Airline Affairs

Sydney Comment Deadline Extended:

The deadline for the receipt of public comment on the draft guidelines for the Environmental Impact Study into the proposed second major airport for Sydney at Badgery’s Creek or Holsworthy has been extended. The original deadline was August 19 but this was extended to September 2 following feedback from public meetings conducted by the Environmental Protection Agency (EPA) and representations from the Federal Member for Hughes, Mrs Danna Vale. All submissions received before the new deadline will be considered by the EPA when it formulates its guidelines.

More Indonesian And Korean Services:

The International Air Services Commission (IASC) has issued determinations which will allow Qantas and Ansett to operate additional capacity to Korea and for Ansett to fly more services to Indonesia. Rapid growth on the Korean route (33% in the year ended May 1996) has meant that extra capacity was required. Qantas will be able to replace the Boeing 747SP it currently operates on three of its five weekly flights with larger 747-200 aircraft from October this year. From November, Ansett can begin a third weekly service to Korea using a 747-300.

Air New Zealand will fund the purchase by using approximately $NZ350m from its existing cash reserves of $NZ650m and financing about$NZ190m. Further, ANZ plans to raise an additional $NZ240m through a pro rata rights issue to existing Air New Zealand shareholders. United Airlines became the largest customer for the A320 family recently when it ordered 24 A319s in addition to the 50 A320s currently being delivered. (Airbus)

The additional Indonesian capacity will allow Ansett to add a further seven 767-300 services per week from March next year. Three of these will operate between Sydney and Jakarta, bringing Ansett’s frequency on this route to a daily service. The other four new services will fly to Jakarta from Brisbane and Perth. Likely benefits to flow to the two airlines once the partnership is concluded include the coordination of marketing and airline operations – including codeshare of Australian domestic, international and trans Tasman flights and a combined frequent flyer program – plus joint purchasing of some equipment and services. Air New Zealand says consumers will benefit through stronger regional competition within the proposed Australasian Single Aviation Market. To appease regulatory authorities News Ltd will gain 100% control of Ansett New Zealand so that that airline continues to compete with Air NZ domestically, while 51% of Ansett International will be sold to Australian institutions to ensure the airline remains majority Australian controlled so as not to compromise bilateral air service rights.

Third Runway Ready For Full Use:

Sydney Airport’s third runway should at last be operating at somewhere near an efficient capacity during the course of this issue following the establishment of new departure paths. Minister for Transport John Sharp has announced that aircraft departing to the north will be able to quickly turn right to fly over the eastern suburbs of Sydney and then the water. The decision has been welcomed by airport users and interested parties as it will help reduce delays resulting from congestion. The Minister admits the eastern suburbs will be subject to more aircraft noise but other areas will have less and there will be a more equitable spread over Sydney’s suburbs.

Flight Trials Over North Korea:

The International Air Transport Association (IATA) is conducting international flight trials over North Korea following the country’s agreement to open up its flight information region (FIR). North Korea has said it will open its airspace to all international carriers including South Korean operators Korean Air and Asiana. A restriction is that no flights will be able to pass over the demilitarised zone which surrounds the border between the two nations. IATA is hoping the trial flights will result in establishment of new air routes by next year. These will produce fuel and time savings with, for example, up to 1.5 hours being cut from flights between North America and Seoul which at the moment have to fly via the Tokyo FIR. Even if the trials are successful much work still needs to be done including reaching agreement with South Korea on establishing a direct datalink between north and south FIRs and upgrading North Korea’s infrastructure.

Qantas Result ‘On Target’:

Qantas has reported an operating profit of $401.4m for the 1995-96 financial year (its first as a public company), a 25.3% increase over the previous year and a figure in line with the forecast contained in the airline’s public float prospectus. The net profit after tax and abnormals was $246.7m, 36.8% up on 1994-95 and about $10m more than the prospectus forecast. Other highlights of the result include earnings per share up 34.4% to 24.2 cents, total dividend 13 cents per share, total revenue $7.6bn (up 6.1%), debt to equity ratio improved to 61:39, and cashflow from operations increasing by 10% to $936.4m. Capital expenditure rose by 11.6% to $503.5m, major expenditure comprising the acquisition of three new aircraft – one 767-300 and two 737-400s – and upgrading the Sydney domestic and Brisbane international and freight terminals.

