Beyond recognition

One-stop services to distant destinations will become a thing of the past. Airport hubs such as Singapore and Hong Kong, even Dubai and Abu Dhabi, feeding on through traffic arriving on jets that need to fill up their tanks to reach distant ports will simply have to find a new business model to survive. Every destination across the globe could be connected on a point-to-point basis. The bottom line is that, whatever the pace of change that has occurred over the past forty years, it will be far faster over the next four decades.

Looking back, Australia’s aviation landscape has evolved and matured through a period that has seen it move from being an aviation backwater, perceived as isolated to a great extent from world events, into a major player recognized for its excellence in both airline operations and regulatory thoroughness.

Back in the 1970s the airline sector was part of a political game. At home, the controversial dual-airline policy saw government-owned Trans Australian Airways, later Australian Airlines, and private Ansett Airlines operate domestic flight schedules that were a mirror image of each other.

Even their ability to add capacity was strictly controlled and their flights, somewhat unrealistically, were supposed to leave at exactly the same time. It had been government policy since the 1940s, finally coming to an end in 1990, opening the market to real competition and the possibility of new entrants. De-regulation had arrived.

“In the 1970s the airline sector was part of a political game.”

During that period, in 1989, a crippling dispute between pilots and management at Ansett and Australian Airlines (did the cockpit crew walk off the job or were they pushed? It depends who you speak to) threw the market into chaos. The military flew passengers around the country and hundreds of foreign pilots were quickly recruited to fill empty cockpit seats. Subsequently, Australian Airlines disappeared, absorbed into a privatized Qantas which became a dual international/domestic operator for the first time.

There have been casualties along the way, airlines either absorbed by competitors or driven to the wall through miscalculation, bad management or both. There was Tamworth-based East West Airlines, ultimately absorbed into the Ansett group. And, touting itself as Australia’s first low-cost carrier, Compass Mk 1, launching in 1990 and lasting for little more than a year before being grounded. Then Compass Mk 2 came along in 1993, under new management and owners. It too was gone less than a year later.

Then there was Impulse Airlines, which operated regional and low-cost trunk services between 1992 and 2004. It was acquired by Qantas in 2001 and later formed the basis of its low-cost subsidiary Jetstar. In the light of these experiences the debate continued over whether Australia, given its size, could ever support more than two major airlines.

Meanwhile, competition escalated as the new Qantas fought an often-bitter battle for market domination with Ansett, which also ultimately collapsed in a mire of bankruptcy following its ill-fated absorption into the Air New Zealand fold. Australia became one of the few countries in the world to allow domestic airlines to be totally owned by foreign entities, prompting the emergence of Sir Richard Branson’s budget Virgin Blue and the counter move by Qantas, launching its no-frills offering, Jetstar. Few could have predicted in 1977 that passenger numbers would rise so rapidly over the years. Then, Qantas was flying around 1.5 million passengers annually. Today, it is carrying more than 50 million every year.

As these changes were occurring airports too had to move with the times. Sydney’s Kingsford Smith finally got its third runway after years of debate, mostly over environmental impacts.

The nation’s major city airports were privatised and through it all the question of a second airport for Sydney continued to be the subject of “on again, off again” decisions by consecutive governments. Finally, as Kingsford Smith becomes increasingly congested, Badgerys Creek is to be built by Canberra following Sydney Airport Corporation’s decision not to become involved. If anything has been a constant over these years it has been the high levels of excellence of the country’s regulatory oversight, ensuring Australia has retained the highest reputation for safe skies.

And the fiercely competitive nature of the airline market, both locally and offshore. In a historically cyclical industry profitability has surged and dipped. In an unprecedented transformation, no-frills Virgin Blue became full-service Virgin Australia, competing with Qantas at home and abroad, thanks to an innovative corporate arrangement that has allowed Virgin to essentially become foreign-owned by stakeholders such as Singapore Airlines, Etihad Airways, Air New Zealand (now departed) and Chinese interests including the aggressively ambitious HNA group, owner of Hainan Airlines.

On the international scene, there has also been dramatic change over the years. In the 1970s the traditional Kangaroo Route to Europe saw the tails of major operators such as Lufthansa, Royal Dutch KLM, Air France, Swiss Air and others flying into Australia.

Apart from British Airways, they are all long gone, thanks to the growth of global alliances that allow them to operate virtual networks through code-share agreements with partners.

Across the Pacific to North America there has also been constant change, with U.S. operators such as Northwest and Continental coming and going and the likes of Pan Am not only coming but disappearing completely as times overtook what had once been America’s iconic and market leading international flag.

Today, in a newly consolidated U.S. industry, they’re back, with all the majors – Delta, United and American – plying the Pacific to Australia once more. As the world’s skies became more and more globalized and Open Skies agreements proliferated, Australia was hardly immune from the heightened competition.

In the end Qantas, its international arm struggling and losses mounting, was forced to go through an unprecedented transformation program that saw it turn record losses into record profits and take the unimaginable step (everyone thought at the time) of forging a deep partnership with Gulf major Emirates Airline. The unstoppable growth of the low-cost carrier sector has also been a major feature in recent years.

