Rising in the west

“Skywest has morphed from a small regional RPT carrier into an airline that supplies aviation services to WA. That takes in RPT, FIFO (fly in, fly out) or a combination of both. That’s what the need has been in WA, and that’s where Skywest is headed,” chief executive officer Mark Shelton told Australian Aviation.

To provide that service, the carrier has grown its fleet significantly and currently operates six Fokker 50 turboprops and nine Fokker 100 jets. Both aircraft are used extensively on its extensive regional route network, which includes a set of protected RPT routes, as well as charters for a number of blue-chip mining companies including Rio Tinto, Fortescue Metals Group and Newcrest Mining. It also operates a weekly charter service to Denpasar from Broome and Port Hedland.

As the airline’s managing director Hugh Davin explained to Australian Aviation, the mix of charter and RPT traffic complements each other, due to the different demand peaks. The majority of charter flights for the resource industry occur between Tuesdays and Thursdays, and is usually linked with shift changes. However, the peak for RPT travel is on the weekends. This has effectively allowed the mining work to underwrite its fleet, which benefits the RPT network.

“We’ve deliberately set out to bring the utilisation benefits of hobbling the RPT opportunity with the FIFO opportunity,” said Davin. “We believe that everyone wins out of that because we’re protecting our business and employees by having more than one revenue base, so we spread the risk there. We’re also able to offer a better range of services to the regional communities because of the mining industry investment in supporting some of our aeroplanes.”

Davin says that Skywest has benefited from the general move up into bigger equipment as the needs of the mining companies have increased, which has supported the growth of its Fokker 100 fleet in particular. “If you look back 20 years ago, the signature aeroplane flying to and from a mine was a 19 seat Metroliner, and in five year lots it went from a 19 to a 36 seat Dash 8, to a 50 seat Dash 8, to a 70 seat BAe 146 and then to a 100 seat F100,” he said.

While the airline has grown with its opportunities, it has not been without challenges. Like most airlines, it felt the impact of the global financial crisis, primarily on its RPT services. “As RPT passenger figures dropped by 25 per cent in January 2009, we were flying as many charters in January 2009 as we fly in January 2010, but by January 2011 we should be flying a lot more people around the state as well,” explained Shelton.

And even though the resources sector was also affected by the global economic slowdown, SKywest was fortunate to have picked up contracts serving well established, core production mines such as Rio Tinto’s West Angelas and Newcrest’s Telfer mine.

As it has benefited from the growth in resources activity, so have a number of other operators at Perth Airport which has caused some congestion problems at certain times of the day, particularly during weekday mornings. Shelton says that Skywest has worked with a number of clients to address the issues, and that most understand the need for flexibility. “The mining companies are starting to see that you can’t continue to fly out in a two hour peak between 5 and 7 and a four hour peak in the afternoon,” said Shelton.

He added that bringing in the 160 seat A320 will also help to relieve some of the congestion. “Having a bigger jet will help us because its two slots for one,” he said.

It is not the first time that the carrier has looked to add the Airbus narrowbody. In August 2006, the airline’s executive chairman Jeff Chatfield announced that it had reached an agreement with the Iceland based Avion Group to wet lease up to four A320s under a curious “profit sharing” arrangement. Ultimately, the agreement was never executed, but it did put the airline on the path towards operating its own example.

This saw its first example of the aircraft arrive in Melbourne during June. Fully painted in Skywest livery, the former Thomas Cook UK operated aircraft is undergoing a series of preparations before an entry into service which is planned for August.

“We’re very fortunate that this aircraft was a G registered aeroplane operating with a very good history in the UK,” said Davin. “The aircraft is now in Melbourne undergoing the processes of putting it on our air operator’s certificate and the certificate of approcal for the aircraft itself. We’re conducting all of that activity with the support of John Holland Aviation Services who have a vast amount of experience with the A320.”

