Western Star

For the ‘damsel’ Skywest, there have been far too many episodes and the many ‘cliffhangers’ have gone on for months at a time with the saga spilling into the media and the courts.

Skywest’s turbulent ride – and its market position today – can be traced back to the late 1990s when the airline was a wholly owned subsidiary of Ansett and CEO Bob Mason was at the helm.

Mason, a long time veteran of the regional airline business, strived unsuccessfully to persuade Ansett’s management to allow the airline to operate idle Fokker F28‑4000s to compete with the rising National Jet Systems (NJS) run in WA by former Skywest executive Hugh Davin.

NJS, armed with a fleet of BAe 146s, had leaner operating costs and was ripping into the heart of Ansett in the mining charter field and was also operating those aircraft for QantasLink on RPT flights within WA.

The effect was so savage on Ansett’s WA operations that in May 2001 the airline drew up plans to abandon intra-state flights in WA as part of a wider re-structure of the ailing airline.

Under the Ansett umbrella, Skywest enjoyed a profitability of between 6. 5 and 7 per cent from its regional RPT flights with Fokker 50s and limited mining charter work for Western Mining to Leonora and Mt Keith.

However, this was achieved with many costs, such as frequent flyer program, lounges, reservations, ground handling and catering offset by Ansett – not to mention the contribution of feed passengers. Not surprisingly, Skywest found some sections of Ansett way too expensive and had its maintenance done overseas.

With the collapse of Ansett, Skywest also went into receivership, although it recommenced flying with temporary federal and state assistance. A scramble of bidders emerged to buy the airline with the winning syndicate fronted by former Skywest CEO Bill Meeke paying $6. 75 million.

However, that syndicate’s bid was based on support from the Tesna revival of Ansett with critical feed passengers and reservations systems supporting the regional airline.

When Tesna collapsed and with it any chance of reviving Ansett, Skywest struggled, with some shareholders demanding a short term quick and profitable exit, while Meeke wanted more capital to launch into Fokker 100 or Boeing 717 jet operations.

Within six months, Meeke was dumped in a boardroom coup with chairman Pat Ryan taking over the CEO’s role, until Scott Henderson was appointed in October 2002.

The airline was bleeding cash and now became embroiled in a very public $1. 3 million stoush with Meeke over breach ofcontract. Over the next three years, the airline was bedevilled with problems as shareholders and the board wrangled over capital raising and then the float of the airline.

Complicating matters, Skywest was involved in actions – later withdrawn – against Meeke, The West Australian Newspapers and The Australian Broadcasting Corporation and its own shareholders over a “Letter to Shareholders” produced by Meeke giving his version of events surrounding his dismissal in 2002.

The sacking of Meeke and the public airing of these problems had a material effect on Skywest with Western Mining executives telling Australian Aviation at the time that Meeke’s dismissal was pivotal in Skywest’s failure to secure a continuation of its business.

The financial implications at the time prompted Western Australia’s Planning and Infrastructure Minister Alannah MacTiernan to warn Skywest that the airline would lose its monopoly on some routes if it was unable to secure financing for its aircraft.

MacTiernan also sought written assurances about the airline’s ability to pay its debts as they fell due. However, the WA government rolled over Skywest’s monopoly on what are termed turboprop routes to the state’s mainly southwest regional centres, such as Albany, although they were to be out-to-tender a year later.

In July of 2003 Skywest launched a $2. 67 million convertible notes issue and a major player – Singaporebased Captive Vision Capital (CVC) – emerged as a significant shareholder in the airline. CVC – led by Perth born Jeff Chatfield – is a subsidiary of majority Australian owned Advent Air Limited, which is incorporated in Singapore but listed on the London Stock Exchange. According to Advent Air, numerically its biggest shareholding block comprises West Australians.

Within six months, a bitter battle erupted between CVC and Skywest over control after CVC claimed the airline was not “being properly managed. ” A formal bid was launched in April 2004 at 20 cents a share but quickly degenerated into a morass of claims, counterclaims and legal threats over unsubstantiated allegations that a Skywest executive was passing secret information to the hostile CVC bidder in hundreds of emails.

Skywest’s then CFO Craig Lovelady was sacked over allegations that he sent highly confidential information about the airline to CVC.

Lovelady strenuously denied the allegation, and launched wrongful dismissal and defamation proceedings against Skywest. Very quickly, the Australian Securities & Investments Commission and the Takeovers Panel became involved.

Further complicating matters, several of the original shareholders of Skywest believed that the airline was worth double the 20 cent offer and pushed ahead with plans to float the airline on the ASX.

The float, which was oversubscribed after regional WA was sold on the deal, was closed on November 12 2004 and the airline floated two weeks later.

However, the airline’s shares did not soar above the float price of 21 cents as hoped and the two remaining major stockholders sold out to CVC at 23 cents, thus ceding control.

In January 2005, Chatfield was appointed chairman of Skywest and sweeping board and management changes ensued as CVC set about putting the airline on a solid commercial footing. jet contracts with most of Australia’s blue chip mining companies and it also won the contract to operate a fleet of eight Boeing 717s for QantasLink.

Davin told Australian Aviation in early 2007 that he was “impressed with Skywest’s new owners, board and the evolving management team. ” He also said he was “attracted by Skywest’s low cost model,” which is thought to have achieved the lowest cost structure of any jet operator in Western Australia.

But there was much work to do, with some of the Fokker 100s only operating five hours a day, with some in the airline not understanding the operational potential of the aircraft type.

Over the previous four years, the board room and ownership turmoil had robbed Skywest of many mining fly-in/fly-out (FIFO) charter contracts with NJS winning the lion’s share.

Chatfield spent the next two years clawing back business, winning a three year contract with a two year option of its monopoly turboprop routes, adding more aircraft, securing a renewal of its lucrative Argyle diamond mine contract and winning new business.