Operational statistics of note include the profit contributions of the airline’s international and domestic operations. 16 Australian Aviation October 1996. International services returned an operating profit of $267.8m (virtually the same as the previous year) while domestic operations returned $163.6m, a significant 23.3% improvement. Two international route groups remain unprofitable: Continental Europe and South-East Asia which includes Vietnam, Thailand, Singapore, Indonesia and Malaysia. Both nevertheless showed an improved performance over the previous year.

Aircraft utilisation increased from an average 11.1 to 11.8 hours per day which contributed to substantial cost savings, as did reductions in operating and handling costs, more efficient spending on inflight services and other areas of sales and marketing support. Cost per Available Seat Kilometre (ASK) decreased by 1.8%.

Qantas continued its program of debt reduction, repaying a further $685.7m during the year compared to $555.4m in 1994-95. Excluding prepayments, debt reduction reached $289.7m, reducing the debt to equity ratio from 68:32 to 61:39. Interest savings were also achieved by restructuring a number of aircraft leases.

While international passenger revenues improved by a modest 2.4% and Revenue Passenger Kilometres (RPKs) flown by 4.7%, yield weakened by 2.2% of which more than half was due to foreign exchange movements. International market share on the routes contested was 39.1%, achieved with 34.5% of available seating.

Qantas currently has a 53% share of the Australian domestic market. Revenues from that segment grew by 11.2% and RPKs by 12% with yield and load factors similar to the previous year.

Two significant points come out of the result, the first the fact that it was achieved with the help of $468m in cost reductions, which will be followed by another $330m worth of reductions in the current year. Secondly, although total revenue was up it was still some $380m below forecast and made extra cost cuts of $175m necessary during the course of 1995-96.

Chairman Gary Pemberton said that ongoing management of capital expenditure was a major issue for the airline and that profitability and capital could be put at risk if market share was chased by expanding the fleet, especially on some Asian routes. He said: “we are not going to keep throwing investment at the business if we can’t see increasing returns… we are signalling to the market that we are going to control the rate at which we grow and not be infected by the traditional airline disease that when you see passengers you go out and buy some aircraft.” Aircraft purchases and in cabin products expenditure must be accommodated within operational cashflows and our overall objective of strengthening the balance sheet. This will require a conservative approach to forward aircraft orders, increased pressure on cost reduction programs, and a short term emphasis on profit growth rather than market share.

Qantas shares rose marginally after the result was announced but subsequently dropped during the day to close at $2.14, three cents down.

Give Peace A Chance:

There you are, quietly sitting in your seat aboard an airliner on a long haul flight, having a little relax, maybe enjoying a light tipple when suddenly your peace is shattered by the sound of dozens of laptop computer keyboards click-clacking their way across the oceans. Is this the way of the future? Delta Airlines seems to think it is and has introduced a six month trial of an inflight power system which will allow passengers to hook up their computers, thus eliminating problems with batteries running out. The system will initially be offered to first class passengers in Delta’s Boeing 767s but will be extended to other classes if the trials go well. Happily, neither Qantas nor Ansett have a similar system at their disposal yet, and with a bit of luck they never will, otherwise they may have to introduce ‘computing’ and ‘non computing’ sections on their aircraft!

Qantas Antarctic Flights:

Qantas, in conjunction with Croydon Travel, will conduct sightseeing flights over the Antarctic for its fourth season in a row. In what have proved to be extremely popular flights, Qantas will offer eight flights to the icy wonderland down south, kicking off from December 1. The flights feature full international standard inflight service and are definitely one of the most unique sightseeing tours offered today. For further information contact Croydon Travel on 1800 633 449.

Delta Offers TV:

Delta has recently equipped one of its Boeing 767-200s with a satellite dish that can pick up television live inflight to offer to passengers as an extra inflight service. The antenna is on top of the fuselage, just behind the wing of the aircraft in a faired radome. The TV is then presented to the passengers on the usual projector based system. The new system is currently being trialed to evaluate the technology and determine market demand.

