive government charges burdening smaller volume operators. Comparing the charges applied to similar operators in the United States, Dawson says, “It is an absurd situation. In the United States, carriers pay 3% in government charges, while here in Australia it is close to 19%. Fuel prices in Australia are also 50% more than the US.”

At the prospect of facing even higher charges as recommended by the federal Prices Surveillance Authority, Impulse led a fight against the proposed increase, lobbying strongly in Canberra and in the ports across its network. For the moment, at least, the increase has been put aside, though the airline feels it is only a matter of time before the issue will be raised again.

Under the watchful eye of its founder and CEO, 39 year old Gerry McGowan, Impulse remains completely independent and enjoys the freedom this brings in being able to exercise immediate changes to its operations in response to the market. A small team of managers directly responsible to Gerry McGowan heads up a workforce of just over 130 based almost exclusively in Sydney. Ian Dawson suggests that the comparatively young age of its senior executives contributes to the airline’s dynamic approach to the market and that its high energy levels will ultimately be reflected in the airline’s success in becoming a major regional operator.

Impulse now has a commercial agreement with Ansett for reservations which provides it valuable oncarriage from trunk domestic and international routes especially in the northern NSW area. Though satisfied for the moment with the amount of oncarriage, Impulse sees that there is certainly room for long term improvement, particularly in the areas of developing inbound tourism opportunities beyond the key east coast destinations such as Cairns, Coolangatta and Sydney. The ability to directly open up ports to inbound tourists such as those in the Hunter Valley region and NSW central coast areas would need to be based on solid marketing of the Impulse product both in Australia, and more importantly, overseas in such key markets as Japan and New Zealand.

Impulse actively promotes its product locally with the NSW Tourism Commission. Opportunities for large scale promotion in nations such as Japan are largely beyond the resources of many operators without co-operative marketing between tourism authorities and airlines. With the Japanese inbound tourism market maturing and evolving to include more adventure based and non urban activities, it is possible that the rural areas of NSW and southeast Queensland could benefit from active promotion leading to an increased source of revenue for regionals such as Impulse.

Impulse eyes its alliance with Ansett as a means of being able to achieve this goal more easily with the potential for oncarriage directly from Ansett’s increasing international network, and the airline’s continually evolving marketing strategies have most recently included the adoption of an Ansett style livery, bringing it into line with Kendell, Aeropelican, Skywest and FlightWest.

Impulse’s decision to paint its aircraft in Ansett colours was founded on establishing a long term commercial relationship that will most effectively consolidate the airline’s corporate objectives without compromising its distinctly independent operation. Though the new image is clearly important to Impulse, it has not preoccupied the company. The airline’s efforts at this stage are to focus on its capacity and frequency which is becoming critical as its market increases and steady expansion continues.

“The current services are going as well as they possibly can,” says Ian Dawson, “but we have come up against capacity.” Impulse’s predominantly business traffic loads across the network are very high, with the airline achieving substantial market share against tough competition from Eastern Australia on many of its routes.

Introducing The J41

It was this need to meet increasing demand and competition that led Impulse to lease ten Jetstream 41s from the Prestwick based company’s finance arm, JSX. The aircraft won in favour of the Dornier 328 and Dash 8 series, and makes Impulse the lead customer in Australasia for the type.

“We are committed to making Impulse the best regional carrier in Australia. We strongly believe the J41 will herald a new era in regional travel in Australia,” Gerry McGowan said at the J41 acceptance ceremony.

Citing operating efficiencies, cost and passenger appeal as the Jetstream’s major attributes, Impulse will also benefit from the improved performance of this latest upgraded version of the J41. VH-SMH is the first of these improved J41s to be placed into commercial service, and this aircraft and all subsequent J41s will now feature increased design weights allowing MTOW of 10,896kg (24,000lb), uprated Garrett TPE331-14 engines offering 1650shp (1230kW) and zero degree flap setting for takeoff.

The 29 seat aircraft will be used predominantly on trunk hub bypass routes such as Newcastle to Brisbane and the newly established service from Newcastle to Melbourne, which commenced on October 17. The J41 is ideally suited to the 100 minute sector between Melbourne and the resource industry city of Newcastle, and will fly 28 services a week, avoiding the unpredictable delays at Sydney Airport. In fact the carrier sees a big future in promoting Newcastle with direct air services that it has traditionally not enjoyed.

Additional J41s will be employed on services from Brisbane to the northeast NSW towns of Armidale and Tamworth. The first J41 will be based in Newcastle, the second in Brisbane and a third in Sydney, allowing the airline to progressively stimulate its key markets with the additional capacity.

Altogether five of the new Jetstreams will be delivered in 1994, with the remainder scheduled for delivery during 1996. 1996 also marks the potential introduction of NSW intrastate deregulation, and the availability of capacity to take up the expected advantages this poses to operators (if it is approved) such as Impulse in hub bypass operations could make the delivery of the second batch of aircraft most timely.

Inflight service will be provided to passengers on the new J41s, offering a standard comparable to that of the major carriers, though with greater efficiency between cities and secondary ports. Most of the routes Impulse serves have never had this facility before.

However, Impulse’s management is concerned at the state of many regional operator’s fleets. “It concerns us the way some operators are entering the market with very old equipment. There is a credibility factor involved, and there has to be a minimum standard of operation. We believe that the person on the phone buying the ticket is entitled to travel on decent equipment … they trust (the airline),” Dawson says emphatically. “This is why we will carefully select equipment with this policy of only new or factory reconditioned aircraft.”