While it is a major step up, Shelton explains that with the background of the company, adding the A320 hasn’t been that difficult a process. “Skywest is the holder of a high capacity AOC and we have all the suite of documentation required inside the business already and we fly to that standard already. It’s really logistics more than anything,” he said.

Initially, the A320 will be utilised by on charter services, in particular Fortescue Metals Group which will fly into its Cloudbreak mine. “It’s a very big step for a little organisation, and we will be taking baby steps with that aeroplane until we really get to know it and see what happens from there.”

That is likely to see it utilise the aircraft on some of its more popular RPT routes, such as Perth-Broome at some point in the near future. Shelton added that with the additional range offered by the A320, it opened up a range of new possibilities for both charter and RPT services. “You are no longer bound to WA or even Australia,” he said.

While waiting for the A320 to be cleared to enter service, the needs of its clients have continued to grow. As a result, since late May the carrier has been wet leasing a Boeing 737-700 from Virgin Blue to operate on a twice daily rotation from Perth to FMG’s Cloudbreak mine, which will be replaced by the A320 once it enters service.

As it steps up to fly A320s, Skywest has no plans in the short to medium term to replace its core fleet of 46 seat Fokker 50 turboprops and 100 seat Fokker 100 jets.

Indeed, the airline has recently decided to make a major investment in its F100s to fit global navigation satellite system (GNSS) equipment to the fleet, which will greatly increase their capability, particularly during bad weather. “We will have the only Fokker 100s in Australia with a fully integrated, factory designed satellite navigation unit, so we will have ADS-B and RNP capability in those aeroplanes,” said Davin, who added that the new units are currently being fitted to the fleet during their C-checks in Singapore.
In the longer term though, the F100s could develop obsolescence issues, particularly due to the technological ageing of their Rolls-Royce Tay engines. Provided the needs of its customers continue to push above the 100 seat mark, the airline could move to roll over more capacity into the larger A320s and grow its fleet of the type.

On the other end of the scale, the F50 turboprops, which have current generation Pratt & Whitney PW125 engines, are not currently planned for replacement. “From a safety point of view and an operational point of view, they do the job and they have a long life ahead of them. From a financial point of view, that could change and that’s how it’s looked at,” he said.

While the airline has previously looked at the possibility of replacing the aircraft with ATR 72s, Davin says that it currently plans to replace older F50s with some of the later production models. “We’ve started down the road of a fleet age reduction strategy rather than a fleet replacement strategy,” he said. “What we’re going to do is, as needed, we will start to involve an increased number of lower time F50s, and if we need to, pull some of the older ones out of service.”

RPT

For a number of years, RPT has been a major bread and butter market for Skywest, and in 2005 it was awarded a route license by the WA government which gave it exclusivity on the Coastal route network, which includes towns such as Exmouth, Monkey Mia and Albany.

As Shelton explains, the network includes a mix of routes with varying traffic levels and returns. “Currently there’s a network, therefore the network subsidises itself and provides a level of service to towns that probably wouldn’t get that level of service,” said Shelton. “That’s right across the whole network, it’s not just the Monkey Mia or Kalbarri, there are a number of towns that based on the load factor wouldn’t get it the level of service it does.”

While the Coastal network is primarily the domain of the F50 turboprops, Skywest has been able to grow some markets to the stage where flights are now being operated by F100s, such as on the Perth-Exmouth route.

Shelton notes that business travellers make up most of its traffic mix. “Even in the RPT sector, at least 50 per cent of our RPT traffic is business not leisure, so therefore that discretionary dollar as to whether or not you fly to Geraldton for business tomorrow is not discretionary,” said Shelton. “We are more of a business airline than we are a leisure airline, in that sense.”

The airline has also had some success in opening new regional to regional routes using its F50s, with a number of them supporting the resources industry. “That’s the beauty of Skywest,” said Shelton. “We can link a Geraldton to Paraburdoo via Carnarvon. You can’t do that in a 767.”