Brisbane Freight Centre:

As work on the new Qantas freight facility at Brisbane Airport gets underway, the Federal Airports Corporation (FAC) is preparing for the next major project for the airport, construction of a multi tenant freight forwarding centre. The freight facility represents a major new development at the airport’s Export Park with 5850m2 (62,970sq ft) of available floor space designed to accommodate tenants in a modular layout which will allow easy expansion. Work on the facility is due to start this November and is scheduled for completion in April 1997. The building will cost over $3m and is located on an 11,000m2 (118,400sq ft) site close to the Qantas freight facility. Brisbane is set to become a major freight forwarding centre with international giant DHL Worldwide Express among those committed to developing major logistics warehousing at the airport. Brisbane currently handles about 75,000 tonnes of freight annually and this has been growing at a rate of 10% per annum in recent years. When fully developed, the Export Park will have the capacity to handle more than one million tonnes of freight each year.

Name Game:

Readers may recall our small contest in our July edition to come up with a name for a new book project which will feature the best of our On the Airbands and Tales columns. Our congratulations go to Chris Fleming of Marrickville in Sydney, who suggested Laughter on the Wing, which we’ve selected for the new book project. Chris will receive a one year complimentary subscription to Australian Aviation.

Southwest’s $25 Special:

Ever innovative US carrier Southwest Airlines has been celebrating its 25th birthday with a series of $US25 special fares for a 10 week period starting mid August. The fares are designed to attract passengers to fill seats that would otherwise be empty. Analysis of the offer by TravelScan, a provider of airline data, shows that Southwest will make money from the promotion by mixing the $US25 passengers with those who have paid regular fares – a yield management technique. Southwest carries about 162,000 passengers per day on average at a 65% load factor, leaving plenty of empty seats. Daily revenues were $US7.56m per day in 1995 and TravelScan estimates the fare offer will increase passenger numbers to over 187,000 per day, daily revenue will increase by about$US140,000 and load factors will rise to around 75%. Ansett and Qantas take note?

More Airports Players:

The planned privatisation of Australia’s airports continues to generate considerable interest with more major players entering the equation. Melbourne property developer and Crown casino operator Hudson Conway is one, in a bid for Melbourne’s Tullamarine. The company – whose shareholders include Kerry Packer – is opposed to foreign involvement in the airports sale and wants to see restrictions placed which will prevent any one group winning control of more than one airport. Hudson Conway plans to invest $200m in acquiring a 40% interest in Tullamarine and offer the remaining 60% on the stock market with Melbourne residents given preference. The company has the support of Victorian Premier Jeff Kennett, who has ruled out any State Government participation in a bid for Melbourne Airport. Instead, Mr Kennett wants to see a ‘pro Victorian’ owner (like HudCon) win the lease.

A consortium, Australian Airports Ltd (AAL), plans to bid for Melbourne, Brisbane and Perth airports and has announced it has nearly reached its equity target of $400m. The consortium has admitted that its chances of acquiring an interest in all three airports are slim but it has also expressed an interest in bidding for some of the second tier airports which will be offered. If successful in acquiring at least one airport lease, AAL will offer 25% of its stock through a public listing. AAL is headed by former Federal Airports Corporation chief Mr Jack Moffat and its backers include the Gandel Group, National Australia Bank, J B Were, the Portland Group and the Australian Industry Development Corporation.

National Mutual Holdings is another possible entrant and is considering which of the existing consortia it will join. The company will be listed on the Australian Stock Exchange later this year, when it will be majority owned by the French group Axa SA. This may cause problems with the 49% foreign ownership limit which applies to the airport leases. At least seven groups are now jockeying for position in the lead up to the airports sale. Interest is high and estimates as to the value of the sales to the nation’s coffers now range between $2.5bn and $3bn.

Qantas Information Management:

Qantas, in partnership with systems integration specialist Computervision, is achieving major productivity improvements following the successful implementation of a new information management system called IM-STAR – Information Management Storage, Tracking, Access and Retrieval. The system has initially been installed at the Qantas Engineering Training School and has already made a major improvement to the production and maintenance of technical training courses for aircraft maintenance engineers. The system is centred on the electronic creation and maintenance of a single source of technical information which can then be reused many times from that source. The system ensures that technical information is current and able to be disseminated quickly and accurately throughout the airline’s operations. The success of the project so far could lead to Qantas using the same system to manage its technical documentation across the entire organisation.

