Above consensus

Under the new delivery stream, the first A320neo will arrive during the 2018/19 financial year, compared with the end of calendar 2017 previously.

It is understood this represented a delay of about nine months, allowing Qantas to push the capital expenditure needed to acquire the aircraft into 2018/19.

“It’s looking at how we prioritise our spend and for us we’re quite disciplined about making sure that we do stay within our capex guidance that we’ve given out there,” Qantas Group chief financial officer Tino La Spina told reporters on February 23.

“So we want to make sure that we allocate to the areas of most need first. Suffice to say that that’s probably right now not the area of most need for us going forward.”

Qantas’s first half financial accounts showed the company spent $1 billion in capital expenditure in the six months to December 31 2016, with a further $500 million earmarked for the second half.

The airline has been busy preparing for the arrival of the eight Boeing 787-9 Dreamliners it has on order, with the first aircraft expected to touch down in Australia in October. In addition to the aircraft itself, Qantas is investing heavily in its 787 fleet, with new business and premium economy seats, upgraded premium passenger lounges and a new line of crockery and glassware.

The airline is also rolling out internet wi-fi on its domestic fleet of Boeing 737-800s and Airbus A330s.

These investments, rather than Jetstar’s requirements for the A320neo, were the focus for now. Qantas Group chief executive Alan Joyce said the decision was a trade-off.

“So 2019 looks like a right time for those aircraft to arrive and it’s simply just moving around your priorities to make sure you fit within your capital inflow that we want to spend and you’re prioritising the things that are important to you at the moment,” Joyce said.

“The competitive dynamic is that there’s nobody operating in the core of the Jetstar operations any of these new generation aircraft yet.”

In other fleet developments, Qantas said in a slide presentation accompanying the first half results it had refinanced nine aircraft that were on operating leases to be unencumbered owned aircraft at a cost of $327 million.

During the first half, Qantas also purchased three Fokker 100s that have been deployed in resourcesrelated markets, replacing larger aircraft such as the 737-800 that previously operated those routes.

Some routes have also been downgauged from 717s to Fokker 100 and Q400 equipment.

Joyce said domestic market conditions had improved after a weak first quarter, particularly in the non-mining parts of the country.

“The resource sector was still down, but the east coast and the other leisure markets improved well,” Joyce said of the second quarter trading conditions.

“Now what we’re seeing going forward is actually pretty positive.”

In terms of the results, the airline group posted net profit of $715 million for the six months to December 31 2016, down 27 per cent from the bumper $983 million profit in the prior corresponding period that was boosted from the proceeds of the sale of Qantas’s domestic terminal back to Sydney Airport.

Underlying profit before tax, which removes one-off items and which Qantas regards as the best indication of its financial performance, fell 7.5 per cent to $852 million, from $921 million in the prior year. The result was at the top end of company guidance of between $800 million to $850 million issued in October 2016 and above market consensus of about $830 million.

Revenue fell 3.3 per cent to $8.18 billion, Qantas said in its regulatory filing to the Australian Securities Exchange.

Although Qantas declined to offer profit guidance for the second half, the airline group did outline its capacity plans for the six months to June 30 2016.

The company said domestic ASKs across its Jetstar and Qantas operations would be cut by about two per cent in the second half, while international ASKs are forecast to grow three per cent.

Qantas declared an interim dividend of seven cents per share, half franked.

MAX held back

Virgin Australia defers Boeing 737 MAX deliveries to 2019

Virgin Australia will look to extend some leases on its Boeing 737-800 fleet after market conditions and the desire to preserve capital prompted the company to defer deliveries of the next generation 737 MAX by 12 months.

The airline group had planned to take the first of 40 737 MAX aircraft on order in the second half of 2018. However, Virgin announced on February 17 deliveries would now begin in the final quarter of calendar 2019.

Virgin Australia chief executive John Borghetti said the airline was still very much committed to the MAX, given the aircraft’s extended range and lower operating costs, as well as upgraded on-board amenities.

“The business case still stacks up,” Borghetti told reporters on February 17.

“We still want the aircraft, otherwise we would have cancelled them. We are just pushing them back 12 months.

“The environment that we are in now, with fuel, demand, all the rest of it, you’re better off delaying it.”

Borghetti said the average age of Virgin’s current 737-800s is about seven years, meaning the airline would still be operating modern aircraft.

Virgin’s initial order for 23 737 MAXs made in July 2012 had the aircraft being delivered from 2019 to 2021. Then in August 2014, Virgin brought forward first delivery to 2018, so this latest adjustment is roughly a return to the original timetable. In August 2015, Virgin converted orders it held for 17 737-800s into 737 MAX 8 orders, lifting its total order book for the type to the current 40 frames.