It will continue to pose a threat to full-service operators, particularly as long-haul budget airlines such as AirAsia X, Cebu Pacific and Scoot appear be settling in as permanent features on routes once the exclusive domain of the legacy operators.

Australia may often have been regarded as an “end of the line” destination, a concept that in today’s world is really no longer true, but its airlines have not been immune from global events. The rise and fall of economies elsewhere impact travel patterns, social unrest and wars, wherever they are, do the same.

The horrendous events of 9/11, the terrorist attacks on the U.S., sparked the worst downturn in history for airlines everywhere and heralded in a new era of heightened security which continues to this day and will be an ever-present feature of operations in the future.

In 2003 the SARS (Severe acute respiratory syndrome) pneumonia epidemic saw near-empty planes plying Asia skies. The global economic downturn in 2008 hit everyone hard. At times the soaring price of oil, reaching close to $150 a barrel at one stage, sent airline profits into a tailspin with some carriers losing tens of millions of dollars through wrong fuel hedging decisions.

There has, however, been a bright side. Events such as these have forced airlines to do what has been required for decades: re-engineer their operations, cut costs and find new efficiencies and ways of doing business that allow them to produce more stable profitability and prepare them to navigate better through inevitable tough times.

However, the past, as they say, is history. If it has been turbulent there is no doubt at all the future will bring even more challenges, not only in terms of the technical aspects of operations.

One of the biggest changes that has occurred in recent years has been the accelerating pace of information technology (IT) and the shift it has brought in airline and airport relationships with their customers as well as in their operations. Back in the 1970s, 1980s and 1990s we lived in a world where smart phones, tablets and social media were either non-existent or in their embryo stages.

The internet, Wi-Fi and social media have rapidly become not only a major issue for aviation but an incredible opportunity. Accidents or incidents involving airlines are now instantly spread across the world like wildfire.

At the same time, if used properly, it allows carriers to react instantly to issues. But keeping pace with advances in these technologies will pose a real challenge over coming years. And it is not only about the customer side of the business.

It’s about using these technologies in every corner of the business. The Cloud is already here. The Internet of Things is growing. Big Data and its use is the thing of the future, allowing operators not only to communicate with their customers and track their preferences and desires but also find new efficiencies in areas such as maintenance, fuel use and network planning.

There are other questions to be answered in the coming years, as this new aviation world emerges. One is whether the capacity of the system will keep up with demand. Given that aircraft manufacturers keep lifting their forecasts airports in Australia and elsewhere are going to face an immense challenge meeting the demand for runway and terminal space.

Boeing’s latest forecast, up 3.6 per cent from a year earlier, says airlines will take delivery of 412,030 new planes worth $6 trillion over the next 20 years. They’ll need 637,000 new pilots to fly them. Yet airports, including Sydney, are already struggling to handle what’s here right now. Across Asia, major hubs are operating well beyond their design capacity and air traffic management is already under pressure.

For airlines, getting slots at the times they want, in Australia and elsewhere, will be a major impediment to efficient growth. Airlines already make the point their growth plans are under threat. You can order as many planes as you like but if you can’t get a slot to take-off and land they’ll be useless additions to the fleet.

Also in the wind and crucial for the airline industry will be the evolution of attitudes towards liberalization. For a global industry, access to markets is vital. Yet airlines today, including those in Australia, are increasingly concerned about a worrying trend towards protectionism, evidenced in particular by major U.S. carrier’s opposition to inroads into their home market by the Gulf carriers.

There have also been indications that in other regions, including Europe, some governments are leaning towards measures designed to protect their own home operators.

It could be a trend that reverses the gains made on the open skies front over many years. For Australian airlines, as for everyone else, the emergence of China as a global airline superpower will also be an issue.

They are the Gulf airlines of the future, throwing increasing capacity onto international routes. Guangzhou-based China Southern alone has increased its capacity into Australia in the past year by 35 per cent.

And though both Qantas and Virgin now have partnerships with Chinese carriers, Beijing’s influence on world air transport will grow and will certainly impact on the plans of others.

What is a given is that over the next 40 years, when 2057 comes along, industry pundits will be looking back on an incredible era of unprecedented change for airlines and everyone involved in the sector.

There will undoubtedly be economic ups and downs as well as unforeseen crises interrupting the smooth flow of increasing air traffic. On the technological front, there will be further advances we can’t imagine today, perhaps even the return of a new supersonic era with jets that have overcome the problem of the sonic boom, able to shrink the world further.

There will be political uncertainty and probably even new war zones airlines will have to avoid. Hopefully, considering events on the Korean Peninsula, it won’t be of the nuclear sort! Low-cost carriers, or so-called hybrid airline models, will continue their inexorable expansion and competition will be fierce.

Survival in this jungle won’t be a given. But for Australia and its airlines the future looks exceedingly bright. They will, after all, be operating in the world’s biggest aviation market, the Asia-Pacific.