Changes to the protected network are on the way as the WA government proposes to revamp its licensing framework for turboprop routes. Currently, this proposes to open routes from Perth to Exmouth, Albany and Esperance up to a second carrier, while the Perth-Geraldton route would be fully opened to any potential competitor. A new ‘Western Coastal’ exclusive license for routes from Perth to Learmonth, Carnarvon, Monkey Mia, Kalbarri and Geraldton would also be offered.

At the time of writing, the government had just closed for requests for proposals, with any new system not likely to come in until March 2011, with, Skywest has received an extension of its exclusive route license until Feburary 27 2011.

While not able to comment directly on the RFP process, Shelton says that the airline is looking forward to the clarity it will offer once the process is complete. “It’s been a long, drawn out process and we’d like it to come to fruition. Either way, Skywest just needs to plan itself for the long term,” he said.

In addition, it also flies RPT services from Perth to major jet destinations such as Karratha, Broome and Port Hedland. While it competes against QantasLink and more recently Virgin Blue on such routes, the airline has made targeting the resources industry a key part of its business model, with some mining companies purchasing blocks of seats on the services, helping to underwrite the commercial viability of them.

Since February, Skywest has also operated a weekly Perth-Kalgoorlie-Melbourne service. Flown by a Fokker 100, the flight departs Kalgoorlie on Friday morning and then departs Melbourne on Sunday afternoon. The carrier had previously operated three times weekly services on the route from November 2007 for a year before high fuel prices and low demand forced it to cancel the service.

Future

While the introduction of the A320 is the biggest milestone ahead in the short term, both Shelton and Davin see a range of opportunities opening up in the future, both in terms of scheduled and charter services, both locally and beyond.

“We’ll be looking to continue to service the ever growing aviation needs of WA in the mining, tourism and corporate sectors, along with looking to explore other sources of income locally, nationally and internationally,” said Shelton.

On the charter side of the business, Davin notes that the large demand for workers from the resource sector is forcing many mining companies to upgrade their infrastructure, which will open up new opportunities, particularly for its A320. “The industry is growing up now and mining companies are moving away from unsealed runways where you have a problem when it’s raining. They’re moving to sealed, larger runways which opens up the door to a brand new range of options for air transport. We watch that with great interest.”

With those options opening up, competition has increased as more operators make a grab for a slice of the market, particularly with airlines such as Alliance and Strategic moving capacity into the WA market. But Davin is not concerned about the added competition. “No two or three companies can aspire to meet all of the need here, and the more companies that actually come in with different products, the more it actually expands the market opportunity as well,” he said.

Despite the large opportunities in the charter environment, the company has no plans to let go of its scheduled business, even with the threat of competition on some of its previously protected routes. “We’re going to be around, but the outcome of that will have some influence on the shape of our organisation, but there’s a lot else going on as well,” said Davin.

The airline is also looking at other opportunities, with freight a key priority. Recently, the airline has partnered with WA Newspapers to deliver copies of the Saturday edition of The West Australian newspaper to towns in the Kimberley and Pilbara utilising an F50 with seat packs. While it is currently a small step, the airline sees great potential to tap into a growing need for air freight through the state.

At the corporate level, the airline this year moved to have its shares quoted on the Australian Securities Exchange, in addition to its primary listing on the London Stock Exchange’s Alternate Investment Market (AIM). “The reason for that really is that it increases the liquidity in the stock by allowing people to trade it here. As things are happening in WA, Australian shareholders are much more involved than a UK based shareholder,” said Shelton.

Overall, with a supportive set of shareholders, Davin says that there are no constraints on where the airline can go.

“Skywest has historically always been owned by a large group, such as Ansett, who have come along and put their hand on our heads to never let us develop as a competitor,” he said. “We don’t have that constraint any more so provided we run our business properly and remain healthy, there’s no end to what we can actually do. I think that’s a great place for the organisation to be.”