The Boeing website shows Virgin also has four unfilled 737‑800 orders.

The move means some $350 million of planned capital expenditure for the MAX has been pushed out to beyond 2018/19.

Virgin Australia has spent much of the past year improving its balance sheet and paying down debt. It raised $1.1 billion through the issuing of fresh equity and welcoming a new shareholder onto the register via a share placement.

And Virgin’s Better Business program aims to reduce costs through fleet simplification and operational efficiencies in catering, maintenance and fuel consumption. Virgin said the program was on track to achieve net free cash flow savings of $300 million by the end of 2018/19.

To that end, the airline said all 18 Embraer E190s will leave the fleet by the end of calendar 2017.

Virgin chief financial officer Geoff Smith said the analysis undertaken showed the company’s bottom line would be better off over the next three years with the MAX deferred.

“Put simply, the net cost of ownership far outweighs the operational saving we are giving up,” Smith said.

“That was part of the analysis. Net ownership cost savings plus the capital benefits over a threeyear period.”

In terms of the first half results, Virgin reported a statutory after tax loss of $36.1 million, slumping back into the red from net profit of $45.7 million in the prior corresponding period.

A slide presentation accompanying the financial results showed Virgin booked $69.8 million in restructuring changes in the 2016/17 first half as part of its Better Business program.

Underlying profit before tax, which removes one-off items, was $42.3 million, a decline of 48 per cent from $81.5 million in 2015/16 first half.

Virgin said its domestic operations posted underlying earnings before interest and tax (EBIT) of $80 million in the half, down from $130 million in the prior corresponding period.

Meanwhile, its low-cost unit Tigerair Australia also suffered a decline in underlying EBIT, which more than halved to $6.2 million, from $13.9 million a year ago.

Revenue dipped 0.9 per cent to $2.63 billion, Virgin said in its regulatory filing to the Australian Securities Exchange.

The company did not provide earnings guidance for the rest of 2016/17.

Virgin operated 4.7 per cent fewer domestic sectors in the first half, amid what Borghetti described as continued subdued local trading conditions.

“Going forward, the group will stay focused on strengthening our financial position by further optimising the balance sheet and building a lower cost base,” Borghetti said.

Boeing 737 MAX 8 certified, MAX 9 rolls out

Boeing says its 737 MAX 8 is on track for first delivery in “coming months” after the aircraft received certification from the US Federal Aviation Administration (FAA) at the end of a flight test program that lasted just under 14 months.

The company said on March 9 the FAA had granted Boeing an “amended type certificate for the 737 MAX 8, verifying the design complies with required aviation regulations and is safe and reliable”.

“Boeing is now in the final stages of preparing for the first 737 MAX 8 delivery to customers in the coming months,” Boeing said.

The 737 MAX 8 completed its first flight in January 2016 and four aircraft have been used in the flight test campaign. US giant Southwest Airlines is the launch customer.

As well as its new generation CFM LEAP-1B engines, the 737 MAX also introduces a new flightdeck, fly-by-wire spoilers and new technology winglets. To accommodate the LEAP-1B’s 176cm fan diameter, compared with the CFM56’s 155cm diameter fan on the current model 737 NGs, the 737 MAX also features a taller nosewheel landing gear leg. Another feature is the engine nacelle trailing edges’ noise-reducing chevron shaping, as on the 787.

The 737 MAX 8 has been designed to fly 3,515nm when configured with 162 passengers in a two-class configuration.

The stretched 737 MAX 9, meanwhile, was presented to Boeing staff and invited guests at the company’s Renton, Washington facility on March 8.

Boeing said flight testing of the 737 MAX 9 – which has been designed with a maximum range of 3,515nm with seating for up to 220 passengers in a single-class or 178 passengers in a two-class configuration – flight testing would begin in the “coming weeks”, after the aircraft undergoes system checks, fuelling and engine runs.

Boeing has not published a breakdown of 737 MAX orders by variant, but 14 airlines have been publicly announced as MAX 9 customers including Air Canada, Copa Airlines and Icelandair.

However, market analysts have estimated that the Airbus has booked three or four times as many orders for its A321neo compared with the 737 MAX 9.

The competitive disadvantage of the MAX 9 versus the A321neo has led some to believe Boeing may choose to launch a new aircraft model as a replacement for the 737.

Seemingly in response to that competitive disadvantage, Boeing recently outlined in public for the first time a proposed MAX 10X, which would feature 230-seats in a single-class layout or 189-seats in a two-class configuration.