Operations

With the delivery of the Jetstream 41s, Impulse has taken the opportunity to review its entire fleet composition, resulting in the withdrawal of the single Beech 1900C and ultimately the disposal of the C99s. The latter, however, will be kept in the short term to work with the two Beech 1900Ds on short coastal sectors such as Sydney to Port Macquarie, and to the inland ports of Glen Innes, Inverell and Canberra.

The Beech 1900s will continue their role as both passenger and freight aircraft, with two BAe 748s delivered in September and October supplementing the airline’s freight capacity. The 748s will also provide additional capacity for Ansett Air Freight, flying to a wide range of points throughout Australia.

In forging a new association with Jetstream, Impulse is ideally placed to take advantage of the manufacturer’s family of aircraft, comprising the newly developed J61 (nee ATP) which was introduced at Farnborough in September. The additional capacity of the 64 seat J61 could provide a natural successor to the J41s as Impulse’s key markets mature in southeast Queensland and Victoria.

The company’s utilisation of its current fleet is around 65 to 75 hours per week on the Beech 1900s and around 50 hours per week on the C99, including freight operations. It is expected that the J41s will achieve around 40 to 45 hours utilisation on passenger only services once they are settled into the schedule. 400 flights are currently operated throughout the Impulse network each week.

A typical day for a Beech 1900 starts at 0525 after conversion from freight to passenger role, then the aircraft will fly three return services from Sydney to Port Macquarie finishing at 2130. Upon arrival, sub-contractors remove the seats ready for the loading of newspapers and magazines at 2330 (the removal of seats actually takes only 30 minutes). After loading, the aircraft flies Sydney to Ballina, Coolangatta, Brisbane and return to Sydney at 0430 when the seats are refitted and the aircraft detailed before commencing its cycle once more.

Impulse Airlines operates from its own terminal at Sydney Airport, far removed from the passenger and traffic congestion of the two other major domestic terminals of Ansett and Qantas. The ability for passengers to quickly disembark, claim luggage and obtain transport to the city or to connecting flights is seen as one major advantage offered by the airline over its regional competitors. Its Sydney base also provides engineering support from Pacific Aviation, now a wholly owned subsidiary of Impulse. The facilities include two hangars capable of accepting the J41s as well as apron servicing areas.

Regional Upturn

Impulse will need its new aircraft all the more if its views on the improving economy turn to reality. Its style of hub (Sydney) bypass services, high frequency scheduling and a general improvement in the economy are expected to generate increased traffic for Impulse in excess of 10% annually.

“We believe regional aviation in Australia is growing at about 10%. If you look back at the figures of a decade ago, the utilisation of regional aviation strikes us as much higher in many areas of the market. In those days there were pricing issues because of the subsidies at the time. However, we see that with the commitment to the right product and a commitment to the right service, that regional aviation in a great number of markets in Australia can grow better than ten%. We believe it has been an underserviced industry,” says Dawson.

The general economic recovery has resulted in a widespread increase in traffic for all carriers in Australia since February 1994. “If the recovery is sustained and with the talk coming out of Canberra at the moment about the need for business investment, particularly the need for regional investment, then we can look forward to a positive few years ahead. We will grow, and we will move into other routes.”

Impulse is looking to increase the number of hub bypass services in its schedules, believing that, following on from the successes of such operations in the United States, there will be an increasing demand as passengers avoid the congestion and delays with connecting flights often encountered at Sydney Airport.

Now that the Newcastle to Canberra route is developing, the airline is also considering the establishment of a service from Wollongong to Melbourne on a minimum of a twice daily peak time service. To make the route viable, no fewer than 20,000 people would be required in the first year. This figure may not be difficult to achieve, given that Wollongong’s Albion Park airport (recently upgraded) has had no direct scheduled service for a number of years, with commuters having to make the time consuming drive north to Sydney to catch a flight.

Stimulating the market by increasing awareness of the benefits and availability of direct services, offering realistic fares and convenient schedules are the prime considerations of Impulse in the Wollongong region at present, in assessing the likelihood of commencing operations. These hub bypass operations are representative of the style of operation which could become commonplace once the markets are aware of the real benefits of the direct services Impulse is offering.

The yield managers at Impulse, while avoiding wholesale expansion programmes for the sake of market penetration, will consider further possibilities as they arise in the light of long term profitability. Developing more services out of Brisbane is also seen as a medium term goal, especially with increasing inbound tourism opportunities. It must first look at the capacity across the whole network before such a move can be made. A long term goal is to establish a second base at Brisbane, enabling Impulse to direct its attention to regional expansion from there more effectively.

And while Impulse is confident it has its own recipe for success well in hand, it does not set about advocating how all other regional commuter carriers should operate their business. “This style of operation suits Impulse. Our style would most likely not suit other regional operators in the country because of what we are trying to achieve, and theirs certainly wouldn’t suit ours,” Ian Dawson says candidly.

This admission boasts not only the unabashed confidence in the modus operandi of Impulse, but also that what this young airline is trying to achieve in the regional industry by establishing markets in areas that until now have largely remained untapped. Impulse is certainly not lacking in ambition, and while it is keen to move ahead at a steady pace, it remains cautious about much in the industry. It is a relative newcomer to the passenger market in Australia’s regional aviation sector, yet with an innovative approach, a young management team and safe and efficient aircraft, so long as it keeps its feet on the ground, it stands a great chance of success.