Airlines Appeal Over Airport Charges:

Federal Airports Corporation plans to increase aeronautical and terminal charges at its airports have met fierce resistance from the airlines, which have warned of higher ticket prices as a consequence. They are planning to take the issue to the Australian Competition and Consumer Commission (ACCC) and a final round of talks with the FAC was boycotted by the Australian Air Transport Association (AATA – which represents Qantas, Ansett and regional carriers) while international airline bodies the Board of Airline Representatives of Australia (BARA) and the International Air Transport Association (IATA) attended the meeting only so as to reject the FAC’s proposals. 18 Australian Aviation October 1996. The AATA says the FAC “is grossly overcharging the industry relative to its financial targets and thus, in our view, there is no justification for any further increases”. The AATA’s argument is based on its claim that the FAC has been “over recovering” on its rate of return targets. It says that the FAC had exceeded the 13.2% economic rate of return established by the government for the 1990-93 period by about 0.8% and for the 1993-96 period the FAC’s average annual return rose sharply to 17.3% rather than the target 11.4%. Legal action has also been threatened to block the increases.

Joint Pacific Airline Plans:

Despite previous failed attempts to create a single Pacific air carrier, the concept has been partially revived with Air Pacific, Air Vanuatu, Air Caledonie and Air Marshall Islands meeting to discuss the issue. The airlines have discussed the joint operation of air services within the region using a Saab 2000 turboprop but cooperation will be limited to code and seat sharing rather than actually creating a new single airline. The idea is to complement existing Boeing 737 services with a lower capacity but higher frequency service. Air Pacific already has seat share arrangements with other airlines in the region and jointly leases a 737 with Royal Tongan Airlines. One Saab 2000 is operated by Air Marshall Islands and a second owned by the airline is leased to a British operator. This aircraft could return to the Pacific if agreement on the joint services is reached. Polynesian Airlines and Solomon Airlines are also considering joining the group.

Ansett & Qantas First Classes To Go?

Australia’s domestic airlines may not offer first class in the future as they both continue to cut costs. Ansett and Qantas have operated the traditional three class system for some time but Ansett for example has seen first class ticket sales drop by 45% over the past two years. Ansett has been sounding out government departments and its corporate account customers as to their future plans regarding first class and the decision on whether or not to scrap it will be made on their response. Most other countries’ airlines offer only business and economy classes on domestic flights but both airlines will be mindful of Qantas’ (then Australian Airlines’) decision in 1992 to abandon first class and replace it with the so-called ‘premier’ class (an upgraded business) and two levels of economy class. This experiment lasted only four months due to a poor reaction from its top paying customers. The market situation has changed since then, however, with executives tending to fly either business or full fare economy as companies look to reduce their travel budgets. Of the 250,000 passengers carried by Ansett each week, only about 1400 or 0.56% are first class, many of these government employees.

Ba Levant Franchise:

British Airways and British Mediterranean Airways have announced a new franchise partnership to ensure a British carrier can compete effectively on routes between the UK and the Levant. BA will withdraw its services to Beirut, Amman and Damascus in the face of mounting losses caused by restrictions on the frequencies it can fly but the arrangement with British Mediterranean will ensure that British interests in the region can be served by a British carrier. After a break of almost a decade during unrest in the region, flights by BA to Lebanon, Jordan and Syria were resumed in early 1995. However, the airline was only allowed to fly twice a week to Beirut and Damascus while its competitors have been able to operate daily services. Recent hostilities in the region have compounded the problem. As a result, BA will suspend services to the destinations from late October and British Mediterranean Airways will take over on a franchise basis and expand the network to include Alexandria (Egypt) and several destinations in former states of the old Soviet Union. The airline’s fleet will be repainted in BA colours with British Mediterranean clearly displayed as the operator.

More Qantas To Queensland:

Qantas will introduce a twice weekly Boeing 767-300 service from Brisbane to Kuala Lumpur from November along with nonstop flights from the Queensland capital to Jakarta. The service will operate Brisbane/Jakarta/Kuala Lumpur each Wednesday and Saturday and returns over the same routing. Qantas already has three flights each week from Sydney to Kuala Lumpur.