Boeing Commercial Airplanes vice president for marketing Randy Tinseth told the ISTAT Americas conference, held in San Diego, that the company hoped to launch the aircraft, which would be a relatively simple, 1.68m stretch of the MAX 9, this year. It would be available for delivery from 2020.

“Compared to the A321neo, the [MAX 10X] would offer the same capacity, lower costs – five per cent lower per seat and per trip – and more range,” Tinseth told the conference. “This would be a relatively minor development program. The [MAX 10X] would follow the MAX 200 and MAX 7, with entry into service in the 2020 time frame.”

Earlier, Boeing chief executive Dennis Muilenburg said during a quarterly earnings call on January 25 the MAX was expected to comprise 10 to 15 per cent of all 737 deliveries in calendar 2017.

Muilenburg reaffirmed previous guidance that the 737 production rate would rise from 42 aircraft per month currently to 47 per month in the third quarter of calendar 2017.

It would then increase further to 52 per month and 57 per month in 2018 and 2019, respectively.

“And importantly, even at the 57 per month rate, we continue to be oversold. Simply put, this is a big attractive market and the 737 family’s position within it is solid,” Muilenburg said.

The 737 MAX program has booked 3,621 orders through February 2017, according to the Boeing website.

Boeing celebrates 787-10 roll out

Boeing says the largest version of its 787 Dreamliner family is on track to make its first flight in the coming weeks following its official unveiling on February 20.

The 787-10, the third variant of the 787, was presented to employees, media and invited guests, including the US president, during a roll-out ceremony held at Boeing’s North Charleston, South Carolina facility.

Following the roll-out, Boeing said the first 787-10, N528ZC, would “now be prepared for its first flight in the coming weeks”.

First delivery is expected to launch customer Singapore Airlines in 2018, Boeing said.

North Charleston is the location of the 787-10 final assembly line.

The aircraft is the longest variant of the 787 and is capable of flying 6,430nm when configured to seat 330 passengers in a two-class layout, according to Boeing figures. At 68.2m, the 787-10 is a 5.5m stretch on the 787-9 that began flying in August 2014. The first 787 variant, the -8, made its commercial debut in October 2011 with launch customer All Nippon Airways.

The 787-10 has secured 149 orders from nine customers, according to the Boeing website.

ACCC says travellers to benefit under independent Badgerys

An independent or governmentowned airport at Badgerys Creek would be a win for airlines and the passengers they carry, the Australian Competition and Consumer Commission (ACCC) says.

Currently, Sydney Airport is mulling over whether to exercise its right of first refusal to build and operate the proposed airport in Sydney’s west. It has until May to come to a decision.

The ACCC said in its annual Airport Monitoring Report for 2015/16 the government’s move to offer no direct financial support to Sydney Airport for building and operating the airport was “encouraging”.

“This has raised the possibility of increased competition with Sydney Airport to the long-term benefit of consumers and the economy,” the ACCC report said.

“A second international airport competing with Sydney Airport could yield significant benefits to both consumers and airlines. An independent operator of Western Sydney Airport would have a strong incentive to invest, set competitive prices and offer improved service levels to effectively compete with Sydney Airport.

“On the other hand, a common owner of the two airports would have an incentive to restrict investment and delay the new airport in order to maximise returns from its existing assets.”

In February, Sydney Airport chief executive Kerrie Mather said the government’s proposal represented a “challenging investment proposition” given the Commonwealth was not offering any funding assistance for the construction of the terminals and runways that are estimated to cost between $5-6 billion.

The federal government has said it was prepared to build the airport itself should Sydney Airport not exercise its right of first refusal.

When the Commonwealth sold Sydney Airport in 2002 it included a 30-year first right of refusal to build and operate any airport within 100km of the existing terminals at Mascot.

The ACCC described that right of first refusal as “an example of a government focussing on maximising the sale price of an asset at the risk of longer term benefits to consumers through competition”.

While Sydney Airport has objected to the four-month timeframe given when the Notice of Intention (NOI) or sales contract was issued in December and continues to argue it should have nine months to consider the offer, the company said on in February it would work towards the May 8 2017 deadline.

The final Western Sydney Airport Plan shows Stage 1 of the airport would feature a terminal capable of handling up to 10 million domestic and international passengers a year, with a single 3,700m long by 60m wide runway on a 05/23 orientation.

The design of the facility would allow for a second parallel runway and expansion of the terminals to cater for 37 million passengers a year by 2050 and 82 million a year by about 2063.