In May 2006 CVC successfully bid for the shares it did not own in Skywest and took the airline off the stock market in September. By then, the airline’s fleet had grown to three Fokker 100s and seven Fokker 50s to support increasing resource contracts and RPT services. However, far more significant events were yet to come.

In November 2006, in one of the most significant management moves in the WA airline industry, Skywest lured NJS WA chief Hugh Davin to lead its drive into the resource sector.

While the media largely missed the significance the jubilation at Skywest was seismically measurable. And so it should have been, for Jeff Chatfield had pulled off the “coup of the decade”, one mining executive told Australian Aviation.

Forgotten by most, Davin spent 23 years with Skywest before leaving in 1993 over concerns related to retaining the Coastwatch contract and the development of the resource market.

In 1994 he set up NJS in Western Australia with just two BAe 146s. Over the next 12 years, the NJS fleet grew to 18 jets based in WA – not to mention the fleet of aircraft engaged in the Coastwatch contract that Davin secured in 1995 and which the company successfully renewed in 2006.

During Davin’s tenure at NJS, the operator secured With Davin on board, the focus on mining contracts increased and within a few months the airline announced it needed an additional Fokker 50 and an additional three Fokker 100s.

Skywest finds itself in a unique position in WA in that it can combine RPT and scheduled charter on the same flight, which represents a valuable proposition for the larger resource sector clients, who are required by the WA government to support local communities in consideration for their right to mine certain resources.

FIFO resource contracts have evolved in WA in part because of the remoteness of many resource projects and to avoid the GST on providing housing. Criticism of the resource industry’s critical FIFO operations from state government and regional authorities tends to gloss over the impact that this operation has on lowering the airline industry’s costs.

FIFO is a more recent development in the industry, which has come about for economic and social reasons.

Well established centres such as Karratha, Paraburdoo and Newman, which evolved in the 1960s and 1970s under then federal government policies, are served by RPT flights.

While much is made of FIFO operations, according to a 2000 study, Mining and Regional Australia: Some Implications of Long Distance Commuting, only 47 per cent of the mining industry is employed on a FIFO basis.

And while FIFO business has had a shot in the arm, Skywest has looked at many RPT opportunities and announced a three times weekly Kalgoorlie-Melbourne service from November 21.

This service may well be the start of many direct links as resource companiesstruggle to find staff and many employees commute from the eastern states via Perth. That connection can add an additional day both ways to a shift change.

Skywest Airlines now operates to 15 destinations across Western Australia: Albany, Argyle, Broome, Darwin, Esperance, Geraldton, Carnarvon, Exmouth, Kalbarri, Kalgoorlie, Kununurra, Newman, Monkey Mia and Port Hedland. Skywest also provides many connector services, Broome-Darwin, Broome-Kununurra, Geraldton-Carnarvon and Port Hedland-Broome.

The airline also operates a once-weekly service linking Port Hedland and Broome to Bali. From November 21 the airline will operate between Kalgoorlie and Melbourne.

Other route possibilities are Broome-Singapore while additional services are planned to Geraldton – currently 34 services per week – Exmouth, Newman, Kalgoorlie, Albany and Darwin.

One of Skywest’s marketing pluses is its economy class, which compared to most, is more of a premium economy class, with 34in (86cm) of leg room. The airline has engaged Australia’s basketball legend 2. 18m Luc Longley to endorse it with an image that says it all! And continuing the premium theme the airline has recently included premium beers by popular boutique Western Australian brewery Little Creatures Brewing to its inflight fare, which also includes local Dome coffee, Cookie Barrel cookies and Ferngrove Wines.

In March this year, Hugh Davin was both promoted to managing director of Skywest and joined the board, while former Jetstar Asia executive Paul Daff was appointed CEO of the airline and is the face of Skywest in WA, and Mike Hoar was promoted to COO.

Hoar, with considerable regional airline experience, was recruited in October 2003 to assist with business development of Skywest.

Skywest is sticking with the Fokker 100s because of their low capital cost, which Daff estimates is about a fifth that of a new Embraer regional jet of similar capacity.

Two Fokker 100s were due to arrive last month (October) and go into service this month (November) with the third for March next year. And Davin tells Australian Aviation “we are out looking for more. ” Skywest is also proceeding with its plans announced in August 2006 to lease in A320 equipment. Originally the airline announced an ambitious lease of four aircraft but that has been scaled back to one to be delivered in November 2008, although insiders suggest that by the time the first arrives a second will be scheduled. Long term plans still call for at least four aircraft. The A320s would be used to develop routes such as Perth-Broome and Perth-Karratha.

The lease arrangement is actually an innovative joint venture with Icelandic transport group Avion – which owns 61 aircraft – carrying the cost of the deployment and operation in a profit sharing after costs arrangement with Skywest.

The new experienced management team at Skywest has turned around the airline’s operational performance which had suffered because of a lack of focus.

According to Davin the airline’s on time performance has soared from a low of 77 per cent late last year to 99 per cent in September 2006.

“We have the best on time performance in Australia – well above the average of just 79 per cent. ” CASA is impressed and has just awarded the airline a three year renewal of its high capacity jet AOC.

Today, Skywest is flying high. Full year figures were due to be published in October but in the nine months to March 2007 the airline had shown a net profit 475 per cent higher than for the previous period, with total revenues up a third.

Scheduled charter revenue rose 62 per cent, regular route revenue increased 25 per cent and average fares were up 15 per cent.

Growing passenger numbers help. To June 30 2004 the airline carried 214,000 RPT passengers. To June 30 this year it carried 347,000.

On top of that are the mine charter passengers.

From a near death experience early this decade, Skywest is certainly proving to be a western star.