Kiwi Restructures Amidst Chaos:

Following weeks of flight disruptions and operational problems, the low fare trans Tasman operator Kiwi International has announced a large reduction in flights, job losses and cost cutting in an effort to reduce the carrier’s growing debt. Prior to the announcement Kiwi scheduled 30 flights each week across the Tasman, however these were due to be cut to just 14 by October 6 with the carrier deciding not to fly out of Auckland and scaling down its services from Christchurch. Kiwi will now operate mainly from its original ports of Hamilton and Dunedin. Kiwi has stated that fierce competition between the trans Tasman carriers has been the main reason for this decision with other factors such as recent volcano eruptions and the ATC curfew coming into play. The reduction of services will see a number of job losses in both Australia and New Zealand. Also of trouble to Kiwi has been the recent grounding of its leased Airbus A320 in Brisbane. The aircraft was on the ground for three days due to a dispute between Kiwi and lessor Region Air of Singapore. At the time of writing the dispute had been temporarily settled in court with Kiwi taking out injunctions against the lessor to continue flying. The injunction was successful and Kiwi was granted a 10 day reprieve. This unfortunately is not the end of the storm with Kiwi still in dispute with Region Air and the rumour mill still circulating stories of other problems confronting the airline including possible disagreements with the Nauru government over the lease of Air Nauru’s 737-400.

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Traffic Growth To Continue:

Total passenger traffic carried by the world’s scheduled airlines is predicted to grow by about 6% in 1996, 7% in 1997 and 6.5% in 1998 according to forecasts issued by the International Civil Aviation Organisation (ICAO). Total international and domestic passenger traffic generated by ICAO’s 184 member states is estimated at 2.23bn passenger kilometres in 1995, rising to 2.695bn in 1998. The growth will vary by geographic region with Asia Pacific airlines expected to continue to show the greatest increase during the period of the forecast at 7-8% per annum. Africa, the Middle East and Latin America/Caribbean will grow slightly above the average, Europe and the CIS near the average and North America below average at around 4%.

New Air Services To China:

The International Air Services Commission (IASC) has issued a draft determination which will allow Ansett to begin operations to China and Qantas to introduce extra services. Ansett wants to introduce two Boeing 767-300 services per week to Shanghai by December this year, expanding these to four per week by November 1997 and six per week by November 1998. Qantas proposes operating four 767-300 services per week to Shanghai and Beijing from July 1997. An application by would be startup operator Australian Connection Airlines to be granted capacity was declined because at this stage there was “insufficient evidence of the firmly committed funds required”.

Emirates First With Satcom:

Emirates has become the first airline in the world to equip its entire fleet with inflight telephones and fax machines. Emirates began the project in 1993 and is also the first airline to introduce satellite communications to Airbus aircraft. By the end of 1995, Emirates had retrofitted all of its 16 strong Airbus fleet with telephones and fax machines have been added during the course of this year. The airline also has personal video systems for all passenger seats (including economy class) in all its aircraft – another first. The airline’s Boeing 777 aircraft, the first of which joined the fleet in June this year, are each equipped with inflight telephones in all passenger seats in addition to two cordless telephone sets in each cabin. A fax machine is also on board. Emirates charges $US7.00 per minute for use of these facilities, claimed to be among the lowest in the world by a commercial airline.

Air Nz Profit:

The Air New Zealand Group has managed an after tax profit of $NZ225.2m ($A198m) the second highest in the group’s history. Following record profits the previous financial year, the 95/96 year was more difficult for Air NZ with increased competition in both the international and domestic markets. Other adverse affects on the airline have included the ATC dispute in New Zealand and the eruption of Mt Ruapehu. Air New Zealand now aims to consolidate its existing operations with achievement of similar load factors and yield retention. The airline is also hoping to cut more than $NZ100m in costs in an effort to maintain its competitiveness against increasingly strong competition. For further details refer Bottom Line.

Life Insurance Group Targets Pilots:

Canberra based Maximum Performance Group is pitching its life insurance services to pilots to ensure their families’ incomes are protected. Maximum Performance Group uses independent research to best match its customers with the services they most need. Personalised packages are tailored so that the pilot is married up to the best insurance firm, policy type and conditions to meet his/her situation at a competitive rate. Maximum Performance Group is a small professional organisation which is not owned by or exclusive agents for any of the large life insurance organisations. For details phone 1800 808 242 or (06) 282 4355.