The terminal design would feature swing gates capable of handling both domestic and international flights, which would increase the efficiency of transfers and increase the use of contact gates equipped with aerobridges.

Meanwhile, jet fuel supply was expected to be delivered by road tanker in a similar way to other airports operating on this scale, such as Canberra and Gold Coast.

And the Airport Plan said flightpaths had not been finalised, noting the draft flightpaths shown in the draft Airport Plan were a “conceptual model for aircraft arrivals”.

New airline lobby group

Airlines in Australia and New Zealand have formed a lobby group as part of efforts to fight infrastructure constraints and high taxes, as well as advocate on other matters of aviation policy.

Air New Zealand, Regional Express (Rex), Qantas and its low-cost unit Jetstar, and Virgin Australia and its Tigerair Australia LCC will be represented in the corridors of power by the newly-established Airlines for Australia and New Zealand (A4ANZ).

Former Australian Competition and Consumer Commission (ACCC) chairman Graeme Samuel has been named as the inaugural chair of A4ANZ, which was officially announced on March 9.

Samuel will lead a board comprising one representative from each of the member airlines. A chief executive will be appointed “in coming months”, A4ANZ said in a statement.

The chief executives of the four airline groups highlighted airport charges and infrastructure concerns as key issues the A4ANZ would focus on.

Air New Zealand chief executive Christopher Luxon said airlines were “constrained by a legacy of under investment and over recovery at key airports”.

Qantas chief executive Alan Joyce noted airfares had fallen significantly in recent times while airport fees and charges were going up.

“A4ANZ’s goal is to achieve regulatory reform that will promote a competitive and sustainable airline industry in the interests of Australian and New Zealand travellers,” Joyce said.

Virgin Australia chief executive John Borghetti said: “Aviation is one of the greatest enablers of tourism, trade and economic growth in our region, so it’s absolutely critical that airports operate efficiently and that investment in infrastructure benefits travellers.”

From a regional perspective, Rex executive chairman Lim Kim Hai said major airports were “all too ready to sacrifice critical regional interests”.

“Rex looks forward to working with Professor Samuel and the Board to ensure the sustainability of all stakeholders big or small in the aviation industry,” Lim said.

The issue of high airport charges was a feature of the ACCC’s recently published annual Airport Monitoring Report for 2015/16, which found profit margins at Australia’s four major airports – Brisbane, Melbourne, Perth and Sydney – continued to be high.

The report found airports were “collecting substantially more aeronautical revenue per passenger than a decade ago”, which have been used to cover both increasing costs per passenger and to grow profit margins.

“The ACCC estimates that over the past decade, these airports have collected $1.57 billion more in revenue from airlines than they would otherwise have collected if average prices were held constant in real terms,” ACCC chair Rod Sims said.

“Despite these much higher revenues per passenger, ratings of service quality are not materially different from those seen a decade ago.”

Other aviation lobby groups in the region include the Association of Asia Pacific Airlines, which Air New Zealand and Qantas were previously members of before leaving in the mid-2000s, and the Association of South Pacific Airlines.

Alpha Jets for ADF ‘red air’ training

Air Affairs Australia and Discovery Air Defence Services (DA) have teamed up to provide three Alpha Jets for ADF training.

The pair will deliver the three aircraft under Air Affairs’ existing Jet Air Support contract commencing in the third quarter of 2017, Air Affairs said at the Australian International Airshow at Avalon on March 2.

“Three fully-crewed and maintained Alpha Jets will be based at RAAF Williamtown to provide ‘red air’ for Royal Australian Air Force training, Joint Terminal Attack Controller raining for the Australian Army and anti-surface training for the Royal Australian Navy,” the company said.

“Operations, maintenance and logistics for Alpha Jets in Williamtown and at Albatross Aviation Technology Park Nowra will be supported by an integrated Air Affairs and DA Defence team.” “The capabilities and expertise of both companies will be combined to deliver highly representative threats and training to produce specialist trained and competent RAAF, Army and Navy combat personnel,” Air Affairs managing director Chris Sievers said.

Discovery Air Defence president Paul Bouchard added: “Discovery Air Defence and Air Affairs are proud to be selected by the Australian Government to bring our combined capabilities and experience to improve the operational readiness of the Australian Defence Force.”

New Boeing Defence Australia MD appointed

Darren Edwards has been appointed Boeing Defence Australia’s new vice president and managing director, succeeding Ken Shaw, who has taken up the position of vice president of supply chain for Boeing Global Services.

