The viability threshold

However, for some of those airlines not servicing the resources boom or indirectly benefiting from it, things have not been quite so bullish.

Those serving the smaller rural and pastoral centres are in many cases still doing it tough.

As last year drew to a close, we saw a small but very competent regional airline close its doors for the last time. O’Connor Airlines, a family run business which has contributed significantly to the communities in the southeast of South Australia and further afield over many years, entered administration and then finally closed for good (as detailed from page 26 of this issue). O’Connor Airlines was not a member of the RAAA, but its loss is felt by all in the industry.

Much has been said about the reasons why the airline eventually failed, but in view of the recent history of regional airlines in this country, I suspect that the reason was directly related to the rapidly increasing cost of providing air services, and the need for larger numbers of passengers than were available to amortise that cost and provide an adequate return. The unscheduled loss of aircraft due to unforeseen corrosion in one case and lack of manufacturer support to guarantee continuing airworthiness in the other case would not have helped.

In any event, the O’Connor experience is sadly one more example of the market driven rationalisation process that has been reshaping the regional airline sector over the past 20 to 30 years.

Even with the best management and staff, there is no substitute for “bums in seats”.

The same applies to aircraft.

Some years ago, the industry standard entry level ‘airliner’ was the hard working and ever reliable nine-seat Piper Chieftain, but it is now generally held to be the substantially larger Metro and its peers at around 19-seats.

However, the Metros, Beech 1900s, Jetstream 31/32s and 41s, Brasilias, smaller Dash 8s and Saab 340s, which currently make up the bulk of the low capacity regional airline fleet, are now out of production, with no real prospect of replacements becoming available, at least for the foreseeable future.

While there are reports of plans to put the Twin Otter and Dornier 228 (see Newsdesk) back into production, the only new low capacity (less than 38-seats) airliner known to be currently available is the Bombardier Q200, a version of which at 37-seats is technically a low capacity aircraft.

ATR and Embraer agreed to address the reasons for this lack of new low capacity aircraft at last October’s RAAA Convention, and the views of both manufacturers were in striking agreement: the identifiable market for aircraft with less than somewhere around 50 seats was simply inadequate to justify production.

This is partly due to the fragmented nature of the low capacity sector, with no obvious launch customer, and partly due to the difficulty in amortising the new price of such aircraft, given their relatively low seating capacity, the very limited elasticity of fare pricing, and the extraordinarily high and increasing cost of compliance with both safety and security legislation, fuel and airports.

Around four or five of the smaller regional communities have lost air services each year over the past three decades due to them becoming increasingly non-viable as costs have risen. This trend can be expected to continue, despite the current increase in services supporting the resources boom. The combination of the continuing upward ‘creep’ in the minimum viability threshold for regional air services and the probable non-availability of small replacement airliners, represents a major future challenge for our industry and the communities we serve.

How will it be possible to provide essential services to the more remote communities who rely on safe and reliable air services for their social and economic well-being? Clearly we as an industry, in concert with the regulator and the communities we serve, need to do all that we can to find a model which might be viable where conventional RPT services would not.

If we cannot find a viable alternative to current business models, then it will fall to governments, both state and federal, to find a way of ensuring that essential services are maintained.

Perhaps more attention now by the new federal government to reducing the outrageous costs its predecessor imposed on the industry, primarily but not exclusively for safety and security compliance, might pay handsome dividends later. o Australian Aviation is proud to be the official supporting journal of the Regional Aviation Association of Australia. The views in this column are those of the RAAA, and not necessarily Australian Aviation’s.

Manufacturers see no viable market for new aircraft with less than 50 seats. (Andrew McLaughlin)