Airports Update:

Brisbane: 300ha (750 acres) of land which is available for development at Brisbane Airport is being keenly sought after by hotel chains and hotel investors. The airport’s Gateway Precinct development near the entry contains zoning for a hotel and the land in question is not required for aviation purposes. The Federal Airports Corporation’s property development manager, David Lamond, says “we are looking at size, rating and configuration with a view to go to tender to seek a development team comprising operator, developer and owner operator”. Mr Lamond says that virtually every major hotel chain in the country is vying for position to build on the land.

Cairns: Cairns Airport is currently undergoing a major upgrade worth $85m known as Project IIIA. The project includes a new three level Airport Admin Centre, 24m extension and redevelopment of the international terminal, expansion of both carparks, rework of the domestic terminal, expansion of Qantas and Ansett club lounges and development of airside movement areas. The program will increase the size of the airport’s retail area by 250% with 31 traders inside.

Coolangatta: Australian property developer Leda Group has indicated an interest in being part of a syndicate to secure the lease for Coolangatta Airport when the time comes. This follows recent statements by Minister for Transport John Sharp encouraging the Gold Coast community to control its own destiny. The Leda Group is keen to see the airport remain in Australian hands and not have tourists lured away from the Gold Coast.

Australasian Aviation ’97:

Australian Aviation is proud to promote our first ever aviation conference. Designated Australasian Aviation ’97, the conference deals with a wide range of issues affecting the air transport industry through the coming twelve to eighteen months. Key speakers will represent the very cream of the Australasian airline industry and regulatory environment including (in alphabetical order) Air New Zealand, AirServices Australia, Ansett, Australian Tourist Commission, Board of Airline Representatives, Bureau of Air Safety Investigation, Cairns International Airport, Canberra Business Council, Civil Aviation Safety Authority, Federal Airports Corporation, International Air Services Commission, Kendell Airlines, Kiwi International Airlines, National Jet and Qantas. The conference will be opened by the Minister for Transport & Regional Development John Sharp MHR who will also deliver the keynote address. To be held at Canberra’s Rydges Lakeside Hotel on November 25 & 26, this conference will address the crucial issues affecting our industry in the year ahead. Airport privatisation, the future of regional airlines, the Ansett/ANZ alliance, Qantas expectations for the future, air safety, aviation and tourism. How to develop profitable airline operations and changes in the regulatory outlook will all be addressed over the two days of what should be a very effective, productive and enjoyable conference in the nation’s capital. For full details please refer to our special centrespread feature.

Essendon: The Federal Government has said that a decision on the future of Essendon Airport is a priority, but is nevertheless unlikely to be made for a short time yet. It does appear clear, however, that the original Melbourne airport’s days are numbered despite understandable opposition to its closure from businesses based there. If Essendon closes, Avalon will be the main beneficiary and politicians and other interested parties from that area are encouraging the government to hasten Essendon’s demise. The previous government had already taken the decision to close it.

Mackay: Mackay Airport has reported record numbers of passengers passing through the airport for the year ending June ’96. A total of 285,758 passengers passed through with the majority on business. Mackay has also budgeted for an expansion of the airport to handle wide bodied aircraft. This would mean the acquisition of specialised equipment such as a container/pallet loader, airstairs extension, belt loader and container and pallet trailers. Also on the agenda is a new viewing area for friends and relatives of passengers.

Mildura: Mildura’s $2.7m upgrade will be operational shortly, extension of the main east-west runway to 1830m (6000ft) allowing aircraft up to the size of the Boeing 737 to operate there. The upgrade also includes increasing the apron area and changing the runway lighting and visual approach slope indicators. To celebrate completion of the work, the airport will hold its first ever airshow on November 23 (refer Newsdesk this issue).

Perth: US investor Hellman & Friedman is emerging as a bidder for Perth Airport, the company reported to hold a 49% interest in a consortium comprising West Australian institutional investors. A partial public float will be undertaken if the consortium’s bid is successful.

Sydney: The NSW Government has approved the building of a $600m private tollway which will allow motorists to travel between the northern suburb of Artarmon and the airport, a distance of 22km. The preferred contractor for the project has been named as Airport Motorway, a private consortium led by Leighton Contractors. The project involves building a 2.5km extension to the Eastern Distributor and upgrading General Holmes and Southern Cross Drives. The consortium will raise equity through a public float and bank borrowings.