Edwards previously spent a decade with Boeing in Australia and the US, serving as chief operating officer of Boeing Defence Australia from 2011 to 2015, and rejoins the company from Salentis, where he was general manager for Australia and New Zealand.

“Darren’s inclusive leadership style and broad knowledge of Boeing and the Australian Defence Force will be a great asset as Boeing Defence Australia continues to accelerate its growth,” David Pitchforth, president of Boeing Global Operations, said in a statement.

Edwards will be based at Boeing Defence Australia’s Brisbane head office. He will also sit on the Boeing Australia Holdings board and join the Boeing Australia leadership team under Boeing Australia, New Zealand and South Pacific president Maureen Dougherty.

“We are grateful to Ken Shaw for his dedicated service and outstanding leadership over the past 18 months,” Pitchforth said. “Ken has positioned Boeing Defence Australia strongly as it continues to execute programs for the ADF, and his efforts have reinforced its foundations for continued success.”

Grollo, DSTG parnter on supersonic aerial target

The Defence Science and Technology Group and Grollo Aerospace will collaborate to provide Defence with an enhanced capability for evaluating air defence systems, Minister for Defence Industry Christopher Pyne has announced.

“This partnership will improve the performance of Grollo’s autonomous supersonic aerial target Evader, which replicates the flight characteristics of advanced airborne threats,” Minister Pyne stated. “The key objective is to enhance this autonomous air vehicle technology and maximise its utility for Defence applications.”

The agreement was signed by Chief Defence Scientist Dr Alex Zelinsky and Mark Grollo, managing director and chief engineer at Grollo Aerospace, during the Australian International Airshow at Avalon.

Grollo is working to demonstrate the Evader in 2018.

“Evader MLG-RAM is fully autonomous and designed to replicate flight characteristics of some of the world’s most advanced airborne threats,” Gollo states on its website.

“Equipped with variable inlet and nozzle geometry, the ramjet propulsion system is designed to operate efficiently over a broad altitude range at supersonic speeds.”

Airbus’ Pop.up flying electric pods

Solution for cities, or for suburbs? asks John Walton

What if the commute of your future involved simply walking out of your front door into a transport pod, stepping out of that pod only at the door (or helipad) to your office, with the pod automatically transferred from electric car to high speed train or even quadricopter? Pop.up, a joint concept developed by Airbus and Italdesign, is suggesting just that as a core part of the megacity of tomorrow.

The idea combines the autonomous cars being developed by Google, Uber and others with the leaps and bounds that drone technology is taking.

As presented, a small two-seater pod reminiscent of a Smart car will either sit on a battery-operated road module, be transferred to a rail carrier, or be picked up by a quadcopter air module, depending on what makes most sense for the passenger’s time and budget.

The pod will be carried either by road or air for the “last mile” between home and the nearest transit hub, potentially being automatically transferred onto a specially designed train carriage for longer journeys, and will then be delivered to its final destination by either an electric road module or a quadricopter air module.

The fully autonomous system is likely to be significantly safer and more efficient than humanerror- prone driving, and Airbus suggests that inhabitants of the city of the future will use their personal electronic device to summon a vehicle, choosing between a number of live-calculated speed and price variables.

The problem that Pop.up is trying to solve is that of intermodal shift: where a passenger moves between two modes of transportation – between train and bus, for example.

Since this can be an annoyance, passengers often prefer to avoid shifting modes of transport, often selecting a less optimal route or method of transportation in order to achieve the proverbial one-seat ride to their destination.

It all sounds very science-fiction, and indeed it is. The idea that we will be flying around megacities in individual pods dates back to the very earliest utopian (and indeed dystopian) future city concepts.

“Adding the third dimension to seamless multi-modal transportation networks will without a doubt improve the way we live and how we get from A to B,” suggests Mathias Thomsen, Airbus’s general manager for urban air mobility. “Successfully designing and implementing solutions that will work both in the air and on the ground requires a joint reflection on the part of both aerospace and automotive sectors, alongside collaboration with local government bodies for infrastructure and regulatory frameworks.”

The fundamental flaw with Pop.up, though, is that single-rider vehicles cannot by definition be mass transportation. Roadways and airways will simply not be sufficient for the majority (or even a significant minority) of commuters to use individual or two-person transportation, even with the additional capacity gained by segmenting flight levels into corridors, for example.

Autonomous vehicles in geographically large cities lose efficiency quickly compared with a network of rail transportation, whether that is subway, metro train or light rail. Melbourne’s latest E-Class trams can carry 210 passengers, which is a minimum equivalent of 105 Pop.up pods, and probably closer to 200 depending on the amount of pod-sharing. Sydney’s new Metro trains will hold between 1,100 and 1,539 passengers each depending on the number of cars used.

At its core, Pop.up can only ever be a transportation mode for those who consider their time so valuable that walking or taking light rail from the nearest train station hub to their office is a significant problem. Local government bodies who need to create infrastructure and regulatory frameworks ought to be spending their money on increasing mass transportation rather than providing options only usable by the ultraelite within their cities.

The most promising opportunity for autonomous vehicles as part of the city transitscape is the “last mile” in suburbia, replacing a second car or a pickup by a family member for the trip to the station to hop on the train. There is certainly mileage in the Pop.up concept here, particularly in the Australian context where city-edge suburban sprawl continues almost unabated, and where many people enjoy living in rural locations and commuting into cities for work. Here, ensuring that the design of stations – particularly reserving rights of way and station-adjacent land capacity – is suitable for easier modal shift is likely to make more sense than creating expensive single-mode journey infrastructure.

Air NZ optimistic despite first half profit drop

Air New Zealand chief executive Christopher Luxon says there is reason to be optimistic about the rest of 2016/17 as international capacity growth moderates following a challenging first half where increased competition on long-haul routes led to a sharp decline in net profit.

The company posted statutory net profit after tax of NZ$256m (A$240m) for the six months to December 31 2016, down 24.3 per cent from NZ$338m (A$317m) in the prior corresponding period. Revenue was 4.3 per cent lower at NZ$2.6bn (A$2.4bn), Air New Zealand said in its regulatory filing to the Australian and New Zealand stock exchanges on February 23. (The company is listed in both countries.)

“Competitive capacity from new carriers certainly impacted revenue with eight new carriers entering the New Zealand market,” Luxon said during the airline’s results presentation to the financial community.

“It is obvious that we have had to adjust to a new revenue environment.”

Over the past two years, Air New Zealand has been in expansion mode, with long-haul services to Buenos Aires, Houston and Singapore launched as the airline sought to take advantage of the strong growth in visitor numbers to New Zealand.

Other carriers were also keen to tap into the the local tourism market – Emirates and Qatar commenced non-stop flights from Auckland to their Gulf hubs, while the airport fire trucks were kept busy welcoming Chinese carriers adding new flights to New Zealand from both major and secondary Chinese cities.

Meanwhile, American and United (in partnership with Air NZ) started new nonstop service from Auckland to their respective US west coast hubs in Los Angeles and San Francisco, respectively.

United has since said it would end year-round Auckland-San Francisco flights from April, switching to a seasonal service scheduled to operate over the endof- year holiday period. The route is operated as part of a joint-venture with Air New Zealand.

Luxon said overall industry capacity across all of Air New Zealand’s long-haul markets was up by a staggering 30 per cent in the first half. This led to a 13.2 per cent decline in revenue per available seat kilometre (RASK), on its long-haul international services.

However, the Air New Zealand chief executive said capacity growth was tipped to slow in the second half based on forward schedules. “Some Chinese carriers appear to be taking steps to reduce frequency to New Zealand during our low season and this has the potential to help our international long-haul RASK when looking beyond 2017,” Luxon said.

“We probably think we are at the high water tide mark of new competitors coming into the marketplace.”

A bit closer to home, there has been a slew of new fifthfreedom operators on the Tasman, with AirAsia X, China Airlines, Philippine Airlines, Emirates and Singapore Airlines offering an alternative to the Air NZ/Virgin Australia and Qantas/Emirates/ Jetstar offerings.

Air NZ said its Tasman and Pacific Islands network was forecast to grow capacity six per cent, due in part to the larger capacity Boeing 787-9s replacing the 767-300ER that were being retired.

Luxon said it was a “challenging pricing environment” in the trans- Tasman market, with RASK down 7.7 per cent in the first half due to new capacity and new longhaul routes out of New Zealand that has opened up more seats for sale for point-to-point rather than connecting traffic.

On a more positive note, the airline’s recent marketing push to get more Australians traveling to North and South America to go via Auckland has been “much more successful than we anticipated”.

“We continue to want to build that out,” Luxon said.

In its home domestic market, Luxon said Air New Zealand had weathered a push from from Qantas-owned Jetstar on regional routes with a fleet of five 50-seat Dash 8 Q300s.

Air New Zealand said capacity on domestic routes was expected to rise about 11 per cent in the second half of 2016/17, which reflected the upgauging of regional services following the elimination of the 19-seat Beech 1900D and additional flying out of cities such as Queenstown, Christchurch and Wellington.

“In summary there are some moving parts but we feel better where we stand looking out than we did six months ago,” Luxon said.

“That doesn’t mean that our teams get complacent and we still are facing a significant amount of competition and it will still be very challenging, but you can expect that our teams will be very focused on execution regardless of the environment.

“We are fundamentally feeling good about some of the capacity decisions we have seen from other carriers, especially as we go into our low season.”

The Star Alliance member took delivery of three 787-9s, one Airbus A320 and two ATR 72-600 turboprops during the first half.

It also acquired two A320s that were already in the fleet that were previously on operating leases.

The airline expected to retire its final two 767-300ERs by the end of March.

Separately, Air New Zealand said it had recently decided to add an additional 787-9 on lease from Air Lease Corporation. This would bring the total 787-9 fleet to 13, with the aircraft due to be delivered in 2019.

Earnings before taxation fell 24 per cent to NZ$349m (A$327m), compared with NZ$457m (A$459m) a year ago. The result included a $22 million gain on the sale of Air New Zealand’s stake in trans-Tasman alliance partner Virgin Australia.

In terms of the outlook, Air New Zealand said it expected earnings before taxation for the full 2017/18 year to come in a range between NZ$475 million to NZ$525 million.

Aerospace Valley

Victoria’s Latrobe Valley is hoping to transform its local economy into an aerospace hub.

Latrobe City Council deputy mayor Graeme Middlemiss officially launched the aerospace precinct at the Avalon Airshow on March 2.

Currently, the council-owned Latrobe Regional Airport is used by Mahindra Aerospace, which makes the Airvan, recreational and general aviation users, as well as the Ambulance Air Rescue. Cr Middlemiss said it was envisaged the aerospace precinct would feature a manufacturing zone, a training and education zone slated for training Licensed Aircraft Maintenance Engineers (LAMEs), and a manufacturing “laboratory” and research centre.

It would be located close to the State Government’s recently announced high tech precinct.

“For those ready to join Mahindra Aerospace at our precinct, we are the only site in Australia where real aircraft are designed and manufactured,” Cr Middlemiss said at the airshow.

The move has the backing of the Victorian Government.

In November 2016, Premier Daniel Andrews established a “new economic growth zone” in the Latrobe Valley, offering incentives and tax breaks as part of a $266 million package to create jobs and grow businesses.

This was in addition to other measures assisting those affected by the impending closure of the Hazelwood coalfired electricity generator by the end of March.

Virgin grounds Perth-Abu Dhabi route, sets sights on Hong Kong and China

Virgin Australia has dropped plans to add Abu Dhabi to its route network as the airline concentrates its international long-haul flying on the United States and North Asia.

The airline said on February 27 it would no longer commence Perth-Abu Dhabi nonstop flights that were slated to begin in June with Airbus A330-200s.

The decision to not proceed with the new route (which was originally announced in September), came on top of Virgin ending its three times weekly Boeing 777-300ER Sydney- Abu Dhabi flights in February.

“Subsequent changes in market conditions have made the route no longer viable for Virgin Australia,” Virgin said in a statement of the planned Perth-Abu Dhabi flights.

“Virgin Australia will continue to explore opportunities to bring choice and competition to travel from Perth.”

Cutting capacity to Abu Dhabi highlights Virgin’s increasing focus on North America, where the airline is returning to the Melbourne-Los Angeles route from April 4 after a two and a half year absence. It already flies to Los Angeles from Brisbane and Sydney as part of a joint-venture with Delta Air Lines.

Meanwhile, Virgin is seeking the green light from competition regulators to establish an alliance with HNA Group-affiliated airlines to launch nonstop services to Hong Kong and mainland China later in 2017.

It has sought interim authorisation from the Australian Competition and Consumer Commission to begin ticket sales for its Hong Kong service, as well as establish codeshare agreements with HNA-linked carriers Hong Kong Airlines, Hainan Airlines, Beijing Capital Airlines and Tianjin Airlines’ on their services between Australia and mainland China and Hong Kong, including services via New Zealand and on routes within HNA Group airlines’ domestic networks.

“Hong Kong is really just a route that is covered by two carriers. Cathay and Qantas have got it by the throat and we intend to break that duopoly and bring real competition on the route,” Virgin chief executive John Borghetti said on February 17.

The new tie-up with HNA would have no impact on the existing partnership with Singapore Airlines, Borghetti said.

On a broader level, Los Angeles will be the only hub of an alliance partner that Virgin will serve with its own aircraft. Virgin has never served Singapore since forming a major alliance with Singapore Airlines (SIA) in 2011.

Cancellation of the proposed Perth-Abu Dhabi route suggests Virgin is likely to use the A330-200 that would have been deployed on the route for its venture to North Asia.

Virgin’s international flying posted underlying earnings before interest and tax (EBIT) of $800,000 for the six months to December 31 2016, an improvement from an underlying EBIT loss of $30.8 million in the prior corresponding period.

The financial details included Virgin’s trans-Tasman (served as part of an alliance with Air New Zealand) and South Pacific network, as well as its flights to Bali from Brisbane, Port Hedland and Sydney. The performance of its long-haul network was not detailed separately.

Abu Dhabi has been the most expendable part of Virgin’s international network, with the airline regularly suspending service to the United Arab Emirates (UAE) capital since the inaugural service took off in 2011 whenever its 777- 300ERs had to be taken offline for scheduled maintenance or cabin upgrades.

It also means Virgin will no longer serve the hub of its alliance partner and major shareholder Etihad Airways, continuing a trend of airlines cutting capacity to Abu Dhabi in recent times.

Rex back in black

Says regional decline may have bottomed out after posting return to profitability

Regional Express (Rex) says there are signs the worst may be over after swinging back to profitability in the first half of 2016/17.

The company reported statutory net profit after tax of $6.2 million for the six months to December 31 2016, a return to the black following a $11.4 million statutory net loss in the prior corresponding period when Rex booked an impairment charge relating to the loss of a Defence contract.

Revenue rose 8.8 per cent to $144.3 million, Rex said in its regulatory filing to the Australian Securities Exchange on February 28.

Rex chief operating officer Neville Howell said the company was pleased with the first half results.

“We see indications of the bottoming of the decline in regional travel in the first half of the financial year,” Howell said in a statement.

“If this trend continues in the second half, then this would strongly suggest the beginning of a recovery in the Australian regional economy.

“Rex is well positioned to take full advantage of a recovery in the regional economy and we are confident of turning in very strong results when the rebound happens.” The company said in its halfyear report the improvement in the bottom line was supported by the performance if its new West Australian routes that commenced a year ago, lower fuel costs and a stronger Australian dollar.

Passenger numbers rose 11 per cent to 612,284, while passenger revenue per available seat kilometre improved 1.3 per cent.

Meanwhile, the average fare increased to $213.50, from $205.70 in the prior corresponding half.

Rex began two WA-government regulated routes in February 2016, taking over Perth-Esperance and Perth-Albany services from Virgin Australia.

A slide presentation accompanying Rex’s half year results highlighted the performance of the two routes in comparison to the rest of the airline’s network. Load factors on WA flights was at 75.5 per cent, compared with 56.6 per cent on the rest of the network. Despite the broadly positive set of numbers, Rex said there were still some headwinds in the period ahead, citing the prospect of a stronger US dollar and the the threat of “protectionism by USA”, which could slow the world economy.

While Rex declined to offer specific profit guidance for the full 2016/17 year due to “global uncertainties and extreme volatility”, the company did say profit before tax was expected to “be an improvement” from the prior year.

Also, the company said the board would recommend the resumption of dividends “if the full year results indicate that the trend of passenger decline has bottomed out”.

Qantas selects Lufthansa Technik Cyclean

Qantas has become Lufthansa Technik’s first Australian customer for its Cyclean engine washing technology. Qantas joins about 40 other carriers across using tje Cyclean wash service for the CFM56 powerplants on the airline’s Boeing 737-800 fleet. The work has been licensed to 145 Aviation Services, a division of Permagard Australia Group.

Having secured Qantas as its first Australian customer at Melbourne, the company plans to add other Cyclean stations in Brisbane, Perth and Sydney.

Lufthansa Technik brought its mobile Cyclean engine wash service station van to Australia in March 2016. The vehicle was based in Melbourne conducting demonstrations of the technology for airline customers. It was also on display at the recently concluded Australian International Airshow at Avalon.

The company says engine washes using the Cyclean technology can be conducted directly at the gate, saving time and resources. Further, the process is about 70 per cent quicker and uses less water than other engine cleaning methods.

Some 80,000 engines have been cleaned using Cyclean, which is suitable for the leading engine manufacturers such as General Electric, Rolls- Royce, Pratt & Whitney, CFMI, and IAE. The Permagard website said Cyclean sprays preheated water directly into the core engine at high pressure, which “provides a fine, evenly distributed amount of atomised water through the engine’s gas path”.

No post-wash engine runs are required, and the overall service time for each engine is less than one hour.